The Vermont Statutes Online

Title 8: Banking and Insurance

Chapter 141: Captive Insurance Companies

• Subchapter 001: 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) “Agency captive insurance company” means a captive insurance company that is owned or directly or indirectly controlled by one or more insurance agencies or brokerages licensed under the laws of any state and that only insures risks of policies that are placed by or through such agency or agencies, or brokerage or brokerages, as applicable.

  (3) “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.

  (4) “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.

  (5) “Captive insurance company” means any pure captive insurance company, association captive insurance company, sponsored captive insurance company, industrial insured captive insurance company, agency captive insurance company, risk retention group, affiliated reinsurance company, 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.

  (6) “Commissioner” means the Commissioner of Financial Regulation.

  (7) “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.

  (8) “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.

  (9) “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.

  (10) “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.

  (11) “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.

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

  (13) “Mutual corporation” means a corporation organized without stockholders and includes a nonprofit corporation with members.

  (14) “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 percent 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.

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

  (16) “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; 2017, No. 12, § 3, eff. May 1, 2017; 2017, No. 134 (Adj. Sess.), § 9.)

• § 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)-(Q), and (4)-(9) of this title and may grant annuity contracts as defined in section 3717 of this title and may accept or transfer risk by means of a parametric contract; 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 agency captive insurance company may do any insurance business in this State unless:

  (A) an insurance agency or brokerage that owns or controls the agency captive insurance company remains in regulatory good standing in all states in which it is licensed;

  (B) it insures only the risks of the commercial policies that are placed by or through an insurance agency or brokerage that owns or directly or indirectly controls the agency captive insurance company and, if required by the Commissioner in his or her discretion, it provides the Commissioner the form of such commercial policies;

  (C) it discloses to the original policyholder or policyholders, in a form or manner approved by the Commissioner, that the agency captive insurance company as a result of its affiliation with an insurance agency or brokerage may enter into a reinsurance or other risk-sharing agreement with the agency or brokerage; and

  (D) if required by the Commissioner in his or her discretion, the business written by an agency captive insurance company is:

  (i) Fronted by an insurance company licensed under the laws of any state.

  (ii) Reinsured by a reinsurer authorized or approved by the State of Vermont.

  (iii) 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 agency captive insurance company 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 shall 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 terms approved by the Commissioner.

  (3) 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.

  (4) 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.

  (5) No risk retention group may insure any risks other than those of its members and owners.

  (6) No captive insurance company may provide personal motor vehicle or homeowner’s insurance coverage or any component thereof.

  (7) No captive insurance company may accept or cede reinsurance except as provided in section 6011 of this title.

  (8) 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.

  (9) Any captive insurance company that insures risks described in subdivisions 3301(a)(1) and (2) of this title shall comply with all applicable State and federal laws.

  (10) Any captive insurance company that transfers risk by means of a parametric contract shall comply with all applicable State and federal laws and regulations.

  (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 Commissioner 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 copy of its organizational documents and any other statements or documents required by the Commissioner.

  (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 30 days following 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;

  (E) its beneficial ownership, sponsorship, or membership; and

  (F) 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, including any subsequent updates, amendments, or revisions of or to such information, 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) The Commissioner may, in the Commissioner’s discretion, disclose or publish or authorize the disclosure or publication of any such record or report or any part thereof in the furtherance of legal or regulatory proceedings brought as a part of the Commissioner’s official duties. The Commissioner may, in the Commissioner’s discretion, disclose or publish or authorize the disclosure or publication of any such record or report or any part thereof to criminal law enforcement authorities for use in the exercise of such authority’s duties in such manner as the Commissioner may deem proper.

  (B) The Commissioner may, in the Commissioner’s discretion, disclose such information to a public officer having jurisdiction over the regulation of insurance and with other state, federal, or international agencies, provided that:

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

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

  (C) Neither the Commissioner nor any person who received documents pursuant to this subsection, material, or information while acting under the authority of the Commissioner shall be permitted or required to testify in any private civil action concerning any confidential documents, material, or information.

  (D) Nothing in this subsection (c) shall excuse the applicant from making any required disclosure under this chapter.

  (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, and that such captive insurance company has been duly organized, 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; 2017, No. 12, § 4, eff. May 1, 2017; 2017, No. 90 (Adj. Sess.), § 1, eff. March 8, 2018; 2019, No. 110 (Adj. Sess.), § 1, eff. June 15, 2020; 2021, No. 25, § 21, eff. May 12, 2021; 2021, No. 139 (Adj. Sess.), § 18, eff. May 27, 2022; 2023, No. 12, § 6, eff. May 8, 2023; 2023, No. 110 (Adj. Sess.), §§ 3, 8, eff. July 1, 2024.)

• § 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) Prior to issuing any policies of insurance or entering into any contracts of reinsurance, each captive insurance company 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 an agency captive insurance company, not less than $250,000.00;

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

  (6) in the case of a sponsored captive insurance company, not less than $100,000.00.

  (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, marketable securities, 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. The Commissioner may reduce or waive the capital and surplus amounts required by this section pursuant to a plan of dissolution for the company approved by the Commissioner.

  (d) Within 30 days after commencing business, each captive insurance company shall file with the Commissioner a statement under oath of its president and secretary certifying that the captive insurance company possessed the requisite unimpaired paid-in capital and surplus prior to commencing business. (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; 2015, No. 20, § 2, eff. May 7, 2015; 2017, No. 12, § 5, eff. May 1, 2017; 2019, No. 110 (Adj. Sess.), § 3, eff. June 15, 2020; 2021, No. 25, § 22, eff. May 12, 2021; 2023, No. 110 (Adj. Sess.), § 4, eff. July 1, 2024.)

• § 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 11B V.S.A. chapter 13, a captive insurance company or incorporated protected cell 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; 2019, No. 3, § 1, eff. April 18, 2019.)

• § 6006. Formation of captive insurance companies in this State

  (a) Subject to the approval of the Commissioner, a captive insurance company may be formed as any type of entity permissible under Vermont law.

  (b)-(c) [Repealed.]

  (d) A captive insurance company incorporated or organized in this State shall have one or more incorporators or one or more organizers, at least one of which shall be a resident of this State.

  (e)(1) Before any required formation documents are transmitted to the Secretary of State, the incorporators or organizers shall petition the Commissioner to issue a certificate setting forth the Commissioner’s finding that the establishment and maintenance of the proposed entity will promote the general good of the State. In arriving at such a finding, the Commissioner shall consider:

  (A) the character, reputation, financial standing, and purposes of the incorporators or organizers;

  (B) the character, reputation, financial responsibility, insurance experience, and business qualifications of the officers and directors or members of the governing board; and

  (C) such other aspects the Commissioner deems advisable.

  (2) The formation documents, the certificate, and the organization fee shall be transmitted to the Secretary of State, who shall record both the formation documents and the certificate.

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

  (g) 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.

  (h) 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.

  (i) 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.

  (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.

  (j) The provisions of chapter 101, subchapters 3 and 3A 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) If the shareholders, members, or policyholders of the captive insurance company have unanimously approved of the merger, the procedures set forth in section 6006a of this title shall apply.

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

  (3) The Commissioner may waive the requirements for public notice and hearing or, in accordance with rules that 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.

  (4) 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.

  (5) 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.

  (6) 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.

  (7) The Commissioner may waive or modify application of the provisions of chapter 132 and chapter 101, subchapters 3 and 3A of this title and the provisions of Titles 11, 11A, and 11B in order to permit mergers of a non-insurer subsidiary of a captive insurance company with and into the captive insurance company or another of its subsidiaries without approval of the shareholders, members, or subscribers of such captive insurance company and without making available to the shareholders, members, or subscribers dissenters’ rights otherwise made available in such a merger; provided, however, that the board of directors, managers, or subscribers’ advisory committee of each of the merging entities shall approve such merger. The Commissioner may condition any such waiver or modification upon a good faith effort by the captive insurance company to provide notice of the merger to its shareholders, members, or subscribers.

  (k) 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. However, in approving assessments levied upon subscribers of a captive insurance company formed as a reciprocal insurer, the Commissioner may exempt the company from any provision of sections 4850 (assessments), 4851 (time limit for assessments), and 4852 (aggregate of liability) of chapter 132. 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. The Commissioner may exempt a company’s attorney-in-fact from the provisions of section 4840 (attorney’s bond) of chapter 132 if:

  (1) the reciprocal insurer is formed as an association captive;

  (2) each member of the reciprocal insurer qualifies as “industrial insured” pursuant to subdivision 6001(9) of this subchapter; or

  (3) the reciprocal insurer is an incorporated protected cell of a sponsored captive insurance company.

  (l) 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.

  (m) 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.

  (n) 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.

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

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

  (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.

  (p) 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.

  (q) 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 that 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; 2013, No. 103 (Adj. Sess.), § 5, eff. April 14, 2014; 2015, No. 20, § 1, eff. May 7, 2015; 2017, No. 12, § 6, eff. May 1, 2017; 2019, No. 3, § 2, eff. April 18, 2019; 2019, No. 110 (Adj. Sess.), § 3A, eff. June 15, 2020; 2021, No. 25, § 26, eff. May 12, 2021.)

• § 6006a. Mergers

  (a) Any captive insurance company meeting the qualifications set forth in subdivision 6006(j)(1) of this title may merge with any other insurer, whether licensed in this State or elsewhere, in the following manner:

  (1) The board of directors of each insurer shall, by a resolution adopted by a majority vote of the members of such board, approve a joint agreement of merger setting forth:

  (A) the names of the insurers proposed to merge, and the name of the insurer into which they propose to merge, which is hereafter designated as the surviving company;

  (B) the terms and conditions of the proposed merger and the mode of carrying the same into effect;

  (C) the manner and basis of converting the ownership interests, if applicable, in other than the surviving insurer into ownership interests or other consideration, securities, or obligations of the surviving insurer;

  (D) a restatement of such provisions of the articles of incorporation of the surviving insurer as may be deemed necessary or advisable to give effect to the proposed merger; and

  (E) any other provisions with respect to the proposed merger as are deemed necessary or desirable.

  (2) The resolution of the board of directors of each insurer approving the agreement shall direct that the agreement be submitted to a vote of the shareholders, members, or policyholders, as the case may be, of each insurer entitled to vote in respect thereof at a designated meeting thereof, or via unanimous written consent of such shareholders, members, or policyholders in lieu of a meeting. Notice of the meeting shall be given as provided in the bylaws, charter, or articles of association, or other governance document, as the case may be, of each insurer and shall specifically reflect the agreement as a matter to be considered at the meeting.

  (3) The agreement of merger so approved shall be submitted to a vote of the shareholders, members, or policyholders, as the case may be, of each insurer entitled to vote in respect thereof at the meeting directed by the resolution of the board of directors of such company approving the agreement, and the agreement shall be unanimously adopted by the shareholders, members, or policyholders, as the case may be.

  (4) Following the adoption of the agreement by any insurer, articles of merger shall be adopted in the following manner:

  (A) Upon the execution of the agreement of merger by all of the insurers parties thereto, there shall be executed and filed, in the manner hereafter provided, articles of merger setting forth the agreement of merger, the signatures of the several insurers parties thereto, the manner of its adoption, and the vote by which adopted by each insurer.

  (B) The articles of merger shall be signed on behalf of each insurer by a duly authorized officer, in such multiple copies as shall be required to enable the insurers to comply with the provisions of this subchapter with respect to filing and recording the articles of merger, and shall then be presented to the Commissioner.

