Vermont Code of Rules, Agency 21 — Department of Financial Regulation

Subagency 000 GENERAL

Chapter 001 VERMONT DEPARTMENT OF FINANCIAL REGULATION ADMINISTRATIVE PROCEDURES

21-001 Code Vt. R. 21-000-001-X VERMONT DEPARTMENT OF FINANCIAL REGULATION ADMINISTRATIVE PROCEDURES

Section 1.01 Scope.

This regulation establishes the procedures for administrative proceedings. This regulation supersedes and replaces Department Regulation No. 82-1 (REVISED).

Section 1.02 Definitions.

"Commissioner " means the Commissioner of Financial Regulation.

"Contested Case Hearings " mean hearings held in contested cases (as defined in the Vermont Administrative Procedure Act). Such hearings are held in accordance with the General Procedures Section 1.04 and, when applicable, the Evidentiary Hearing Procedures Section 1.05. The Commissioner may appoint a Hearing Officer in any contested case hearing. Uncontested case hearings are hearings that are not required by law, and for which the Department will follow sufficient procedures to satisfy the purpose of the hearing, due process, and the public interest.

"Department " means the Vermont Department of Financial Regulation.

"Docket Clerk" means the individual responsible for overseeing all administrative matters related to docketed proceedings, including, but not limited to, scheduling hearings, keeping a current service list, and maintaining the official repository for all filings.

"Evidentiary Hearing Procedures " mean those procedures required in contested cases requiring the presentation of evidence at a hearing. Some or all of these procedures may be used in any contested case if the Hearing Officer determines such use is necessary to satisfy the purpose of the hearing, due process, or the public interest.

"Formal Rulemaking Proceedings " mean proceedings required under 3 V.S.A. §§ 836-845. for the adoption of a rule or regulation by the Department.

"Hearing " means any hearing conducted under the jurisdiction of the Department of Financial Regulation.

"Hearing Officer " means the Commissioner or the person designated by the Commissioner to conduct a contested case hearing and associated proceedings.

"General Procedures " mean those procedures generally applicable to administrative proceedings.

"Order " means the whole or any part of a final decision of the Commissioner.

Section 1.03 Rules of Construction.

The statutory definitions of other terms, including but not limited to "contested case," "license," "party," "person," "practice," "procedure," and "rule" set forth in 3 V.S.A. § 801 are hereby adopted and made a part of this regulation.

Unless doing so leads to results contrary to applicable law, singular words may extend to and be applied to more than one person or thing and plural words may be applied as if singular.

Section 1.04 General Procedures.

(A) Docketing. All contested cases, and such other matters as the Commissioner or Docket Clerk shall designate, will be assigned a docket number.

(B) Initiation of Proceedings.

(1) Initiation by the Department. The Department's petition or other pleading initiating a contested case must be filed with the Docket Clerk.

(2) Initiation by External Parties.

(a) In all other cases, a proceeding is initiated by filing a pleading with the Docket Clerk at the Commissioner's office as provided in Section 1.04(E). An application that is treated as a contested case under the Vermont Administrative Procedure Act shall be considered a pleading for the purposes of initiating a proceeding.

(b) At the commencement of any proceeding, the party must file a statement identifying by name and address each person, party, or other entity entitled to notice of such proceeding. Such a filing must identify specifically any attorney representing the party in the matter.

(c) In the Commissioner's discretion, any written communication concerning a matter within the Commissioner's jurisdiction, may be treated as a pleading which initiates a contested case.

(3) Service of Initial Pleading. Service of the initial pleading or notice upon each party entitled to be served must be accomplished by delivery in person or by certified mail, return receipt requested, to the party's last known address, except in cases where a different manner of service is required by law.

(C) Pleadings and Motions.

(1) Every pleading or motion must describe in detail the order or relief sought; include a statement of reasons and the legal authority on which it is based; and contain an attorney's certificate, or an affidavit of a party or pro se representative, stating upon whom and the means by which the pleading or motion has been served.

(2) Every pleading or motion must be signed by at least one attorney or pro se representative of record in the individual name of the attorney or pro se representative and must state such person's address and telephone number. The signature of an attorney or pro se representative of record constitutes a certificate by such person that to the best of the person's knowledge, information, and belief there are good grounds to support the motion or other pleading, and that it is not intended to delay the proceedings.

(D) Hearing Notice Requirements.

(1) Proposed Notice of Hearing. The Commissioner may require any party who seeks relief to file a proposed Notice of Hearing. When the Department is the party seeking relief and a hearing is required by law, the Department shall file a proposed Notice of Hearing.

(2) Content of Notice. A Notice of Hearing must clearly state the issues involved, the primary statutes and rules involved, the time, place and nature of the hearing, any remote or virtual options for attendance, and the legal authority and jurisdiction under which the hearing is to be held.

(3) Service of Notice. Service is complete when the Notice of Hearing is served in person or deposited in the United States mail, postage prepaid, registered or certified, addressed to the last known address of the persons and parties involved, not less than ten (10) days before the date designated for the hearing, or as otherwise required by law.

(4) Expenses. The expense of furnishing notice must be borne by the party on whose behalf or for whose benefit such notice is given.

(E) Filing.

(1) Filing, manner and significance. A hard copy of all filings must be addressed to and delivered by United States mail, postage prepaid, or filed in person with the Department's Docket Clerk, 89 Main Street, Montpelier, Vermont 05620-3301 and an electronic copy shall be emailed to DFR. Docket.Clerk@Vermont.gov.

The offices of the Department are open for filing, inspection, and copying of public documents from 7:45 a.m. to 4:30 p.m., Monday through Friday, except on National and State legal holidays and during states of emergency. Regardless of the method of delivery employed, filing occurs only upon the receipt of the hard copy by the Department's Docket Clerk, unless an alternate method has been authorized by the Commissioner. An initial filing may include a request that future filings in a particular matter be accepted via e-mail only and the Commissioner shall have discretion to grant such requests after an opportunity for each party to be heard on the request.

(2) Number of copies. Except as provided herein, or as otherwise authorized by the Commissioner, all filings must include an original and two copies of each document.

(3) Form of Filings Generally. Except as provided in Section 1.04(E)(4) or as ordered by the Commissioner, all filings must be printed on paper 8 1/2" x 11" in size. The name and docket number of the case, the page numbering of the filing and the date upon which it was prepared must appear in the upper right-hand corner of all filings. Page numbering must show both the number of the particular page and the total number of pages in the filing. Filings should be headed by a descriptive title. The Commissioner may refuse to accept for filing or, after filing, may reject any filing which fails to conform to the requirements of this regulation; provided, that if no substantial prejudice will occur to any other party, the filing party shall be afforded a reasonable opportunity to cure the defect, and such cure, if made, shall be deemed to relate back to the original date of filing.

(4) Special rules for certain exhibits. Exhibits need not comply with the printing or size requirement of Section 1.04(E)(3) when their purpose or content makes it impracticable to do so, but in all cases where it is not manifestly impracticable to do so, exhibits must be so designed that they can be folded to a size 8 1/2" x11". The identity and page number of any exhibit which measures, or which is folded to measure 8 1/2" x 11", must appear in the upper right-hand corner when the exhibit is positioned with the 8 1/2" sides as its top and bottom. The identification and page number must be set out horizontally when the exhibit is positioned in the manner described in the preceding sentence. The Commissioner may refuse to accept for filing, or after filing, may at any time reject any exhibit which fails to conform to the requirements of this regulation, provided, that if no substantial prejudice will occur to any other party, the filing party must be offered a reasonable opportunity to cure the defect, and such cure, if made, shall be deemed to relate back to the original date of filing.

(F) Service.

(1) In addition to any other requirement imposed by law, every filing must on the same day on which it is filed, be served by the party filing the same upon every other party who has filed a notice of appearance.

(2) Whenever under this regulation service is required to be made on a party, it must be made upon the attorney or pro se representative whose appearance has been filed on behalf of such party.

(3) For all filings, except the initial pleading, service may be made by mailing a copy of the filing, first class postage prepaid, to the person whose notice of appearance is on file; but service may also be made by personal delivery or by any other means authorized by the party entitled to service or authorized by the Commissioner.

(G) Appearances.

(1) Attorney Notice of Appearance. Attorneys must file a written notice of appearance with respect to any matter in which they are representing a party.

(2) Pro Se Representative Notice of Appearance.

(a) Any individual may be a pro se representative in a particular matter. For purposes of these rules a person engaged in selfrepresentation shall be known as a pro se representative. At the discretion of the Hearing Officer, persons who are not attorneys may be permitted to be pro se representatives for an entity as follows: a partnership may be represented by a partner, an LLC may be represented by an officer or managing member, and a cooperative or association may be represented by an officer thereof or by an employee designated in writing by an officer thereof. Upon motion, such permission shall be given in all proceedings unless, because of their factual or legal complexity or because of the number of parties, the Hearing Officer is of the opinion that there is a substantial possibility that the participation of a pro se representative will unnecessarily prolong such proceeding or will result in inadequate exposition of factual or legal matters.

(b) Corporations must appear through an attorney except as set forth in this rule. Upon motion, the Hearing Officer may permit a corporation to appear through a non-attorney representative only if the proposed representative establishes that:

(1) the organization cannot afford to hire counsel, nor can it secure counsel on a pro bono basis;

(2) the proposed lay representative is authorized to represent the organization;

(3) the proposed lay representative demonstrates adequate legal knowledge and skills to represent the organization without being unduly burdensome; and

(4) the representative shares a common interest with the organization.

(c) A business entity or an individual engaged in self-representation must file a written Notice of Pro Se Representative Appearance with respect to any matter in which they are appearing. This regulation shall in no respect relieve any party from the necessity of compliance with any applicable rule, law, practice, procedure, or other requirement.

(3) Failure to File Notice of Appearance. Except as otherwise provided by law, a party, or party's pro se representative or attorney, who has failed to file a Notice of Appearance will not be entitled to notice or service of any document in connection with such matter, whether such notice or service is required to be made by the Department, by a party, or by a person seeking party status.

(4) Service. A copy of each Notice of Appearance must, on the same day it is filed, be served by the party filing the same upon all parties on whose behalf a notice of appearance has been filed. A list of such persons and parties will be provided by the Docket Clerk upon request.

(5) Attorneys admitted elsewhere. An attorney admitted to practice and in good standing in any other state or American or common law jurisdiction may represent a party under this rule with the written permission of the Hearing Officer provided that such attorney must have co-counsel of record who is admitted to practice in Vermont.

(6) Withdrawal of appearance. An attorney who has appeared on behalf of a party may withdraw only upon permission of the Hearing Officer. A person appearing as a pro se representative may withdraw without permission of the Hearing Officer, provided, that if other counsel or pro se representative has not appeared for such person within such reasonable time as allowed by the Hearing Officer, such withdrawal must be deemed to constitute withdrawal of that party and as such may result in a default judgement being entered against the party.

(H) Answer to Contested Matters.

(1) The Respondent must file an answer to the pleading which initiated the contested case. The answer must be filed within the time frame established by law or within thirty (30) days of the date on which the pleading initiating the contested case was served, whichever is shorter. An answer must include the following:

(a) A response to each allegation made in the document that initiated the contested case which the Respondent disputes. When the Respondent intends in good faith to deny only part of an allegation, Respondent must specify the part of the allegation that is contested. Any allegation that is not contested may be deemed admitted.

(b) A brief statement of the legal and factual basis of any defense the Respondent intends to offer at the hearing.

(c) Whether the Respondent waives a hearing.

(2) If a Respondent does not file an answer within the time frame allowed under this regulation, the allegations contained in the pleading which initiated the contested case may be treated as proven and a default judgment may be entered in the case as provided in Section 1.04(T).

(I) Defective Filings. Substantially defective or insufficient filings may be rejected by the Department, provided, that if it will not unreasonably delay any proceeding nor unreasonably adversely affect the rights of any party, the Department should allow a reasonable opportunity for a party to cure any defect or insufficiency. A filing which is found to be defective or insufficient is not deemed to have been cured until the date on which the last document is filed which removes the defect or makes the filing complete. A filing is substantially insufficient if, among other things, it fails to include all material information required by statute or rule.

(J) Computation of Time. The provisions of the Vermont Rules of Civil Procedure, Rule 6 and 6 (Time - Computing Time and Extending Time) apply.

(K) Remote Hearings. At the Hearing Officer's discretion, a hearing may be held in whole or in part by telephone conference, video conference, or other electronic means. In deciding whether a hearing should be held remotely, factors for consideration include safety, timeliness, cost-effectiveness, efficiency, facility accommodations, witness availability, public interest, the parties' preferences, and the proceeding's complexity.

(L) Postponement or Continuance of Hearing. A hearing may be postponed or continued for good cause by the Hearing Officer either sua sponte or upon motion of a party. Notice of any postponement or continuance must be given in writing to all parties to the hearing within a reasonable time. All parties involved in a hearing must attempt to avoid undue delay caused by repetitive postponements or continuances.

(M) Motions. Motions made during a hearing may be required to be in writing and supported by a brief within such period as the Hearing Officer may direct. Motions not made during the hearing must be in writing and, if they raise a substantial issue of law, must be accompanied by a brief. The Hearing Officer may decline to consider a motion not made within a reasonable time after the issue first arises with respect to the moving party.

(N) Briefs. Briefs shall address each issue of law which a party desires the Hearing Officer to consider. Whenever a brief addresses more than one issue, it shall be suitably divided into sections which separately address each issue. Such a brief shall contain, immediately following the cover page, a detailed table of contents.

(O) Ex Parte Orders.

(1) Where the Commissioner is authorized by law to issue a cease-and-desist or other injunctive order, including an order suspending a license, he or she may do so without written or oral notice to the Respondent. A request for such an ex parte order shall be in the form of a written pleading. Unless a different standard is provided by law, the Commissioner may only issue an ex parte order effecting the revocation, suspension, annulment, or withdrawal of a license if the Commissioner finds that the public health, safety, or welfare imperatively requires emergency action before a hearing can be held upon proper notice.

(2) Where a cease-and-desist or other injunctive order is issued without notice, the Respondent shall be notified of the Respondent's right to a hearing at the time such cease-and-desist or other injunctive order is issued. The notice shall specify the deadline to request a hearing. Such hearing shall generally be held within thirty days of receipt by the Commissioner of the Respondent's request for hearing and a decision shall be rendered within sixty days after the conclusion of the hearing. The Commissioner may enlarge the time to hold the hearing or render a decision upon a showing of good cause.

