The Vermont Statutes Online

Title 8: Banking and Insurance

Chapter 141: CAPTIVE INSURANCE COMPANIES

 

Sub-Chapter 1: General Provisions

§ 6001. Definitions

As used in this chapter, unless the context requires otherwise:

(1) "Affiliated company" means any company in the same corporate system as a parent, an industrial insured, or a member organization by virtue of common ownership, control, operation, or management.

(2) "Association" means any legal association of individuals, corporations, limited liability companies, partnerships, associations, or other entities, the member organizations of which or which does itself, whether or not in conjunction with some or all of the member organizations:

(A) own, control, or hold with power to vote all of the outstanding voting securities of an association captive insurance company incorporated as a stock insurer; or

(B) have complete voting control over an association captive insurance company incorporated as a mutual insurer; or

(C) constitute all of the subscribers of an association captive insurance company formed as a reciprocal insurer; or

(D) have complete voting control over an association captive insurance company formed as a limited liability company.

(3) "Association captive insurance company" means any company that insures risks of the member organizations of the association, and that also may insure the risks of affiliated companies of the member organizations and the risks of the association itself.

(4) "Captive insurance company" means any pure captive insurance company, association captive insurance company, sponsored captive insurance company, industrial insured captive insurance company, risk retention group, or special purpose financial insurance company formed or licensed under the provisions of this chapter. For purposes of this chapter, a branch captive insurance company shall be a pure captive insurance company with respect to operations in this state, unless otherwise permitted by the Commissioner.

(5) "Commissioner" means the Commissioner of Financial Regulation.

(6) "Controlled unaffiliated business" means any person:

(A) that is not in the corporate system of a parent and its affiliated companies in the case of a pure captive insurance company, or that is not in the corporate system of an industrial insured and its affiliated companies in the case of an industrial insured captive insurance company;

(B) that has an existing contractual relationship with a parent or one of its affiliated companies in the case of a pure captive insurance company, or with an industrial insured or one of its affiliated companies in the case of an industrial insured captive insurance company; and

(C) whose risks are managed by a pure captive insurance company or an industrial insured captive insurance company, as applicable, in accordance with section 6019 of this title.

(7) "Excess workers' compensation insurance" means, in the case of an employer that has insured or self-insured its workers' compensation risks in accordance with applicable state or federal law, insurance in excess of a specified per-incident or aggregate limit established by the Commissioner.

(8) "Industrial insured" means an insured:

(A) who procures the insurance of any risk or risks by use of the services of a full-time employee acting as an insurance manager or buyer;

(B) whose aggregate annual premiums for insurance on all risks total at least $25,000.00; and

(C) who has at least 25 full-time employees.

(9) "Industrial insured captive insurance company" means any company that insures risks of the industrial insureds that comprise the industrial insured group, and that may insure the risks of the affiliated companies of the industrial insureds and the risks of the controlled unaffiliated business of an industrial insured or its affiliated companies.

(10) "Industrial insured group" means any group of industrial insureds that collectively:

(A) own, control, or hold with power to vote all of the outstanding voting securities of an industrial insured captive insurance company incorporated as a stock insurer;

(B) have complete voting control over an industrial insured captive insurance company incorporated as a mutual insurer; or

(C) constitute all of the subscribers of an industrial insured captive insurance company formed as a reciprocal insurer; or

(D) have complete voting control over an industrial insured captive insurance company formed as a limited liability company.

(11) "Member organization" means any individual, corporation, limited liability company, partnership, association, or other entity that belongs to an association.

(12) "Mutual corporation" means a corporation organized without stockholders and includes a nonprofit corporation with members.

(13) "Parent" means a corporation, limited liability company, partnership, other entity, or individual, that directly or indirectly owns, controls, or holds with power to vote more than 50 per centum of the outstanding voting:

(A) securities of a pure captive insurance company organized as a stock corporation; or

(B) membership interests of a pure captive insurance company organized as a nonprofit corporation; or

(C) membership interests of a pure captive insurance company organized as a limited liability company.

(14) "Pure captive insurance company" means any company that insures risks of its parent and affiliated companies or controlled unaffiliated business.

(15) "Risk retention group" means a captive insurance company organized under the laws of this state pursuant to the Liability Risk Retention Act of 1986, 15 U.S.C. § 3901 et seq., as amended, as a stock or mutual corporation, a reciprocal or other limited liability entity. (Added 1981, No. 28; amended 1981, No. 145 (Adj. Sess.); 1985, No. 170 (Adj. Sess.), § 3, eff. May 7, 1986; 1987, No. 168 (Adj. Sess.), § 1, eff. May 3, 1988; 1989, No. 225 (Adj. Sess.), § 25; 1991, No. 101, § 18; 1993, No. 40, § 1, eff. June 3, 1993; 1995, No. 180 (Adj. Sess.), § 38; 1997, No. 49, §§ 7, 8, eff. June 26, 1997; 1999, No. 38, § 4, eff. May 20, 1999; 2001, No. 71, § 11, eff. June 16, 2001; 2003, No. 55, § 7; 2005, No. 122 (Adj. Sess.), § 3; 2007, No. 49, §§ 8, 14; 2011, No. 78 (Adj. Sess.), § 2, eff. April 2, 2012.)

§ 6002. Licensing; authority

(a) Any captive insurance company, when permitted by its articles of association, charter, or other organizational document, may apply to the Commissioner for a license to do any and all insurance comprised in subdivisions 3301(a)(1), (2), (3)(A)-(C), (E)-(R), and (4)-(9) of this title and may grant annuity contracts as defined in section 3717 of this title; provided, however, that:

(1) no pure captive insurance company may insure any risks other than those of its parent and affiliated companies or controlled unaffiliated business;

(2) no association captive insurance company may insure any risks other than those of its association, those of the member organizations of its association, and those of a member organization's affiliated companies;

(3) no industrial insured captive insurance company may insure any risks other than those of the industrial insureds that comprise the industrial insured group, those of their affiliated companies, and those of the controlled unaffiliated business of an industrial insured or its affiliated companies;

(4) no risk retention group may insure any risks other than those of its members and owners;

(5) no captive insurance company may provide personal motor vehicle or homeowner's insurance coverage or any component thereof;

(6) no captive insurance company may accept or cede reinsurance except as provided in section 6011 of this title;

(7) any captive insurance company may provide excess workers' compensation insurance to its parent and affiliated companies, unless prohibited by the federal law or laws of the state having jurisdiction over the transaction. Any captive insurance company, unless prohibited by federal law, may reinsure workers' compensation of a qualified self-insured plan of its parent and affiliated companies; and

(8) any captive insurance company which insures risks described in subdivisions 3301(a)(1) and (2) of this title shall comply with all applicable state and federal laws.

(b) No captive insurance company shall do any insurance business in this State unless:

(1) it first obtains from the Commissioner a license authorizing it to do insurance business in this State;

(2) its board of directors or committee of managers or, in the case of a reciprocal insurer, its subscribers' advisory committee holds at least one meeting each year in this State;

(3) it maintains its principal place of business in this State; and

(4) it appoints a registered agent to accept service of process and to otherwise act on its behalf in this State; provided that whenever such registered agent cannot with reasonable diligence be found at the registered office of the captive insurance company, the Secretary of State shall be an agent of such captive insurance company upon whom any process, notice, or demand may be served.

(c)(1) Before receiving a license, a captive insurance company shall:

(A) file with the Commissioner a certified copy of its organizational documents, a statement under oath of its president and secretary showing its financial condition, and any other statements or documents required by the Commissioner; and

(B) submit to the Commissioner for approval a description of the coverages, deductibles, coverage limits, and rates, together with such additional information as the Commissioner may reasonably require. In the event of any subsequent material change in any item in such description, the captive insurance company shall submit to the Commissioner for approval an appropriate revision and shall not offer any additional kinds of insurance until a revision of such description is approved by the Commissioner. The captive insurance company shall inform the Commissioner of any material change in rates within thirty (30) days of the adoption of such change.

(2) Each applicant captive insurance company shall also file with the Commissioner evidence of the following:

(A) the amount and liquidity of its assets relative to the risks to be assumed;

(B) the adequacy of the expertise, experience, and character of the person or persons who will manage it;

(C) the overall soundness of its plan of operation;

(D) the adequacy of the loss prevention programs of its insureds; and

(E) such other factors deemed relevant by the Commissioner in ascertaining whether the proposed captive insurance company will be able to meet its policy obligations.