  (C) The Commissioner shall approve the articles of merger if he or she finds that the merger will promote the general good of the State in conformity with those standards set forth in section 3305 of this title. If he or she approves the articles of merger, he or she shall issue a certificate of approval of merger.

  (5) The insurer shall file the articles of merger, accompanied by the agreement of merger and the certificate of approval of merger, with the Secretary of State and pay all fees as required by law. If the Secretary of State finds that they conform to law, he or she shall issue a certificate of merger and return it to the surviving insurer or its representatives. The merger shall take effect upon the filing of articles of merger with the Secretary of State, unless a later effective date is specified therein.

  (6) The surviving insurer shall file a copy of the certificate of merger from the Secretary of State with the Commissioner.

  (b) When such merger has been effected as provided in this section:

  (1) The several insurers parties to the agreement of merger shall be a single captive insurance company that shall be the surviving insurer a party to the agreement of merger into which it has been agreed the other insurers parties to the agreement shall be merged, which surviving insurer shall survive the merger.

  (2) The separate existence of all of the insurers parties to the agreement of merger, except the surviving captive insurance company, shall cease.

  (3) The single captive insurance company shall have all of the rights, privileges, immunities, and powers and shall be subject to all of the duties and liabilities of a captive insurance company organized under this chapter.

  (4) The single captive insurance company shall possess all the rights, privileges, immunities, powers, and franchises of a public as well as of a private nature of each of the insurers so merged; and all property, real, personal, and mixed, and all debts due on whatever account, including subscriptions to shares of capital stock, and all other choses in action and all and every other interest, of or belonging to or due to each of the insurers so merged shall be taken and deemed to be transferred to and vested in such single captive insurance company without further act or deed; and the title to any real estate, or any interest therein, under the laws of this State vested in any such insurers shall not revert or be in any way impaired by reason of the merger.

  (5) The single captive insurance company shall be responsible and liable for all the liabilities and obligations of each of the insurers so merged in the same manner and to the same extent as if the single insurer had itself incurred the same or contracted therefor, and any claim existing or action or proceeding pending by or against any of the insurers may be prosecuted to judgment as if the merger had not taken place. Neither the rights of creditors nor any liens upon the property of any insurers shall be impaired by the merger, but such liens shall be limited to the property upon which they were liens immediately prior to the time of the merger unless otherwise provided in the agreement of merger.

  (6) The articles of association or other governing document of the surviving captive insurance company shall be supplanted and superseded to the extent, if any, that any provision or provisions of the articles are restated in the agreement of merger as provided in subsection (a) of this section, and such articles of association or other governing document shall be deemed to be thereby and to that extent amended.

  (c)(1) In the case of a merger between a domestic and a foreign or alien insurer, the articles of merger shall be regarded as executed by the proper officers of said foreign or alien insurer when such officers are duly authorized to execute same through such action on the part of the directors, shareholders, members, or policyholders, as the case may be, of said foreign or alien insurer as may be required by the laws of the state where the same is incorporated, and upon execution, the articles of merger shall be submitted to the insurance commissioner or other officer at the head of the insurance department of the jurisdiction where such foreign or alien insurer is domiciled. No merger shall take effect until it has been approved by the insurance official of the jurisdiction where the foreign or alien insurer is domiciled nor until a certificate of his or her approval has been filed with the Commissioner, provided that such submission to and approval by the proper official of the other jurisdiction shall not be required unless the same are required by the laws of the foreign or alien jurisdiction. Provided, further, that the domestic captive insurance company involved in the merger shall not through anything contained in this section be relieved of any of the procedural requirements enumerated elsewhere in this section.

  (2) A merger between a domestic and a foreign or alien captive insurance company shall not take effect unless and until the surviving captive insurance company, if such is a foreign or alien insurer, files with the Commissioner a power of attorney appointing the Commissioner the attorney for service of the foreign or alien insurer, upon whom all lawful process against the insurers may be served. Said power of attorney shall be irrevocable if the foreign or alien insurer has outstanding in this State any contract of insurance, or other obligation whatsoever, and shall by its terms so provide. Service upon the Commissioner shall be deemed sufficient service upon the insurer. (Added 2021, No. 25, § 27, eff. May 12, 2021; amended 2021, No. 139 (Adj. Sess.), § 19, eff. May 27, 2022.)

• § 6006b. Redomestication

  (a) Any foreign or alien insurer that qualifies for licensure as a captive insurance company in this State may redomesticate to this State by complying with all of the requirements of law relative to the organization and licensing of a captive insurance company and by filing with the Secretary of State its articles of association, charter, or other organization document, together with appropriate amendments thereto adopted in accordance with the laws of this State bringing such articles of association, charter, or other organizational document into compliance with the laws of this State, along with a certificate of general good issued by the Commissioner and a filing fee per section 3440 of this title. An insurer becoming a domestic captive insurance company through this redomestication process shall pay to the Commissioner such fees as would otherwise be payable by a captive insurance company organizing and becoming licensed or transacting business in this State. The Commissioner may issue a conditional license prior to the effective date of the redomestication in order to facilitate the transaction and provide notice of approval of the transaction to the outgoing jurisdiction. The domestic insurer shall be entitled to the necessary or appropriate certificates and licenses to continue its business and to transact business in this State and shall be subject to the authority and jurisdiction of this State. No insurer redomesticating into this State as a captive insurance company need merge, consolidate, transfer assets, or otherwise engage in any other reorganization, other than as specified in this section.

  (b) Upon the approval of and compliance with such conditions as may be imposed by the Commissioner, any captive insurance company may transfer its domicile, in accordance with the laws thereof, to any other state or jurisdiction and upon such a transfer shall cease to be a domestic captive insurance company, and its corporate or other legal existence in this State shall cease upon the filing of articles of redomestication with the Secretary of State, or upon such later date if a delayed effective date is specified in the articles of redomestication, accompanied by a certificate of approval of redomestication issued by the Commissioner and proof of acceptance of the insurer by the Secretary of State or analogous officer of the jurisdiction to which the captive insurance company is redomesticating, and upon payment to the Secretary of State of a filing fee per section 3438 of this title. Said articles of redomestication shall contain, at a minimum, the following information:

  (1) the name, organizational form, date of formation, and jurisdiction of formation of the redomesticating entity;

  (2) the jurisdiction to which the redomesticating entity will be transferring its domicile and its name following the redomestication date;

  (3) the registered office and agent of the redomesticating entity following the redomestication date; and

  (4) a statement that the redomestication has been approved by the appropriate vote of the shareholders or other owners of the redomesticating entity.

  (c) Upon redomestication in accordance with this section, the foreign or alien insurer shall become a captive insurance company organized under the laws of this State and have all the rights, privileges, immunities, and powers, and be subject to all applicable laws, duties, and liabilities, of domestic insurers of the same type. Such captive insurance company shall possess all rights that obtained prior to the redomestication to the extent permitted by the laws of this State and shall be responsible and liable for all the liabilities and obligations that obtained prior to the redomestication. The certificate of authority, agents, appointments and licenses, rates, and other items that the Commissioner allows, in his or her discretion, that are in existence at the time any insurer transfers its corporate domicile to this or any other state or jurisdiction by redomestication pursuant to this section shall continue in full force and effect upon such transfer. All outstanding policies of any transferring insurer shall remain in full force and effect. (Added 2021, No. 25, § 28, eff. May 12, 2021.)

• § 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, association captive insurance companies, sponsored captive insurance companies, industrial insured captive insurance companies, or agency 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, statutory accounting principles, or international financial reporting standards unless the Commissioner requires, approves, or accepts the use of any 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. As used in this section, statutory accounting principles shall mean the accounting principles codified in the NAIC Accounting Practices and Procedures Manual. Upon application for admission, a captive insurance company shall select, with explanation, an accounting method for reporting. Any change in a captive insurance company’s accounting method shall require prior approval. 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, sponsored 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.

  (c) Any pure captive insurance company, association captive insurance company, sponsored captive insurance company, industrial insured captive insurance company, or agency 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 captive insurance company shall file prior to March 15 of each year for each calendar year-end, the premium schedule of the “Vermont Captive Insurance Company Annual Report.” (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; 2015, No. 74 (Adj. Sess.), § 1, eff. April 13, 2016; 2017, No. 12, § 1, eff. May 1, 2017; 2017, No. 90 (Adj. Sess.), § 2, eff. March 8, 2018; 2021, No. 25, § 23, eff. May 12, 2021; 2021, No. 139 (Adj. Sess.), § 13, eff. May 27, 2022; 2023, No. 110 (Adj. Sess.), § 17, eff. July 1, 2024.)

• § 6008. Examinations and investigations

  (a) Whenever the Commissioner determines it to be prudent, but not less frequently than once every five years, the Commissioner shall personally, or by some competent person appointed by the Commissioner, inspect and examine each captive insurance company to ascertain its financial condition, its ability to fulfill its obligations, and whether it has complied with the provisions of this chapter. The expenses and charges of the examination shall be paid to the State by the company or companies examined.

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

  (c) Subdivision 6002(c)(3) of this title shall apply to 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. (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; 2019, No. 3, § 3, eff. April 18, 2019; 2023, No. 110 (Adj. Sess.), § 9, eff. July 1, 2024.)

• § 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 interests 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)(1) Except as may be otherwise authorized by the Commissioner, agency captive insurance companies, association captive insurance companies, sponsored captive insurance companies, protected cells in sponsored captive insurance companies, and risk retention groups shall:

  (A) comply with the investment requirements contained in sections 3461 through 3472 of this title, as applicable; or

  (B) submit for approval by the Commissioner the investment policy of the company. In reviewing the investment policy, the Commissioner shall consider diversification as to both type and issue; limits on the aggregate investment that may be made in any category of investment; limits on the aggregate investment in any one business, issuer, or risk; liquidity; and matching of assets and liabilities. The Commissioner shall determine whether the investment policy provides for the reasonable preservation, administration, and management of assets with respect to the risks associated with the company’s transactions and whether the investment policy supports the approved business plan. Subdivision 6002(c)(3) of this title shall apply to all information submitted pursuant to this subsection.

  (2) The Commissioner may require any company subject to this subsection to limit or withdraw from certain investments or discontinue certain investment practices if the Commissioner determines that such investments or practices of the company might be hazardous to the policyholders or the general public.

  (3) Section 3463a of this title shall apply to agency captive insurance companies, 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 to the contrary, 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, including those limitations contained in sections 3461-3472 of this title; 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; 2017, No. 12, § 7, eff. May 1, 2017; 2019, No. 3, § 4, eff. April 18, 2019; 2019, No. 110 (Adj. Sess.), § 7, eff. June 15, 2020.)

• § 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 (e) 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 (e) of this title.

  (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 that 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; 2023, No. 32, § 1, eff. July 1, 2023; 2023, No. 110 (Adj. Sess.), § 6, eff. July 1, 2024.)

• § 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 on or before March 15 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 on or before March 15 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 on each dollar thereafter. However, no reinsurance tax applies to premiums for risks or portions of risks that 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. 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 a captive insurance company’s parent or affiliates if the intent of such exchange 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. § 3202.

  (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) As used in 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, 13 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, 2017 shall receive a nonrefundable credit of $5,000.00 applied against the aggregate taxes owed for the first two taxable years 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; 2017, No. 73, § 30; 2017, No. 90 (Adj. Sess.), § 3, eff. March 8, 2018; 2023, No. 12, § 2, eff. July 1, 2023.)