(P) Harmless Error. The provisions of the Vermont Rules of Civil Procedure, Rule 61 (Harmless Error) apply.

(Q) Relief from Order. The provisions of the Vermont Rules of Civil Procedure, Rule 60 (Relief from Judgment or Order) apply.

(R) Sanctions.

(1) Proposed findings and briefs. An attorney or pro se representative who fails to submit proposed findings or briefs, after having been directed to do so, or who fails to conform to the requirements respecting proposed findings or briefs in Sections 1.04(N) and (X), may be suspended from further participation in the proceeding or for such period of time as the Hearing Officer finds to be just. In addition, with respect to any issue of law as to which a party has failed to conform to the requirements of Section 1.04(N), such party may be deemed to have waived any claims of law with respect to such issue, and the claims of the opposing party with respect thereto may be deemed to be the law of the case.

(2) Contemptuous or disruptive behavior. An attorney, party, pro se representative, or witness who engages in contemptuous or disruptive behavior before the Hearing Officer during a hearing shall first be warned once off the record in a bench conference with the parties. Thereafter, if such person persists in such behavior, the individual shall be warned once on the record by the Hearing Officer. Thereafter, if such person continues to persist in such behavior, such person may be suspended from further participation in the proceeding or for such period of time as the Hearing Officer finds to be just.

(S) Ex Parte Communication.

(1) Unless required for the disposition of ex parte matters authorized by law, members or employees of the Department assigned to render a decision or to make findings of fact and conclusions of law in a contested case shall not communicate, directly or indirectly, in connection with any issue of fact, with any person or party, nor, in connection with any issue of law, with any party or the representative of any party, except upon notice and opportunity for all parties to participate. The Department member or employee member:

(a) may communicate with other members or employees of the Department; and

(b) may have the aid and advice of one or more personal assistants.

(T) Waiver of Rules. Except where precluded by statute, the Commissioner may waive these rules when the interest of justice requires.

(U) Informal Disposition Unless precluded by law, informal disposition may be made of any contested case by stipulation, agreed settlement, consent order, or default.

(V) Default Judgment. If a Respondent, against whom a pleading initiating a contested case has been properly filed and served, fails to answer within the time period specified in Section 1.04(H)(1), fails to request a hearing, fails to appear at a scheduled hearing, withdraws from a hearing, or otherwise fails to defend the charge, the Petitioner may move for a decision by default. The Commissioner may render a decision by default at any time after the passage of ten days from the filing and service of the motion for default, whereupon the Commissioner may issue an order based on the record.

(W) Official Notice. Official notice may be taken of all facts of which judicial notice may be taken and of other facts, of a technical nature, within the specialized knowledge and experience of the Department.

(X) Public Hearings.

(1) In matters in which the Commissioner must hold a public hearing, other than rulemaking and evidentiary hearings, any person may submit written statements up until the close of business on the day of the public hearing or offer oral comments relevant to the subject matter of the hearing. The Commissioner may place reasonable time limitations on oral comments as necessary for the orderly conduct of the hearing.

(2) All public hearings must be recorded, and the recording retained at the Department. A public hearing, or any part thereof, shall be transcribed at the request of a party and upon payment by the requesting party of the reasonable costs thereof.

(Y) Proposed Findings of Fact and Conclusions of Law. The Hearing Officer may require each party to submit proposed findings of fact and conclusions of law. Each proposed finding shall deal concisely with a single fact or with a group of facts so interrelated that they cannot reasonably be treated separately. Proposed findings shall be consecutively numbered and shall be in logical sequence. Where the party claims to have established more than one ultimate fact, proposed findings shall be arranged into separate groups, appropriately identified as to subject matter. Each proposed finding shall contain a citation or citations to the specific part or parts of the record containing the evidence upon which the proposed finding is based.

(Z) Commissioner's Order.

(1) The Commissioner will review the proposed findings of fact and conclusions of law, if any, and timely issue an Order as required by applicable law or, if no law dictates the time, within a reasonable time.

(2) The Order shall be in writing and shall include findings of fact and conclusions of law separately stated. Findings of fact shall be based exclusively on the evidence presented at the hearing or known to all parties, including matters officially noticed. Findings of fact, if set forth in statutory language, shall be accompanied by a statement of the underlying supporting facts. If a party submits proposed findings of fact, the Order shall include a ruling upon each proposed finding. Each conclusion of law shall be supported by authority or reasoned opinion. An Order shall not be made except upon consideration of the record as a whole or such portion thereof as may be supported by competent material and substantial evidence.

(3) The Order will become effective immediately, or as otherwise specified by either the Order or applicable law.

(4) Parties must be promptly notified of the Order, either personally or by mail, postage prepaid, certified or registered, addressed to the last known address of the person involved, or by electronic means if all parties have agreed to employ such means. A copy of the Order must be delivered or mailed to each party or to the attorney of each party or pro se representative of record. In addition, when practicable, Orders may be sent via electronic mail to all parties to a proceeding.

Section 1.05 Evidentiary Hearings.

(A) Authority of a Hearing Officer. When the Commissioner designates a Hearing Officer to preside at a hearing, the Hearing Officer has the authority to conduct the hearing(s), take all necessary action to avoid delay, maintain order, and ensure the development of a clear and complete record. The Hearing Officer shall have all powers necessary to conduct a hearing including the power to:

(1) administer oaths and affirmations;

(2) regulate the course of hearings, set the time and place for continued hearings, set deadlines for filing of documents, provide for the taking of testimony by deposition if necessary, and generally conduct the proceeding according to administrative law and this regulation;

(3) examine witnesses and direct witnesses to testify, limit the number of times any witness may testify, limit repetitious or cumulative testimony, and set reasonable limits on the amount of time each witness may testify;

(4) rule upon offers of proof and receive relevant evidence;

(5) sign and issue subpoenas that require attendance, giving testimony, and the production of books, papers, electronically stored information, and other documentary evidence;

(6) direct parties to appear and confer for settlement or simplification of issues, and to otherwise conduct prehearing conferences;

(7) dispose of procedural requests or similar matters by written or oral order;

(8) impose sanctions pursuant to Section 1.04(R);

(9) enter procedural and evidentiary orders that carry out the purpose of this regulation; and

(10) render a Proposal for Decision, Draft Final Order, or similar document for the Commissioner's review.

(B) Disqualification of Hearing Officer. Any party may file a motion, which shall be supported by affidavit, setting forth allegations of personal bias, prejudice, or other facts that the party alleges require disqualification of the Hearing Officer. The Commissioner shall personally determine this issue as part of the record of the case. Voluntary recusal is permissible for good cause shown. When a Hearing Officer is disqualified or recused, or it becomes impractical for the Hearing Officer to continue, the Commissioner will determine how to proceed, consistent with these rules.

(C) Prehearing Conference.

(1) The Hearing Officer may direct the parties to appear for pre-hearing conference(s) to consider matters including, but not limited to:

(a) clarification or simplification of the issues;

(b) the necessity or desirability of amendments or supplements to any filing;

(c) the possibility of obtaining stipulations of fact, documents, and/or exhibits which will avoid unnecessary disputes and/or motion practice;

(d) to hear any motions that should appropriately be heard and ruled upon prior to the hearing;

(e) to establish a limitation on the number of expert or other witnesses; and

(f) any other matters that may aid in the disposition of the case.

(2) The Hearing Officer shall issue a written order which recites the action taken at the pre-hearing conference, including any agreements made by the parties. When entered, such order controls the subsequent course of the proceedings unless later modified in writing.

(D) Intervention.

(1) A person seeking to intervene must submit a timely motion demonstrating:

(a) a substantial interest which may be adversely affected by the outcome of the proceeding;

(b) that the proceeding affords the exclusive means by which the applicant can protect that interest; and

(c) that the applicant's interest is not adequately represented by existing parties.

(2) The Hearing Officer shall rule on a motion to intervene with reasonable promptness and shall issue a written decision on such motion.

(3) The Hearing Officer may restrict an intervenor's participation to only those issues in which the party has demonstrated an interest, may require such party to join with other parties with respect to representation by counsel or by pro se representative, presentation of evidence or other matters, or may otherwise limit such party's participation, all as the interests of justice and economy of adjudication require.

(E) Joinder. The provisions of the Vermont Rules of Civil Procedure, Rules 19 (Joinder of Persons Needed for Just Adjudication; 20 (Permissive Joinder of Parties); and 21 (Misjoinder and Nonjoinder of Parties) apply.

(F) Consolidation of Hearings / Separate Hearings. The provisions of the Vermont Rules of Civil Procedure, Rule 42 (Consolidation; Separate Trials) apply to the extent practicable.

(G) Discovery.

(1) The following discovery procedures may be ordered by the Hearing Officer upon the written request of any party when necessary to expedite the proceedings, to ensure a clear or concise record, to ensure a fair opportunity to prepare for the hearing, or to avoid surprise at the hearing:

(a) production of documents or things;

(b) depositions; and

(c) written interrogatories.

(2) The Hearing Officer may restrict discovery when necessary to prevent undue delay, duplication, or harassment.

(3) Discovery by the Department. The procedures enumerated in this section may be used by the Commissioner or the Commissioner's agents and employees, but the availability of such procedures shall in no way limit the authority of the Commissioner and the Commissioner's agents and employees, including but not limited to the authority to inquire into and examine any matter within the jurisdiction of the Commissioner, to examine books, accounts and papers of any person or entity subject to the Commissioner's jurisdiction or to enter and examine the property of any person or entity subject to the Commissioner's jurisdiction.

(H) Subpoenas.

(1) Upon application to the Hearing Officer by any party, the Hearing Officer may issue a subpoena for attendance at a deposition or a hearing, which may include the requirement to produce books, papers, electronically stored information, documents, or tangible things designated in the subpoena and reasonably necessary to resolve the matter under consideration, subject to the limitations on discovery prescribed in Section 1.05(G) of this regulation.

(2) Every subpoena must state the title of the action and must require each person to whom it is directed to attend and give testimony at the time and place specified in the subpoena.

(3) The Hearing Officer, upon motion made promptly, and in any event at or before the time specified in the subpoena for compliance, may quash or modify the subpoena if it is unreasonable, unduly burdensome, or oppressive.

(I) Transcription. An evidentiary hearing, or any part thereof, must be transcribed by a stenographer and the petitioner will bear the cost.

(J) Conduct of Hearing.

(1) The typical order of an evidentiary hearing, subject to modification by the Hearing Officer, is as follows:

(a) presentation, argument, and disposition of motions preliminary to a hearing on the merits;

(b) presentation of opening statements;

(c) Petitioner's case in chief and presentation of evidence;

(d) Respondent's case in chief and presentation of evidence;

(e) Petitioner's case in rebuttal;

(f) Petitioner's closing statement, which may include legal argument;

(g) Respondent's closing statement, which may include legal argument; and

(h) presentation and argument of all motions prior to the Order.

(K) Witnesses.

(1) Before testifying, every witness must give an oath or affirmation to testify truthfully. The testimony of a witness on direct examination may be offered in the written form of prefiled testimony, either by having it read into the record or by offering it for incorporation into the record without reading, provided all parties stipulate to its admission. All cross-examination shall be by live testimony.

(2) Form of prefiled testimony. The preferred form for prefiled testimony is question/answer form. However, such testimony may be filed in narrative form provided that it is typed and double spaced and that the narrative includes headers to identify subject matter categories. The prefiled testimony of each witness must be preceded by a brief statement, set forth on a separate page, containing a summary of the testimony and exhibits referred to in such testimony. The summary must not be admitted as evidence. All prefiled testimony must include a signed statement that it is being submitted under the pains and penalties of perjury.

(L) Evidence.

(1) General Rule. Evidentiary matters are governed by 3 V.S.A. § 810.

(2) The Hearing Officer may order any party intending to submit documentary exhibits and/or written testimony at a hearing to provide the opposing party with a copy of those document(s) and file the original(s) with the Docket Clerk within a specified time prior to the hearing. The Hearing Officer may also order a party to provide a summary of expected testimony prior to the hearing. The filing of documentary exhibits and/or written testimony shall not constitute admission of that evidence into the record of the contested case. Documentary exhibits and written testimony which have not been prefiled as required herein shall not be admitted into evidence except upon good cause shown. Impeachment exhibits need not be prefiled.

(3) Objections to the admissibility of prefiled testimony or exhibits must be filed in writing not more than thirty days after such evidence has been prefiled or five days before the date of the hearing, whichever is earlier.

(4) Parties have the obligation to make good faith efforts among themselves to stipulate to uncontested facts and to resolve or reduce all differences related to evidentiary matters.

(5) Parties may make oral objections to evidentiary offers during the hearing.

(6) Parties may request confidential treatment of information exempted from public inspection by law.

(M) Reopening or Rehearing.

(1) Except as otherwise provided by law, if the Commissioner has not issued an Order, the Commissioner may, at the discretion of the Commissioner, or upon the motion of a party, order that a hearing be reopened if a hearing has concluded and the record evidence is found by the Commissioner to be deficient. At the discretion of the Commissioner or upon the motion of a party, a rehearing may be ordered where the Commissioner has issued an Order and the record evidence or legal analysis is subsequently found to be deficient.

(2) A party's motion for rehearing or reopening must describe in detail the basis for the motion. A motion for the reopening of a hearing must be filed within ten (10) days of the date of the conclusion of the hearing, but prior to the issuance of the Commissioner's Order. A motion for rehearing must be filed within ten (10) days of the date of mailing of the Commissioner's Order. A rehearing or reopening of a hearing shall be noticed and conducted in the same manner as an original hearing. The evidence received at the rehearing or reopening of a hearing shall be included in the record for the Commissioner's consideration and for judicial review. An Order may be amended or vacated after rehearing.

(N) Informal Disposition. Prior to the issuance of the Order, the parties may negotiate an informal disposition outside the presence of the Hearing Officer. If the parties reach agreement on an informal disposition, the parties shall notify the Hearing Officer and also submit the agreement to the Commissioner, who may accept or reject the proposal.

(O) Waiver of Hearing. Unless precluded by law, a hearing may be waived in the discretion of the Commissioner if all parties to that proceeding file written waivers of the opportunity for a hearing.