(3) Information submitted pursuant to this subsection shall be and remain confidential, and may not be made public by the Commissioner or an employee or agent of the Commissioner without the written consent of the company, except that:

(A) such information may be discoverable by a party in a civil action or contested case to which the captive insurance company that submitted such information is a party, upon a showing by the party seeking to discover such information that:

(i) the information sought is relevant to and necessary for the furtherance of such action or case;

(ii) the information sought is unavailable from other nonconfidential sources; and

(iii) a subpoena issued by a judicial or administrative officer of competent jurisdiction has been submitted to the Commissioner; provided, however, that the provisions of this subdivision (3) shall not apply to any risk retention group; and

(B) the Commissioner may, in the Commissioner's discretion, disclose such information to a public officer having jurisdiction over the regulation of insurance in another state, provided that:

(i) such public official shall agree in writing to maintain the confidentiality of such information; and

(ii) the laws of the state in which such public official serves require such information to be and to remain confidential.

(d) Each captive insurance company shall pay to the Commissioner a nonrefundable fee of $500.00 and each special purpose financial insurance company shall pay to the Commissioner a nonrefundable fee of $5,000.00 for examining, investigating, and processing its application for license, and for issuing same, and the Commissioner is authorized to retain legal, financial, and examination services from outside the Department, the reasonable cost of which may be charged against the applicant. The provisions of section 3576 of this title shall apply to examinations, investigations, and processing conducted under the authority of this section. In addition, each captive insurance company shall pay a license renewal fee for each year thereafter of $500.00, and each special purpose financial insurance company shall pay to the Commissioner a nonrefundable fee of $5,000.00.

(e) If the Commissioner is satisfied that the documents and statements that such captive insurance company has filed comply with the provisions of this chapter, the Commissioner may grant a license authorizing it to do insurance business in this State until April 1 thereafter, which license may be renewed. (Added 1981, No. 28; amended 1987, No. 47, § 2, eff. May 13, 1987; 1987, No. 168 (Adj. Sess.), § 2, eff. May 3, 1988; 1993, No. 40, § 2, eff. June 3, 1993; 1993, No. 235 (Adj. Sess.), § 9c, eff. June 21, 1994; 1997, No. 49, § 9, eff. June 26, 1997; 1999, No. 38, § 5, eff. May 20, 1999; 1999, No. 84 (Adj. Sess.), § 10, eff. April 19, 2000; 2003, No. 55, § 7; 2003, No. 105 (Adj. Sess.), § 18, eff. May 4, 2004; 2007, No. 49, § 9; 2009, No. 134 (Adj. Sess.), § 25; 2013, No. 29, § 47, eff. May 13, 2013.)

§ 6003. Names of companies

No captive insurance company shall adopt a name that is the same, deceptively similar, or likely to be confused with or mistaken for any other existing business name registered in the state of Vermont. (Added 1981, No. 28.)

§ 6004. Minimum capital and surplus; letter of credit

(a) No captive insurance company shall be issued a license unless it shall possess and thereafter maintain unimpaired paid-in capital and surplus of:

(1) in the case of a pure captive insurance company, not less than $250,000.00;

(2) in the case of an association captive insurance company, not less than $500,000.00;

(3) in the case of an industrial insured captive insurance company, not less than $500,000.00;

(4) in the case of a risk retention group, not less than $1,000,000.00; and

(5) in the case of a sponsored captive insurance company, not less than $500,000.00.

(b) The Commissioner may prescribe additional capital and surplus based upon the type, volume, and nature of insurance business transacted.

(c) Capital and surplus may be in the form of cash, a trust approved by the Commissioner and of which the Commissioner is the sole beneficiary, or an irrevocable letter of credit issued by a bank approved by the Commissioner. (Added 1981, No. 28; amended 1993, No. 40, § 3, eff. June 3, 1993; 1993, No. 235 (Adj. Sess.), § 9d; 1999, No. 38, § 6, eff. May 20, 1999; 2003, No. 55, § 7; 2007, No. 178 (Adj. Sess.), § 5; 2009, No. 137 (Adj. Sess.), § 18, eff. May 29, 2010; 2011, No. 78 (Adj. Sess.), § 37, eff. April 2, 2012.)

§ 6005. Dividends

No captive insurance company may pay a dividend out of, or other distribution with respect to, capital or surplus without the prior approval of the commissioner. Approval of an ongoing plan for the payment of dividends or other distributions shall be conditioned upon the retention, at the time of each payment, of capital or surplus in excess of amounts specified by, or determined in accordance with formulas approved by, the commissioner. Notwithstanding the provisions of chapter 13 of Title 11B, a captive insurance company organized under the provisions of Title 11B may make such distributions as are in conformity with its purposes and approved by the commissioner. (Added 1981, No. 28; amended 1993, No. 40, § 4, eff. June 3, 1993; 1993, No. 235 (Adj. Sess.), § 9e; 1997, No. 49, § 10, eff. June 26, 1997; 1999, No. 38, § 7, eff. May 20, 1999; 2003, No. 55, § 7.)

§ 6006. Formation of captive insurance companies in this State

(a) A pure captive insurance company may be incorporated as a stock insurer with its capital divided into shares and held by the stockholders, as a nonprofit corporation with one or more members, or as a manager-managed limited liability company.

(b) An association captive insurance company, an industrial insured captive insurance company, or a risk retention group may be:

(1) incorporated as a stock insurer with its capital divided into shares and held by the stockholders;

(2) incorporated as a mutual corporation;

(3) organized as a reciprocal insurer in accordance with chapter 132 of this title; or

(4) organized as a manager-managed limited liability company.

(c) A captive insurance company incorporated or organized in this State shall have not less than three incorporators or three organizers of whom not less than one shall be a resident of this State.

(d) In the case of a captive insurance company:

(1)(A) formed as a corporation, before the articles of incorporation are transmitted to the Secretary of State, the incorporators shall petition the Commissioner to issue a certificate setting forth the Commissioner's finding that the establishment and maintenance of the proposed corporation will promote the general good of the State. In arriving at such a finding, the Commissioner shall consider:

(i) the character, reputation, financial standing, and purposes of the incorporators;

(ii) the character, reputation, financial responsibility, insurance experience, and business qualifications of the officers and directors; and

(iii) such other aspects as the Commissioner shall deem advisable.

(B) the articles of incorporation, such certificate, and the organization fee shall be transmitted to the Secretary of State, who shall thereupon record both the articles of incorporation and the certificate.

(2) formed as a reciprocal insurer, the organizers shall petition the Commissioner to issue a certificate setting forth the Commissioner's finding that the establishment and maintenance of the proposed association will promote the general good of the State. In arriving at such a finding, the Commissioner shall consider the items set forth in subdivisions (1)(A)(i)-(iii) of this subsection.

(3) formed as a limited liability company, before the articles of organization are transmitted to the Secretary of State, the organizers shall petition the Commissioner to issue a certificate setting forth the Commissioner's finding that the establishment and maintenance of the proposed company will promote the general good of the State. In arriving at such a finding, the Commissioner shall consider the items set forth in subdivisions (1)(A)(i)-(iii) of this subsection.

(e) The capital stock of a captive insurance company incorporated as a stock insurer may be authorized with no par value.

(f) In the case of a captive insurance company:

(1) formed as a corporation, at least one of the members of the board of directors shall be a resident of this State;

(2) formed as a reciprocal insurer, at least one of the members of the subscribers' advisory committee shall be a resident of this State;

(3) formed as a limited liability company, at least one of the managers shall be a resident of this State.

(g) Other than captive insurance companies formed as limited liability companies under 11 V.S.A. chapter 21 or as nonprofit corporations under Title 11B, captive insurance companies formed as corporations under the provisions of this chapter shall have the privileges and be subject to the provisions of Title 11A as well as the applicable provisions contained in this chapter. In the event of conflict between the provisions of said general corporation law and the provisions of this chapter, the latter shall control.

(h) Captive insurance companies formed under the provisions of this chapter:

(1) as limited liability companies shall have the privileges and be subject to the provisions of 11 V.S.A. chapter 21 as well as the applicable provisions contained in this chapter. In the event of a conflict between the provisions of 11 V.S.A. chapter 21 and the provisions of this chapter, the latter shall control; or

(2) as nonprofit corporations shall have the privileges and be subject to the provisions of Title 11B as well as the applicable provisions contained in this chapter. In the event of conflict between the provisions of Title 11B and the provisions of this chapter, the latter shall control.

