The Vermont Statutes Online

Title 8: Banking and Insurance

Chapter 159: Risk-Based Capital for Insurers

• § 8301. Definitions

  As used in this chapter:

  (1) “Adjusted risk-based capital report” means a risk-based capital report that has been adjusted by the Commissioner in accordance with subsection 8302(e) of this title.

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

  (3) “Corrective order” means an order issued by the Commissioner specifying corrective actions that the Commissioner has determined are required under this chapter.

  (4) “Domestic insurer” means any insurance company organized in this State under chapter 101, subchapter 1 of this title, any fraternal benefit society organized in this State under chapter 121 of this title, any health maintenance organization organized in this State under chapter 139 of this title, and any entity organized in this State under chapter 123 or 125 of this title.

  (5) “Fraternal benefit society” means any insurance company licensed under chapter 121 of this title.

  (6) “Foreign insurer” means any entity licensed to transact business in this State that is required to file a risk-based capital statement in the state where the entity is domiciled.

  (7) “Health maintenance organization” means any entity organized in the State under chapter 139 of this title.

  (8) “Life or health insurer” means an insurance company that insures lives or health as defined in subdivisions 3301(a)(1) and (2) of this title, an entity organized in this State under chapter 123 or 125 of this title, or a licensed property and casualty insurer writing only accident and health insurance.

  (9) “NAIC” means the National Association of Insurance Commissioners.

  (10) “Negative trend” means, with respect to a life or health insurer or fraternal benefit society, negative trend over a period of time as determined in accordance with the trend test calculation included in the life or fraternal risk-based capital instructions.

  (11) “Property and casualty insurer” means any insurance company that insures property or casualty as defined in subdivisions 3301(a)(3) and (7) of this title, but shall not include monoline mortgage guaranty insurers, financial guaranty insurers, or title insurers.

  (12) “Risk-based capital instructions” means the risk-based capital report form and the related instructions adopted by the NAIC and approved by the Commissioner.

  (13) “Risk-based capital level” means one of the following four levels: company action level risk-based capital, regulatory action level risk-based capital, authorized control level risk-based capital, or mandatory control level risk-based capital.

  (A) “Company action level risk-based capital” means, with respect to any insurer, the product of 2.0 and its authorized control level risk-based capital.

  (B) “Regulatory action level risk-based capital” means, with respect to any insurer, the product of 1.5 and its authorized control level risk-based capital.

  (C) “Authorized control level risk-based capital” means the number determined under the risk-based capital formula in accordance with the risk-based capital instructions.

  (D) “Mandatory control level risk-based capital” means, with respect to any insurer, the product of 0.70 and its authorized control level risk-based capital.

  (14) “Risk-based capital plan” means a comprehensive financial plan containing the elements specified in subsection 8303(b) of this title. If the Commissioner rejects the risk-based capital plan and it is revised by the insurer, with or without the Commissioner’s recommendation, the plan shall be called the “revised risk-based capital plan.”

  (15) “Risk-based capital report” means the report required in section 8302 of this title.

  (16) “Total adjusted capital” means the sum of:

  (A) the insurer’s statutory capital and surplus reported in the insurer’s annual statement under section 3561 of this title; and

  (B) such other items, if any, as the risk-based capital instructions may provide. (Added 1993, No. 235 (Adj. Sess.), § 8, eff. June 21, 1994; amended 1995, No. 180 (Adj. Sess.), § 38(a); 2009, No. 137 (Adj. Sess.), § 14; 2011, No. 78 (Adj. Sess.), § 2, eff. April 2, 2012; 2013, No. 29, § 36, eff. May 13, 2013; 2021, No. 25, § 11, eff. May 12, 2021.)

• § 8302. Risk-based capital report

  (a) Each domestic insurer shall annually prepare and submit to the Commissioner a report of its risk-based capital level for the calendar year just ended. The report shall be filed prior to March 1 each year and shall be in the form and contain such information as is required by the risk-based capital instructions.

  (b) Each domestic insurer shall file its risk-based capital report:

  (1) with the NAIC in accordance with the risk-based capital instructions; and

  (2) with the insurance commissioner of any state in which the insurer is authorized to do business, if the insurance commissioner of that state has notified the insurer of its request in writing. Any report required under this subdivision shall be filed not later than the later of 15 days from the receipt of notice to file the report with that state or the filing date provided in subsection (a) of this section.