(P) Hearing Officer's Proposal for Decision.

(1) The Hearing Officer's proposal for decision shall be in writing and shall include findings of fact and conclusions of law, or opinions separately stated. Findings of fact shall be based exclusively on the evidence presented at the hearing or known to all parties, including matters officially noticed. Findings of fact, if set forth in statutory language, shall be accompanied by a statement of the underlying supporting facts. If a party submits proposed findings of fact, the proposal for decision shall include a ruling upon each proposed finding. Each conclusion of law shall be supported by authority or reasoned opinion. A proposal for decision shall not be submitted to the Commissioner except upon consideration of the record as a whole or such portion thereof as may be supported by competent material and substantial evidence.

(2) The Hearing Officer may require any party to file proposed findings of fact in accordance with Section 1.04(Y).

(3) The Hearing Officer shall submit the proposal for decision to the Commissioner via such means as the Commissioner shall direct.

(4) The Hearing Officer shall serve on all parties the proposal for decision. Any party shall have ten (10) days from the date of service to file written exceptions, legal briefs, and request oral argument before the Commissioner.

(5) The parties, by written stipulation, may waive the opportunity to file exceptions, legal briefs, or request oral argument concerning the proposal for decision before the Commissioner.

(Q) Order of the Commissioner.

(1) The Commissioner shall review the Hearing Officer's Proposal for Decision and shall issue an Order within a reasonable time or as set forth by applicable statutes.

(2) The Order will become effective immediately upon its execution, or as otherwise specified by either the Order or applicable statutes.

(3) Parties shall be promptly notified of the Order, either personally or by mail, postage prepaid, certified, or registered, addressed to the last known address of the person involved, or electronically if the parties have agreed to electronic service. A copy of the Order shall be delivered or mailed to each party or to the attorney or pro se representative of record. In addition, when practicable, Orders may be sent via electronic mail to all parties to a proceeding.

(R) Commissioner as Hearing Officer: Order. For hearings over which the Commissioner personally presides, Section 1.04(Y) applies to the Order by the Commissioner and Section 1.05(P) and (Q) apply when the Commissioner does not personally preside.

Section 1.06 Appeals.

In several instances, statutes within the Department's jurisdiction specifically address the process to appeal an Order. In those instances, the specific statute governs the appeal. Otherwise, the general appeal process is governed by this section, 8 V.S.A. § 16, and 3 V.S.A. § 815. A party contemplating an appeal must review the statutes at issue in the hearing to determine the appropriate appeal process.

In all instances, a Notice of Appeal must be filed with the Commissioner and the applicable court of jurisdiction. Upon receipt of a Notice of Appeal, the Commissioner will compile the record of the administrative process and submit the record to the court and to each party.

Section 1.07 Petitions for Rulemaking.

(A) Petitions for the adoption, amendment, or repeal of any rule will be entertained by the Commissioner in accordance with 3 V.S.A. § 806. Any such petition shall be filed with the Commissioner in accordance with the requirements of Section 1.04(E) of this regulation. The petition will be considered informally and, within thirty (30) days after the filing of the petition, the Commissioner shall either deny the petition, stating the reasons for the denial in writing, or shall initiate formal rulemaking proceedings.

(B) When requested by twenty-five (25) or more persons or by the Legislative Committee on Administrative Rules, the Commissioner shall initiate formal rulemaking proceedings to adopt an existing practice or procedure as a rule, as required by 3 V.S.A. § 831(c). A request under this subsection shall be filed with the Commissioner in accordance with the requirements of Section 1.04(E) of this regulation.

Section 1.08 Rulemaking Hearing Procedures.

Department rules shall be adopted by taking the steps described in 3 V.S.A. § 836. The Department is not mandated by law to hold its own hearing on a rulemaking unless a petition is filed requesting a hearing pursuant to 3 V.S.A. § 840. Such petition shall be filed in accordance Section 1.04(E). Nonetheless, holding such hearings is the norm, as the Department should seek to maximize public participation in the rulemaking process. Department rulemaking hearings normally do not trigger the due process requirements present in an adjudicatory hearing and may be conducted on a less formal basis.

As a general rule, rulemaking hearings are held in the following manner. The Commissioner will schedule and notice a rulemaking hearing in accordance with the Secretary of State 's guidelines. Department staff will preside at the rulemaking hearing. The purpose of the rulemaking hearing is to gather public comment(s) relevant to the proposed rule rather than to respond to such comment(s) or to debate the substance of the proposed rule. Department staff may place reasonable time limits on individual comments as necessary for the orderly conduct of the hearing. A rulemaking hearing will remain open for a reasonable time sufficient to hear such comments as are presented, and for a minimum of twenty (20) minutes even if no commenters are present. All hearings will be recorded. Attendees will be identified in the record whether or not the attendee provides comment. The recording as well as any written comments submitted at the hearing will be part of the rulemaking record.

Section 1.09 Petitions for Declaratory Rulings.

Pursuant to 3 V.S.A. § 808, an interested person may petition the Commissioner for a declaratory ruling as to the applicability of any statutory provision or of any rule or order of the Commissioner. Any such petition shall be filed with the Commissioner in accordance with the requirements of Section 1.04(E) of this regulation. The petition shall identify the statute, rule, or order involved, shall state the specific facts to which the statute, rule, or order is sought to be applied and shall be accompanied by a legal brief addressing any issue of law which the Petitioner desires the Commissioner to consider. Petitions for declaratory rulings under this section will be considered informally unless good cause is shown for more formal proceedings.

Section 1.10 Petitions to Describe an Existing Practice.

Pursuant to 3 V.S.A. § 831(b), an interested person may petition the Commissioner to provide a description of an existing practice of the Department. Any such petition shall be filed with the Commissioner in accordance with the requirements of Section 1.04(E) of this regulation. The petition shall be considered informally unless good cause is shown for more formal proceedings.

Section 1.11 Conflict.

In the event that this regulation or any section herein conflicts with Vermont statute, the Vermont statute shall govern.

Section 1.12 Severability.

If any provision of this regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of the regulation and the application of such provisions to other persons or circumstances shall not be affected thereby.

Section 1.13 Effective Date.

This regulation is effective on January 1, 2022.

History

• Effective Date:
• December 30, 1982 (Secretary of State Rule Log No. 82-66)
• AMENDED:
• May 2, 2000 Secretary of State Log #00-28; 1/1/2022 Secretary of State Log #21-031.
• STAUTORY AUTHORITY: 8 V.S.A. § 75; 9 V.S.A. § 5605

Chapter 002 THIRD PARTY ADMINISTRATOR RULE

21-002 Code Vt. R. 21-000-002-X THIRD PARTY ADMINISTRATOR RULE

REG. I-2021-01

Section 1. Purpose

The purpose of this rule is to set forth standards and requirements, pursuant to the authority contained in 8 V.S.A. § 15 and 9402(8) and 9417, for entities engaged in the business of insurance, as defined in 8 V.S.A. § 3301a, that directly or indirectly underwrite, collect charges, collateral or premiums from, or adjust or settle claims on residents of this state.

Section 2. Authority.

This rule is adopted under the authority granted to the Commissioner by 8 V.S.A. §§ 15 and 3301a, and as required under 18 V.S.A. § 9417.

Section 3. Definitions.

For purposes of this rule:

1. "Affiliate" or "affiliated" means a person who directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, another specified person.

2. "Business entity" means a corporation, association, partnership, limited liability company, or other legal entity.

3. "Collateral" means funds, letters of credit or any item with economic value owned by the payor but held by an insurer or TPA in case it needs to be used to fulfill premium or loss reimbursement obligations in accordance with a contract between the insurer or TPA and the payor. "Collateral" shall include anticipated loss prepayments made prior to the payment of losses, pursuant to arrangements where reimbursement is not due until after losses have been paid.

4. "Commissioner" means the Commissioner of the Department of Financial Regulation.

5. "Control" (including the term "controlled by") has the same meaning as in 8 V.S.A. § 3681(3).

6. "Flexible spending account" or "FSA" has the same meaning as in 18 V.S.A. § 9417(a)(1).

7. "GAAP" means United States generally accepted accounting principles consistently applied.

8. "Health reimbursement arrangement" or "HRA" has the same meaning as in 18 V.S.A. § 9417(a)(2).

9. "Health savings account" or "HSA" has the same meaning as in 18 V.S.A. § 9417(a)(3).

10. "Home state" means a United States jurisdiction that has adopted the National Association of Insurance Commissioners (NAIC) model regulation for the registration and regulation of TPAs or a substantially similar law governing TPAs and that has granted the TPA a home state TPA license.

"Insurer" means an entity licensed in a United States jurisdiction to provide life, annuity, health, or stop-loss coverage as an insurance company, health maintenance organization, fraternal benefit society, multiple employer welfare arrangement (MEWA), professional employer organization (PEO), or prepaid hospital or medical care plan.

"Insurance producer" means a person required to be licensed under the laws of this state to sell, solicit or negotiate insurance, and also includes a business entity whose primary activities are the sales, solicitation and negotiation of insurance.

"Nonresident TPA" means a TPA whose home state is any jurisdiction other than this state.

14. "Payor" means an insurer or an employer administering its employee benefit plan or the employee benefit plan of an affiliated employer under common management and control.

15. "Person" means an individual or a business entity.

16. "Third party administrator" or "TPA" means a person who directly or indirectly underwrites, collects charges, collateral or premiums from, or adjusts or settles claims on residents of this state, in connection with life, annuity, health or stop-loss coverage, including HRA, FSA, HSA, or similar tax-advantaged accounts for health-related expenses, except that a person shall not be considered a TPA if that person's only actions that would otherwise cause it to be considered a TPA are among the following:

a. A person working for a TPA to the extent that the person's activities are subject to the supervision and control of the TPA;

b. An employer administering its employee benefit plan or the employee benefit plan of an affiliated employer under common management and control;

c. The administration of a bona fide employee benefit plan established by an employer or an employee organization, or both, for which the insurance laws of this state are preempted pursuant to the Employee Retirement Income Security Act of 1974 (ERISA);

d. A union administering a benefit plan on behalf of its members;

e. An insurer administering insurance coverage for its policyholders, subscribers, or certificate holders, or for those of an affiliated insurer under common management and control;

f. An insurer directly or indirectly underwriting, collecting charges, collateral, or premiums from, or adjusting or settling claims on behalf of a client that is not a policyholder, subscriber or certificate holder, and that has its United States headquarters or principal location of business in a jurisdiction in which the insurer is licensed to write life, annuity, or health coverage;

g. An insurer directly or indirectly underwriting, collecting charges, collateral, or premiums, or adjusting or settling claims, provided that the insurer is licensed in this state to write life, annuity, or health coverage;

h. An insurance producer selling insurance or engaged in related activities within the scope of the producer's license;

i. A creditor acting on behalf of its debtors with respect to insurance covering a debt between the creditor and its debtors;

j. A trust and its trustees and agents acting pursuant to such trust established in conformity with 29 U.S.C. § 186;

k. A trust exempt from taxation under 26 U.S.C. § 501(a) of the Internal Revenue Code and its trustees acting pursuant to such trust, or a custodian and the custodian's agents acting pursuant to a custodian account which meets the requirements of 26 U.S.C. § 401(f);

l. A credit union or other financial institution that is subject to supervision or examination by federal or state banking authorities, or a mortgage lender, when collecting or remitting premiums to licensed insurance producers or to limited lines producers or authorized payors in connection with loan payments;

m. A credit card issuing company advancing or collecting insurance premiums or charges from its credit card holders who have authorized collection;

n. An individual adjusting or settling claims in the normal course of that individual's practice or employment as an attorney at law and who does not collect charges or premiums in connection with insurance coverage;

o. A person licensed as a managing general agent in Vermont under 8 V.S.A. § 4815 when acting within the scope of that license; or

p. A business entity that is affiliated with a licensed insurer while acting as a TPA for the direct and assumed insurance business of an affiliated insurer;

17. "Underwrites" or "underwriting" means, but is not limited to, the acceptance of employer or individual applications for coverage of individuals and the overall planning and coordination of a benefits program.

18. "Uniform Application" means the current version of the NAIC Uniform Application for Third Party Administrators.

Section 4. Licensing Required.

No person shall act as a TPA in this state unless that person is licensed as a TPA pursuant to this rule or unless exempted under this rule. This prohibition shall not apply to a person while employed by, or when operating under contract to, a TPA that is licensed pursuant to this rule, or exempted from this rule's licensing requirements.

Section 5. Payment to a TPA.

If an insurer, HRA, FSA, or HSA utilizes the services of a TPA, any payments made to the TPA by or on behalf of the insured party, or any collateral furnished to the TPA by or on behalf of the insured party, shall be held in trust by the TPA and shall be deemed to have been received by the insurer, HRA, FSA, or HSA, and the return of any collateral or payment forwarded by the insurer, HRA, FSA, or HSA to the TPA shall not be deemed to have been paid to the insured party until payment is received by the insured party. Nothing in this section limits any right of the insurer, HRA, FSA, or HSA against the TPA resulting from the TPA's failure to make payments to the insurer, HRA, FSA, or HSA, insured parties, or claimants.

Section 6. Books and Records.

A. A TPA shall maintain and make available to the payor complete books and records of all transactions performed on behalf of the payor. The books and records shall be maintained in accordance with prudent standards of insurance record keeping and shall be maintained for five (5) years from the date of their creation, unless another provision of law or regulation requires a longer period.

B. The Commissioner and the Commissioner's designees shall have access to books and records maintained by a TPA for the purposes of examination, audit, and inspection. Any documents, materials, or other information in the possession or control of the Commissioner that are furnished by a TPA, payor, insurance producer or an employee or agent thereof acting on behalf of the TPA, payor or insurance producer, or obtained by the commissioner in an investigation shall be kept confidential under 8 V.S.A. § 3574(d)(4). However, the Commissioner is authorized to use such documents, materials, or other information in the furtherance of any regulatory or legal action brought as a part of the Commissioner's official duties.

C. Neither the Commissioner nor any person who receives documents, materials, or other information while acting under the authority of the Commissioner shall be permitted or required to testify in a private civil action concerning confidential documents, materials, or information subject to subsection B of this section.