• § 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 13 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 three percent of the premium tax under section 6014 may be expended by the Agency of Commerce and Community Development, with approval of the Secretary of Administration, for promotional expenses. 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; 2013, No. 179 (Adj. Sess.), § E.801; 2023, No. 110 (Adj. Sess.), § 5, eff. July 1, 2024.)

• § 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; however, the assets of a separate account established under subsection 6006(q) of this chapter shall not be used to pay any expenses or claims other than those attributable to such separate account. (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; 2013, No. 103 (Adj. Sess.), § 6, eff. April 14, 2014; 2019, No. 110 (Adj. Sess.), § 9, eff. June 15, 2020.)

• § 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.

• § 6024. Dormant captive insurance companies

  (a) As used in this section, unless the context requires otherwise, “dormant captive insurance company” means a captive insurance company that has:

  (1) ceased transacting the business of insurance, including the issuance of insurance policies; and

  (2) no remaining liabilities associated with insurance business transactions or insurance policies issued prior to the filing of its application for a certificate of dormancy under this section.

  (b) A captive insurance company domiciled in Vermont that meets the criteria of subsection (a) of this section may apply to the Commissioner for a certificate of dormancy. The certificate of dormancy shall be subject to renewal every five years and shall be forfeited if not renewed within such time.

  (c) A dormant captive insurance company that has been issued a certificate of dormancy shall:

  (1) possess and thereafter maintain unimpaired, paid-in capital and surplus of not less than $25,000.00; provided, however, that if the dormant captive insurance company had never capitalized, it shall not be required to add capital upon entering dormancy;

  (2) prior to March 15 of each year, submit to the Commissioner a report of its financial condition, verified by oath of two of its executive officers, in a form as may be prescribed by the Commissioner; and

  (3) pay a license renewal fee of $500.00.

  (d) A dormant captive insurance company shall not be subject to or liable for the payment of any tax under section 6014 of this chapter.

  (e) A dormant captive insurance company shall apply to the Commissioner for approval to surrender its certificate of dormancy and resume conducting the business of insurance prior to issuing any insurance policies.

  (f) A certificate of dormancy shall be revoked if a dormant captive insurance company no longer meets the criteria of subsection (a) of this section.

  (g) The Commissioner may establish guidelines and procedures as necessary to carry out the provisions of this section. (Added 2013, No. 103 (Adj. Sess.), § 1, eff. April 14, 2014; amended 2015, No. 74 (Adj. Sess.), § 2, eff. April 13, 2016; 2017, No. 12, § 8, eff. May 1, 2017; 2019, No. 110 (Adj. Sess.), § 2, eff. June 15, 2020.)

• Subchapter 002: 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) Subject to the approval of the Commissioner, a sponsored captive insurance company may be formed as any type of entity permissible under Vermont law. (Added 2003, No. 55, § 9; amended 2005, No. 122 (Adj. Sess.), § 5; 2009, No. 137 (Adj. Sess.), § 23, eff. May 29, 2010; 2019, No. 3, § 5, eff. April 18, 2019.)

• § 6032. Definitions

  As used in this subchapter:

  (1) “General account” means all assets and liabilities of the sponsored captive insurance company not attributable to a protected cell.

  (2) “Incorporated protected cell” means a protected cell that, subject to the approval of the Commissioner, is formed as any type of entity permissible under Vermont law, separate from the sponsored captive insurance company of which it is a part.

  (3) “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.

  (4) “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.

  (5) “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.

  (6) “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.

  (7) “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 or, subject to Commissioner approval, other parties unaffiliated with a participant as defined in subsection 6036(d) of this title, 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.

  (8) “Controlled unaffiliated entity” means any person or entity:

  (A) that is not in the corporate system of a participant and its affiliated companies;

  (B) that has an existing contractual relationship with a participant or one of its affiliated companies; and

  (C) whose risks are managed by a participant, as applicable, in accordance with section 6019 of this title. (Added 2003, No. 55, § 9; amended 2011, No. 21, § 21; 2011, No. 78 (Adj. Sess.), § 35, eff. April 2, 2012; 2013, No. 103 (Adj. Sess.), § 7, eff. April 14, 2014; 2015, No. 20, § 3, eff. May 7, 2015; 2019, No. 3, § 6, eff. April 18, 2019; 2021, No. 139 (Adj. Sess.), § 15, eff. May 27, 2022; 2023, No. 110 (Adj. Sess.), § 1, eff. July 1, 2024.)

• § 6033. Supplemental application materials

  In addition to the information required by subdivisions 6002(c)(1) and (2) of this title, and subject to the confidentiality provisions of subdivision 6002(c)(3) 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; amended 2023, No. 110 (Adj. Sess.), § 12, eff. July 1, 2024.)

• § 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 or, subject to Commissioner approval, other parties unaffiliated with a participant, 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) 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.

  (8) 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.

  (9) 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.

  (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. (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; 2015, No. 20, § 4, eff. May 7, 2015; 2019, No. 110 (Adj. Sess.), § 4, eff. June 15, 2020; 2021, No. 139 (Adj. Sess.), § 16, eff. May 27, 2022.)

• § 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(2) 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(8) of this title, shall be attached to and filed with the articles of incorporation or the articles of organization.

  (d)(1) An incorporated protected cell formed or established prior to May 8, 2023 shall have its own distinct name or designation, which shall include the words “Incorporated Cell” or the abbreviation “IC” or, in the alternative, such incorporated protected cell may instead choose to have its own distinct name or designation consistent with the naming conventions in subdivisions (2)(A)–(C) of this subsection, as applicable. The provisions of 11A V.S.A. chapter 4 and 11B V.S.A. chapter 4 shall not apply to the naming of incorporated protected cells.

  (2) An incorporated protected cell formed or established on or after May 8, 2023 shall have its own distinct name or designation as follows:

  (A) If the incorporated protected cell is formed or established as a corporation, mutual corporation, or nonprofit corporation, its name or designation shall include the words “Incorporated Cell” or the abbreviation “IC.” The provisions of 11A V.S.A. chapter 4 and 11B V.S.A. chapter 4 shall not apply to the naming of such incorporated protected cell.

  (B) If the incorporated protected cell is formed or established as a limited liability company, its name or designation shall include the word “Cell.” In addition, 11 V.S.A. § 4005 shall apply to the naming of such incorporated protected cell.

  (C) If the incorporated protected cell is formed or established as a reciprocal insurer, its name or designation shall include the word “Cell.” In addition, subdivision 4834(1) of this title shall apply to the naming of such incorporated protected cell.

  (e) It is the intent of the General Assembly under this section to provide sponsored captive insurance companies, including those licensed as special purpose financial 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, limited liability company, or reciprocal insurer. This section shall not be construed to limit any rights or protections applicable to protected cells not established as corporations, mutual corporations, nonprofit corporations, limited liability companies, or reciprocal insurers. (Added 2011, No. 21, § 23; amended 2011, No. 78 (Adj. Sess.), § 36, eff. April 2, 2012; 2013, No. 29, § 50, eff. May 13, 2013; 2013, No. 103 (Adj. Sess.), § 8, eff. April 14, 2014; 2015, No. 20, § 5, eff. May 7, 2015; 2017, No. 12, § 9, eff. May 1, 2017; 2019, No. 110 (Adj. Sess.), § 10, eff. June 15, 2020; 2023, No. 12, § 3, eff. May 8, 2023.)

• § 6034b. Separate accounts of protected cells

  With the Commissioner’s prior written approval, a protected cell of a sponsored captive insurance company may establish one or more separate accounts and may allocate to them amounts to provide for the insurance of risks of one or more participants, or controlled unaffiliated business of such participant or participants, 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 protected cell.

  (2) Amounts allocated to a separate account in the exercise of the power granted by this subsection are owned by the protected cell, and the protected cell 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 protected cell shall be valued in accordance with the rules otherwise applicable to the protected cell’s assets.

  (4) If and to the extent so provided under the applicable contracts that portion of the assets of any such protected cell 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 protected cell may conduct.

  (5) No sale, exchange, or other transfer of assets may be made by such protected cell 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 protected cell deems it necessary to comply with any applicable federal or State laws, such protected cell, with respect to any separate account, including any separate account that 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 protected cell, to manage the business of such account. (Added 2019, No. 110 (Adj. Sess.), § 6, eff. June 15, 2020.)

• § 6034c. Protected cell conversion

  (a)(1) Subject to the prior written approval of the Commissioner, on application of the sponsor and with the prior consent of each participant of the affected protected cells or as otherwise permitted pursuant to a participation agreement and the consent of each affected incorporated protected cell, a sponsored captive insurance company or a sponsored captive insurance company licensed as a special purpose financial insurance company may convert one or more protected cells or incorporated protected cells into a:

  (A) single protected cell or incorporated protected cell;

  (B) new sponsored captive insurance company;

  (C) new sponsored captive insurance company licensed as a special purpose financial insurance company;

  (D) new special purpose financial insurance company;

  (E) new pure captive insurance company;

  (F) new risk retention group;

  (G) new agency captive insurance company;

  (H) new industrial insured captive insurance company; or

  (I) new association captive insurance company.

  (2) Any such conversion shall be subject to section 6031 and subchapters 1 and 4 of this chapter, as applicable, as well as to a plan or plans of operation approved by the Commissioner, without affecting any protected cell’s or incorporated protected cell’s assets, rights, benefits, obligations, and liabilities.

  (b) Any such conversion shall be deemed for all purposes to be a continuation of each such protected cell’s or incorporated protected cell’s existence together with all of its assets, rights, benefits, obligations, and liabilities, as a new protected cell or incorporated protected cell, a licensed sponsored captive insurance company, a sponsored captive insurance company licensed as a special purpose financial insurance company, a pure captive insurance company, a risk retention group, an industrial insured captive insurance company, or an association captive insurance company, as applicable. Any such conversion shall be deemed to occur without any transfer or assignment of any such assets, rights, benefits, obligations, or liabilities and without the creation of any reversionary interest in, or impairment of, any such assets, rights, benefits, obligations, and liabilities.

  (c) Any such conversion shall not be construed to limit any rights or protections applicable to any converted protected cell or incorporated protected cell and such sponsored captive insurance company or sponsored captive insurance company licensed as a special purpose financial insurance company under this subchapter or under subchapter 4 of this chapter, as applicable, that existed immediately prior to the date of any such conversion.

  (d)(1) Any protected cell converting into an incorporated protected cell pursuant to this section, or converting into a new captive insurance company or risk retention group pursuant to this section, shall perform such conversion in accordance with:

  (A) the provisions of 11A V.S.A. chapter 11 if the converted entity is to be a corporation;

  (B) the provisions of 11 V.S.A. chapter 25, subchapter 10 if the converted entity is to be a limited liability company; or

  (C) the provisions applicable to any other type of entity permissible under Vermont law if the converted entity is to be such an entity.

  (2) As used in this subdivision, a protected cell that is not an incorporated protected cell shall be considered an “organization” as that term is defined in 11A V.S.A. § 11.01 and 11 V.S.A. § 4141; an “other insurer” as that term is defined in 8 V.S.A. § 6020; and an “entity” as that term is defined in 11C V.S.A. § 102. (Added 2015, No. 74 (Adj. Sess.), § 3, eff. April 13, 2016; amended 2019, No. 110 (Adj. Sess.), § 5, eff. June 15, 2020; 2021, No. 25, § 24, eff. May 12, 2021.)