  (c) A life or health insurer’s or fraternal benefit society’s risk-based capital shall be determined in accordance with the formula set forth in the risk-based capital instructions. The formula shall take into account and may adjust for the covariance between the following factors determined in each case by applying the factors in the manner set forth in the risk-based capital instructions:

  (1) the risk with respect to the insurer’s assets;

  (2) the risk of adverse insurance experience with respect to the insurer’s liabilities and obligations;

  (3) the interest rate risk with respect to the insurer’s business; and

  (4) all other business risks and such other relevant risks as are set forth in the risk-based capital instructions.

  (d) A property and casualty insurer’s or health maintenance organization’s risk-based capital shall be determined in accordance with the formula set forth in the risk-based capital instructions. The formula shall take into account and may adjust for the covariance between the following factors determined in each case by applying the factors in the manner set forth in the risk-based capital instructions:

  (1) asset risk;

  (2) credit risk;

  (3) underwriting risk; and

  (4) all other business risks and such other relevant risks as are set forth in the risk-based capital instructions.

  (e) If a domestic insurer files a risk-based capital report that in the judgment of the Commissioner is inaccurate, then the Commissioner shall adjust the risk-based capital report to correct the inaccuracy and shall notify the insurer of the adjustment. The notice shall contain a statement of the reason for the adjustment. A risk-based capital report adjusted by the Commissioner under this subsection shall be referred to as an “adjusted risk-based capital report.” (Added 1993, No. 235 (Adj. Sess.), § 8, eff. June 21, 1994; amended 2013, No. 29, § 37, eff. May 13, 2013; 2021, No. 25, § 12, eff. May 12, 2021.)

• § 8303. Company action level event

  (a) “Company action level event” means any of the following events:

  (1) The filing of a risk-based capital report by an insurer that indicates that:

  (A) the insurer’s total adjusted capital is greater than or equal to its regulatory action level risk-based capital but less than its company action level risk-based capital;

  (B) in the case of a life or health insurer or a fraternal benefit society, the insurer or society has total adjusted capital that is greater than or equal to its company action level risk-based capital but less than the product of its authorized control level risk-based capital and 3.0 and has a negative trend;

  (C) in the case of a property and casualty insurer, the insurer has total adjusted capital that is greater than or equal to its company action level risk-based capital but less than the product of its authorized control level risk-based capital and 3.0 and triggers the trend test determined in accordance with the trend test calculation included in the property and casualty risk-based capital instructions; or

  (D) in the case of a health maintenance organization, the insurer has total adjusted capital that is greater than or equal to its company action level risk-based capital but less than the product of its authorized control level risk-based capital and 3.0 and triggers the trend test determined in accordance with the trend test calculation included in the health risk-based capital instructions.

  (2) The notification by the Commissioner to the insurer of an adjusted risk-based capital report that indicates an event in subdivision (1) of this subsection, provided the insurer does not challenge the adjusted risk-based capital report under section 8307 of this title.

  (3) If, under section 8307 of this title, an insurer challenges an adjusted risk-based capital report that indicates the event in subdivision (1) of this subsection, the notification by the Commissioner to the insurer that the Commissioner has, after a hearing, rejected the insurer’s challenge.

  (b) An insurer shall prepare and submit to the Commissioner a risk-based capital plan within 45 days of filing a risk-based capital report or within 45 days of a final adjusted risk-based capital report showing a company action level event. The risk-based capital plan shall be a comprehensive financial plan and shall:

  (1) Identify the conditions in the insurer that contribute to the company action level event.

  (2) Contain proposals of corrective actions that the insurer intends to take that would result in the elimination of the company action level event.

  (3) Provide projections of the insurer’s financial results in the current year and at least the four succeeding years, both in the absence of proposed corrective actions and giving effect to the proposed corrective actions, including projections of statutory operating income, net income, capital, and surplus. The projections for both new and renewal business should include separate projections for each major line of business and separately identify each significant income, expense, and benefit component.

  (4) Identify the key assumptions impacting the insurer’s projections and the sensitivity of the projections to the assumptions.

  (5) Identify the quality of, and problems associated with, the insurer’s business, including its assets, anticipated business growth and associated surplus strain, extraordinary exposure to risk, mix of business, and use of reinsurance.