D. In order to assist in the performance of his or her duties, the Commissioner may:

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

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

E. 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 D of this section.

F. Notwithstanding any contractual agreements between the payor and the TPA that operate to the contrary, the TPA shall retain the right to sufficient continuing access to books and records to permit the TPA to fulfill all of its contractual obligations to insured parties, claimants, and the payor.

G. In the event the payor or the TPA cancels their agreement; notwithstanding the provisions of subsection A of this section, the TPA may, by written agreement with the payor, transfer all records to a new TPA rather than retain them for five (5) years. In such cases, the new TPA shall affirm to the Commissioner, in writing, that it is responsible for retaining the records of the prior TPA as required in subsection A of this section.

Section 7. Approval of Advertising.

A TPA that advertises on behalf of its client may only use advertising that has been approved in writing by the client in advance of its use. A TPA that mentions any current or former client in its advertising must obtain the client's prior written consent. Such approvals and consents shall be maintained pursuant to Section six with other books and records.

Section 8. Responsibilities of the Payor and TPA.

A. No TPA shall act as such without a written agreement between the TPA and the payor. A copy of the agreement shall be retained by the TPA for the duration of the agreement and for five (5) years thereafter, subject to Section six. The agreement shall contain all provisions required by this section, except insofar as the TPA does not perform all of the functions referenced in this section.

B. A payor that utilizes the services of a TPA shall retain responsibility for the benefits, collateral and reimbursement procedures, and claims payment procedures applicable to the account. The rules pertaining to these matters, to the extent that they are relevant to the duties of the TPA, shall be agreed to in writing by the payor and the TPA.

C. The written agreement between the TPA and the payor shall provide that communications between the TPA and claimants shall avoid deceptive statements with regard to the TPA or payor's responsibilities.

D. In the event of a dispute between the payor and the TPA regarding which of them is to fulfill a lawful obligation with respect to a policy, certificate, or claim subject to the written agreement, the payor shall fulfill such obligation.

E. The payor has the duty to provide for competent administration of its programs administered by a TPA and within the scope of this rule.

Section 9. Deposits and Claims.

A. All monies collected by a TPA on behalf of or for a payor, and any funds held by the TPA for the payment of claims, shall be held by the TPA in a fiduciary capacity. Funds shall be immediately remitted to the person entitled to them upon demand, or shall be deposited promptly in a fiduciary account established and maintained by the TPA in a federally insured financial institution. The TPA shall render a periodic accounting to the payor detailing all transactions performed by the TPA pertaining to the business of the payor, and the written agreement between the payor and the TPA shall include the specifications of this reporting.

B. The TPA shall keep copies of all records of any fiduciary account maintained or controlled by the TPA, and, upon request of a payor, shall furnish the payor with copies of the records pertaining to the deposits and withdrawals made on behalf of the payor. If funds deposited in a fiduciary account have been collected on behalf of or for more than one payor, or for the payment of claims associated with more than one policy, the TPA shall keep records clearly recording the deposits in and withdrawals from the account on behalf of each payor and relating to each policyholder.

C. The TPA shall not pay any claim by withdrawals from a fiduciary account in which payments or charges are deposited. Withdrawals from a fiduciary account shall be made as provided in the written agreement between the TPA and the payor, and only for the following purposes:

1. Remittance to a payor entitled to remittance;

Deposit in an account maintained in the name of the payor;

3. Transfer to and deposit in a claims-paying account, with claims to be paid as provided in subsection D of this section;

4. Payment to a group policyholder for remittance to the payor entitled to such remittance;

5. Payment to the TPA of its earned commissions, fees, or charges;

Remittance of return premium to the person or persons entitled to such return premium; and

7. Payment to other service providers as authorized by the payor.

D. All claims paid by the TPA from funds collected on behalf of or for a payor shall be paid only as authorized by the payor. Payments from an account maintained or controlled by the TPA for purposes including the payment of claims may be made only for the following purposes:

1. Payment of valid claims;

2. Payment of expenses associated with claims handling to the TPA or to other service providers approved by the payor;

Remittance to the payor, or transfer to a successor TPA as directed by the payor, for the purpose of paying claims and associated expenses; and

4. Return of funds held as collateral or prepayment, to the person entitled to those funds, upon a determination by the payor that those funds are no longer necessary to secure or facilitate the payment of claims and associated expenses.

Section 1 0. Compensation to the TPA.

A. A TPA shall not enter into an agreement or understanding with a payor in which the effect is to make the amount of the TPA's commissions, fees, or charges contingent upon savings effected in the payment of losses covered by the payor's obligations. This provision shall not prohibit a TPA from receiving performance-based compensation for providing hospital or other auditing services, from providing managed care or related services, or from being compensated for subrogation expenses.

B. A payor shall not enter into an agreement with a TPA in violation of this section.

C. This section shall not prevent the compensation of a TPA from being based on deposits or charges collected or the number of claims paid or processed.

Section 11. Disclosure of Charges and Fees.

A. When a TPA collects funds, the reason for collection of each item shall be identified to the insured party and each item shall be shown separately from any deposits received. Additional charges may not be made for services to the extent the services have been already paid for by the payor.

B. The TPA shall disclose to the payor all charges, fees and commissions that the TPA receives arising from services it provides for the payor, including any fees or commissions paid by payors providing reinsurance or stop-loss insurance.

Section 12. Delivery of Materials to Covered Individuals.

Any notices or other written communications delivered by the payor to the TPA for delivery to insured parties or covered individuals shall be delivered by the TPA promptly after receipt of instructions from the payor to deliver them.

Section 13. Resident TPA License.

A. If a TPA is incorporated in this state or this state is its principal place of business within the United States, then the TPA may designate this state as its home state and apply to this state for licensure as a TPA. If neither the state in which a TPA is incorporated nor the state that is its principal place of business have adopted the NAIC model regulation for the registration and regulation of TPAs or a substantially similar law governing TPAs, and if the TPA has not designated any other state that has adopted the NAIC model regulation for the registration and regulation of TPAs or a substantially similar law governing TPAs as its home state, then the TPA may apply for licensure in Vermont as its home state.

B. A TPA applying to Vermont as its home state shall apply for licensure using the Uniform Application and designate an individual as the TPA's contact person for department communications.

C. If a TPA designates this state as its home state because neither its state of incorporation nor the state that is its principal place of business within the United States have adopted the NAIC model regulation for the registration and regulation of TPAs or a substantially similar law governing TPAs, but if one or both of these other jurisdictions have licensed the TPA, then the Commissioner may consult with that state or States and may give due consideration to any relevant findings made by that state or States in order to avoid an unnecessarily duplicative review of the application.

D. The Uniform Application shall include or be accompanied by the following information and documents:

1. All basic organizational documents of the applicant, including any articles of incorporation, articles of association, partnership agreement, trade name certificate, trust agreement, shareholder agreement and other applicable documents and all amendments to such documents;

2. The bylaws, rules, regulations, and similar documents regulating the internal affairs of the applicant;

3. An NAIC Biographical Affidavit for each individual who is responsible for the conduct of affairs of the applicant; including all members of the board of directors, board of trustees, executive committee or other governing board or committee; the principal officers in the case of a corporation or the partners or members in the case of a partnership, association, or limited liability company; any shareholders or member holding directly or indirectly ten percent (10%) or more of the voting stock, voting securities, or voting interest of the applicant; and any other person who exercises control or influence over the affairs of the applicant;

4. For TPAs that hold monies in a fiduciary capacity under section 9 of this Rule, audited annual financial statements or reports for the two (2) most recent fiscal years that prove that the applicant has a positive net worth. If the applicant has been in existence for less than two (2) fiscal years, the Uniform Application shall include financial statements or reports, certified by an officer of the applicant and prepared in accordance with GAAP, for any completed fiscal years, and for any month during the current fiscal year for which such financial statements or reports have been completed. An audited financial/annual report prepared on a consolidated basis shall include a columnar consolidating or combining worksheet that shall be filed with the report and include the following:

a) amounts shown on the consolidated audited financial report shall be shown on the worksheet;

b) amounts for each entity shall be stated separately, and

c) explanations of consolidating and eliminating entries shall be included. The applicant shall also include such other information as the Commissioner may require to review the current financial condition of the applicant.

5. For TPAs that do not hold monies in a fiduciary capacity under section 9 of this Rule, financial statements certified by at least two (2) officers of the TPA to be true and correct that prove that the applicant has a positive net worth. If the applicant has been in existence for less than two (2) fiscal years, the Uniform Application shall include financial statements or reports, certified by an officer of the applicant and prepared in accordance with GAAP, for any completed fiscal years, and for any month during the current fiscal year for which such financial statements or reports have been completed. Financial reports shall include a columnar consolidating or combining worksheet that shall be filed with the report and include the following:

a) amounts shown on the consolidated audited financial report shall be shown on the worksheet;

b) amounts for each entity shall be stated separately, and

c) explanations of consolidating and eliminating entries shall be included. The applicant shall also include such other information as the Commissioner may require to review the current financial condition of the applicant.

6. A statement describing the business plan including information on staffing levels and activities proposed in this state and nationwide. The plan shall provide details setting forth the applicant's capability for providing a sufficient number of experienced and qualified personnel in the areas of claims processing, record keeping and underwriting; and

7. Such other pertinent information as may be required by the Commissioner.

E. A TPA licensed or applying for licensure under this section shall make available for inspection by the Commissioner copies of all contracts with payors or other persons utilizing the TPA's services.

F. A TPA licensed or applying for licensure under this section shall produce its accounts, records, and files for examination, and make its officers available to give information with respect to its affairs, as often as reasonably required by the Commissioner.

G. The Commissioner may refuse to issue or renew a license if the Commissioner determines that the TPA or any individual responsible for the conduct of affairs of the TPA is not competent, trustworthy, financially responsible, or of good personal and business reputation, or has had an insurance or a TPA certificate of authority or license denied or revoked for cause by any jurisdiction, or if the Commissioner determines that any of the grounds set forth in Section 15 of this Act exists with respect to the TPA.

H. A license issued under this section shall remain valid, unless surrendered, suspended, non-renewed or revoked by the Commissioner, for so long as the TPA continues in business in this state and remains in compliance with this rule.

I. TPAs making an initial application for a license to operate in Vermont shall pay to the Commissioner a nonrefundable fee of $ 600.00 for examining, investigating, and processing the application. Each such entity shall also pay a renewal fee of $ 600.00 on or before December 31 every three years following initial licensure.

Section 14. Registration Requirement.

A person who is not required to be licensed as a TPA under this Act and who directly or indirectly underwrites, collects charges or premiums from, or adjusts or settles claims on residents of this state, only in connection with life, annuity or health coverage provided by a self-funded plan other than a governmental or church plan, shall register with the commissioner annually, verifying its status as herein described. This section shall not apply to an insurer or to an individual performing these actions as an employee of an insurer. This section shall also not apply to a person performing these actions under contract to or as an employee of a TPA.

Section 15. Nonresident TPA License.

A. Unless a TPA has obtained a resident license in Vermont under this rule, any TPA who performs TPA duties in Vermont shall obtain a nonresident TPA license in accordance with this section by filing with the commissioner the Uniform Application, accompanied by a letter of certification. In lieu of requiring a TPA to file a letter of certification with the Uniform Application, the Commissioner may verify the nonresident TPA's home state certificate of authority or license status through an electronic database maintained by the NAIC, its affiliates or subsidiaries.

B. A TPA shall not be eligible for a nonresident TPA license under this section if it does not hold a home state certificate of authority or license in a state that has adopted the NAIC model regulation for the registration and regulation of TPAs or that applies substantially similar provisions as are contained in this rule to that TPA.

C. Except as otherwise provided, the Commissioner shall issue a nonresident TPA license to the TPA promptly upon receipt of a complete application.

D. Unless notified by the Commissioner that the Commissioner is able to verify the nonresident TPA's home state certificate of authority or license status through an electronic database maintained by the NAIC, its affiliates or subsidiaries, each nonresident TPA shall annually file a statement that its home state TPA certificate of authority or license remains in force and has not been revoked or suspended by its home state during the preceding year.

E. At the time of filing the statement required under subsection D of this section or, if the Commissioner has notified the nonresident TPA that the commissioner is able to verify the nonresident TPA's home state certificate of authority or license status through an electronic database, on an annual date determined by the Commissioner, the nonresident TPA shall pay a filing fee as required by the Commissioner.

F. A TPA licensed or applying for licensure under this section shall produce its accounts, records and files for examination, and make its officers available to give information with respect to its affairs, as often as reasonably required by the Commissioner.

G. A nonresident TPA licensed in its home state is not required to hold a nonresident TPA license in this state if it services no more than one hundred (100) certificate holders who reside in Vermont.

Section 16. Annual Report.

A. Each TPA licensed under this rule shall file an annual report for the preceding calendar year with the Commissioner on or before July 1 of each year, or within such extension of time as the Commissioner for good cause may grant. The annual report shall include:

1. For TPAs that hold monies in a fiduciary capacity under section 9 of this Rule, an audited financial statement performed by an independent certified public accountant. An audited financial/annual report prepared on a consolidated basis shall include a columnar consolidating or combining worksheet that shall be filed with the report and include the following:

a) amounts shown on the consolidated audited financial report shall be shown on the worksheet;

b) amounts for each entity shall be stated separately, and

c) explanations of consolidating and eliminating entries shall be included. The report shall be in the form and contain such matters as the Commissioner prescribes and shall be verified by at least two (2) officers of the TPA.

2. For TPAs that do not hold monies in a fiduciary capacity under section 9 of this Rule, a financial statement certified by at least two (2) officers of the TPA to be true and correct. The statement shall include a columnar consolidating or combining worksheet that shall be filed with the report and include the following:

a) amounts shown on the consolidated audited financial report shall be shown on the worksheet;

b) amounts for each entity shall be stated separately, and

c) explanations of consolidating and eliminating entries shall be included. The report shall be in the form and contain such matters as the Commissioner prescribes.

B. The annual report shall include the complete names and addresses of all payors with which the TPA had agreements during the preceding fiscal year.

C. The Commissioner shall review the most recently filed annual report of each TPA on or before September 1 of each year. Upon completion of its review, the commissioner shall either:

1. Issue a certification to the TPA that the annual report shows (a) that the TPA has a positive net worth as evidenced by audited financial statements and is currently licensed and in good standing, or (b) noting any deficiencies found in that annual report and financial statements; or

2. Update any electronic database maintained by the NAIC, its affiliates or subsidiaries, indicating (a) that the annual report shows that the TPA has a positive net worth as evidenced by audited financial statements and complies with existing law, or (b) noting any deficiencies found in the annual report.