• § 6034d. Sale, transfer, or assignment of protected cells

  (a) Subject to the prior written approval of the Commissioner, on application of the sponsor and with the prior consent of each participant of the affected protected cell or as otherwise permitted pursuant to a participation agreement, or the consent of the affected incorporated protected cell, a sponsored captive insurance company or a sponsored captive insurance company licensed as a special purpose financial insurance company may sell, transfer, assign, and otherwise convey a protected cell or incorporated protected cell together with all of the protected cell’s assets, rights, benefits, obligations, and liabilities to a new or existing sponsored captive insurance company or sponsored captive insurance company licensed as a special purpose financial insurance company, pursuant to a plan or plans of operation approved by the Commissioner.

  (b) Any such sale, transfer, assignment, or conveyance shall be deemed for all purposes to be a continuation of the protected cell’s existence together with all of its assets, rights, benefits, obligations, and liabilities, as a protected cell of the transferee.

  (c) Any such sale, transfer, assignment, or conveyance shall not be construed to limit any rights or protections applicable to the transferred protected cell or incorporated protected cell and the transferor sponsored captive insurance company or sponsored captive insurance company licensed as a special purpose financial insurance company under this subchapter or under section 6048n of this title, as applicable, that existed immediately prior to any such sale, transfer, assignment, or conveyance. (Added 2015, No. 74 (Adj. Sess.), § 4, eff. April 13, 2016; amended 2019, No. 110 (Adj. Sess.), § 5, eff. June 15, 2020.)

• § 6034e. Repealed. 2021, No. 25, § 25, eff. May 12, 2021.

• § 6034f. Annual report; books and records

  (a) For purposes of subsection 6007(b) of this chapter:

  (1) Each sponsored captive insurance company shall annually file with the Commissioner such financial reports as the Commissioner requires, which shall include accounting statements detailing the financial experience of each protected cell.

  (2) Unless otherwise approved in advance by the Commissioner, a sponsored captive insurance company shall maintain its books, records, documents, accounts, vouchers, and agreements in this State. A sponsored captive insurance company shall make its books, records, documents, accounts, vouchers, and agreements available for inspection by the Commissioner at any time. A sponsored captive insurance company shall keep its books and records in such manner that its financial condition, affairs, and operations can be readily ascertained and so that the Commissioner may readily verify its financial statements and determine its compliance with this chapter.

  (3) Unless otherwise approved in advance by the Commissioner, all original books, records, documents, accounts, vouchers, and agreements shall be preserved and kept available in this State for the purpose of examination and inspection and until such time as the Commissioner approves the destruction or other disposition of such books, records, documents, accounts, vouchers, and agreements. If the Commissioner approves the keeping of the items listed in this subdivision outside this State, the sponsored captive insurance company shall maintain in this State a complete and true copy of each such original. Books, records, documents, accounts, vouchers, and agreements may be photographed, reproduced on film, or stored and reproduced electronically. (Added 2021, No. 139 (Adj. Sess.), § 17, eff. May 27, 2022.)

• § 6034g. Confidentiality

  (a) Subdivision 6002(c)(3) and subsection 6008(c) of this title shall apply to all documents, materials, or other information, including confidential and privileged documents, examination reports, preliminary examination reports or results, working papers, recorded information, 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 subchapter.

  (b) In furtherance of the Commissioner’s regulatory duties, the Commissioner may share and receive documents, materials, or other information pursuant to section 22 of this title. (Added 2023, No. 110 (Adj. Sess.), § 13, eff. July 1, 2024.)

• § 6034h. Conversion into protected cell

  (a)(1) Subject to the prior written approval of the Commissioner, a captive insurance company domiciled in this State and organized as an agency captive insurance company, association captive insurance company, industrial insured captive insurance company, pure captive insurance company, risk retention group, or special purpose financial insurance company may be converted into an unincorporated protected cell.

  (2) Any such conversion shall be subject to subchapters 1 and 4 of this chapter, as applicable, as well as to a plan or plans of operation approved by the Commissioner, without affecting the converted entity’s assets, rights, benefits, obligations, or liabilities.

  (b) Any such conversion shall be deemed for all purposes to be a continuation of such converted entity’s existence together with all of its assets, rights, benefits, obligations, and liabilities as a new protected cell. Any such conversion shall be deemed to occur without any transfer or assignment of any such assets, rights, benefits, obligations, or liabilities and without the creation of any reversionary interest in, or impairment of, any such assets, rights, benefits, obligations, and liabilities.

  (c) Any such conversion shall not be construed to limit any rights or protections applicable to any converted entity under this subchapter or under subchapter 1 or 4 of this chapter, as applicable, that existed immediately prior to the date of such conversion.

  (d)(1) Any entity converting into a protected cell pursuant to this section shall perform such conversion in accordance with:

  (A) the provisions of 11A V.S.A. chapter 11 if the converted entity was a corporation;

  (B) the provisions of 11 V.S.A. chapter 25, subchapter 10 if the converted entity was a limited liability company; or

  (C) the provisions applicable to any other type of entity permissible under Vermont law if the converted entity was such an entity.

  (2) As used in this subsection (d), a protected cell that is not an incorporated protected cell shall be considered an “organization” as that term is defined in 11A V.S.A. § 11.01 and 11 V.S.A. § 4141, an “other insurer” as that term is defined in 8 V.S.A. § 6020, and an “entity” as that term is defined in 11C V.S.A. § 102. (Added 2023, No. 110 (Adj. Sess.), § 2, eff. July 1, 2024.)

• § 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, sole proprietorships, 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 not insure any risks other than its own and the risks of affiliated entities or of controlled unaffiliated entities. (Added 1999, No. 38, § 19, eff. May 20, 1999; amended 2003, No. 55, § 9; 2011, No. 78 (Adj. Sess.), § 40, eff. April 2, 2012; 2015, No. 20, § 6, eff. May 7, 2015; 2019, No. 3, § 7, eff. April 18, 2019.)

• § 6037. Investments by sponsored captive insurance companies and protected cells

  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 and protected cells shall comply with the investment requirements contained in section 6010 of this title. (Added 2003, No. 55, § 9; amended 2019, No. 110 (Adj. Sess.), § 8, eff. June 15, 2020.)

• § 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 and to each of its protected cells.

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

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

  (1) In connection with the conservation, rehabilitation, or liquidation of a sponsored captive insurance company or any of its protected cells, the assets and liabilities of a protected cell shall at all times be kept separate from, and shall not be commingled with, those of other protected cells and the sponsored captive insurance company.

  (2) The assets of a protected cell may not be used to pay any expenses or claims other than those attributable to such protected cell.

  (3) Unless the sponsor consents and the Commissioner has granted prior written approval, the assets of the sponsored captive insurance company’s general account shall not be used to pay any expenses or claims attributable solely to a protected cell or protected cells of the sponsored captive insurance company. In the event that the assets of the sponsored captive insurance company’s general account are used to pay expenses or claims attributable solely to a protected cell or protected cells of the sponsored captive insurance company, the sponsor is not required to contribute additional capital and surplus to the sponsored captive insurance company’s general account, notwithstanding the provisions of section 6004 of this title.

  (4) 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.

  (d) Notwithstanding the provisions of chapter 145 of this title or any other provision of law to the contrary, and, in addition to the provisions of this section, in the event of an insolvency of a sponsored captive insurance company or any of its protected cells 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, on application of the sponsor, may allow for the conversion of such protected cells into one or more new or existing sponsored captive insurance companies, or one or more other captive insurance companies, pursuant to a plan or plans of operation approved by the Commissioner.

  (e) Notwithstanding the provisions of chapter 145 of this title or any other provision of law to the contrary, and in addition to the provisions of this section, in the event of an insolvency of one or more protected cells of a sponsored captive insurance company, the Commissioner may separate such cell or cells from the sponsored captive insurance company and may allow for the conversion of such protected cell or cells into one or more new or existing sponsored captive insurance companies, or one or more other captive insurance companies, pursuant to a plan or plans of operation approved by the Commissioner. (Added 2003, No. 55, § 9; amended 2009, No. 42, § 24, eff. May 27, 2009; 2015, No. 20, § 7, eff. May 7, 2015; 2021, No. 139 (Adj. Sess.), § 14, eff. May 27, 2022.)

• § 6039. Claimant recourse

  (a) Consistent with the provisions of this subchapter, a creditor of a sponsored captive insurance company shall have recourse against the assets attributable to a protected cell if, and only if it is a creditor of the protected cell. A creditor of a protected cell shall not be entitled to recourse against the assets attributable to any other protected cell or to the assets in the sponsored captive insurance company’s general account.

  (b) When a sponsored captive insurance company has an obligation to a creditor arising from a transaction, or otherwise imposed, with respect to a particular protected cell, the obligation:

  (1) shall extend only to the assets attributable to that protected cell, and the creditor shall be entitled to recourse only against the assets attributable to that protected cell; and

  (2) shall not extend to the assets of any other protected cell or to the assets in the sponsored captive insurance company’s general account, and the creditor shall not be entitled to recourse against the assets attributable to any other protected cell or to the assets of the sponsored captive insurance company’s general account.

  (c) When an obligation of a sponsored captive insurance company relates solely to its general account, a creditor shall have recourse only against the assets in the general account.

  (d) The establishment of one or more protected cells alone, and without more, shall not constitute or be deemed to be a fraudulent conveyance, an intent by the sponsored captive insurance company to defraud creditors, or the carrying out of business by the sponsored captive insurance company for any other fraudulent purpose. (Added 2015, No. 20, § 8, eff. May 7, 2015.)

• Subchapter 003: BRANCH CAPTIVE INSURANCE COMPANIES

• § 6041. Establishment of a branch captive insurance company

  (a) A branch captive insurance company may be established in this State in accordance with the provisions of this chapter, including subdivision 6002(c)(3) 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:

  (1) maintains the principal place of business for its branch operations in this State;

  (2) appoints a principal representative in this State who is a resident of this State; and

  (3) designates the Commissioner as its agent of such branch captive insurance company upon whom any process, notice, or demand may be served.

  (c) As used in this section, “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.

  (d) The provisions of subsection 6006(f) of this title shall not apply to branch captive insurance companies formed in this State. (Added 2003, No. 55, § 9; amended 2013, No. 29, § 51, eff. May 13, 2013; 2017, No. 90 (Adj. Sess.), § 4, eff. March 8, 2018; 2023, No. 110 (Adj. Sess.), § 14, eff. July 1, 2024.)

• § 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 that 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.]

  § 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 U.S. policyholders and U.S. 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; 2009, No. 42, § 25, eff. May 27, 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. Repealed. 2017, No. 90 (Adj. Sess.), § 5, eff. March 8, 2018.

• § 6045. Branch captive reports

  Prior to March 15 of each year, or with the approval of the Commissioner within 75 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; amended 2023, No. 12, § 1, eff. May 8, 2023.)

• § 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.)

• § 6047a. Confidentiality

  (a) Subdivision 6002(c)(3) and subsection 6008(c) of this title shall apply to all documents, materials, or other information, including confidential and privileged documents, examination reports, preliminary examination reports or results, working papers, recorded information, and copies thereof that are produced by, obtained by, or disclosed to the Commissioner or any other person in the course of an examination made under this subchapter.

  (b) In furtherance of the Commissioner’s duties, the Commissioner may share and receive documents, materials, or other information pursuant to section 22 of this title. (Added 2023, No. 110 (Adj. Sess.), § 15, eff. July 1, 2024.)