  (c) The Commissioner shall notify the insurer whether the proposed risk-based capital plan is approved within 60 days of its submission. If the Commissioner disapproves the plan, the notice shall set forth the reasons for the disapproval and may notify the insurer of revisions that will render the risk-based capital plan satisfactory to the Commissioner. Upon notice that a proposed plan is disapproved, the insurer shall prepare and submit a revised risk-based capital plan within 45 days of the Commissioner’s notice of disapproval or, if the Commissioner’s notice of disapproval is appealed under section 8307 of this title, within 45 days of a Commissioner’s determination adverse to the insurer.

  (d) In the event of a notification by the Commissioner to an insurer that the insurer’s risk-based capital plan or revised risk-based capital plan is unsatisfactory, the Commissioner may at the Commissioner’s discretion, subject to the insurer’s right to a hearing under section 8307 of this title, specify in the notification that the notification constitutes a regulatory action level event.

  (e) Each domestic insurer required to file a risk-based capital plan or revised risk-based capital plan under this section shall file a copy of the plan with the insurance commissioner in any state in which the insurer is authorized to do business if:

  (1) such state has a provision that is substantially similar to section 8308 of this title; or

  (2) the insurance commissioner of that state has notified the insurer of its request for the filing in writing. Plans required to be filed under this subdivision shall be filed not later than the later of:

  (A) 15 days after notice to file a copy of its risk-based capital plan or revised risk-based capital plan with the state; or

  (B) the date on which the risk-based capital plan or revised risk-based capital plan is required to be filed under section 8304 of this title. (Added 1993, No. 235 (Adj. Sess.), § 8, eff. June 21, 1994; amended 2009, No. 137 (Adj. Sess.), § 15; 2013, No. 29, § 38, eff. May 13, 2013; 2021, No. 25, § 13, eff. May 12, 2021.)

• § 8304. Regulatory action level event

  (a) The following are deemed to be regulatory action level events and subject to the requirements of this section:

  (1) A risk-based capital report or final adjusted risk-based capital report that indicates that the insurer’s total adjusted capital is greater than or equal to its authorized control level risk-based capital, but less than its regulatory action level risk-based capital.

  (2) Late filing of a risk-based capital report that is not excused by the Commissioner and cured within 10 days of the filing date.

  (3) Failure to file a risk-based capital plan within the time provided in section 8303 of this title.

  (4) Notice by the Commissioner that a plan submitted by the insurer under section 8303 of this title is disapproved and that the disapproval has been deemed by the Commissioner as constituting a regulatory action level event.

  (5) Notice by the Commissioner of a failure to adhere to its risk-based capital plan or revised risk-based capital plan where the failure has a substantial adverse effect on the ability of the insurer to eliminate the regulatory action level event in accordance with its plan.

  (b) An insurer shall prepare and submit to the Commissioner a risk-based capital plan within 45 days of filing a risk-based capital report or within 45 days of notice of a final adjusted risk-based capital report showing a regulatory action level event.

  (c) The Commissioner shall order such examination and analysis as the Commissioner deems necessary of the assets, liabilities, and operations of the insurer, including a review of its risk-based capital plan or revised risk-based capital plan. Subsequent to the examination or analysis, the Commissioner shall issue an order specifying such corrective actions as the Commissioner shall determine are required. In determining corrective actions, the Commissioner may take into account the results of any examination and analysis of the insurer’s assets, liabilities, and operations, including any sensitivity test undertaken pursuant to the risk-based capital instructions.

  (d) The Commissioner may retain actuaries, investment experts, and other consultants as the Commissioner deems necessary to review the insurer’s risk-based capital plan or revised risk-based capital plan; examine or analyze the assets, liabilities, and operations of the insurer; and formulate the corrective order with respect to the insurer. The fees, costs, and expenses relating to consultants shall be borne by the affected insurer or such other party as directed by the Commissioner. (Added 1993, No. 235 (Adj. Sess.), § 8, eff. June 21, 1994.)

• § 8305. Authorized control level event

  (a) The following are deemed to be authorized control level events and subject to the requirements of this section:

  (1) A risk-based capital report or final adjusted risk-based capital report that indicates that the insurer’s total adjusted capital is greater than or equal to its mandatory control level risk-based capital but less than its authorized control level risk-based capital.

  (2) The failure of the insurer to comply with a corrective order after it is no longer subject to appeal under section 8307 of this title.