(i) The provisions of subchapter 3, and subchapter 3A of chapter 101 of this title, pertaining to mergers, consolidations, conversions, mutualizations, redomestications, and mutual holding companies, shall apply in determining the procedures to be followed by captive insurance companies in carrying out any of the transactions described therein, except that:

(1) the Commissioner may, upon request of an insurer party to a merger authorized under this subsection, waive the requirement of subdivision (6) of section 3424 of this title;

(2) the Commissioner may waive the requirements for public notice and hearing or, in accordance with rules which the Commissioner may adopt addressing categories of transactions, modify the requirements for public notice and hearing. If a notice of public hearing is required, but no one requests a hearing ten days before the day set for the hearing, then the Commissioner may cancel the hearing;

(3) the provisions of subsections 3423(f) and (h) of this title shall not apply, and the Commissioner may waive or modify the requirement of subdivision 3423(b)(4) of this title, with respect to market value of a converted company as necessary or desirable to reflect applicable restrictions on ownership of companies formed under this chapter;

(4) an alien insurer may be a party to a merger authorized under this subsection; provided that the requirements for a merger between a captive insurance company and a foreign insurer under section 3431 of this title shall apply to a merger between a captive insurance company and an alien insurer under this subsection. Such alien insurer shall be treated as a foreign insurer under section 3431 and such other jurisdictions shall be the equivalent of a state for purposes of section 3431; and

(5) the Commissioner may issue a certificate of general good to permit the formation of a captive insurance company that is established for the purpose of consolidating or merging with or assuming existing insurance or reinsurance business from an existing licensed captive insurance company. The Commissioner may, upon request of such newly formed captive insurance company, waive or modify the requirements of subdivisions 6002(c)(1)(B) and (2) of this title.

(j) Captive insurance companies formed as reciprocal insurers under the provisions of this chapter shall have the privileges and be subject to the provisions of chapter 132 of this title in addition to the applicable provisions of this chapter. In the event of a conflict between the provisions of chapter 132 and the provisions of this chapter, the latter shall control. To the extent a reciprocal insurer is made subject to other provisions of this title pursuant to chapter 132, such provisions shall not be applicable to a reciprocal insurer formed under this chapter unless such provisions are expressly made applicable to captive insurance companies under this chapter.

(k) The articles of incorporation or bylaws of a captive insurance company formed as a corporation may authorize a quorum of its board of directors to consist of no fewer than one-third of the fixed or prescribed number of directors determined under 11A V.S.A. § 8.24(a) or under 11B V.S.A. § 8.24.

( l ) The subscribers' agreement or other organizing document of a captive insurance company formed as a reciprocal insurer may authorize a quorum of its subscribers' advisory committee to consist of no fewer than one-third of the number of its members.

(m) With the Commissioner's approval, a captive insurance company organized as a stock insurer may convert to a nonprofit corporation with one or more members by filing with the Secretary of State an irrevocable election for such conversion, provided that:

(1) the irrevocable election shall certify that, at the time of the company's original organization and at all times thereafter, the company conducted its business in a manner not inconsistent with a nonprofit purpose; and

(2) at the time of the filing of its irrevocable election, the company shall file with both the Commissioner and the Secretary of State amended and restated articles of incorporation consistent with the provisions of this chapter and with Title 11B, duly authorized by the corporation.

(n) The following provisions of Title 11B shall not apply to captive insurance companies which are nonprofit corporations:

(1) subsection 2.02(c) (relating to the signing of articles of incorporation by directors);

(2) section 11.02, in the case of any merger in which a captive insurance company merges with and into a captive insurance company organized as a nonprofit corporation under Title 11B where the latter is the surviving corporation.

(o) In the case of a captive insurance company formed as a limited liability company, a reciprocal insurance company or mutual insurance company, any proxy executed by the members, subscribers, and policyholders of each shall be valid if executed and transmitted in compliance with 11A V.S.A. § 7.22.

(p) With the Commissioner's prior written approval, a captive insurance company may establish one or more separate accounts and may allocate to them amounts to provide for the insurance of risks of certain of its parents, affiliates, or members, as the case may be, subject to the following:

(1) The income, gains, and losses, realized or unrealized, from assets allocated to a separate account shall be credited to or charged against the account, without regard to other income, gains, or losses of the captive insurance company.

(2) Amounts allocated to a separate account in the exercise of the power granted by this subsection are owned by the captive insurer, and the captive insurer may not be nor hold itself out to be a trustee with respect to such amounts.

(3) Unless otherwise approved by the Commissioner, assets allocated to a separate account shall be valued in accordance with the rules otherwise applicable to the captive insurer's assets.

(4) If and to the extent so provided under the applicable contracts, that portion of the assets of any such separate account equal to the reserves and other contract liabilities with respect to such account shall not be chargeable with liabilities arising out of any other business the captive insurer may conduct.

(5) No sale, exchange, or other transfer of assets may be made by such captive insurer between any of its separate accounts or between any other investment account and one or more of its separate accounts unless, in the case of a transfer into a separate account, such transfer is made solely to establish the account or to support the operation of the contracts with respect to the separate account to which the transfer is made and unless such transfer, whether into or from a separate account is made by a transfer of cash or by a transfer of securities having a readily determinable market value, provided that such transfer of securities is approved by the Commissioner. The Commissioner may approve other transfers among such accounts if, in his or her opinion, such transfers would be equitable.

(6) To the extent such captive insurer deems it necessary to comply with any applicable federal or state laws, such captive insurer, with respect to any separate account, including any separate account which is a management investment company or a unit investment trust, may provide for persons having an interest therein appropriate voting and other rights and special procedures for the conduct of the business of such account, including special rights and procedures relating to investment policy, investment advisory services, selection of independent public accountants, and the selection of a committee, the members of which need not be otherwise affiliated with such company, to manage the business of such account. (Added 1981, No. 28; 1989, No. 72, § 1; amended 1989, No. 72, § 1; 1991, No. 41, § 5; 1993, No. 85, § 3(d), eff. Jan. 1, 1994; 1995, No. 179 (Adj. Sess.), § 1d, eff. Jan. 1, 1997; 1997, No. 49, § 11, eff. June 26, 1997; 1997, No. 100 (Adj. Sess.), § 2, eff. April 16, 1998; 1999, No. 38, § 8, eff. May 20, 1999; 1999, No. 86 (Adj. Sess.), § 8, eff. April 27, 2000; 2003, No. 55, § 7; 2003, No. 105 (Adj. Sess.), § 19, eff. May 4, 2004; 2005, No. 36, §§ 11, 12, 13, eff. June 1, 2005; 2007, No. 178 (Adj. Sess.), § 10; 2009, No. 42, § 30a; 2009, No. 137 (Adj. Sess.), §§ 19, 20, eff. May 29, 2010; 2013, No. 29, § 48, eff. May 13, 2013.)

§ 6007. Reports and statements

(a) Captive insurance companies shall not be required to make any annual report except as provided in this chapter.

(b) Prior to March 1 of each year, and prior to March 15 of each year in the case of pure captive insurance companies or industrial insured captive insurance companies, each captive insurance company shall submit to the Commissioner a report of its financial condition, verified by oath of two of its executive officers. Each captive insurance company shall report using generally accepted accounting principles, unless the Commissioner requires, approves, or accepts the use of statutory accounting principles or other comprehensive basis of accounting, in each case with any appropriate or necessary modifications or adaptations thereof required or approved or accepted by the Commissioner for the type of insurance and kinds of insurers to be reported upon, and as supplemented by additional information required by the Commissioner. Except as otherwise provided, each risk retention group shall file its report in the form required by subsection 3561(a) of this title, and each risk retention group shall comply with the requirements set forth in section 3569 of this title. The Commissioner shall by rule propose the forms in which pure captive insurance companies, association captive insurance companies, and industrial insured captive insurance companies shall report. Subdivision 6002(c)(3) of this title shall apply to each report filed pursuant to this section, except that such subdivision shall not apply to reports filed by risk retention groups.

(c) Any pure captive insurance company or an industrial insured captive insurance company may make written application for filing the required report on a fiscal year-end. If an alternative reporting date is granted:

(1) the annual report is due 75 days after the fiscal year-end; and

(2) in order to provide sufficient detail to support the premium tax return, the pure captive insurance company or industrial insured captive insurance company shall file prior to March 15 of each year for each calendar year-end, pages 1, 2, 3, and 5 of the "Captive Annual Statement; Pure or Industrial Insured," verified by oath of two of its executive officers. (Added 1981, No. 28; amended 1991, No. 101, § 19; 1993, No. 40, § 5, eff. June 3, 1993; 1993, No. 235 (Adj. Sess.), § 9f, eff. June 21, 1994; 1997, No. 49, § 12, eff. June 26, 1997; 1997, No. 100 (Adj. Sess.), § 3, eff. April 16, 1998; 1999, No. 38, § 9, eff. May 20, 1999; 2001, No. 71, § 12, eff. June 16, 2001; 2003, No. 55, § 7; 2007, No. 49, § 10; 2009, No. 42, § 17, eff. May 27, 2009; 2009, No. 137 (Adj. Sess.), § 21, eff. May 29, 2010; 2011, No. 78 (Adj. Sess.), § 38, eff. April 2, 2012.)