• Subchapter 004: 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 July 1, 2007 and that are adopted after July 1, 2007.

  (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 July 1, 2007 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.)

• § 6048c. Definitions

  As used in this subchapter:

  (1) “Ceding insurer” means an insurance company approved by the Commissioner and licensed or otherwise authorized to transact the business of insurance or reinsurance in its state or country of domicile, which cedes risk to a special purpose financial insurance company pursuant to a reinsurance contract.

  (2) “Insolvency” and “insolvent,” for purpose of applying the provisions of chapter 145 of this title to a special purpose financial insurance company, mean:

  (A) that the special purpose financial insurance company is unable to pay its obligations when they are due, unless those obligations are the subject of a bona fide dispute; or

  (B) the special purpose financial insurance company has failed to meet all criteria and conditions for solvency of the special purpose financial insurance company established by the Commissioner by rule or order.

  (3) “Insurance securitization” and “securitization” mean a transaction or a group of related transactions, which may include capital market offerings, that are effected through related risk transfer instruments and facilitating administrative agreements where all or part of the result of such transactions is used to fund the special purpose financial insurance company’s obligations under a reinsurance contract with a ceding insurer and by which:

  (A) proceeds are obtained by a special purpose financial insurance company, directly or indirectly, through the issuance of securities by the special purpose financial insurance company or any other person; or

  (B) a person provides one or more letters of credit or other assets for the benefit of the special purpose financial insurance company, which the Commissioner authorizes the special purpose financial insurance company to treat as admitted assets for purposes of the special purpose financial insurance company’s annual report; where all or any part of such proceeds, letters of credit, or assets, as applicable, are used to fund the special purpose financial insurance company’s obligations under a reinsurance contract with a ceding insurer. The terms “insurance securitization” and “securitization” do not include the issuance of a letter of credit for the benefit of the Commissioner to satisfy all or part of the special purpose financial insurance company’s capital and surplus requirements under section 6048g of this chapter.

  (4) “Management” means the board of directors, managing board, or other individual or individuals vested with overall responsibility for the management of the affairs of the special purpose financial insurance company, including officers or other agents elected or appointed to act on behalf of the special purpose financial insurance company.

  (5) “Organizational document” means:

  (A) in the case of a special purpose financial insurance company formed as a stock corporation, the special purpose financial insurance company’s articles of incorporation and bylaws; and

  (B) in the case of a special purpose financial insurance company formed as a limited liability company, the special purpose financial insurance company’s articles of organization and operating agreement.

  (6) “Reinsurance contract” means a contract between a special purpose financial insurance company and a ceding insurer pursuant to which the special purpose financial insurance company agrees to provide reinsurance to the ceding insurer for risks associated with the ceding insurer’s insurance or reinsurance business.

  (7) “Security” shall have the same meaning as defined in 9 V.S.A. § 5102(28) and shall also include any form of debt obligation, equity, surplus certificate, surplus note, funding agreement, derivative, or other financial instrument that the Commissioner designates, by rule or order, as a “security” for purposes of this subchapter.

  (8) “Special purpose financial insurance company” means a captive insurance company that has received a license from the Commissioner to operate as a special purpose financial insurance company pursuant to this subchapter.

  (9) “Special purpose financial insurance company security” means:

  (A) a security issued by a special purpose financial insurance company; or

  (B) a security issued by a third party, the proceeds of which are obtained directly or indirectly by a special purpose financial insurance company.

  (10) “Surplus note” means an unsecured subordinated debt obligation possessing characteristics consistent with paragraph 3 of the National Association of Insurance Commissioners Statement of Statutory Accounting Principles No. 41, as amended from time to time and as modified or supplemented by rule or order of the Commissioner. (Added 2007, No. 49, § 17; amended 2013, No. 29, § 54, eff. May 13, 2013.)

• § 6048d. Licensing; authority

  (a) A special purpose financial insurance company may reinsure the risks of a ceding insurer only. A special purpose financial insurance company may purchase reinsurance to cede the risks assumed under a reinsurance contract, subject to the prior approval of the Commissioner.

  (b) In conjunction with the issuance of a license to a special purpose financial insurance company, the Commissioner may issue an order that includes any provisions, terms, and conditions regarding the organization, licensing, and operation of the special purpose financial insurance company that are deemed appropriate by the Commissioner and that are not inconsistent with the provisions of this chapter. Except as provided in sections 6048l and 6048m of this subchapter, a license issued to a special purpose financial insurance company pursuant to this chapter and any order issued to a special purpose financial insurance company pursuant to this subsection shall not be revoked, suspended, amended, or modified other than as follows:

  (1) the special purpose financial insurance company consents to such revocation, suspension, amendment, or modification; or

  (2) the Commissioner makes a showing of clear and convincing evidence demonstrating that such revocation, suspension, amendment, or modification is necessary to avoid irreparable harm to the special purpose financial insurance company or to the ceding insurer.

  (c) To qualify for a license, a special purpose financial insurance company shall be subject, in addition to the requirements of subsection 6002(c) of this chapter, to the following:

  (1) The special purpose financial insurance company’s plan of operation shall include:

  (A) a complete description of all significant transactions, including reinsurance, reinsurance security arrangements, securitizations, related transactions or arrangements, and, to the extent not included in the transactions listed in this subdivision (A), a complete description of all parties other than the special purpose financial insurance company and the ceding insurer that will be involved in the issuance of special purpose financial insurance company securities and a description of any pledge, hypothecation, or grant of a security interest in any of the special purpose financial insurance company’s assets and in any stock or limited liability company interest in the special purpose financial insurance company;

  (B) the source and form of the special purpose financial insurance company’s capital and surplus;

  (C) the proposed investment policy of the special purpose financial insurance company;

  (D) a description of the underwriting, reporting, and claims payment methods by which losses covered by the reinsurance contract are reported, accounted for, and settled;

  (E) pro forma balance sheets and income statements illustrating one or more adverse case scenarios, as determined under criteria required by the Commissioner, for the performance of the special purpose financial insurance company under all reinsurance contracts; and

  (F) the proposed rate and method for discounting reserves, if the special purpose financial insurance company is requesting authority to discount its reserves.

  (2) The special purpose financial insurance company shall submit an affidavit of its president, a vice president, the treasurer, or the chief financial officer that includes the following statements, to the best of such person’s knowledge and belief after reasonable inquiry:

  (A) the proposed organization and operation of the special purpose financial insurance company comply with all applicable provisions of this chapter;

  (B) the special purpose financial insurance company’s investment policy reflects and takes into account the liquidity of assets and the reasonable preservation, administration, and management of such assets with respect to the risks associated with the reinsurance contract and the insurance securitization transaction; and

  (C) the reinsurance contract and any arrangement for securing the special purpose financial insurance company’s obligations under such reinsurance contract, including any agreements or other documentation to implement such arrangement, comply with the provisions of this subchapter.

  (3) The application shall include copies of all agreements and documentation described in subdivision (1) of this subsection (c) unless otherwise approved by the Commissioner and any other statements or documents required by the Commissioner to evaluate the special purpose financial insurance company’s application for licensure.

  (4) The application shall include an opinion of qualified legal counsel, in a form acceptable to the Commissioner, that the offer and sale of any special purpose financial insurance company securities complies with all applicable registration requirements or applicable exemptions from or exceptions to such requirements of the federal securities laws and that the offer and sale of securities by the special purpose financial insurance company itself comply with all registration requirements or applicable exemptions from or exceptions to such requirements of the securities laws of this State. Such opinions shall not be required as part of the application if the special purpose financial insurance company includes a specific statement in its plan of operation that such opinions will be provided to the Commissioner in advance of the offer or sale of any special purpose financial insurance company securities.

  (d) The Commissioner may grant a license, which shall be valid through the next April 1 following the date of initial issuance and may be renewed annually thereafter, authorizing the special purpose financial insurance company to transact reinsurance business as a special purpose financial insurance company in this State upon finding that:

  (1) the proposed plan of operation provides for a reasonable and expected successful operation;

  (2) the terms of the reinsurance contract and related transactions comply with this subchapter;

  (3) the proposed plan of operation is not hazardous to any ceding insurer; and

  (4) the insurance regulator of the state of domicile of each ceding insurer has notified the Commissioner in writing or otherwise has provided assurance satisfactory to the Commissioner that it has approved or has not disapproved the transaction, provided that the Commissioner shall not be precluded from issuing a license to a special purpose financial insurance company in the event that the insurance regulator of the state of domicile of a ceding insurer has not responded with respect to all or any part of the transaction.

  (e) The special purpose financial insurance company shall provide the Commissioner with a copy of a complete set of executed documentation of an insurance securitization no later than 30 days after the closing on the transactions for such securitization.

  (f) Subdivision 6002(c)(3) of this chapter shall apply to all information submitted pursuant to subsections (c) and (e) of this section and to any order issued to the special purpose financial insurance company pursuant to subsection (b) of this section. (Added 2007, No. 49, § 17; amended 2013, No. 29, § 55, eff. May 13, 2013.)

• § 6048e. Changes in plan of operation; voluntary dissolution or cessation of business

  (a) Any change in the special purpose financial insurance company’s plan of operation shall require prior approval of the Commissioner.

  (b) Any transaction or series of transactions shall be subject to the prior approval of the Commissioner if such transaction or series of transactions:

  (1) is undertaken to dissolve a special purpose financial insurance company; or

  (2) results in the termination of all or any part of a special purpose financial insurance company’s business; but no prior approval of the Commissioner shall be required for any transaction or series of transactions described in this subdivision (2) if such transaction or series of transactions is done in accordance with a document or agreement described in the special purpose financial insurance company’s plan of operation and if the Commissioner is notified in advance of such transaction or series of transactions.

  (c) A special purpose financial insurance company shall notify the Commissioner in advance of any change in the legal ownership of any security issued by the special purpose financial insurance company. (Added 2007, No. 49, § 17; amended 2013, No. 29, § 56, eff. May 13, 2013.)

• § 6048f. Formation

  (a) A special purpose financial insurance company may be incorporated as a stock insurer with its capital divided into shares and held by its stockholders, or it may be organized as a manager-managed limited liability company.

  (b) A special purpose financial insurance company’s organizational documents shall limit the special purpose financial insurance company’s authority to transact the business of insurance or reinsurance to those activities that the special purpose financial insurance company conducts to accomplish its purposes as expressed in this subchapter. (Added 2007, No. 49, § 17; amended 2013, No. 29, § 57.)

• § 6048g. Minimum capital and surplus

  A special purpose financial insurance company shall not be issued a license unless it shall possess and thereafter maintain unimpaired paid-in capital and surplus of not less than $5,000,000.00. (Added 2007, No. 49, § 17; amended 2013, No. 29, § 58.)

• § 6048h. Securities

  (a) A special purpose financial insurance company may:

  (1) subject to the prior approval of the Commissioner, account for the proceeds of a surplus note issued by the special purpose financial insurance company as surplus; and

  (2) submit for prior approval of the Commissioner periodic written requests for authorization to make payments of interest on and repayments of principal of surplus notes and other debt obligations issued by the special purpose financial insurance company, provided that the Commissioner shall not approve such payment if the Commissioner determines that such payment would jeopardize the ability of the special purpose financial insurance company or any other person to fulfill his or her respective obligations pursuant to the special purpose financial insurance company securitization agreements, the reinsurance contract, or any related transaction. In lieu of approval of periodic written requests for authorization to make payments of interest on and repayments of principal of surplus notes and other debt obligations issued by the special purpose financial insurance company, the Commissioner may approve a formula or plan, which shall be included in the special purpose financial insurance company’s plan of operation as amended from time to time, for payment of interest, principal, or both with respect to such surplus notes and debt obligations.