  (b) Upon the occurrence of an event described in subsection (a) of this section, the Commissioner shall take such actions as he or she deems necessary to protect policyholders and creditors of the insurer, including those actions permitted under section 8304 and chapter 145 of this title. In the event the Commissioner seeks an order under chapter 145 of this title, the authorized control level event shall be deemed sufficient grounds for the Commissioner’s order, and the Commissioner shall have the rights, powers, and duties with respect to the insurer as are set forth in that chapter. In the event the Commissioner takes actions under this subsection pursuant to an adjusted risk-based capital report, the insurer shall be entitled to such protections as are afforded to insurers under the provisions of section 7041 of this title pertaining to summary proceedings. (Added 1993, No. 235 (Adj. Sess.), § 8, eff. June 21, 1994.)

• § 8306. Mandatory control level event

  (a) A risk-based capital report or final adjusted risk-based capital report that indicates that the insurer’s total adjusted capital is less than its mandatory control level risk-based capital shall be a mandatory control level event and subject to the requirements of this section.

  (b) Upon the occurrence of an event described in subsection (a) of this section, the Commissioner shall take such actions as are necessary to place the insurer under regulatory control under chapter 145 of this title. In the event the Commissioner seeks an order under chapter 145 of this title, the mandatory control level event shall be deemed sufficient grounds for issuance of an order, and the Commissioner shall have the rights, powers, and duties with respect to the insurer as are set forth in chapter 145 of this title. In the event the Commissioner takes actions under this subsection pursuant to an adjusted risk-based capital report, the insurer shall be entitled to such protections as are afforded to insurers under the provisions of section 7041 of this title pertaining to summary proceedings. Notwithstanding any of the foregoing, the Commissioner may forego action for up to 90 days after the mandatory control level event if he or she finds there is a reasonable expectation that the mandatory control level event will be eliminated within the 90-day period. (Added 1993, No. 235 (Adj. Sess.), § 8, eff. June 21, 1994.)

• § 8307. Hearings

  Upon receipt of any notice required under subsection 8302(e), 8303(c) or (d), subdivision 8304(a)(4) or (5), or subsection 8304(c) of this title, any insurer aggrieved by any action taken under those sections may appeal to the Commissioner within five days of receipt of notice of the action. The hearing shall be subject to 3 V.S.A. chapter 25. Upon receipt of the insurer’s request for a hearing, the Commissioner shall set a date for the hearing, which date shall be not less than 10 nor more than 30 days after the date of the insurer’s request. (Added 1993, No. 235 (Adj. Sess.), § 8, eff. June 21, 1994; amended 2013, No. 29, § 39, eff. May 13, 2013; 2021, No. 25, § 14, eff. May 12, 2021.)

• § 8308. Confidentiality and prohibition on announcements

  (a) All risk-based capital reports, to the extent the information in the report is not required to be set forth in a publicly available annual statement schedule, and risk-based capital plans, including the results or report of any examination or analysis of an insurer performed pursuant to this chapter and any corrective order issued by the Commissioner pursuant to examination or analysis, with respect to any domestic insurer or foreign insurer that are filed with the Commissioner, constitute information that might be damaging to the insurer if made available to its competitors and therefore shall be kept confidential and privileged by the Commissioner. This information shall not be made available for public inspection and copying under the Public Records Act, shall not be subject to subpoena, shall not be subject to discovery, and shall not be admissible in evidence in any private civil action. However, the Commissioner is authorized to use the documents, materials, or other information for the purpose of enforcement actions taken by the Commissioner under this chapter or any other provision of the insurance laws of this State.

  (b) Neither the Commissioner nor any person who received documents, materials, or other 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, materials, or information subject to subsection (a) of this section.

  (c) In furtherance of his or her duties under this chapter, the Commissioner may:

  (1) share documents, materials, or other information, including the confidential and privileged documents, materials, or information subject to subsection (a) of this section, with other state, federal, and international regulatory agencies; with the NAIC and its affiliates and subsidiaries; and with state, federal, and international law enforcement authorities, provided the recipient agrees to maintain the confidentiality and privileged status of the document, material, or other information;

  (2) receive documents, materials, or information, including otherwise confidential and privileged documents, materials, or information, from the NAIC and its affiliates and subsidiaries, and from regulatory and law enforcement officials of other foreign or domestic jurisdictions, and shall maintain as confidential or privileged any document, material, or information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material, or information; and

  (3) enter into agreements governing sharing and use of information consistent with this subsection.

  (d) No waiver of any applicable privilege or claim of confidentiality in the documents, materials, or information shall occur as a result of disclosure to the Commissioner under this section or as a result of sharing as authorized in subsection (c) of this section.