Section 17. Grounds for Denial, Suspension or Revocation of Licensure.

A. The Commissioner shall deny, suspend or revoke the license of a TPA, or shall issue a cease and desist order should the TPA not have a license if, after notice and opportunity for hearing, the Commissioner finds that the TPA:

1. Is in an unsound financial condition;

2. Is using such methods or practices in the conduct of its business so as to render its further transaction of business in this state hazardous or injurious to insured persons or the public; or

3. Has failed to pay any judgment rendered against it in this state within sixty (60) days after the judgment has become final.

B. The Commissioner may deny, suspend, or revoke the license of a TPA, or may issue a cease and desist order should the TPA not have a license if, after notice and opportunity for hearing, the Commissioner finds that the TPA:

1. Has violated any lawful rule or order of the Commissioner or any provision of the insurance laws of this state;

2. Has refused to be examined or to produce its accounts, records and files for examination, or if any individual responsible for the conduct of affairs of the TPA, including members of the board of directors, board of trustees, executive committee or other governing board or committee; the principal officers in the case of a corporation or the partners or members in the case of a partnership, association or limited liability company; any shareholder or member holding directly or indirectly ten percent (10%) or more of the voting stock, voting securities or voting interest of the TPA; and any other person who exercises control or influence over the affairs of the TPA; has refused to give information with respect to its affairs or has refused to perform any other legal obligation as to an examination, when required by the Commissioner;

3. Has, without just cause, refused to pay proper claims or perform services arising under its contracts or has, without just cause, caused covered individuals to accept less than the amount due them or caused covered individuals to employ attorneys or bring suit against the TPA or a payor which it represents to secure full payment or settlement of such claims;

4. Is required under this rule to have a license and fails at any time to meet any qualification for which issuance of a license could have been refused had the failure then existed and been known to the Commissioner, unless the Commissioner issued a license with knowledge of the ground for disqualification and had the authority to waive it;

5. Is under suspension or revocation in another state; or

6. Has failed to file a timely annual report under this rule;

C. The Commissioner may, without advance notice, and before a hearing may issue an order immediately suspending the license of a TPA, or may issue a cease and desist order should the TPA not have a license, if the Commissioner finds that one or more of the following circumstances exist:

1. The TPA is insolvent or impaired;

2. A proceeding for receivership, conservatorship, rehabilitation, or other delinquency proceeding regarding the TPA has been commenced in any state; or

3. The financial condition or business practices of the TPA otherwise pose an imminent threat to the public health, safety, or welfare of Vermont residents.

D. At the time an order has been issued by the Commissioner in accordance with subsection C of this section, the Commissioner shall serve notice to the TPA that the TPA may request a hearing within ten business days after the receipt of the order. If a hearing is requested, the Commissioner shall schedule a hearing within ten business days after receipt of the request. If a hearing is not requested and the Commissioner orders none, the order shall remain in effect until modified or vacated by the Commissioner.

E. If the Commissioner finds that one or more grounds exist for the suspension or revocation of a license issued under this part, or for a cease and desist order, the Commissioner may, in lieu of or in addition to the suspension, revocation or cease and desist order, impose a fine upon the TPA.

Section 18. Severability.

If any provision of this rule or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of the rule and the application of such provisions to other persons or circumstances shall be not affected thereby.

Section 19. Conflict with Federal Law.

Nothing in this rule is intended to or should be construed to be in conflict with federal law.

Section 20. Effective Date.

This rule shall become effective July 1, 2022.

History

• EFFECTIVE DATE:
• 07/01/2022 July 1, 2022 Secretary of State Log #21-008.
• STATUTORY AUTHORITY: 8 V.S.A. §§ 15, 3301a; 18 V.S.A. §§ 9402, 9417.

Chapter 003 TERM AND UNIVERSAL LIFE INSURANCE RESERVE FINANCING

21-003 Code Vt. R. 21-000-003-X TERM AND UNIVERSAL LIFE INSURANCE RESERVE FINANCING

Section 1 Authority.

This regulation is adopted and promulgated by the Department of Financial Regulation pursuant to 8 V.S.A. § 3634a(e), as well as 8 V.S.A. § 15(a).

Section 2 Purpose and Intent.

The purpose and intent of this regulation is to establish uniform, national standards governing reserve financing arrangements pertaining to life insurance policies containing guaranteed nonlevel gross premiums, guaranteed nonlevel benefits and universal life insurance policies with secondary guarantees; and to ensure that, with respect to each such financing arrangement, funds consisting of Primary Security and Other Security, as defined in Section 5 of this Regulation, are held by or on behalf of ceding insurers in the forms and amounts required herein. In general, reinsurance ceded for reserve financing purposes has one or more of the following characteristics: some or all of the assets used to secure the reinsurance treaty or to capitalize the reinsurer (1) are issued by the ceding insurer or its affiliates; or (2) are not unconditionally available to satisfy the general account obligations of the ceding insurer; or (3) create a reimbursement, indemnification or other similar obligation on the part of the ceding insurer or any if its affiliates (other than a payment obligation under a derivative contract acquired in the normal course and used to support and hedge liabilities pertaining to the actual risks in the policies ceded pursuant to the reinsurance treaty).

Section 3 Applicability.

This regulation shall apply to reinsurance treaties that cede liabilities pertaining to Covered Policies, as that term is defined in Section 5B, issued by any life insurance company domiciled in this state. This regulation and DFR Insurance Regulation No. 97-3 (Credit for Reinsurance) shall both apply to such reinsurance treaties; provided, that in the event of a direct conflict between the provisions of this regulation and DFR Insurance Regulation No. 97-3 (Credit for Reinsurance), the provisions of this regulation shall apply, but only to the extent of the conflict.

Section 4 Exemptions from this Regulation.

This regulation does not apply to the situations described in Subsections A through F.

A. Reinsurance of:

(1) Policies that satisfy the criteria for exemption set forth in DFR Insurance Regulation No. 99-3(6)(F) or No. 99-3(6)(G) (Valuation of Life Insurance Policies) that are issued before the effective date of this regulation.

(2) Portions of policies that satisfy the criteria for exemption set forth in DFR Insurance Regulation No. 99-3(6)(E) (Valuation of Life Insurance Policies) that are issued before the effective date of this regulation.

(3) Any universal life policy that meets all of the following requirements:

(a) Secondary guarantee period, if any, is five (5) years or less;

(b) Specified premium for the secondary guarantee period is not less than the net level reserve premium for the secondary guarantee period based on the Commissioners Standard Ordinary (CSO) valuation tables and valuation interest rate applicable to the issue year of the policy; and

(c) The initial surrender charge is not less than one hundred percent (100%) of the first year annualized specified premium for the secondary guarantee period;

(4) Credit life insurance;

(5) Any variable life insurance policy that provides for life insurance, the amount or duration of which varies according to the investment experience of any separate account or accounts; or

(6) Any group life insurance certificate unless the certificate provides for a stated or implied schedule of maximum gross premiums required in order to continue coverage in force for a period in excess of one year.

B. Reinsurance ceded to an assuming insurer that meets the applicable requirements of 8 V.S.A. § 3634a(b)(4)(A) (Credit for Reinsurance); or

C. Reinsurance ceded to an assuming insurer that meets the applicable requirements of 8 V.S.A. § 3634a(b)(1), § 3634a(b)(2), or § 3634a(b)(3)(A) (Credit for Reinsurance), and that, in addition:

(1) Prepares statutory financial statements in compliance with the NAIC Accounting Practices and Procedures Manual, without any departures from NAIC statutory accounting practices and procedures pertaining to the admissibility or valuation of assets or liabilities that increase the assuming insurer's reported surplus and are material enough that they need to be disclosed in the financial statement of the assuming insurer pursuant to Statement of Statutory Accounting Principles No. 1 ("SSAP 1"); and

(2) Is not in a Company Action Level Event, Regulatory Action Level Event, Authorized Control Level Event, or Mandatory Control Level Event as those terms are defined in 8 V.S.A. §§ 8301 et seq. when its RBC is calculated in accordance with the life risk-based capital report including overview and instructions for companies, as the same may be amended by the NAIC from time to time, without deviation; or

D. Reinsurance ceded to an assuming insurer that meets the applicable requirements of 8 V.S.A. § 3634a(b)(1), § 3634a(b)(2) or § 3634a(b)(3)(A) (Credit for Reinsurance), and that, in addition:

(1) Is not an affiliate, as that term is defined in 8 V.S.A. § 3681(1) (Holding Companies and Subsidiaries), of:

(a) The insurer ceding the business to the assuming insurer; or

(b) Any insurer that directly or indirectly ceded the business to that ceding insurer;

(2) Prepares statutory financial statements in compliance with the NAIC Accounting Practices and Procedures Manual;

(3) Is both:

(a) Licensed or accredited in at least 10 states (including its state of domicile), and

(b) Not licensed in any state as a captive, special purpose vehicle, special purpose financial captive, special purpose life reinsurance company, limited purpose subsidiary, or any other similar licensing regime; and

(4) Is not, or would not be, below 500% of the Authorized Control Level RBC as that term is defined in 8 V.S.A. §§ 8301 et seq. (Risk Based Capital for Insurers) when its Risk-Based Capital (RBC) is calculated in accordance with the life risk- based capital report including overview and instructions for companies, as the same may be amended by the NAIC from time to time, without deviation, and without recognition of any departures from NAIC statutory accounting practices and procedures pertaining to the admission or valuation of assets or liabilities that increase the assuming insurer's reported surplus; or

E. Reinsurance ceded to an assuming insurer that meets the requirements of 8 V.S.A. § 3634a(e)(4) (Credit for Reinsurance); or

F. Reinsurance not otherwise exempt under Subsections A through E if the commissioner, after consulting with the NAIC Financial Analysis Working Group (FAWG) or other group of regulators designated by the NAIC, as applicable, determines under all the facts and circumstances that all of the following apply:

(1) The risks are clearly outside of the intent and purpose of this regulation (as described in Section 2 above);

(2) The risks are included within the scope of this regulation only as a technicality; and

(3) The application of this regulation to those risks is not necessary to provide appropriate protection to policyholders. The commissioner shall publicly disclose any decision made pursuant to this Section 4F to exempt a reinsurance treaty from this regulation, as well as the general basis therefor (including a summary description of the treaty).

Section 5 Definitions.

A. "Actuarial Method" means the methodology used to determine the Required Level of Primary Security, as described in Section 6.

B. "Covered Policies" means the following: Subject to the exemptions described in Section 4, Covered Policies are those policies, other than Grandfathered Policies, of the following policy types:

(1) Life insurance policies with guaranteed nonlevel gross premiums and/or guaranteed nonlevel benefits, except for flexible premium universal life insurance policies; or,

(2) Flexible premium universal life insurance policies with provisions resulting in the ability of a policyholder to keep a policy in force over a secondary guarantee period.

C. "Grandfathered Policies" means policies of the types described in Subsections B1 and B2 above that were:

(1) Issued prior to January 1, 2015; and

(2) Ceded, as of December 31, 2014, as part of a reinsurance treaty that would not have met one of the exemptions set forth in Section 4 had that section then been in effect.

D. "Non-Covered Policies" means any policy that does not meet the definition of Covered Policies, including Grandfathered Policies.

E. "Required Level of Primary Security" means the dollar amount determined by applying the Actuarial Method to the risks ceded with respect to Covered Policies, but not more than the total reserve ceded.

F. "Primary Security" means the following forms of security:

(1) Cash meeting the requirements of 8 V.S.A. § 3634a(c)(1) (Credit for Reinsurance);

(2) Securities listed by the Securities Valuation Office meeting the requirements of 8 V.S.A. § 3634a(c)(2) (Credit for Reinsurance), but excluding any synthetic letter of credit, contingent note, credit-linked note or other similar security that operates in a manner similar to a letter of credit, and excluding any securities issued by the ceding insurer or any of its affiliates; and

(3) For security held in connection with funds-withheld and modified coinsurance reinsurance treaties:

(a) Commercial loans in good standing of CM3 quality and higher;

(b) Policy Loans; and

(c) Derivatives acquired in the normal course and used to support and hedge liabilities pertaining to the actual risks in the policies ceded pursuant to the reinsurance treaty.

G. "Other Security" means any security acceptable to the commissioner other than security meeting the definition of Primary Security.

H. "Valuation Manual" means the valuation manual adopted by the NAIC as described in Section 11B(1) of the Standard Valuation Law, with all amendments adopted by the NAIC that are effective for the financial statement date on which credit for reinsurance is claimed.

Section 6 The Actuarial Method.

A. Actuarial Method

(1) The Actuarial Method to establish the Required Level of Primary Security for each reinsurance treaty subject to this regulation shall be VM-20, applied on a treaty-by-treaty basis, including all relevant definitions, from the Valuation Manual as then in effect, applied as follows: For Covered Policies described in Section 5B(1) above, the Actuarial Method is the greater of the Deterministic Reserve or the Net Premium Reserve (NPR) regardless of whether the criteria for exemption testing can be met. However, if the Covered Policies do not meet the requirements of the Stochastic Reserve exclusion test in the Valuation Manual, then the Actuarial Method is the greatest of the Deterministic Reserve, the Stochastic Reserve, or the NPR. In addition, if such Covered Policies are reinsured in a reinsurance treaty that also contains Covered Policies described in Section 5B(2) above, the ceding insurer may elect to instead use paragraph 2 below as the Actuarial Method for the entire reinsurance agreement. Whether Paragraph 1 or 2 are used, the Actuarial Method must comply with any requirements or restrictions that the Valuation Manual imposes when aggregating these policy types for purposes of principle-based reserve calculations.

(2) For Covered Policies described in Section 5B(2) above, the Actuarial Method is the greatest of the Deterministic Reserve, the Stochastic Reserve, or the NPR regardless of whether the criteria for exemption testing can be met.

(3) Except as provided in Paragraph (4) below, the Actuarial Method is to be applied on a gross basis to all risks with respect to the Covered Policies as originally issued or assumed by the ceding insurer.