  (b) In addition to the provisions of section 6005 of this chapter, no dividend or distribution may be declared or paid by a special purpose financial insurance company if such dividend or distribution would jeopardize the ability of the special purpose financial insurance company or any other person to fulfill the company’s or other person’s respective obligations pursuant to the special purpose financial insurance company securitization agreements, the reinsurance contract, or any related transaction.

  (c) A special purpose financial insurance company security shall not be subject to regulation as an insurance or reinsurance contract. An investor in such a security or a holder of such a security shall not be considered to be transacting the business of insurance in this State solely by reason of having an interest in the security. The underwriter’s placement or selling agents and their partners, commissioners, officers, members, managers, employees, agents, representatives, and advisors involved in an insurance securitization by a special purpose financial insurance company shall not be considered to be insurance producers or brokers or to be conducting business as an insurance or reinsurance company or as an insurance agency, brokerage, intermediary, advisory, or consulting business solely by virtue of their underwriting activities in connection with such securitization. (Added 2007, No. 49, § 17; amended 2013, No. 29, § 59, eff. May 13, 2013.)

• § 6048i. Permitted reinsurance

  (a) A special purpose financial insurance company may reinsure only the risks of a ceding insurer, pursuant to a reinsurance contract. A special purpose financial insurance company may not issue a contract of insurance or a contract for assumption of risk or indemnification of loss other than such reinsurance contract.

  (b) Unless otherwise approved in advance by the Commissioner, a special purpose financial insurance company may not assume or retain exposure to insurance or reinsurance losses for its own account that are not funded by:

  (1) proceeds from a special purpose financial insurance company securitization or letters of credit or other assets described in subdivision 6048c(3) of this chapter;

  (2) premium and other amounts payable by the ceding insurer to the special purpose financial insurance company pursuant to the reinsurance contract; and

  (3) any return on investment of the items in subdivisions (1) and (2) of this subsection.

  (c) The reinsurance contract shall contain all provisions reasonably required or approved by the Commissioner, which requirements shall take into account the laws applicable to the ceding insurer regarding the ceding insurer taking credit for the reinsurance provided under such reinsurance contract.

  (d) A special purpose financial insurance company may cede risks assumed through a reinsurance contract to one or more reinsurers through the purchase of reinsurance, subject to the prior approval of the Commissioner.

  (e) A special purpose financial insurance company may enter into contracts and conduct other commercial activities related or incidental to and necessary to fulfill the purposes of the reinsurance contract, the insurance securitization, and this subchapter, provided such contracts and activities are included in the special purpose financial insurance company’s plan of operation or are otherwise approved in advance by the Commissioner. Such contracts and activities may include: entering into reinsurance contracts; issuing special purpose financial insurance company securities; complying with the terms of these contracts or securities; entering into trust, guaranteed investment contract, swap, or other derivative, tax, administration, reimbursement, or fiscal agent transactions; complying with trust indenture, reinsurance, or retrocession; and other agreements necessary or incidental to effect an insurance securitization in compliance with this subchapter and the special purpose financial insurance company’s plan of operation.

  (f) Unless otherwise approved in advance by the Commissioner, a reinsurance contract shall not contain any provision for payment by the special purpose financial insurance company in discharge of its obligations under the reinsurance contract to any person other than the ceding insurer or any receiver of the ceding insurer.

  (g) A special purpose financial insurance company shall notify the Commissioner immediately of any action by a ceding insurer or any other person to foreclose on or otherwise take possession of collateral provided by the special purpose financial insurance company to secure any obligation of the special purpose financial insurance company. (Added 2007, No. 49, § 17; amended 2013, No. 29, § 60, eff. May 13, 2013.)

• § 6048j. Disposition of assets; investments

  (a) The assets of a special purpose financial insurance company shall be preserved and administered by or on behalf of the special purpose financial insurance company to satisfy the liabilities and obligations of the special purpose financial insurance company incident to the reinsurance contract, the insurance securitization, and other related agreements.

  (b) In the special purpose financial insurance company securitization, the security offering memorandum or other document issued to prospective investors regarding the offer and sale of a surplus note or other security shall include a disclosure that all or part of the proceeds of such insurance securitization will be used to fund the special purpose financial insurance company’s obligations to the ceding insurer.

  (c) A special purpose financial insurance company shall not be subject to any restriction on investments other than the following:

  (1) a special purpose financial insurance company shall not make a loan to any person other than as permitted under its plan of operation or as otherwise approved in advance by the Commissioner; and

  (2) the Commissioner may prohibit or limit any investment that threatens the solvency or liquidity of the special purpose financial insurance company unless the investment is otherwise approved in its plan of operation or in an order issued to the special purpose financial insurance company pursuant to subsection 6048d(b) of this chapter, as either is amended from time to time. (Added 2007, No. 49, § 17; amended 2013, No. 29, § 61, eff. May 13, 2013.)

• § 6048k. Annual report; books and records

  (a) For purposes of subsection 6007(b) of this chapter:

  (1) the Commissioner shall, by rule or order, establish the form and content of the annual report to be filed by a special purpose financial insurance company; and

  (2) a special purpose financial insurance company shall report using statutory accounting principles, unless the Commissioner requires, approves, or accepts the use of generally accepted accounting principles or other comprehensive basis of accounting, in each case with any appropriate or necessary modifications or adaptations required or approved or accepted by the Commissioner and as supplemented by additional information required by the Commissioner.

  (b) A special purpose financial insurance company may make written application to file its annual report on a fiscal-year basis. If an alternative reporting date is granted, the Commissioner shall establish the due date and content of any filing required by the special purpose financial insurance company in addition to its annual report.

  (c) Unless otherwise approved in advance by the Commissioner, a special purpose financial insurance company shall maintain its books, records, documents, accounts, vouchers, and agreements in this State. A special purpose financial insurance company shall make its books, records, documents, accounts, vouchers, and agreements available for inspection by the Commissioner at any time. A special purpose financial insurance company shall keep its books and records in such manner that its financial condition, affairs, and operations can be readily ascertained and so that the Commissioner may readily verify its financial statements and determine its compliance with this chapter.

  (d) Unless otherwise approved in advance by the Commissioner, all books, records, documents, accounts, vouchers, and agreements shall be preserved and kept available in this State for the purpose of examination and inspection and until such time as the Commissioner approves the destruction or other disposition of such books, records, documents, accounts, vouchers, and agreements. If the Commissioner approves the keeping of the items listed in this subsection outside this State, the special purpose financial insurance company shall maintain in this State a complete and true copy of each such item. Books, records, documents, accounts, vouchers, and agreements may be photographed, reproduced on film, or stored and reproduced electronically. (Added 2007, No. 49, § 17; amended 2009, No. 42, § 27, eff. May 27, 2009; 2013, No. 29, § 62, eff. May 13, 2013; 2023, No. 12, § 4, eff. May 8, 2023.)

• § 6048l. License suspension and revocation

  (a) The Commissioner shall notify a special purpose financial insurance company not less than 30 days before suspending or revoking its license pursuant to section 6009 of this chapter, which notice shall state the basis for such suspension or revocation. The special purpose financial insurance company shall be afforded the opportunity for a hearing pursuant to the provisions of the Vermont Administrative Procedure Act, 3 V.S.A. chapter 25.

  (b) Notwithstanding subsection (a) of this section and 3 V.S.A. § 814(c), no prior notice or hearing shall be required if the grounds for suspension or revocation of a special purpose financial insurance company’s license pursuant to section 6009 of this chapter relate primarily to the financial condition or soundness of the special purpose financial insurance company or to a deficiency in its assets.

  (c) For purposes of this subchapter, reference to section 6004 in subdivision 6009(a)(2) of this title shall be construed also as a reference to section 6048g of this subchapter. (Added 2007, No. 49, § 17; amended 2013, No. 29, § 63, eff. May 13, 2013.)

• § 6048m. Delinquency

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

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

  (c) Amounts recoverable by the receiver of a special purpose financial insurance company under a reinsurance contract shall not be reduced or diminished as a result of the entry of an order of conservation, rehabilitation, or liquidation with respect to a ceding insurer, notwithstanding any provision in the contracts or other documentation governing the special purpose financial insurance company securitization.

  (d) Notwithstanding the provisions of chapter 145 of this title or any other law of this State:

  (1) An application or petition or a temporary restraining order or injunction issued pursuant to the provisions of chapter 145 of this title with respect to a ceding insurer does not prohibit the transaction of business by a special purpose financial insurance company, including any payment by a special purpose financial insurance company made with respect to a special purpose financial insurance company security, or any action or proceeding against a special purpose financial insurance company or its assets.

  (2) The commencement of a summary proceeding with respect to a special purpose financial insurance company and any order issued by the court in such summary proceeding shall not prohibit payments by a special purpose financial insurance company and shall not prohibit the special purpose financial insurance company from taking any action required to make such payments, provided such payments are made:

  (A) pursuant to a special purpose financial insurance company security or reinsurance contract; and

  (B) consistent with the special purpose financial insurance company’s plan of operation and any order issued to the special purpose financial insurance company pursuant to subsection 6048d(b) of this subchapter, as either is amended from time to time.

  (3) A receiver of a ceding insurer may not void a nonfraudulent transfer by a ceding insurer to a special purpose financial insurance company of money or other property made pursuant to a reinsurance contract.

  (4) A receiver of a special purpose financial insurance company may not void a nonfraudulent transfer by the special purpose financial insurance company of money or other property:

  (A) made to a ceding insurer pursuant to a reinsurance contract or made to or for the benefit of any holder of a special purpose financial insurance company security with respect to the special purpose financial insurance company security; and

  (B) made consistent with the special purpose financial insurance company’s plan of operation and any order issued to the special purpose financial insurance company pursuant to subsection 6048d(b) of this subchapter, as either is amended from time to time.

  (e) With the exception of the fulfillment of the obligations under a reinsurance contract and notwithstanding another provision of this subchapter or other laws of this State, the assets of a special purpose financial insurance company, including assets held in trust, on a funds-withheld basis, or in any other arrangement to secure the special purpose financial insurance company’s obligations under a reinsurance contract, shall not be consolidated with or included in the estate of a ceding insurer in any delinquency proceeding against the ceding insurer pursuant to the provisions of this subchapter for any purpose including distribution to creditors of the ceding insurer. (Added 2007, No. 49, § 17; amended 2013, No. 29, § 64, eff. May 13, 2013.)

• § 6048n. Sponsored captives

  In addition to the provisions of sections 6048a-6048m of this subchapter, the provisions of this section shall apply to any sponsored captive insurance company licensed as a special purpose financial insurance company pursuant to this subchapter.

  (1) A sponsored captive insurance company may be licensed as a special purpose financial insurance company pursuant to the provisions of this subchapter.

  (2) The special purpose financial insurance company shall be subject to the provisions of subchapter 2 of this chapter. In the event of any conflict between the provisions of this subchapter and the provisions of subchapter 2 of this chapter, the provisions of this subchapter shall control.

  (3) Unless otherwise approved in advance by the Commissioner, a participant in a special purpose financial insurance company shall be a ceding insurer. Any change in a participant shall be subject to prior approval by the Commissioner.