§ 6008. Examinations and investigations

(a) At least once in three years, and whenever the commissioner determines it to be prudent, the commissioner shall personally, or by some competent person appointed by the commissioner, visit each captive insurance company and thoroughly inspect and examine its affairs to ascertain its financial condition, its ability to fulfill its obligations and whether it has complied with the provisions of this chapter. The commissioner may enlarge the aforesaid three-year period to five years, provided said captive insurance company is subject to a comprehensive annual audit during such period of a scope satisfactory to the commissioner by independent auditors approved by the commissioner. The expenses and charges of the examination shall be paid to the state by the company or companies examined and the commissioner of finance and management shall issue his or her warrants for the proper charges incurred in all examinations.

(b) The provisions of section 3576 of this title shall apply to examinations conducted under this section.

(c) All examination reports, preliminary examination reports or results, working papers, recorded information, documents and copies thereof produced by, obtained by or disclosed to the commissioner or any other person in the course of an examination made under this section are confidential and are not subject to subpoena and may not be made public by the commissioner or an employee or agent of the commissioner without the written consent of the company, except to the extent provided in this subsection. Nothing in this subsection shall prevent the commissioner from using such information in furtherance of the commissioner's regulatory authority under this title. The commissioner may, in the commissioner's discretion, grant access to such information to public officers having jurisdiction over the regulation of insurance in any other state or country, or to law enforcement officers of this state or any other state or agency of the federal government at any time, so long as such officers receiving the information agree in writing to hold it in a manner consistent with this section. (Added 1981, No. 28; amended 1983, No. 195 (Adj. Sess.), § 5(b); 1993, No. 235 (Adj. Sess.), § 9g, eff. June 21, 1994; 1997, No. 49, § 13, eff. June 26, 1997; 1999, No. 38, § 10, eff. May 20, 1999; 2003, No. 55, § 7; 2003, No. 105 (Adj. Sess.), § 8.)

§ 6009. Grounds and procedures for suspension or revocation of license

(a) The license of a captive insurance company may be suspended or revoked by the commissioner for any of the following reasons:

(1) Insolvency or impairment of capital or surplus;

(2) Failure to meet the requirements of section 6004 of this title;

(3) Refusal or failure to submit an annual report, as required by this chapter, or any other report or statement required by law or by lawful order of the commissioner;

(4) Failure to comply with the provisions of its own charter, bylaws or other organizational document;

(5) Failure to submit to or pay the cost of examination or any legal obligation relative thereto, as required by this chapter;

(6) Use of methods that, although not otherwise specifically prohibited by law, nevertheless render its operation detrimental or its condition unsound with respect to the public or to its policyholders; or

(7) Failure otherwise to comply with the laws of this state.

(b) If the commissioner finds, upon examination, hearing, or other evidence, that any captive insurance company has violated any provision of subsection (a) of this section, the commissioner may suspend or revoke such company's license if the commissioner deems it in the best interest of the public and the policyholders of such captive insurance company, notwithstanding any other provision of this title. (Added 1981, No. 28; amended 1997, No. 49, § 14, eff. June 26, 1997; 1999, No. 38, § 11, eff. May 20, 1999; 2003, No. 55, § 7.)

§ 6010. Legal investments

(a) Except as may be otherwise authorized by the commissioner, association captive insurance companies and risk retention groups shall comply with the investment requirements contained in sections 3461 through 3472 of this title, as applicable. Section 3463a of this title shall apply to association captive insurance companies and risk retention groups except to the extent it is inconsistent with approved accounting standards in use by the company. Notwithstanding any other provision of this title, the commissioner may approve the use of alternative reliable methods of valuation and rating.

(b) No pure captive insurance company or industrial insured captive insurance company shall be subject to any restrictions on allowable investments whatever, including those limitations contained in sections 3461-3472; provided, however, that the commissioner may prohibit or limit any investment that threatens the solvency or liquidity of any such company.

(c) No pure captive insurance company may make a loan to or an investment in its parent company or affiliates without prior written approval of the commissioner, and any such loan or investment must be evidenced by documentation approved by the commissioner. Loans of minimum capital and surplus funds required by section 6004 of this title are prohibited. (Added 1981, No. 28; amended 1991, No. 101, § 20; 1993, No. 40, § 6, eff. June 3, 1993; 1993, No. 235 (Adj. Sess.), § 9h, eff. June 21, 1994; 1999, No. 38, § 12, eff. May 20, 1999; 2001, No. 71, § 13, eff. June 16, 2001; 2003, No. 55, § 7; 2005, No. 36, § 14, eff. June 1, 2005.)

§ 6011. Reinsurance

(a) Any captive insurance company may provide reinsurance, comprised in subsection 3301(a) of this title, on risks ceded by any other insurer, and may provide reinsurance of annuity contracts as defined in section 3717 of this title that are granted by any other insurer.

(b) Any captive insurance company may take credit for the reinsurance of risks or portions of risks ceded to reinsurers complying with the provisions of subsections 3634a(a) through (f) of this title. Prior approval of the Commissioner shall be required for ceding or taking credit for the reinsurance of risks or portions of risks ceded to reinsurers not complying with subsections 3634a(a) through (f) of this title, except for business written by an alien captive insurance company outside the United States.

(c) In addition to reinsurers authorized under the provisions of section 3634a of this title, a captive insurance company may take credit for the reinsurance of risks or portions of risks ceded to a pool, exchange, or association acting as a reinsurer which has been authorized by the Commissioner. The Commissioner may require any other documents, financial information, or other evidence that such a pool, exchange, or association will be able to provide adequate security for its financial obligations. The Commissioner may deny authorization or impose any limitations on the activities of a reinsurance pool, exchange, or association that, in the Commissioner's judgment, are necessary and proper to provide adequate security for the ceding captive insurance company and for the protection and consequent benefit of the public at large.

(d) For all purposes of this chapter, insurance by a captive insurance company of any workers' compensation qualified self-insured plan of its parent and affiliates shall be deemed to be reinsurance. (Added 1981, No. 28; 1985, No. 170 (Adj. Sess.), § 1, eff. May 7, 1986; amended 1987, No. 168 (Adj. Sess.), § 3, eff. May 3, 1988; 1991, No. 249 (Adj. Sess.), § 24; 93, No. 40, §§ 7, 8, eff. June 3, 1993; 1999, No. 38, § 13, eff. May 20, 1999; 2003, No. 55, § 7; 2005, No. 122 (Adj. Sess.), § 4.)

§ 6012. Rating organizations; memberships

No captive insurance company shall be required to join a rating organization. (Added 1981, No. 28.)

§ 6013. Exemption from compulsory associations

No captive insurance company shall be permitted to join or contribute financially to any plan, pool, association, or guaranty or insolvency fund in this state, nor shall any such captive insurance company, or any insured or affiliate thereof, receive any benefit from any such plan, pool, association, or guaranty or insolvency fund for claims arising out of the operations of such captive insurance company. (Added 1981, No. 28; amended 1997, No. 49, § 15, eff. June 26, 1997; 2003, No. 55, § 7.)

§ 6014. Tax on premiums collected

(a) Each captive insurance company shall pay to the Commissioner of Taxes, in the month of February of each year, a tax at the rate of 38-hundredths of one percent on the first 20 million dollars and 285-thousandths of one percent on the next 20 million dollars and 19-hundredths of one percent on the next 20 million dollars and 72-thousandths of one percent on each dollar thereafter on the direct premiums collected or contracted for on policies or contracts of insurance written by the captive insurance company during the year ending December 31 next preceding, after deducting from the direct premiums subject to the tax the amounts paid to policyholders as return premiums which shall include dividends on unabsorbed premiums or premium deposits returned or credited to policyholders; provided, however, that no tax shall be due or payable as to considerations received for annuity contracts.