(4) If the reinsurance treaty cedes less than one hundred percent (100%) of the risk with respect to the Covered Policies then the Required Level of Primary Security may be reduced as follows:

(a) If a reinsurance treaty cedes only a quota share of some or all of the risks pertaining to the Covered Policies, the Required Level of Primary Security, as well as any adjustment under Subparagraph (c) below, may be reduced to a pro rata portion in accordance with the percentage of the risk ceded;

(b) If the reinsurance treaty in a non-exempt arrangement cedes only the risks pertaining to a secondary guarantee, the Required Level of Primary Security may be reduced by an amount determined by applying the Actuarial Method on a gross basis to all risks, other than risks related to the secondary guarantee, pertaining to the Covered Policies, except that for Covered Policies for which the ceding insurer did not elect to apply the provisions of VM-20 to establish statutory reserves, the Required Level of Primary Security may be reduced by the statutory reserve retained by the ceding insurer on those Covered Policies, where the retained reserve of those Covered Policies should be reflective of any reduction pursuant to the cession of mortality risk on a yearly renewable term basis in an exempt arrangement;

(c) If a portion of the Covered Policy risk is ceded to another reinsurer on a yearly renewable term basis in an exempt arrangement, the Required Level of Primary Security may be reduced by the amount resulting by applying the Actuarial Method including the reinsurance section of VM-20 to the portion of the Covered Policy risks ceded in the exempt arrangement, except that for Covered Policies issued prior to Jan 1, 2017, this adjustment is not to exceed [cx/ (2 * number of reinsurance premiums per year)] where cx is calculated using the same mortality table used in calculating the Net Premium Reserve; and

(d) For any other treaty ceding a portion of risk to a different reinsurer, including but not limited to stop loss, excess of loss and other non- proportional reinsurance treaties, there will be no reduction in the Required Level of Primary Security.

It is possible for any combination of Subparagraphs (a), (b), (c), and (d) above to apply. Such adjustments to the Required Level of Primary Security will be done in the sequence that accurately reflects the portion of the risk ceded via the treaty. The ceding insurer should document the rationale and steps taken to accomplish the adjustments to the Required Level of Primary Security due to the cession of less than one hundred percent (100%) of the risk.

The Adjustments for other reinsurance will be made only with respect to reinsurance treaties entered into directly by the ceding insurer. The ceding insurer will make no adjustment as a result of a retrocession treaty entered into by the assuming insurers.

(5) In no event will the Required Level of Primary Security resulting from application of the Actuarial Method exceed the amount of statutory reserves ceded.

(6) If the ceding insurer cedes risks with respect to Covered Policies, including any riders, in more than one reinsurance treaty subject to this Regulation, in no event will the aggregate Required Level of Primary Security for those reinsurance treaties be less than the Required Level of Primary Security calculated using the Actuarial Method as if all risks ceded in those treaties were ceded in a single treaty subject to this Regulation;

(7) If a reinsurance treaty subject to this Regulation cedes risk on both Covered and Non-Covered Policies, credit for the ceded reserves shall be determined as follows:

(a) The Actuarial Method shall be used to determine the Required Level of Primary Security for the Covered Policies, and Section 7 shall be used to determine the reinsurance credit for the Covered Policy reserves; and

(b) Credit for the Non-Covered Policy reserves shall be granted only to the extent that security, in addition to the security held to satisfy the requirements of Subparagraph (a), is held by or on behalf of the ceding insurer in accordance with 8 V.S.A. § 3634a(b) and § 3634a(c) (Credit for Reinsurance). Any Primary Security used to meet the requirements of this Subparagraph may not be used to satisfy the Required Level of Primary Security for the Covered Policies.

B. Valuation used for Purposes of Calculations

For the purposes of both calculating the Required Level of Primary Security pursuant to the Actuarial Method and determining the amount of Primary Security and Other Security, as applicable, held by or on behalf of the ceding insurer, the following shall apply:

(1) For assets, including any such assets held in trust, that would be admitted under the NAIC Accounting Practices and Procedures Manual if they were held by the ceding insurer, the valuations are to be determined according to statutory accounting procedures as if such assets were held in the ceding insurer's general account and without taking into consideration the effect of any prescribed or permitted practices; and

(2) For all other assets, the valuations are to be those that were assigned to the assets for the purpose of determining the amount of reserve credit taken. In addition, the asset spread tables and asset default cost tables required by VM-20 shall be included in the Actuarial Method if adopted by the NAIC's Life Actuarial (A) Task Force no later than the Dec. 31st on or immediately preceding the valuation date for which the Required Level of Primary Security is being calculated. The tables of asset spreads and asset default costs shall be incorporated into the Actuarial Method in the manner specified in VM-20.

Section 7 Requirements Applicable to Covered Policies to Obtain Credit for Reinsurance; Opportunity for Remediation.

A. Requirements

Subject to the exemptions described in Section 4 and the provisions of Section 7B, credit for reinsurance shall be allowed with respect to ceded liabilities pertaining to Covered Policies pursuant to 8 V.S.A. § 3634a(b) or § 3634a(c) (Credit for Reinsurance) if, and only if, in addition to all other requirements imposed by law or regulation, the following requirements are met on a treaty-by-treaty basis:

(1) The ceding insurer's statutory policy reserves with respect to the Covered Policies are established in full and in accordance with the applicable requirements of 8 V.S.A. §§ 3791 et seq. and related regulations and actuarial guidelines, and credit claimed for any reinsurance treaty subject to this regulation does not exceed the proportionate share of those reserves ceded under the contract; and

(2) The ceding insurer determines the Required Level of Primary Security with respect to each reinsurance treaty subject to this regulation and provides support for its calculation as determined to be acceptable to the commissioner; and

(3) Funds consisting of Primary Security, in an amount at least equal to the Required Level of Primary Security, are held by or on behalf of the ceding insurer, as security under the reinsurance treaty within the meaning of 8 V.S.A. § 3634a(c) (Credit for Reinsurance), on a funds withheld, trust, or modified coinsurance basis; and

(4) Funds consisting of Other Security, in an amount at least equal to any portion of the statutory reserves as to which Primary Security is not held pursuant to Paragraph (3) above, are held by or on behalf of the ceding insurer as security under the reinsurance treaty within the meaning of 8 V.S.A. § 3634a(c) (Credit for Reinsurance); and

(5) Any trust used to satisfy the requirements of this Section 7 shall comply with all of the conditions and qualifications of DFR Insurance Regulation No. 97-3(12) (Credit for Reinsurance), except that:

(a) Funds consisting of Primary Security or Other Security held in trust, shall for the purposes identified in Section 6B, be valued according to the valuation rules set forth in Section 6B, as applicable; and

(b) There are no affiliate investment limitations with respect to any security held in such trust if such security is not needed to satisfy the requirements of Section 7A(3); and

(c) The reinsurance treaty must prohibit withdrawals or substitutions of trust assets that would leave the fair market value of the Primary Security within the trust (when aggregated with Primary Security outside the trust that is held by or on behalf of the ceding insurer in the manner required by Section 7A(3)) below 102% of the level required by Section 7A(3) at the time of the withdrawal or substitution; and

(d) The determination of reserve credit under Subsection of DFR Insurance Regulation No. 97-3(12)(E) (Credit for Reinsurance) shall be determined according to the valuation rules set forth in Section 6B, as applicable; and

(6) The reinsurance treaty has been approved by the commissioner.

B. Requirements at Inception Date and on an On-going Basis; Remediation

(1) The requirements of Section 7A must be satisfied as of the date that risks under Covered Policies are ceded (if such date is on or after the effective date of this regulation) and on an ongoing basis thereafter. Under no circumstances shall a ceding insurer take or consent to any action or series of actions that would result in a deficiency under Section 7A(3) or 7A(4) with respect to any reinsurance treaty under which Covered Policies have been ceded, and in the event that a ceding insurer becomes aware at any time that such a deficiency exists, it shall use its best efforts to arrange for the deficiency to be eliminated as expeditiously as possible.

(2) Prior to the due date of each Quarterly or Annual Statement, each life insurance company that has ceded reinsurance within the scope of Section 3 shall perform an analysis, on a treaty-by-treaty basis, to determine, as to each reinsurance treaty under which Covered Policies have been ceded, whether as of the end of the immediately preceding calendar quarter (the valuation date) the requirements of Sections 7A(3) and 7A(4) were satisfied. The ceding insurer shall establish a liability equal to the excess of the credit for reinsurance taken over the amount of Primary Security actually held pursuant to Section 7A(3), unless either:

(a) The requirements of Section 7A(3) and 7A(4) were fully satisfied as of the valuation date as to such reinsurance treaty; or

(b) Any deficiency has been eliminated before the due date of the Quarterly or Annual Statement to which the valuation date relates through the addition of Primary Security and/or Other Security, as the case may be, in such amount and in such form as would have caused the requirements of Section 7A(3) and 7A(4) to be fully satisfied as of the valuation date.

(3) Nothing in Section 7B(2) shall be construed to allow a ceding company to maintain any deficiency under Section 7A(3) or 7A(4) for any period of time longer than is reasonably necessary to eliminate it.

Section 8 Severability.

If any provision of this regulation is held invalid, the remainder shall not be affected.

Section 9 Prohibition against Avoidance.

No insurer that has Covered Policies as to which this regulation applies (as set forth in Section 3) shall take any action or series of actions, or enter into any transaction or arrangement or series of transactions or arrangements if the purpose of such action, transaction or arrangement or series thereof is to avoid the requirements of this regulation, or to circumvent its purpose and intent, as set forth in Section 2.

Section 10 Effective Date.

This regulation shall become effective October 3, 2022 and shall pertain to all Covered Policies in force as of and after that date.

History

• EFFECTIVE DATE:
• 10/3/2022 (Secretary of State Rule Log No. 22-025)
• STAUTORY AUTHORITY: 8 V.S.A. §§ 15, 3634

Chapter 004 SUITABILITY IN ANNUITY TRANSACTIONS (REG. I-2023-01)

21-004 Code Vt. R. 21-000-004-X SUITABILITY IN ANNUITY TRANSACTIONS (REG. I-2023-01)

Section 1 Purpose.

A. The purpose of this rule is to require producers, as defined in this rule, to act in the best interest of the consumer when making a recommendation of an annuity and to require insurers to establish and maintain a system to supervise recommendations so that the insurance needs and financial objectives of consumers at the time of the transaction are effectively addressed.

B. Nothing herein shall be construed to create or imply a private cause of action for a violation of this rule or to subject a producer to civil liability under the best interest standard of care outlined in Section 6 of this rule or under standards governing the conduct of a fiduciary or a fiduciary relationship.

C. This rule sets forth the standards for the sale of annuities in Vermont and should be read with the requirements of 8 V.S.A. §4724(16) and other applicable Vermont laws including the Insurance Trade Practices Act, 8 V.S.A. §§4721 et seq. Nothing precludes an insurer from exceeding the requirements of this rule.

D. A recommendation to purchase or sell products defined as securities under the Vermont Uniform Securities Act is the offering of investment advice. A person who offers investment advice must be registered with the Vermont Securities Division. See Insurance Bulletin 198, Securities Bulletin S-2018-01.

Section 2 Scope.

This rule shall apply to any sale or recommendation of an annuity.

Section 3 Authority.

This rule is adopted under the authority of 8 V.S.A. §§10, 15(a), 3843, 4721-4728, 4804(a), 4812 and 4813 c(c).

Section 4 Exemptions.

Unless otherwise specifically included, this rule shall not apply to transactions involving:

A. Direct response solicitations where there is no recommendation based on information collected from the consumer pursuant to this rule;

B. Contracts used to fund:

(1) An employee pension or welfare benefit plan that is covered by the Employee Retirement and Income Security Act (ERISA);

(2) A plan described by sections 401(a), 401(k), 403(b), 408(k) or 408(p) of the Internal Revenue Code (IRC), as amended, if established or maintained by an employer;

(3) A government or church plan defined in section 414 of the IRC, a government or church welfare benefit plan, or a deferred compensation plan of a state or local government or tax-exempt organization under section 457 of the IRC; or

(4) A nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor;

C. Settlements of or assumptions of liabilities associated with personal injury litigation or any dispute or claim resolution process; or

D. Formal prepaid funeral contracts.

Section 5 Definitions.

A. "Annuity" means an annuity that is an insurance product under State law that is individually solicited, whether the product is classified as an individual or group annuity.

B. "Cash compensation" means any discount, concession, fee, service fee, commission, sales charge, loan, override, or cash benefit received by a producer in connection with the recommendation or sale of an annuity from an insurer, intermediary, or directly from the consumer.

C. "Commissioner" means the Commissioner of the Department of Financial Regulation.

D. "Consumer profile information" means information that is reasonably appropriate to determine whether a recommendation addresses the consumer's financial situation, insurance needs and financial objectives, including, at a minimum, the following:

(1) Age;

(2) Annual income;

(3) Financial situation and needs, including debts and other obligations and any reasonably anticipated future changes in financial situation and needs;

(4) Financial experience;

(5) Insurance needs;

(6) Financial objectives;

(7) Intended use of the annuity;

(8) Financial time horizon;

(9) Existing assets or financial products, including investment, annuity and insurance holdings;

(10) Liquidity needs;

(11) Liquid net worth;

(12) Risk tolerance, including, willingness to accept non-guaranteed elements in the annuity;

(13) Financial resources used to fund the annuity; and

(14) Tax status.

E. "Continuing education credit" or "CE credit" means one continuing education credit as required by 8 V.S.A. §4800 a.

F. "Continuing education provider" or "CE provider" means an individual or entity that is approved to offer continuing education courses pursuant to 8 V.S.A. §4800 a(g).

G. "FINRA" means the Financial Industry Regulatory Authority or a succeeding agency.

H. "Insurer" means a company required to be licensed under the laws of this state to provide insurance products, including annuities.

I. "Intermediary" means an entity contracted directly with an insurer or with another entity contracted with an insurer to facilitate the sale of the insurer's annuities by producers.

J.

(1) "Material conflict of interest" means a financial interest of the producer in the sale of an annuity that a reasonable person would expect to influence the impartiality of a recommendation.

(2) "Material conflict of interest" does not include cash compensation or non-cash compensation.

K. "Non-cash compensation" means any form of compensation that is not cash compensation, including health insurance, office rent, office support and retirement benefits.