  (4) The special purpose financial insurance company on behalf of a protected cell shall be entitled to assert the same claims and defenses in actions in law or equity as if the protected cell were a corporation established under Title 11A of the Vermont Statutes Annotated, including claims and defenses in actions at law or equity alleging alter ego, corporate veil piercing, offset, substantive consolidation, equitable subordination, or recoupment. In connection with the conservation, rehabilitation, or liquidation of a special purpose financial insurance company or one or more of its protected cells, the assets and liabilities of a protected cell shall at all times be kept separate from, and shall not be commingled with, those of other protected cells and the special purpose financial insurance company, and the assets of one protected cell shall not be used to satisfy the obligations or liabilities of another protected cell or the special purpose financial insurance company based on legal or equitable claims or defenses, including alter ego, piercing the corporate veil, offset, substantive consolidation, equitable subordination, or recoupment, unless such claims or defenses would apply to such protected cell if it were a special purpose finance insurance company without separate cells.

  (5) Notwithstanding subdivision 6034(1) of this chapter, the special purpose financial insurance company may issue securities to any person approved in advance by the Commissioner.

  (6) Notwithstanding section 6048g of this subchapter, the special purpose financial insurance company shall possess and thereafter maintain unimpaired paid-in capital and surplus of not less than $500,000.00.

  (7) The “general account” of a sponsored captive insurance company licensed as a special purpose financial insurance company shall mean all assets and liabilities of the sponsored captive insurance company not attributable to a protected cell.

  (8)(A) Any security issued by a special purpose financial insurance company with respect to a protected cell and any other contract or obligation of the special purpose financial insurance company with respect to a protected cell shall include the designation of such protected cell and shall include the following statement, or such other statement as may be required by the Commissioner:

  (i) In the case of a security: “The holder of this security shall have no right or recourse against the special purpose financial insurance company and its assets other than against assets properly attributable to the designated protected cell and the special purpose financial insurance company’s general account, to the extent permitted by Vermont law.”

  (ii) In the case of a contract or obligation: “The counterparty to this contract or obligation shall have no right or recourse against the special purpose financial insurance company and its assets other than against assets properly attributable to the designated protected cell and the special purpose financial insurance company’s general account, to the extent permitted by Vermont law.”

  (B) Notwithstanding the requirements of this subdivision (8) and subject to the provisions of this chapter and other applicable law or regulation, the failure to include such disclosure, in whole or part, in such security, contract, or obligation with respect to a protected cell shall not serve as the sole basis for a creditor, ceding insurer, or any other person to have recourse against the general account of the special purpose financial insurance company in excess of the limitations provided for in subdivision (12)(E) of this subsection, or against the assets of any other protected cell.

  (9) In addition to the provisions of section 6034 of this chapter, the special purpose financial insurance company shall be subject to the following with respect to its protected cells:

  (A) The special purpose financial insurance company shall establish a protected cell only for the purpose of insuring or reinsuring risks of one or more reinsurance contracts with a ceding insurer or two or more affiliated ceding insurers, with the intent of facilitating an insurance securitization. A separate protected cell shall be established with respect to each separate securitization transaction; and

  (B) A sale, an exchange, or another transfer of assets may not be made by the special purpose financial insurance company between or among any of its protected cells without the prior approval of the Commissioner.

  (10) 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 special purpose financial insurance company between its general account and any protected cell or between any protected cells. The special purpose financial insurance company shall attribute all insurance obligations, assets, and liabilities relating to a reinsurance contract entered into with respect to a protected cell and shall attribute the related insurance securitization transaction, including any securities issued by the special purpose financial insurance company as part of the insurance securitization, to such protected cell. The rights, benefits, obligations, and liabilities of any securities attributable to such protected cell and the performance under such reinsurance contract and the related securitization transaction and any tax benefits, losses, refunds, or credits allocated pursuant to a tax allocation agreement to which the special purpose financial insurance company is a party, including any payments made by or due to be made to the special purpose financial insurance company pursuant to the terms of such agreement, shall reflect the insurance obligations, assets, and liabilities relating to the reinsurance contract and the insurance securitization transaction that are attributed to such protected cell.

  (11) For purposes of applying the provisions of chapter 145 of this title to a sponsored captive insurance company licensed as a special purpose financial insurance company, the definition of “insolvency” and “insolvent” in subdivision 6048c(2) of this title shall be applied separately to each protected cell and to the special purpose financial insurance company’s general account.

  (12) In addition to the provisions of section 6048m of this chapter:

  (A) Except as otherwise modified in this section, the terms and conditions set forth in chapter 145 of this title pertaining to administrative supervision of insurers and the rehabilitation, receiverships, and liquidation of insurers apply in full to special purpose financial insurance companies or any of the special purpose financial insurance company’s protected cells, independently, without causing or otherwise effecting a conservation, rehabilitation, receivership, or liquidation of the special purpose financial insurance company or another protected cell that is not otherwise insolvent.

  (B) Notwithstanding the provisions of chapter 145 of this title, and without causing or otherwise effecting the conservation or rehabilitation of an otherwise solvent protected cell of a special purpose financial insurance company and subject to the provisions of subdivision (G)(v) of this subdivision (12), the Commissioner may apply by petition to the Superior Court for an order authorizing the Commissioner to conserve, rehabilitate, or liquidate a special purpose financial insurance company domiciled in this State on one or more of the following grounds:

  (i) embezzlement, wrongful sequestration, dissipation, or diversion of the assets of the special purpose financial insurance company intended to be used to pay amounts owed to the ceding insurer or the holders of special purpose financial insurance company securities; or

  (ii) the special purpose financial insurance company is insolvent; or

  (iii) the holders of a majority in outstanding principal amount of each class of special purpose financial insurance company securities attributable to each particular protected cell requests or consents to conservation, rehabilitation, or liquidation pursuant to the provisions of this subchapter.

  (C) Notwithstanding the provisions of chapter 145 of this title, the Commissioner may apply by petition to the Superior Court for an order authorizing the Commissioner to conserve, rehabilitate, or liquidate one or more of a special purpose financial insurance company’s protected cells, independently, without causing or otherwise effecting a conservation, rehabilitation, receivership, or liquidation of the special purpose financial insurance company generally or another of its protected cells, on one or more of the following grounds:

  (i) embezzlement, wrongful sequestration, dissipation, or diversion of the assets of the special purpose financial insurance company attributable to the affected protected cell or cells intended to be used to pay amounts owed to the ceding insurer or the holders of special purpose financial insurance company securities of the affected protected cell or cells; or

  (ii) the affected protected cell is insolvent; or

  (iii) the holders of a majority in outstanding principal amount of each class of special purpose financial insurance company securities attributable to that particular protected cell request or consent to conservation, rehabilitation, or liquidation pursuant to the provisions of this subchapter.

  (D) Except where consent is given as described in subdivisions (B)(iii) and (C)(iii) of this subdivision (12), the Court may not grant relief provided by subdivision (B) or (C) of this subdivision (12) unless, after notice and a hearing, the Commissioner, who shall have the burden of proof, establishes by clear and convincing evidence that relief must be granted. The Court’s order may be made in respect of one or more protected cells by name, rather than the special purpose financial insurance company generally.

  (E) Notwithstanding another provision in this title, regulations adopted under this title, or another applicable law or regulation, upon any order of conservation, rehabilitation, or liquidation of a special purpose financial insurance company, or one or more of the special purpose financial insurance company’s protected cells, the receiver shall manage the assets and liabilities of the special purpose financial insurance company or the applicable protected cell pursuant to the provisions of this subchapter. The assets attributable to one protected cell shall not be applied to the liabilities attributable to another protected cell, unless an asset or liability is attributable to more than one protected cell, in which case the receiver shall deal with the asset or liability in accordance with the terms of any relevant governing instrument or contract. Recourse to the special purpose financial insurance company’s general account in connection with the conservation, rehabilitation, or liquidation of a protected cell shall be limited to the greater of the amount of assets in the general account as of the date such proceeding is commenced or the required minimum capital for the general account as of the date such proceeding is commenced. Assets attributable to one protected cell shall not be set off against the liabilities attributable to another protected cell, and assets attributable to the special purpose financial insurance company’s general account shall not be set off against the liabilities attributable to any protected cell except to the extent provided in the preceding sentence. Relief shall not be granted nor shall any order be issued based on equitable theories of recovery, including substantive consolidation, equitable subordination, or recoupment, to attach or seize the assets of any solvent protected cell for the benefit of another protected cell or special purpose financial insurance company, or to pierce the corporate veil of any protected cell, in connection with the conservation, rehabilitation, or liquidation of a special purpose financial insurance company or one or more protected cells, unless such equitable theories, attachment, seizure, or corporate veil piercing would apply to such cell if it were a special purpose financial insurance company without separate cells.

  (F) With respect to amounts recoverable under a reinsurance contract, the amount recoverable by the receiver of a special purpose financial insurance company must not be reduced or diminished as a result of the entry of an order of conservation, rehabilitation, or liquidation with respect to the ceding insurer, notwithstanding another provision in the contract or other documentation governing the insurance securitization.

  (G) Notwithstanding the provisions of chapter 145 of this title or other laws of this State:

  (i) An application or petition, or a temporary restraining order or injunction issued pursuant to the provisions of chapter 145 of this title, with respect to a ceding insurer, does not prohibit the transaction of business by a special purpose financial insurance company with the ceding insurer, including any payment by a special purpose financial insurance company made pursuant to a security issued by a special purpose financial insurance company with respect to a protected cell, or any action or proceeding against a special purpose financial insurance company or its assets.

  (ii) The commencement of a summary proceeding or other interim proceeding commenced before a formal delinquency proceeding with respect to a special purpose financial insurance company, and any order issued by the Court, does not prohibit the payment by a special purpose financial insurance company made pursuant to a security issued by a special purpose financial insurance company with respect to a protected cell or special purpose financial insurance company contract or the special purpose financial insurance company from taking any action required to make the payment.

  (iii) A receiver of a ceding insurer may not void a nonfraudulent transfer by the ceding insurer to a special purpose financial insurance company of money or other property made pursuant to a reinsurance contract.

  (iv) A receiver of a special purpose financial insurance company may not void a nonfraudulent transfer by the special purpose financial insurance company of money or other property made to a ceding insurer pursuant to a reinsurance contract or made to or for the benefit of any holder of a special purpose financial insurance company security issued with respect to a protected cell, or a special purpose financial insurance company security.

  (v) In the event of an insolvency of a special purpose financial insurance company where one or more protected cells remain solvent, the Commissioner shall separate the special purpose financial insurance company’s solvent protected cells from the insolvent special purpose financial insurance company, shall allow on petition of the sponsor for the conversion of such solvent protected cells into one or more special purpose financial insurance companies, and shall issue such orders as the Commissioner deems necessary to protect the solvency of the remaining solvent protected cells. In the event of an insolvency of a protected cell, the special purpose financial insurance company’s assets shall be accounted for and managed in compliance with subdivision (E) of this subdivision (12) and the other laws of this State.