(b) Each captive insurance company shall pay to the Commissioner of Taxes in the month of February of each year a tax at the rate of 214-thousandths of one percent on the first 20 million dollars of assumed reinsurance premium, and 143-thousandths of one percent on the next 20 million dollars and 48-thousandths of one percent on the next 20 million dollars and 24-thousandths of one percent of each dollar thereafter. However, no reinsurance tax applies to premiums for risks or portions of risks which are subject to taxation on a direct basis pursuant to subsection (a) of this section. No reinsurance premium tax shall be payable in connection with the receipt of assets in exchange for the assumption of loss reserves and other liabilities of another insurer under common ownership and control if such transaction is part of a plan to discontinue the operations of such other insurer, and if the intent of the parties to such transaction is to renew or maintain such business with the captive insurance company.

(c)(1) The annual minimum aggregate tax to be paid by a captive insurance company calculated under subsections (a) and (b) of this section shall be $7,500.00. The annual maximum aggregate tax to be paid by a captive insurance company calculated under subsections (a) and (b) of this section shall be $200,000.00.

(2) The annual minimum aggregate tax to be paid by a sponsored captive insurance company shall be $7,500.00 and shall apply to the sponsored captive insurance company as a whole and not to each protected cell; such cells shall not be subject to the minimum tax.

(3) The annual maximum tax to be paid by a protected cell shall be as calculated under subdivision (1) of this subsection. The annual maximum tax to be remitted by a sponsored captive insurance company shall be the aggregate of the tax liabilities of each protected cell.

(d) A captive insurance company failing to make returns as required by 32 V.S.A. chapter 211 or failing to pay within the time required all taxes assessed by this section, shall be subject to the provisions of 32 V.S.A. §§ 5868, 5869, 5873, and 5875.

(e) Subject to the provisions of subsection (c) of this section, two or more captive insurance companies under common ownership and control shall be taxed as though they were a single captive insurance company.

(f) For the purposes of this section:

(1) common ownership and control shall mean ownership and control of two or more captive insurance companies by the same person or group of persons.

(2) ownership and control shall mean:

(A) in the case of a stock corporation, the direct or indirect ownership of 80 percent or more of the outstanding voting stock of the corporation.

(B) in the case of a mutual or nonprofit corporation, the direct or indirect ownership of 80 percent or more of the surplus and the voting power of such corporation.

(C) in the case of a limited liability company, the direct or indirect ownership of 80 percent or more of the membership interests in the limited liability company.

(D) in the case of a sponsored captive insurance company, for purposes of this section a protected cell shall be treated as a separate captive insurance company owned and controlled by the protected cell's participant, but only if:

(i) the participant is the only participant with respect to such protected cell; and

(ii) the participant is the sponsor or is affiliated with the sponsor of the sponsored captive insurance company through common ownership and control.

(g) The tax provided for in this section shall constitute all taxes collectible under the laws of this State from any captive insurance company, and no other occupation tax or other taxes shall be levied or collected from any captive insurance company by the State or any county, city, or municipality within this State, except meals and rooms taxes, sales and use taxes, and ad valorem taxes on real and personal property used in the production of income.

(h) Annually, 11 percent of the premium tax revenues collected pursuant to this section shall be transferred to the Department of Financial Regulation for the regulation of captive insurance companies under this chapter.

(i) Repealed.]

(j) The tax provided for in this section shall be calculated on an annual basis, notwithstanding policies or contracts of insurance or contracts of reinsurance issued on a multiyear basis. In the case of multiyear policies or contracts, the premium shall be prorated for purposes of determining the tax under this section.

(k) A captive insurance company first licensed under this chapter on or after January 1, 2011 shall receive a nonrefundable credit of $7,500.00 applied against the aggregate taxes owed for the first taxable year for which the company has liability under this section. (Added 1981, No. 28; amended 1985, No. 170 (Adj. Sess.), § 2, eff. May 7, 1986; 1987, No. 47, § 3, eff. May 13, 1987; 1989, No. 72, § 2; 1989, No. 225 (Adj. Sess.), § 25(a); 1993, No. 89, §§ 15-17; 1993, No. 152 (Adj. Sess.), § 1, eff. May 16, 1994; 1995, No. 180 (Adj. Sess.), § 38(a); 1999, No. 38, § 14, eff. May 20, 1999; 1999, No. 49, § 218; 1999, No. 84 (Adj. Sess.), § 11, eff. April 19, 2000; 2001, No. 71, § 13a, eff. June 16, 2001; 2003, No. 55, § 7, eff. June 4, 2003, see effective date notes set out below; 2007, No. 49, §§ 11, 15; 2009, No. 42, §§ 18, 21, eff. May 27, 2009; 2009, No. 42 , § 20; 2011, No. 21, § 20; 2011, No. 78 (Adj. Sess.), § 2, eff. April 2, 2012; 2013, No. 29, § 49, eff. May 13, 2013.)

§ 6015. Rules and regulations

The commissioner may adopt and from time to time amend such rules relating to captive insurance companies as are necessary to enable the commissioner to carry out the provisions of this chapter. (Added 1981, No. 28; amended 2003, No. 55, § 7.)

§ 6016. Laws applicable

No provisions of this title, other than those contained in this chapter or contained in specific references contained in this chapter, shall apply to captive insurance companies. Risk retention groups shall have the privileges and be subject to the provisions of chapter 142 of this title in addition to the applicable provisions of this chapter. (Added 1981, No. 28; amended 2003, No. 55, § 7.)

§ 6017. Captive Insurance Regulatory and Supervision Fund

(a)(1) There is hereby created a fund to be known as the Captive Insurance Regulatory and Supervision Fund for the purpose of providing the financial means for the Commissioner of Financial Regulation to administer this chapter, chapter 142, and chapter 142A of this title and for reasonable expenses incurred in promoting the captive insurance industry in Vermont. The transfer of 11 percent of the premium tax under subsection 6014(h) of this title, and all fees and assessments received by the Department pursuant to the administration of these chapters shall be credited to this Fund. Of this amount, not more than two percent of the premium tax under section 6014 may be transferred to the Agency of Commerce and Community Development, with approval of the Secretary of Administration, for promotional expenses. All fees received by the department from reinsurers who assume risk solely from captive insurance companies and are subject to the provisions of subsections 3634a(a) through (f) of this title, shall be deposited into the Captive Insurance Regulatory and Supervision Fund. All fines and administrative penalties, however, shall be deposited directly into the General Fund.

(2) All payments from the Captive Insurance Regulatory and Supervision Fund for the maintenance of staff and associated expenses, including contractual services as necessary, shall be disbursed from the State Treasury only upon warrants issued by the Commissioner of Finance and Management, after receipt of proper documentation regarding services rendered and expenses incurred.

(b) At the end of each fiscal year, the balance in the Captive Insurance Regulatory and Supervision Fund shall be transferred to the General Fund.

(c) The Commissioner of Finance and Management may anticipate receipts to the Captive Insurance Regulatory and Supervision Fund and issue warrants based thereon. (Added 1987, No. 47, § 4, eff. May 13, 1987; amended 1989, No. 72, § 3; 1989, No. 225 (Adj. Sess.), § 25; 1995, No. 180 (Adj. Sess.), § 38; 1995, No. 190 (Adj. Sess.), § 1; 1999, No. 49, § 219; 2003, No. 55, § 7; 2003, No. 80 (Adj. Sess.), § 76, eff. March 8, 2004; 2009, No. 42, § 22; 2011, No. 78 (Adj. Sess.), § 2, eff. April 2, 2012.)

§ 6018. Delinquency

Except as otherwise provided in this chapter, the terms and conditions set forth in chapter 145 of this title shall apply in full to captive insurance companies formed or licensed under this chapter. (Added 1987, No. 168 (Adj. Sess.), § 4, eff. May 3, 1988; amended 1993, No. 40, § 9, eff. June 3, 1993; 1999, No. 38, § 15, eff. May 20, 1999; 2003, No. 55, § 7; 2007, No. 49, § 12.)

§ 6019. Rules for controlled unaffiliated business

The Commissioner may adopt rules establishing standards to ensure that a parent or its affiliated company, or an industrial insured or its affiliated company, is able to exercise control of the risk management function of any controlled unaffiliated business to be insured by a pure captive insurance company or an industrial insured captive insurance company, respectively; provided, however, that, until such time as rules under this section are adopted, the Commissioner may approve the coverage of such risks by a pure captive insurance company or an industrial insured captive insurance company. (Added 1997, No. 49, § 16, eff. June 26, 1997; amended 2003, No. 55, § 7; 2007, No. 49, § 13.)

