§ 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.)