L. "Non-guaranteed elements" means the premiums, credited interest rates (including any bonus), benefits, values, dividends, non-interest based credits, charges or elements of formulas used to determine any of these, that are subject to company discretion and are not guaranteed at issue. An element is considered non-guaranteed if any of the underlying non- guaranteed elements are used in its calculation.

M. "Producer" means a person or entity required to be licensed under the laws of this state to sell, solicit or negotiate insurance, including annuities. For purposes of this rule, "producer" includes an insurer where no producer is involved.

N.

(1) "Recommendation" means advice provided by a producer to an individual consumer that was intended to result or does result in a purchase, an exchange or a replacement of an annuity in accordance with that advice.

(2) Recommendation does not include general communication to the public, generalized customer services assistance or administrative support, general educational information and tools, prospectuses, or other product and sales material.

O. "Replacement" means a transaction in which a new annuity is to be purchased, and it is known or should be known to the proposing producer, or to the proposing insurer whether or not a producer is involved, that by reason of the transaction, an existing annuity or other insurance policy has been or is to be any of the following:

(1) Lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing insurer or otherwise terminated;

(2) Converted to reduced paid-up insurance, continued as extended term insurance, or otherwise reduced in value by the use of nonforfeiture benefits or other policy values;

(3) Amended so as to effect either a reduction in benefits or in the term for which coverage would otherwise remain in force or for which benefits would be paid;

(4) Reissued with any reduction in cash value; or

(5) Used in a financed purchase.

P. "SEC" means the United States Securities and Exchange Commission.

Section 6 Duties of Insurers and Producers.

A. Best Interest Obligations. A producer, when making a recommendation of an annuity, shall act in the best interest of the consumer under the circumstances known at the time the recommendation is made, without placing the producer's or the insurer's financial interest ahead of the consumer's interest. A producer has acted in the best interest of the consumer if they have satisfied the following obligations regarding care, disclosure, conflict of interest and documentation:

(1)

(a) Care Obligation. The producer, in making a recommendation shall exercise reasonable diligence, care and skill to:

(i) Know the consumer's financial situation, insurance needs and financial objectives;

(ii) Understand the available recommendation options after making a reasonable inquiry into options available to the producer;

(iii) Have a reasonable basis to believe the recommended option effectively addresses the consumer's financial situation, insurance needs and financial objectives over the life of the product, as evaluated in light of the consumer profile information; and

(iv) Communicate the basis or bases of the recommendation.

(b) The requirements under subparagraph (a) of this paragraph include making reasonable efforts to obtain consumer profile information from the consumer prior to the recommendation of an annuity.

(c) The requirements under subparagraph (a) of this paragraph require a producer to consider the types of products the producer is authorized and licensed to recommend or sell that address the consumer's financial situation, insurance needs and financial objectives. This does not require analysis or consideration of any products outside the authority and license of the producer or other possible alternative products or strategies available in the market at the time of the recommendation. Producers shall be held to standards applicable to producers with similar authority and licensure.

(d) The requirements under this subsection do not create a fiduciary obligation or relationship and only create a regulatory obligation as established in this rule.

(e) The consumer profile information, characteristics of the insurer, and product costs, rates, benefits and features are those factors generally relevant in making a determination whether an annuity effectively addresses the consumer's financial situation, insurance needs and financial objectives, but the level of importance of each factor under the care obligation of this paragraph may vary depending on the facts and circumstances of a particular case. However, each factor may not be considered in isolation.

(f) The requirements under subparagraph (a) of this paragraph include having a reasonable basis to believe the consumer would benefit from certain features of the annuity, such as annuitization, death or living benefit or other insurance-related features.

(g) The requirements under subparagraph (a) of this paragraph apply to the particular annuity as a whole and the underlying subaccounts to which funds are allocated at the time of purchase or exchange of an annuity, and riders and similar product enhancements, if any.

(h) The requirements under subparagraph (a) of this paragraph do not mean the annuity with the lowest one-time or multiple occurrence compensation structure shall necessarily be recommended.

(i) The requirements under subparagraph (a) of this paragraph do not mean the producer has ongoing monitoring obligations under the care obligation under this paragraph, although such an obligation may be separately owed under the terms of a fiduciary, consulting, investment advising or financial planning agreement between the consumer and the producer.

(j) In the case of an exchange or replacement of an annuity, the producer shall consider the whole transaction, which includes taking into consideration whether:

(i) The consumer will incur a surrender charge, be subject to the commencement of a new surrender period, lose existing benefits, such as death, living or other contractual benefits, or be subject to increased fees, investment advisory fees or charges for riders and similar product enhancements or other transactional costs;

(ii) The replacing product would substantially benefit the consumer in comparison to the replaced product over the life of the product; and

(iii) The consumer has had another annuity exchange or replacement and, in particular, an exchange or replacement within the preceding 60 months.

(k) Nothing in this rule should be construed to require a producer to obtain any license other than a producer license with the appropriate line of authority to sell, solicit or negotiate insurance in this state, including any securities license, in order to fulfill the duties and obligations contained in this rule; provided the producer does not give advice or provide services that are otherwise subject to securities laws or engage in any other activity requiring other professional licenses.

(2) Disclosure obligation.

(a) Prior to the recommendation or sale of an annuity, the producer shall prominently disclose to the consumer on the Insurance Agent (Producer) Disclosure for Annuities form attached hereto as Appendix A, or other substantially similar form:

(i) A description of the scope and terms of the relationship with the consumer and the role of the producer in the transaction;

(ii) An affirmative statement on whether the producer is licensed and authorized to sell the following products:

(I) Fixed annuities;

(II) Fixed indexed annuities;

(III) Variable annuities;

(IV) Life insurance;

(V) Mutual funds;

(VI) Stocks and bonds; and

(VII) Certificates of deposit.

(iii) An affirmative statement describing the insurers the producer is authorized, contracted (or appointed), or otherwise able to sell insurance products for, using the following descriptions:

(I) From one insurer;

(II) From two or more insurers; or

(III) From two or more insurers although primarily contracted with one insurer.

(iv) A description of the sources and types of cash compensation and non-cash compensation to be received by the producer, including whether the producer is to be compensated for the sale of a recommended annuity by commission as part of premium or other remuneration received from the insurer, intermediary or other producer or by fee as a result of a contract for advice or consulting services; and

(v) A notice of the consumer's right to request additional information regarding cash compensation described in subparagraph (b) of this paragraph;

(b) Upon request of the consumer or the consumer's designated representative, the producer shall disclose:

(i) A reasonable estimate of the amount of cash compensation to be received by the producer, which may be stated as a range of amounts or percentages; and

(ii) Whether the cash compensation is a one-time or multiple occurrence amount, and if a multiple occurrence amount, the frequency and amount of the occurrence, which may be stated as a range of amounts or percentages; and

(c) Prior to or at the time of the recommendation or sale of an annuity, the producer shall have a reasonable basis to believe the consumer has been informed of various features of the annuity, such as the potential surrender period and surrender charge, potential tax penalty if the consumer sells, exchanges, surrenders or annuitizes the annuity, mortality and expense fees, investment advisory fees, any annual fees, potential charges for and features of riders or other options of the annuity, limitations on interest returns, potential changes in non-guaranteed elements of the annuity, insurance and investment components and market risk.

(3) Conflict of interest obligation. A producer shall identify and avoid or reasonably manage and disclose material conflicts of interest, including material conflicts of interest related to an ownership interest.

(4) Documentation obligation. A producer shall at the time of recommendation or sale:

(a) Make a written record of any recommendation and the basis for the recommendation subject to this rule;

(b) Obtain a consumer signed statement on the Consumer Refusal to Provide Information form attached hereto as Appendix B, or other substantially similar form, documenting:

(i) A customer's refusal to provide the consumer profile information, if any; and

(ii) A customer's understanding of the ramifications of not providing his or her consumer profile information or providing insufficient consumer profile information; and

(c) Obtain a consumer signed statement on the Consumer Decision to Purchase an Annuity NOT Based on a Recommendation form attached hereto as Appendix C, or other substantially similar form, acknowledging the annuity transaction is not recommended if a customer decides to enter into an annuity transaction that is not based on the producer's recommendation.

(5) Application of the best interest obligation. Any requirement applicable to a producer under this subsection shall apply to every producer who has exercised material control or influence in the making of a recommendation and has received direct compensation as a result of the recommendation or sale, regardless of whether the producer has had any direct contact with the consumer. Activities such as providing or delivering marketing or educational materials, product wholesaling or other back office product support, and general supervision of a producer do not, in and of themselves, constitute material control or influence.

B. Transactions not based on a recommendation.

(1) Except as provided under paragraph (2), a producer shall have no obligation to a consumer under subsection A(1) related to any annuity transaction if:

(a) No recommendation is made;

(b) A recommendation was made and was later found to have been prepared based on materially inaccurate information provided by the consumer;

(c) A consumer refuses to provide relevant consumer profile information and the annuity transaction is not recommended; or

(d) A consumer decides to enter into an annuity transaction that is not based on a recommendation of the producer.

(2) An insurer's issuance of an annuity subject to paragraph (1) shall be reasonable under all the circumstances actually known to the insurer at the time the annuity is issued.

C. Supervision system.

(1) Except as permitted under subsection B, an insurer may not issue an annuity recommended to a consumer unless there is a reasonable basis to believe the annuity would effectively address the particular consumer's financial situation, insurance needs and financial objectives based on the consumer's consumer profile information.

(2) An insurer shall establish and maintain a supervision system that is reasonably designed to achieve the insurer's and its producers' compliance with this rule, including the following:

(a) The insurer shall establish and maintain reasonable procedures to inform its producers of the requirements of this rule and shall incorporate the requirements of this rule into relevant producer training manuals;

(b) The insurer shall establish and maintain standards for producer product training and shall establish and maintain reasonable procedures to require its producers to comply with the requirements of section 7 of this rule;

(c) The insurer shall provide product-specific training and training materials which explain all material features of its annuity products to its producers;

(d) The insurer shall establish and maintain procedures for the review of each recommendation prior to issuance of an annuity that are designed to ensure there is a reasonable basis to determine that the recommended annuity would effectively address the particular consumer's financial situation, insurance needs and financial objectives. Such review procedures may apply a screening system for the purpose of identifying selected transactions for additional review and may be accomplished electronically or through other means including physical review. Such an electronic or other system may be designed to require additional review only of those transactions identified for additional review by the selection criteria;

(e) The insurer shall establish and maintain reasonable procedures to detect recommendations that are not in compliance with subsections A, B, D and E. This may include, but is not limited to, confirmation of the consumer's consumer profile information, systematic customer surveys, producer and consumer interviews, confirmation letters, producer statements or attestations and programs of internal monitoring. Nothing in this subparagraph prevents an insurer from complying with this subparagraph by applying sampling procedures, or by confirming the consumer profile information or other required information under this section after issuance or delivery of the annuity;

(f) The insurer shall establish and maintain reasonable procedures to assess, prior to or upon issuance or delivery of an annuity, whether a producer has provided to the consumer the information required to be provided under this section;

(g) The insurer shall establish and maintain reasonable procedures to identify and address a pattern of, or otherwise suspicious, consumer refusals to provide consumer profile information;

(h) The insurer shall establish and maintain reasonable procedures to identify and eliminate any sales contests, sales quotas, bonuses, and non-cash compensation that are based on the sales of specific annuities within a limited period of time. The requirements of this subparagraph are not intended to prohibit the receipt of health insurance, office rent, office support, retirement benefits or other employee benefits by employees as long as those benefits are not based upon the volume of sales of a specific annuity within a limited period of time; and

(i) The insurer shall annually provide a written report to senior management, including to the senior manager responsible for audit functions, which details a review, with appropriate testing, reasonably designed to determine the effectiveness of the supervision system, the exceptions found, and corrective action taken or recommended, if any.

(3)

(a) Nothing in this subsection restricts an insurer from contracting for performance of a function (including maintenance of procedures) required under this subsection. An insurer is responsible for taking appropriate corrective action and may be subject to sanctions and penalties pursuant to section 8 of this rule regardless of whether the insurer contracts for performance of a function and regardless of the insurer's compliance with subparagraph (b) of this paragraph.

(b) An insurer's supervision system under this subsection shall include supervision of contractual performance under this subsection. This includes, but is not limited to, the following:

(i) Monitoring and, as appropriate, conducting audits to assure that the contracted function is properly performed; and

(ii) Annually obtaining a certification from a senior manager who has responsibility for the contracted function that the manager has a reasonable basis to represent, and does represent, that the function is properly performed.

(4) An insurer is not required to include in its system of supervision:

(a) A producer's recommendations to consumers of products other than the annuities offered by the insurer; or

(b) Consideration of or comparison to options available to the producer or compensation relating to those options other than annuities or other products offered by the insurer.

D. Prohibited Practices. Neither a producer nor an insurer shall dissuade, or attempt to dissuade, a consumer from:

(1) Providing consumer profile information and truthfully responding to an insurer's request for confirmation of the consumer profile information;

(2) Filing a complaint; or

(3) Cooperating with the investigation of a complaint.

E. Safe harbor.

(1) Recommendations and sales of annuities by financial professionals made in compliance with comparable standards shall satisfy the requirements under this rule. This subsection applies to all recommendations and sales of annuities made by financial professionals in compliance with business rules, controls and procedures that satisfy a comparable standard even if such standard would not otherwise apply to the product or recommendation at issue. However, nothing in this subsection shall limit the insurance commissioner's ability to investigate and enforce the provisions of this rule.

(2) Nothing in paragraph (1) shall limit the insurer's obligation to comply with Section 6 C(1) of this rule, although the insurer may base its analysis on information received from either the financial professional or the entity supervising the financial professional.

(3) For paragraph (1) to apply, an insurer shall:

(a) Monitor the relevant conduct of the financial professional seeking to rely on paragraph (1) or the entity responsible for supervising the financial professional, such as the financial professional's broker-dealer or an investment adviser registered under federal or state securities laws using information collected in the normal course of an insurer's business; and

(b) Provide to the entity responsible for supervising the financial professional seeking to rely on paragraph (1), such as the financial professional's broker- dealer or investment adviser registered under federal or state securities laws, information and reports that are reasonably appropriate to assist such entity to maintain its supervision system.