§ 6020. Conversion to or merger with reciprocal insurer

(a) An association captive insurance company, risk retention group, industrial insured captive insurance company formed as a stock or mutual corporation, or other insurer approved by the Commissioner may be converted to or merged with and into a reciprocal insurer in accordance with a plan therefore and the provisions of this section.

(b) Any plan for such conversion or merger shall provide a fair and equitable plan for purchasing, retiring, or otherwise extinguishing the interests of the stockholders and policyholders of a stock insurer, and the members and policyholders of a mutual insurer, including a fair and equitable provision for the rights and remedies of dissenting stockholders, members, or policyholders.

(c) In the case of a conversion authorized under subsection (a) of this section:

(1) such conversion shall be accomplished under such reasonable plan and procedure as may be approved by the Commissioner; provided, however, that the Commissioner shall not approve any such plan of conversion unless such plan:

(A) satisfies the provisions of subsection (b) of this section;

(B) provides for a hearing, of which notice is given or to be given to the captive insurance company, its directors, officers, and policyholders, and, in the case of a stock insurer, its stockholders, and in the case of a mutual insurer, its members, all of which persons shall be entitled to attend and appear at such hearing; provided, however, that if notice of a hearing is given and no director, officer, policyholder, member, or stockholder requests a hearing, the Commissioner may cancel such hearing;

(C) provides a fair and equitable plan for the conversion of stockholder, member, or policyholder interests into subscriber interests in the resulting reciprocal insurer, substantially proportionate to the corresponding interests in the stock or mutual insurer; provided, however, that this requirement shall not preclude the resulting reciprocal insurer from applying underwriting criteria that could affect ongoing ownership interests; and

(D) is approved:

(i) in the case of a stock insurer, by a majority of the shares entitled to vote represented in person or by proxy at a duly called regular or special meeting at which a quorum is present; and

(ii) in the case of a mutual insurer, by a majority of the voting interests of policyholders represented in person or by proxy at a duly called regular or special meeting thereof at which a quorum is present;

(2) the Commissioner shall approve such plan of conversion if the Commissioner finds that the conversion will promote the general good of the State in conformity with those standards set forth in subdivision 6006(d)(2) of this title;

(3) if the Commissioner approves the plan, the Commissioner shall amend the converting insurer's certificate of authority to reflect conversion to a reciprocal insurer and issue such amended certificate of authority to the company's attorney-in-fact;

(4) upon the issuance of an amended certificate of authority of a reciprocal insurer by the Commissioner, the conversion shall be effective; and

(5) upon the effectiveness of such conversion the corporate existence of the converting insurer shall cease and the resulting reciprocal insurer shall notify the Secretary of State of such conversion.

(d) A merger authorized under subsection (a) of this section shall be accomplished substantially in accordance with the procedures set forth in sections 3424, 3426, and 3431 of this title, except that, solely for purposes of such merger:

(1) the plan of merger shall satisfy the provisions of subsection (b) of this section;

(2) the subscribers' advisory committee of a reciprocal insurer shall be equivalent to the board of directors of a stock or mutual insurance company;

(3) the subscribers of a reciprocal insurer shall be the equivalent of the policyholders of a mutual insurance company;

(4) if a subscribers' advisory committee does not have a president or secretary, the officers of such committee having substantially equivalent duties shall be deemed the president or secretary of such committee;

(5) the Commissioner may, upon request of an insurer party to a merger authorized under subsection (a) of this section, waive the requirement of subdivision 3424(6) of this title;

(6) subdivision 3424(7) of this title shall not apply to such merger;

(7) the Commissioner shall approve the articles of merger if the Commissioner finds that the merger will promote the general good of the State in conformity with those standards set forth in subdivision 6006(d)(2) of this title. If the Commissioner approves the articles of merger, the Commissioner shall indorse the Commissioner's approval thereon and the surviving insurer shall present the same to the Secretary of State at the Secretary of State's office;

(8) notwithstanding section 6004 of this title, the Commissioner may permit the formation, without surplus, of a captive insurance company organized as a reciprocal insurer, into which an existing captive insurance company may be merged for the purpose of facilitating a transaction under this section; provided, however, that there shall be no more than one authorized insurance company surviving such merger; and

(9) an alien insurer may be a party to a merger authorized under subsection (a) of this section; provided, that the requirements for a merger between a domestic and a foreign insurer under section 3431 of this title shall apply to a merger between a domestic and an alien insurer under this subsection. Such alien insurer shall be treated as a foreign insurer under section 3431 and such other jurisdictions shall be the equivalent of a state for purposes of section 3431.

(e) A conversion or merger under this section shall have all of the effects set forth in subdivisions 3430(3), (4), and (5) of this title, to the extent such effects are not inconsistent with the provisions of this chapter. (Added 1997, No. 100 (Adj. Sess.), § 1, eff. April 16, 1998; amended 1999, No. 38, § 16, eff. May 20, 1999; 2003, No. 55, § 7; 2009, No. 137 (Adj. Sess.), § 22, eff. May 29, 2010.)

§§ 6021-6023. Recodified. 2003, No. 55, § 8, eff. June 30, 2003.

 

Sub-Chapter 2: Sponsored Captive Insurance Companies

§ 6031. Formation

(a) One or more sponsors may form a sponsored captive insurance company under this chapter. In addition to the general provisions of this chapter, the provisions of this subchapter shall apply to sponsored captive insurance companies.

(b) A sponsored captive insurance company shall be incorporated as a stock insurer with its capital divided into shares and held by the stockholders, as a mutual corporation, as a nonprofit corporation with one or more members, or as a manager-managed limited liability company. (Added 2003, No. 55, § 9; amended 2005, No. 122 (Adj. Sess.), § 5; 2009, No. 137 (Adj. Sess.), § 23, eff. May 29, 2010.)

§ 6032. Definitions

As used in this subchapter, unless the context requires otherwise:

(1) "Incorporated protected cell" means a protected cell that is established as a corporation, mutual corporation, nonprofit corporation with one or more members, or limited liability company separate from the sponsored captive insurance company of which it is a part.

(2) "Participant" means an entity as defined in section 6036 of this title, and any affiliates thereof, that are insured by a sponsored captive insurance company, where the losses of the participant are limited through a participant contract to such participant's pro rata share of the assets of one or more protected cells identified in such participant contract.

(3) "Participant contract" means a contract by which a sponsored captive insurance company insures the risks of a participant and limits the losses of each such participant to its pro rata share of the assets of one or more protected cells identified in such participant contract.

(4) "Protected cell" means a separate account established by a sponsored captive insurance company formed or licensed under the provisions of this chapter, in which assets are maintained for one or more participants in accordance with the terms of one or more participant contracts to fund the liability of the sponsored captive insurance company assumed on behalf of such participants as set forth in such participant contracts, and shall include an "incorporated protected cell," as defined in this section.

(5) "Sponsor" means any entity that meets the requirements of section 6035 of this title and is approved by the Commissioner to provide all or part of the capital and surplus required by applicable law and to organize and operate a sponsored captive insurance company.

(6) "Sponsored captive insurance company" means any captive insurance company:

(A) in which the minimum capital and surplus required by applicable law is provided by one or more sponsors;

(B) that is formed or licensed under the provisions of this chapter;

(C) that insures the risks only of its participants through separate participant contracts; and

(D) that funds its liability to each participant through one or more protected cells and segregates the assets of each protected cell from the assets of other protected cells and from the assets of the sponsored captive insurance company's general account. (Added 2003, No. 55, § 9; amended 2011, No. 21, § 21; 2011, No. 78 (Adj. Sess.), § 35, eff. April 2, 2012.)

§ 6033. Supplemental application materials

In addition to the information required by subdivisions 6002(c)(1) and (2) of this title, each applicant-sponsored captive insurance company shall file with the commissioner the following:

(1) materials demonstrating how the applicant will account for the loss and expense experience of each protected cell at a level of detail found to be sufficient by the commissioner, and how it will report such experience to the commissioner;

(2) a statement acknowledging that all financial records of the sponsored captive insurance company, including records pertaining to any protected cells, shall be made available for inspection or examination by the commissioner or the commissioner's designated agent;

(3) all contracts or sample contracts between the sponsored captive insurance company and any participants; and

(4) evidence that expenses shall be allocated to each protected cell in a fair and equitable manner. (Added 2003, No. 55, § 9.)

§ 6034. Protected cells

A sponsored captive insurance company formed or licensed under the provisions of this chapter may establish and maintain one or more protected cells to insure risks of one or more participants, subject to the following conditions:

(1) The shareholders of a sponsored captive insurance company shall be limited to its participants and sponsors, provided that a sponsored captive insurance company may issue nonvoting securities to other persons on terms approved by the Commissioner.