  (H) Subdivision (G) of this subdivision (12) does not prohibit the Commissioner from taking any action permitted under chapter 145 of this title with respect only to the conservation or rehabilitation of a special purpose financial insurance company with protected cell or cells, provided the Commissioner would have had sufficient grounds to seek to declare the special purpose financial insurance company insolvent; subject to and without otherwise affecting the provisions of subdivision (G)(v) of this subdivision (12). In this case, with respect to the solvent protected cell or cells, the Commissioner may not prohibit payments made by the special purpose financial insurance company pursuant to the special purpose financial insurance company security, reinsurance contract, or otherwise made under the insurance securitization transaction that are attributable to these protected cell or cells or prohibit the special purpose financial insurance company from taking any action required to make these payments.

  (I) With the exception of the fulfillment of the obligations under a special purpose financial insurance company contract, and notwithstanding another provision of this title or other laws of this State, the assets of a special purpose financial insurance company, including assets held in trust, shall not be consolidated with or included in the estate of a ceding insurer in any delinquency proceeding against the ceding insurer pursuant to the provisions of this title for any purpose, including distribution to creditors of the ceding insurer. (Added 2007, No. 49, § 17; amended 2007, No. 178 (Adj. Sess.), § 11; 2009, No. 42, § 28, eff. May 27, 2009; 2013, No. 29, § 65, eff. May 13, 2013.)

• § 6048o. Confidentiality

  (a) Subdivision 6002(c)(3) and subsection 6008(c) of this title shall apply to all documents, materials, or other information, including examination reports, preliminary examination reports or results, working papers, recorded information, 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 subchapter.

  (b) In furtherance of the Commissioner’s regulatory duties, the Commissioner may share and receive documents, materials, or other information pursuant to section 22 of this title.

  (c) [Repealed.] (Added 2013, No. 29, § 66, eff. May 13, 2013; amended 2023, No. 110 (Adj. Sess.), § 10, eff. July 1, 2024.)

• Subchapter 005: AFFILIATED REINSURANCE COMPANIES

• § 6049a. Applicable law

  (a) An affiliated reinsurance 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) An affiliated reinsurance company shall be subject to all applicable rules adopted pursuant to section 6015 of this chapter that are in effect as of July 1, 2018 and those that are adopted after July 1, 2018. (Added 2017, No. 134 (Adj. Sess.), § 10.)

• § 6049b. Definitions

  As used in this subchapter:

  (1) “Affiliated reinsurance company” means a company licensed by the Commissioner pursuant to this subchapter to reinsure risks ceded by one or more ceding insurers that are affiliated companies. Subject to the prior approval of the Commissioner, not more than 10 percent of the risks reinsured may be ceded by ceding insurers that are not affiliated companies.

  (2) “Ceding insurer” means an insurance company approved by the Commissioner and licensed or otherwise authorized to transact the business of insurance or reinsurance in its state or country of domicile, which cedes risk to an affiliated reinsurance company pursuant to a reinsurance contract.

  (3) “Organizational documents” means the affiliated reinsurance company’s articles of incorporation and bylaws and such other documents as shall be approved by the Commissioner.

  (4) “Reinsurance contract” means a contract between an affiliated reinsurance company and a ceding insurer pursuant to which the affiliated reinsurance company agrees to provide reinsurance to the ceding insurer. (Added 2017, No. 134 (Adj. Sess.), § 10; amended 2019, No. 110 (Adj. Sess.), § 11A, eff. June 15, 2020.)

• § 6049c. Licensing; authority

  (a) An affiliated reinsurance company shall only reinsure the risks of a ceding insurer. An affiliated reinsurance company may cede the risks assumed under a reinsurance contract to another reinsurer, subject to the prior approval of the Commissioner.

  (b) In conjunction with the issuance of a license to an affiliated reinsurance company, the Commissioner may issue an order that includes any provisions, terms, and conditions regarding the organization, licensing, and operation of the affiliated reinsurance company that are deemed appropriate by the Commissioner and that are not inconsistent with the provisions of this chapter.

  (c) To qualify for a license, an affiliated reinsurance company shall be subject, in addition to the requirements of subsection 6002(c) of this chapter, to the following:

  (1) The information submitted to the Commissioner pursuant to subdivision 6002(c)(1)(B) of this chapter shall include:

  (A) the source and form of the affiliated reinsurance company’s capital and surplus;

  (B) the investment policy of the affiliated reinsurance company, which shall provide for a diversified investment portfolio both as to type and issue and shall include a requirement for liquidity and for the reasonable preservation, administration, and management of such assets with respect to the risks associated with any reinsurance transactions.

  (2) The application shall include copies of all agreements and documentation, including reinsurance agreements, described in subdivision (1) of this subsection (c) unless otherwise approved by the Commissioner and any other statements or documents required by the Commissioner to evaluate the affiliated reinsurance company’s application for licensure.

  (d) Subdivision 6002(c)(3) of this chapter shall apply to all information submitted pursuant to subsection (c) of this section and to any order issued to the affiliated reinsurance company pursuant to subsection (b) of this section. (Added 2017, No. 134 (Adj. Sess.), § 10.)

• § 6049d. Formation

  (a) An affiliated reinsurance company may be incorporated as a stock insurer with its capital divided into shares, or in such other organizational form as may be approved by the Commissioner.

  (b) An affiliated reinsurance company’s organizational documents shall limit the affiliated reinsurance company’s authority to the transaction of the business of insurance or reinsurance and to those activities that the affiliated reinsurance company conducts to accomplish its purposes as expressed in this subchapter. (Added 2017, No. 134 (Adj. Sess.), § 10.)

• § 6049e. Minimum capital and surplus

  An affiliated reinsurance company shall not be issued a license unless it possesses and thereafter maintains unimpaired paid-in capital and surplus of not less than $5,000,000.00. The Commissioner may prescribe additional capital and surplus based upon the type, volume, and nature of reinsurance business transacted. Except as otherwise provided in this section, the provisions of chapter 159 of this title, Risk Based Capital for Insurers, shall apply in full to an affiliated reinsurance company. (Added 2017, No. 134 (Adj. Sess.), § 10.)

• § 6049f. Permitted reinsurance

  (a) An affiliated reinsurance company shall only reinsure the risks of a ceding insurer, pursuant to a reinsurance contract. An affiliated reinsurance company shall not issue a contract of insurance or a contract for assumption of risk or indemnification of loss other than such reinsurance contract.

  (b) The reinsurance contract shall contain all provisions reasonably required or approved by the Commissioner, which requirements shall take into account the laws applicable to the ceding insurer regarding the ceding insurer’s taking credit for the reinsurance provided under such reinsurance contract.

  (c) An affiliated reinsurance company may cede risks assumed through a reinsurance contract to one or more reinsurers through the purchase of reinsurance, subject to the prior approval of the Commissioner. Except as otherwise provided in this section, the provisions of chapter 101, subchapter 10 of this title, reinsurance of risks, shall apply in full to an affiliated reinsurance company.

  (d) Unless otherwise approved in advance by the Commissioner, a reinsurance contract shall not contain any provision for payment by the affiliated reinsurance company in discharge of its obligations under the reinsurance contract to any person other than the ceding insurer or any receiver of the ceding insurer.

  (e) An affiliated reinsurance company shall notify the Commissioner immediately of any action by a ceding insurer or any other person to foreclose on or otherwise take possession of collateral provided by the affiliated reinsurance company to secure any obligation of the affiliated reinsurance company. (Added 2017, No. 134 (Adj. Sess.), § 10.)

• § 6049g. Disposition of assets; investments

  (a) The assets of an affiliated reinsurance company shall be preserved and administered by or on behalf of the affiliated reinsurance company to satisfy the liabilities and obligations of the affiliated reinsurance company incident to the reinsurance contract and other related agreements.

  (b) The Commissioner may prohibit or limit any investment that threatens the solvency or liquidity of the affiliated reinsurance company unless the investment is otherwise approved in its plan of operation or in an order issued to the affiliated reinsurance company pursuant to subsection 6049c of this chapter. (Added 2017, No. 134 (Adj. Sess.), § 10.)

• § 6049h. Annual report; books and records

  (a) For the purposes of subsection 6007(b) of this chapter:

  (1) Each affiliated reinsurance company shall file its report in the form required by subsection 3561(a) of this title, and each affiliated reinsurance company shall comply with the requirements set forth in section 3569 of this title.

  (2) An affiliated reinsurance company shall report using statutory accounting principles in accordance with the National Association of Insurance Commissioner’s Accounting Practices and Procedures Manual. Reporting shall be in such general form and context, as approved by, and shall contain any other information required by, the National Association of Insurance Commissioners, with any useful or necessary modifications or adaptions 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.

  (b) Unless otherwise approved in advance by the Commissioner, an affiliated reinsurance company shall maintain its books, records, documents, accounts, vouchers, and agreements in this State. An affiliated reinsurance company shall make its books, records, documents, accounts, vouchers, and agreements available for inspection by the Commissioner at any time. An affiliated reinsurance company shall keep its books and records in such manner that its financial condition, affairs, and operations can be readily ascertained and so that the Commissioner may readily verify its financial statements and determine its compliance with this chapter.

  (c) Unless otherwise approved in advance by the Commissioner, all books, records, documents, accounts, vouchers, and agreements shall be preserved and kept available in this State for the purpose of examination and inspection and until such time as the Commissioner approves the destruction or other disposition of such books, records, documents, accounts, vouchers, and agreements. If the Commissioner approves the keeping outside this State of the items listed in this subsection, the affiliated reinsurance company shall maintain in this State a complete and true copy of each such item. Books, records, documents, accounts, vouchers, and agreements may be photographed, reproduced on film, or stored and reproduced electronically.

  (d) The provisions of sections 3578a (annual financial reporting) and 3579 (qualified accountants) of this title shall apply in full to an affiliated reinsurance company. (Added 2017, No. 134 (Adj. Sess.), § 10; amended 2019, No. 3, § 8, eff. April 18, 2019; 2023, No. 12, § 5, eff. May 8, 2023.)

• § 6049i. Insurance holding company systems

  Except as otherwise provided in this section, the provisions of chapter 101, subchapter 13 of this title shall apply in full to an affiliated reinsurance company. (Added 2017, No. 134 (Adj. Sess.), § 10.)

• § 6049j. Corporate governance; disclosure

  Except as otherwise provided in this section, the provisions of section 3316 of this title shall apply in full to an affiliated reinsurance company. (Added 2017, No. 134 (Adj. Sess.), § 10.)

• § 6049k. Own risk and solvency assessment

  Except as otherwise provided in this section, the provisions of chapter 101, subchapter 7A (own risk and solvency assessment) of this title shall apply in full to an affiliated reinsurance company. (Added 2017, No. 134 (Adj. Sess.), § 10.)

• § 6049l. Requirements for actuarial opinions

  Except as otherwise provided in this section, the provisions of chapter 101, section 3577 (requirements for actuarial opinions) of this title shall apply in full to an affiliated reinsurance company. (Added 2017, No. 134 (Adj. Sess.), § 10.)

• § 6049m. Confidentiality

  (a) Subdivision 6002(c)(3) of this title and subsection 6008(c) of this title shall apply to all documents, materials, and other information, including confidential and privileged documents, examination reports, preliminary examination reports or results, working papers, recorded information, and copies of any of these produced by, obtained by, or disclosed to the Commissioner or any other person in the course of an examination made under this subchapter.

  (b) In furtherance of the Commissioner’s regulatory duties, the Commissioner may share and receive documents, materials, or other information pursuant to section 22 of this title.

  (c) [Repealed.] (Added 2017, No. 134 (Adj. Sess.), § 10; amended 2023, No. 110 (Adj. Sess.), § 11, eff. July 1, 2024.)