  (e) Except as otherwise required under this chapter, the making, publishing, disseminating, circulating, or placing before the public, directly or indirectly in any manner, the risk-based capital levels of any insurer, or of any component derived in the calculation, by any insurer, agent, broker, or other person engaged in any manner in the insurance business is prohibited. Any person violating this section shall be subject to an administrative penalty of up to $500.00.

  (f) The Commissioner may, in his or her discretion, permit the correction of any material misstatement published by a party unrelated to the insurer concerning any aspect of the insurer’s risk-based capital level or any component thereof. A correction permitted under this section may be used solely to rebut the material misstatement. (Added 1993, No. 235 (Adj. Sess.), § 8, eff. June 21, 1994; amended 1995, No. 167 (Adj. Sess.), § 26; 2013, No. 29, § 40, eff. May 13, 2013; 2021, No. 25, § 15, eff. May 12, 2021; 2021, No. 105 (Adj. Sess.), § 271, eff. July 1, 2022.)

• § 8309. Supplemental provisions

  (a) The provisions of this chapter are in addition to any other provisions of the laws of this State and shall not preclude or limit any other powers or duties of the Commissioner under such laws, including chapter 145 of this title.

  (b) The Commissioner may adopt rules necessary for the implementation of this chapter.

  (c) The Commissioner may exempt from the application of this chapter any domestic property and casualty insurer that:

  (1) writes direct business only in this State;

  (2) writes direct annual premiums of $2,000,000.00 or less; and

  (3) assumes no reinsurance in excess of five percent of direct premium written. (Added 1993, No. 235 (Adj. Sess.), § 8, eff. June 21, 1994; amended 2013, No. 29, § 41, eff. May 13, 2013.)

• § 8310. Foreign insurers

  (a) A foreign insurer shall, upon the written request of the Commissioner, submit to the Commissioner a risk-based capital report for the calendar year just ended. The requested report shall be filed not later than the later of 15 days from the receipt of notice to file the report with this State or the filing date provided in subsection 8302(a) of this title.

  (b) A foreign insurer shall, at the written request of the Commissioner, promptly submit to the Commissioner a copy of any risk-based capital plan that is filed with the insurance commissioner of any other state.

  (c) Upon the occurrence of an event under section 8303 (company action level event), 8304 (regulatory action level event), or 8305 (authorized control level event) of this title with respect to any foreign insurer as determined under the risk-based capital statute applicable in the state of domicile of the insurer or, if no risk-based capital statute is in force in that state, under the provisions of this chapter, if the insurance commissioner of the state of domicile of the foreign insurer fails to require the foreign insurer to file a risk-based capital plan in the manner specified under that state’s risk-based capital statute or, if no risk-based capital statute is in force in that state, then under section 8303 of this title, the Commissioner may require the foreign insurer to file a risk-based capital plan with the Commissioner. The failure of the foreign insurer to file a risk-based capital plan shall be grounds to order the insurer to cease and desist from writing new insurance business in this State.

  (d) The Commissioner may make application to the Washington Superior Court for an order under chapter 145 of this title for the liquidation of property of the insurer found in this State in the event the insurer has not been placed under such an order in its state of domicile after reporting an event under section 8305 or 8306 of this title. The occurrence of an event under sections 8305 and 8306 of this title shall be considered adequate grounds for the application. The Commissioner may order an insurer reporting an event under section 8305 or 8306 to cease and desist from writing new business in this State. (Added 1993, No. 235 (Adj. Sess.), § 8, eff. June 21, 1994; amended 2013, No. 29, § 42, eff. May 13, 2013.)

• § 8311. Notices

  All notices by the Commissioner to an insurer under this chapter shall be effective upon mailing if sent by registered or certified mail or, in the case of any other type of transmission, shall be effective upon the insurer’s receipt of such notice. (Added 1993, No. 235 (Adj. Sess.), § 8, eff. June 21, 1994.)

• § 8312. Confidentiality of risk-based capital reports

  All risk-based capital reports concerning insurance companies that are not included in section 8308 of this title that are submitted to the Department by the NAIC or other states are confidential and shall not be disclosed by the Department. (Added 1993, No. 235 (Adj. Sess.), § 9, eff. June 21, 1994; amended 2021, No. 25, § 16, eff. May 12, 2021.)

• § 8313. Immunity

  There shall be no liability on the part of and no cause of action shall arise against the Commissioner or the Department of Financial Regulation or its employees or agents for any action taken by them in the performance of their powers and duties under this chapter. (Added 2013, No. 29, § 43, eff. May 13, 2013.)