(2) Each protected cell shall be accounted for separately on the books and records of the sponsored captive insurance company to reflect the financial condition and results of operations of such protected cell, net income or loss, dividends or other distributions to participants, and such other factors as may be provided in the participant contract or required by the Commissioner.

(3) The assets of a protected cell shall not be chargeable with liabilities arising out of any other insurance business the sponsored captive insurance company may conduct.

(4) No sale, exchange, or other transfer of assets may be made by such sponsored captive insurance company between or among any of its protected cells without the consent of such protected cells.

(5) No sale, exchange, transfer of assets, dividend, or distribution may be made from a protected cell to a sponsor or participant without the Commissioner's approval and in no event shall such approval be given if the sale, exchange, transfer, dividend, or distribution would result in insolvency or impairment with respect to a protected cell.

(6) All attributions of assets and liabilities to the protected cells and the general account shall be in accordance with the plan of operation approved by the Commissioner. No other attribution of assets or liabilities may be made by a sponsored captive insurance company between its general account and any protected cell or between any protected cells. The sponsored captive insurance company shall attribute all insurance obligations, assets, and liabilities relating to a reinsurance contract entered into with respect to a protected cell to such protected cell. The performance under such reinsurance contract and any tax benefits, losses, refunds, or credits allocated pursuant to a tax allocation agreement to which the sponsored captive insurance company is a party, including any payments made by or due to be made to the sponsored captive insurance company pursuant to the terms of such agreement, shall reflect the insurance obligations, assets, and liabilities relating to the reinsurance contract that are attributed to such protected cell.

(7) In connection with the conservation, rehabilitation, or liquidation of a sponsored captive insurance company, the assets and liabilities of a protected cell shall, to the extent the Commissioner determines they are separable, at all times be kept separate from, and shall not be commingled with, those of other protected cells and the sponsored captive insurance company.

(8) The "general account" of a sponsored captive insurance company shall mean all assets and liabilities of the sponsored captive insurance company not attributable to a protected cell.

(9) Each sponsored captive insurance company shall annually file with the Commissioner such financial reports as the Commissioner shall require, which shall include, without limitation, accounting statements detailing the financial experience of each protected cell.

(10) Each sponsored captive insurance company shall notify the Commissioner in writing within 10 business days of any protected cell that is insolvent or otherwise unable to meet its claim or expense obligations.

(11) No participant contract shall take effect without the Commissioner's prior written approval, and the addition of each new protected cell and withdrawal of any participant or termination of any existing protected cell shall constitute a change in the business plan requiring the Commissioner's prior written approval.

(12) If required by the Commissioner, in his or her discretion, the business written by a sponsored captive, with respect to each cell, shall be:

(A) fronted by an insurance company licensed under the laws of any state;

(B) reinsured by a reinsurer authorized or approved by the State of Vermont; or

(C) secured by a trust fund in the United States for the benefit of policyholders and claimants or funded by an irrevocable letter of credit or other arrangement that is acceptable to the Commissioner. The Commissioner may require the sponsored captive to increase the funding of any security arrangement established under this subdivision. If the form of security is a letter of credit, the letter of credit must be issued or confirmed by a bank approved by the Commissioner. A trust maintained pursuant to this subdivision shall be established in a form and upon such terms approved by the Commissioner.

(13) Notwithstanding the provisions of chapter 145 of this title or other laws of this State, and in addition to the provisions of section 6038 of this chapter, in the event of an insolvency of a sponsored captive insurance company where the Commissioner determines that one or more protected cells remain solvent, the Commissioner may separate such cells from the sponsored captive insurance company, and may allow, on application of the sponsor, for the conversion of such protected cells into one or more new or existing sponsored captive insurance companies with a sponsor or sponsors, or one or more other captive insurance companies, pursuant to such plan or plans of operation as the Commissioner deems acceptable. (Added 1999, No. 38, § 17, eff. May 20, 1999; amended 1999, No. 80 (Adj. Sess.), § 1, eff. April 11, 2000; 2003, No. 55, § 9; 2009, No. 42, § 23, eff. May 27, 2009; 2011, No. 21, § 22.)

§ 6034a. Incorporated protected cells

(a) A protected cell of a sponsored captive insurance company may be formed as an incorporated protected cell, as defined in subdivision 6032(1) of this title.

(b) Subject to the prior written approval of the sponsored captive insurance company and of the Commissioner, an incorporated protected cell shall be entitled to enter into contracts and undertake obligations in its own name and for its own account. In the case of a contract or obligation to which the sponsored captive insurance company is not a party, either in its own name and for its own account or on behalf of a protected cell, the counterparty to the contract or obligation shall have no right or recourse against the sponsored captive insurance company and its assets other than against assets properly attributable to the incorporated protected cell that is a party to the contract or obligation.

(c) The articles of incorporation or articles of organization of an incorporated protected cell shall refer to the sponsored captive insurance company for which it is a protected cell and shall state that the protected cell is incorporated or organized for the limited purposes authorized by the sponsored captive insurance company's license. A copy of the prior written approval of the Commissioner to add the incorporated protected cell, required by subdivision 6034(11) of this title, shall be attached to and filed with the articles of incorporation or the articles of organization.

(d) It is the intent of the General Assembly under this section to provide sponsored captive insurance companies, including those licensed as special purpose financial captive insurance companies under subchapter 4 of this chapter, with the option to establish one or more protected cells as a separate corporation, mutual corporation, nonprofit corporation, or limited liability company. This section shall not be construed to limit any rights or protections applicable to protected cells not established as corporations, mutual corporations, nonprofit corporations, or limited liability companies. (Added 2011, No. 21, § 23; amended 2011, No. 78 (Adj. Sess.), § 36, eff. April 2, 2012; 2013, No. 29, § 50, eff. May 13, 2013.)

§ 6035. Qualification of sponsors

A sponsor of a sponsored captive insurance company may be any person approved by the Commissioner in the exercise of his or her discretion, based on a determination that the approval of such person as a sponsor is consistent with the purposes of this chapter. In evaluating the qualifications of a proposed sponsor, the Commissioner shall consider the type and structure of the proposed sponsor entity, its experience in financial operations, financial stability and strength, business reputation, and such other facts deemed relevant by the Commissioner. A risk retention group shall not be a sponsor of a sponsored captive insurance company. (Added 1999, No. 38, § 18, eff. May 20, 1999; amended 1999, No. 80 (Adj. Sess.), § 2, eff. April 11, 2000; 2003, No. 55, § 9; 2005, No. 122 (Adj. Sess.), § 6; 2007, No. 49, § 16; 2011, No. 21, § 24; 2011, No. 78 (Adj. Sess.), § 39, eff. April 2, 2012.)

§ 6036. Participants in sponsored captive insurance companies

(a) Associations, corporations, limited liability companies, partnerships, trusts, risk retention groups, and other business entities may be participants in any sponsored captive insurance company formed or licensed under this chapter.

(b) A sponsor may be a participant in a sponsored captive insurance company.

(c) A participant need not be a shareholder of the sponsored captive insurance company or any affiliate thereof.

(d) A participant shall insure only its own risks through a sponsored captive insurance company. (Added 1999, No. 38, § 19, eff. May 20, 1999; amended 2003, No. 55, § 9; 2011, No. 78 (Adj. Sess.), § 40, eff. April 2, 2012.)

§ 6037. Investments by sponsored captive insurance companies

Notwithstanding the provisions of section 6034 of this title, the assets of two or more protected cells may be combined for purposes of investment, and such combination shall not be construed as defeating the segregation of such assets for accounting or other purposes. Sponsored captive insurance companies shall comply with the investment requirements contained in sections 3461 through 3472 of this title, as applicable; provided, however, that compliance with such investment requirements shall be waived for sponsored captive insurance companies to the extent that credit for reinsurance ceded to reinsurers is allowed pursuant to section 6011 of this title or to the extent otherwise deemed reasonable and appropriate by the commissioner. Section 3463a of this title shall apply to sponsored captive insurance companies except to the extent it is inconsistent with approved accounting standards in use by the company. Notwithstanding any other provision of this title, the commissioner may approve the use of alternative reliable methods of valuation and rating. (Added 2003, No. 55, § 9.)

§ 6038. Delinquency of sponsored captive insurance companies

(a) Except as otherwise provided in this section, the provisions of chapter 145 of this title shall apply in full to a sponsored captive insurance company.

(b) Upon any order of supervision, rehabilitation, or liquidation of a sponsored captive insurance company, the receiver shall manage the assets and liabilities of the sponsored captive insurance company pursuant to the provisions of this subchapter.

(c) Notwithstanding the provisions of chapter 145 of this title:

(1) the assets of a protected cell may not be used to pay any expenses or claims other than those attributable to such protected cell; and

(2) a sponsored captive insurance company's capital and surplus shall at all times be available to pay any expenses of or claims against the sponsored captive insurance company. (Added 2003, No. 55, § 9; amended 2009, No. 42, § 24, eff. May 27, 2009.)

 

Sub-Chapter 3: Branch Captive Insurance Companies

§ 6041. Establishment of a branch captive

(a) A branch captive may be established in this State in accordance with the provisions of this chapter. In addition to the general provisions of this chapter, the provisions of this subchapter shall apply to branch captive insurance companies.

(b) No branch captive insurance company shall do any insurance business in this State unless it maintains the principal place of business for its branch operations in this State and it appoints a principal representative in this State who is a resident of this State. For purposes of this subsection, principal representative shall mean a person designated as such by the branch captive insurance company as its principal representative on such forms and with such information as required by the Commissioner. The provisions of subsection 6006(f) shall not apply to branch captives formed in this State. (Added 2003, No. 55, § 9; amended 2013, No. 29, § 51, eff. May 13, 2013.)

§ 6042. Definitions

As used in this subchapter, unless the context requires otherwise:

(1) "Alien captive insurance company" means any insurance company formed to write insurance business for its parents and affiliates and licensed pursuant to the laws of an alien jurisdiction which imposes statutory or regulatory standards in a form acceptable to the commissioner on companies transacting the business of insurance in such jurisdiction.

(2) "Branch business" means any insurance business transacted by a branch captive insurance company in this state.

(3) "Branch captive insurance company" means any alien captive insurance company licensed by the commissioner to transact the business of insurance in this state through a business unit with a principal place of business in this state.

(4) "Branch operations" means any business operations of a branch captive insurance company in this state. (Added 2003, No. 55, § 9.)

[Section 6043 shall apply to branch captive companies formed before January 1, 2009.]

[Section 6043 shall apply to branch captive companies formed before January 1, 2009.]§ 6043. Security required

In the case of a branch captive insurance company, as security for the payment of liabilities attributable to the branch operations, the Commissioner shall require that either a trust fund funded by assets acceptable to the Commissioner or an irrevocable letter of credit be established and maintained in the United States for the benefit of United States policyholders and United States ceding insurers under insurance policies issued or reinsurance contracts issued or assumed by the branch captive insurance company through its branch operations. The amount of such security may be no less than the amount set forth in subdivision 6004(a)(1) of this title and the reserves on such insurance policies or such reinsurance contracts, including reserves for losses, allocated loss adjustment expenses, incurred but not reported losses, and unearned premiums with regard to business written through the branch operations; provided, however, the Commissioner may permit a branch captive insurance company that is required to post security for loss reserves on branch business by its reinsurer to reduce the funds in the trust account or the amount payable under the irrevocable letter of credit required by this section by the same amount so long as the security remains posted with the reinsurer. If the form of security selected is a letter of credit, the letter of credit must be established by, or issued or confirmed by, a bank chartered in this State or a member bank of the Federal Reserve System. (Added 2003, No. 55, § 9; amended 2005, No. 36, § 15, eff. June 1, 2005.)

[Section 6043 shall apply only to branch captive companies formed on and after January 1, 2009.]

[Section 6043 shall apply only to branch captive companies formed on and after January 1, 2009.]§ 6043. Security required

(a) No branch captive insurance company shall be issued a license unless it shall possess and thereafter maintain, as security for the payment of liabilities attributable to the branch operations:

(1) an amount equal to the amount set forth in subdivision 6004(a)(1) of this title as the minimum capital requirement for a pure captive; and in addition

(2) reserves on such insurance policies or such reinsurance contracts as may be issued or assumed by the branch captive insurance company through its branch operations, including reserves for losses, allocated loss adjustment expenses, incurred but not reported losses, and unearned premiums with regard to business written through the branch operations; provided, however, the Commissioner may permit a branch captive insurance company to credit against any such reserve requirement any security for loss reserves that the branch captive insurance company may post with a ceding insurer or that may be posted by a reinsurer with the branch captive insurance company, in either case so long as such security remains posted.

(b) Subject to the prior approval of the Commissioner, the amounts required in subsection (a) of this section may be held in the form of:

(1) a trust formed under a trust agreement and funded by assets acceptable to the Commissioner;

(2) an irrevocable letter of credit issued or confirmed by a bank approved by the Commissioner;

(3) with respect to the amounts required in subdivision (a)(1) of this section only, cash on deposit with the Commissioner; or

(4) any combination thereof. (Added 2003, No. 55, § 9; amended 2005, No. 36, § 15, eff. June 1, 2005; 2009, No. 42, § 25, eff. May 27, 2009.)

§ 6044. Certificate of general good

In the case of a captive insurance company licensed as a branch captive, the alien captive insurance company shall petition the commissioner to issue a certificate setting forth the commissioner's finding that, after considering the character, reputation, financial responsibility, insurance experience, and business qualifications of the officers and directors of the alien captive insurance company, the licensing and maintenance of the branch operations will promote the general good of the state. The alien captive insurance company may register to do business in this state after the commissioner's certificate is issued. (Added 2003, No. 55, § 9.)

§ 6045. Branch captive reports

Prior to March 1 of each year, or with the approval of the commissioner within 60 days after its fiscal year-end, a branch captive insurance company shall file with the commissioner a copy of all reports and statements required to be filed under the laws of the jurisdiction in which the alien captive insurance company is formed, verified by oath of two of its executive officers. If the commissioner is satisfied that the annual report filed by the alien captive insurance company in its domiciliary jurisdiction provides adequate information concerning the financial condition of the alien captive insurance company, the commissioner may waive the requirement for completion of the captive annual statement for business written in the alien jurisdiction. (Added 2003, No. 55, § 9.)

§ 6046. Examination of branch captives

(a) The examination of a branch captive insurance company pursuant to section 6008 of this title shall be of branch business and branch operations only, so long as the branch captive insurance company provides annually to the commissioner a certificate of compliance, or its equivalent, issued by or filed with the licensing authority of the jurisdiction in which the branch captive insurance company is formed, and demonstrates to the commissioner's satisfaction that it is operating in sound financial condition in accordance with all applicable laws and regulations of such jurisdiction.

(b) As a condition of licensure, the alien captive insurance company shall grant authority to the commissioner for examination of the affairs of the alien captive insurance company in the jurisdiction in which the alien captive insurance company is formed. (Added 2003, No. 55, § 9.)

§ 6047. Taxation of branch captives

In the case of a branch captive insurance company, the tax provided for in section 6014 of this title shall apply only to the branch business of such company. (Added 2003, No. 55, § 9.)

 

Sub-Chapter 4: Special Purpose Financial Insurance Companies

§ 6048a. Applicable law

(a) A special purpose financial insurance company shall be subject to the provisions of this subchapter and to the provisions of subchapter 1 of this chapter. In the event of any conflict between the provisions of this subchapter and the provisions of subchapter 1 of this chapter, the provisions of this subchapter shall control.

(b) A special purpose financial insurance company shall be subject to all applicable rules adopted pursuant to section 6015 of this chapter that are in effect as of the effective date of this subchapter and that are adopted after the effective date of this subchapter.

(c) The Commissioner may, by order, exempt a special purpose financial insurance company from any provision of this chapter or from any rule adopted pursuant to section 6015 of this chapter if the Commissioner determines such provision to be inappropriate based on the special purpose financial insurance company's plan of operation. (Added 2007, No. 49, § 17; amended 2013, No. 29, § 52, eff. May 13, 2013.)

§ 6048b. Existing licenses

Except as otherwise determined by the Commissioner, a captive insurance company that has been licensed by the Commissioner pursuant to this chapter as of the effective date of this subchapter and that is engaged in or that will be engaged in an insurance securitization shall be subject to the provisions of this subchapter as a special purpose financial insurance company. The Commissioner may require such captive insurance company to take any action that the Commissioner determines is reasonably necessary to bring such captive insurance company into compliance with the provisions of this subchapter. The Commissioner may issue an order described in subsection 6048d(b) of this title with respect to such captive insurance company. (Added 2007, No. 49, § 17; amended 2013, No. 29, § 53.)