(4) For purposes of this subsection, "financial professional" means a producer that is regulated and acting as:

(a) A broker-dealer registered under federal or state securities laws or a registered representative of a broker-dealer;

(b) An investment adviser registered under federal or state securities laws or an investment adviser representative associated with the federal or state registered investment adviser; or

(c) A plan fiduciary under Section 3(21) of the Employee Retirement Income Security Act of 1974 (ERISA) or fiduciary under Section 4975(e)(3) of the Internal Revenue Code (IRC) or any amendments or successor statutes thereto.

(5) For purposes of this subsection, "comparable standards" means:

(a) With respect to broker-dealers and registered representatives of broker- dealers, applicable SEC and FINRA rules pertaining to best interest obligations and supervision of annuity recommendations and sales, including Regulation Best Interest and any amendments or successor regulations thereto;

(b) With respect to investment advisers registered under federal or state securities laws or investment adviser representatives, the fiduciary duties and all other requirements imposed on such investment advisers or investment adviser representatives by contract or under the Investment Advisers Act of 1940 or applicable state securities law, including the Form ADV and interpretations; and

(c) With respect to plan fiduciaries or fiduciaries, the duties, obligations, prohibitions and all other requirements attendant to such status under ERISA or the IRC and any amendments or successor statutes thereto.

Section 7 Producer Training.

A. A producer shall not solicit the sale of an annuity product unless the producer has adequate knowledge of the product to recommend the annuity and the producer is in compliance with the insurer's standards for product training. A producer may rely on insurer-provided product-specific training standards and materials to comply with this subsection.

B.

(1)

(a) A producer who engages in the sale of annuity products shall complete a one-time four (4) credit training course approved by the department of insurance and provided by the department of insurance-approved education provider.

(b) Producers who hold a life insurance line of authority on the effective date of this rule and who desire to sell annuities shall complete the requirements of this subsection within six (6) months after the effective date of this rule. Individuals who obtain a life insurance line of authority on or after the effective date of this rule may not engage in the sale of annuities until the annuity training course required under this subsection has been completed.

(2) The minimum length of the training required under this subsection shall be sufficient to qualify for at least four (4) CE credits but may be longer.

(3) The training required under this subsection shall include information on the following topics:

(a) The types of annuities and various classifications of annuities;

(b) Identification of the parties to an annuity;

(c) How product specific annuity contract features affect consumers;

(d) The application of income taxation of qualified and non-qualified annuities;

(e) The primary uses of annuities; and

(f) Appropriate standard of conduct, sales practices, replacement and disclosure requirements.

(4) Providers of courses intended to comply with this subsection shall cover all topics listed in the prescribed outline and shall not present any marketing information or provide training on sales techniques or provide specific information about a particular insurer's products. Additional topics may be offered in conjunction with and in addition to the required outline.

(5) A provider of an annuity training course intended to comply with this subsection shall register as a CE provider in this State and comply with the rules and guidelines applicable to producer continuing education courses as set forth in 8 V.S.A. §4800 a.

(6) A producer who has completed an annuity training course approved by the department of insurance prior to [insert effective date of amended rule] shall, within six (6) months after [insert effective date of amended rule], complete either:

(a) A new four (4) credit training course approved by the department of insurance after [insert effective date of amended rule]; or

(b) An additional one-time one (1) credit training course approved by the department of insurance and provided by the department of insurance- approved education provider on appropriate sales practices, replacement and disclosure requirements under this amended rule.

(7) Annuity training courses may be conducted and completed by classroom or self- study methods in accordance with 8 V.S.A. §4800 a.

(8) Providers of annuity training shall comply with the reporting requirements and shall issue certificates of completion in accordance with 8 V.S.A. §4800 a.

(9) The satisfaction of the training requirements of another State that are substantially similar to the provisions of this subsection shall be deemed to satisfy the training requirements of this subsection in this State.

(10) The satisfaction of the components of the training requirements of any course or courses with components substantially similar to the provisions of this subsection shall be deemed to satisfy the training requirements of this subsection in this state.

(11) An insurer shall verify that a producer has completed the annuity training course required under this subsection before allowing the producer to sell an annuity product for that insurer. An insurer may satisfy its responsibility under this subsection by obtaining certificates of completion of the training course or obtaining reports provided by commissioner-sponsored database systems or vendors or from a reasonably reliable commercial database vendor that has a reporting arrangement with approved insurance education providers.

Section 8 Compliance Mitigation; Penalties; Enforcement.

A. An insurer is responsible for compliance with this rule. If a violation occurs, either because of the action or inaction of the insurer or its producer, the commissioner may order:

(1) An insurer to take reasonably appropriate corrective action for any consumer harmed by a failure to comply with this rule by the insurer, an entity contracted to perform the insurer's supervisory duties or by the producer;

(2) A general agency, independent agency or the producer to take reasonably appropriate corrective action for any consumer harmed by the producer's violation of this rule; and

(3) Appropriate penalties and sanctions.

B. A violation of this rule shall be considered to be a violation of the Insurance Trade Practices Act as set forth at 8 V.S.A. §4721 et seq.

C. The authority to enforce compliance with this rule is vested exclusively with the commissioner.

Section 9 Recordkeeping.

A. In addition to the requirements of VT Ins. Regulation 99-1, "Records Retention," and the requirements of VT Ins. Regulation I-2001-03, "Life Insurance and Annuities Replacement Regulation," insurers, general agents, independent agencies and producers shall maintain or be able to make available to the commissioner records of the information collected from the consumer, disclosures made to the consumer, including summaries of oral disclosures, and other information used in making the recommendations that were the basis for insurance transactions, and records demonstrating insurers' compliance with the supervision and training requirements of this rule, for five years after the insurance transaction is completed by the insurer. An insurer is permitted, but shall not be required, to maintain documentation on behalf of a producer.

B. Records required to be maintained by this rule may be maintained in paper, photographic, micro-process, magnetic, mechanical or electronic media or by any process that accurately reproduces the actual document.

Section 10 Effective Date.

This rule shall take effect July 5, 2024.

APPENDIX A

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APPENDIX B

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APPENDIX C

History

• EFFECTIVE DATE:
• 7/5/2024 (Secretary of State Rule Log No. 24-001)
• STATUTORY AUTHORITY: 8 V.S.A. §§10, 15 a, 3848, 4721-4728, 4804a, 4812 and 4813c

Chapter 005 LICENSING REQUIREMENTS FOR PHARMACY BENEFIT MANAGERS

21-005 Code Vt. R. 21-000-005-X LICENSING REQUIREMENTS FOR PHARMACY BENEFIT MANAGERS

Section 1 Purpose.

The purpose of this rule is to set forth the requirements and standards for the licensing of persons or entities that establish or operate as a pharmacy benefit manager under 18 V.S.A. § 3611 and 18 V.S.A. Chapter 77.

Section 2 Authority.

This rule is adopted under the authority granted to the Commissioner by 18 V.S.A. § 3611(e) and 18 V.S.A. § 3603.

Section 3 Definitions.

(a) "Commissioner" shall mean the Commissioner of Financial Regulation.

(b) "Health benefit plan" has the same meaning as in 18 V.S.A. § 3602(4).

(c) "Pharmacy benefit manager" has the same meaning as in 18 V.S.A. § 3602 (12).

(d) "Pharmacy benefit manager affiliate" has the same meaning as in 18 V.S.A. § 3602(13).

(e) "Pharmacy benefit management" has the same meaning as in 18 V.S.A § 3602(11).

Section 4 Applicability and Scope.

(a) Beginning on January 1, 2026, each pharmacy benefit manager operating in Vermont shall complete a pharmacy benefit manager license application and submit to the Commissioner. The pharmacy benefit manager shall provide as part of the license application the following:

(1) Pharmacy benefit manager officer and business contact information including:

(A) The name and address of the pharmacy benefit manager;

(B) The names, business addresses, and job titles of the principal officers of the pharmacy benefit manager;

(C) The name, business address, business telephone number, business email address, and job title of the officer or employee who should be contacted regarding any pharmacy benefit manager regulatory compliance concerns; and

(D) The business telephone number and business email address where the pharmacy benefit manager personnel directly responsible for the processing of appeals from patients, providers and pharmacies may be contacted.

(2) Pharmacy benefit management organization documents:

(A) A copy of the pharmacy benefit manager's organizational documents, including Articles of Incorporation, Articles of Association, and partnership agreements;

(B) A copy of all by-laws or similar document(s), if any, regulating the conduct or the internal affairs of the pharmacy benefit manager or pharmacy benefit management affiliates; and

(C) The relevant documentation, such as policies and procedures, and a detailed explanation, that demonstrates the pharmacy benefit manager has adopted processes to ensure compliance with Act 127 of 2024 (18 V.S.A. §§ 9472 - 9473; 18 V.S.A. § 3612, § 3622 and § 3631)

(3) Financial and Other Documents

(A) The most recent year-end financial statement for the pharmacy benefit manager;

(B) A listing of all health benefit plans the pharmacy benefit manager contracts with to provide pharmacy benefit management services for, in Vermont, including any self-funded or governmental plans;

(C) The number of projected enrollees or beneficiaries in Vermont to be serviced by the applicant during the upcoming year for all contracted health benefit plans; and

(D) A listing of any delegated or contracted companies that perform part of the pharmacy benefit manager's pharmacy benefit management services.

(4) Required Responses

(A) certified statement indicating whether the pharmacy benefit manager:

(A) Has been refused or denied a registration, license, or certification to act as or provide the services of a pharmacy benefit manager in any state or federal entity, providing specific details separately for each such refusal or denial, if any, including the date, nature and disposition of the action;

(B) Has had any registration, license or certification to act as or provide the services of a pharmacy benefit manager suspended, revoked or nonrenewed for any reason by any state or federal entity, providing specific details separately for each such suspension, revocation or nonrenewal, if any, including the date, nature and disposition of the action;

(C) Has had a business relationship with a health plan terminated for cause, including for breach of contract or fiduciary duty, or any fraudulent behavior in connection with the administration of a pharmacy benefits plan, providing specific details regarding the termination; and

(D) Has been the defendant or respondent in legal proceedings that have resulted in findings of fraudulent or illegal activities by a court of law or regulatory body, providing specific details of the case or matter.

(b) Application Fee

The applicant shall provide as part of the license application a nonrefundable application fee and an initial licensure fee, pursuant to 18 V.S.A. § 3611(b).

(c) A pharmacy benefit manager providing services to less than 100 individuals in Vermont and unable to provide a required document in section 5 may submit to the Commissioner an exception request. The request must list the required document and provide a brief explanation.

(d) If the applicant asserts information submitted in connection with an initial license application is proprietary or otherwise exempt from public inspection and copying under the Vermont Public Records Act, the applicant must designate the specific section or document claimed as exempt and provide a detailed explanation supporting the claim for exemption, including reference to applicable sections of the Vermont Public Records Act and other applicable law.

Section 6 Renewal License Application.

(a) Beginning on January 1, 2026, and each year thereafter, each pharmacy benefit manager initially licensed and operating in Vermont shall complete a renewal license application.

(b) The pharmacy benefit manager shall provide as part of the renewal application the information in section 5(a).

(c) The pharmacy benefit manager shall submit a non-refundable annual renewal license fee pursuant to 18 V.S.A. § 3611(d)(3).

(d) If the applicant asserts information submitted in connection with a renewal license application is proprietary or otherwise exempt from public inspection and copying under the Vermont Public Records Act, the applicant must designate the specific section or document claimed as exempt and provide a detailed explanation supporting the claim for exemption, including reference to applicable sections of the Vermont Public Records Act and other applicable law.

Section 7 Application Review.

(a) Upon receipt of a completed application for an initial or renewal pharmacy benefit manager license as required by section 5 and 6, the Commissioner shall review the application and may take the following actions:

(1) Approve the application;

(2) Notify the applicant, in writing, that the application is incomplete and request additional information to complete the review and, if the missing or requested information is not received, the Commissioner may deny the application; or

(3) Deny a license pursuant to the criteria set forth in 18 V.S.A § 3611(c). If a pharmacy benefit manager license is denied, the Commissioner shall:

(A) Provide written notice to the applicant that the application has been denied and the grounds therefor; and

(B) Advise the applicant that they may request a reconsideration in accordance with 8 V.S.A § 2104.

Section 8 Severability.

If any provision of this rule or the application of it to any person, entity or circumstance is for any reason held to be invalid, the remainder of this rule shall not be affected.

Section 9 Enforcement.

(a) The Commissioner may deny, suspend or revoke the license of a pharmacy benefit manager, or shall issue a cease and desist order should the pharmacy benefit manager not have a license if, after notice and opportunity for hearing, the Commissioner finds that the pharmacy benefit manager:

(1) Is in an unsound financial condition;

(2) Is not competent, trustworthy, or of good personal and business reputation;

(3) Has been found to have violated the insurance laws of this State or any other jurisdiction or has had an insurance license, registration or other certification or license denied, suspended, nonrenewed or revoked for cause by any jurisdiction.

(4) Is using such methods or practices in the conduct of its business so as to render its further transaction of business in this state hazardous or injurious to insured persons or the public;

(5) Has failed to pay any judgment rendered against it in this state within sixty (60) days after the judgment has become final;

(6) Has refused to have its books and records examined or audited as it relates to its provision of pharmacy benefit management;

(7) Fails to continue to meet licensing requirements, or withholds information, or fails to cooperate with an examination or investigation, or makes a material misstatement in a license application, license renewal, or any document submitted to the Commissioner; or

(8) Has failed to provide the required documents required under this rule.

(b) The Commissioner may, without advance notice, and before a hearing may issue an order immediately suspending the license of a pharmacy benefit manager, or may issue a cease and desist order should the pharmacy benefit manager not have a license, if the Commissioner finds that one or more of the following circumstances exist:

(1) The pharmacy benefit manager is insolvent or impaired;

(2) A proceeding for receivership, conservatorship, rehabilitation, or other delinquency proceeding regarding the pharmacy benefit manager has been commenced in any state; or

(3) The financial condition or business practices of the pharmacy benefit manager otherwise pose an imminent threat to the public health, safety, or welfare of Vermont residents.

(c) At the time an order has been issued by the Commissioner in accordance with subsection (b) of this section, the Commissioner shall serve notice to the pharmacy benefit manager that the pharmacy benefit manager may request a hearing within ten business days after the receipt of the order. If a hearing is requested, the Commissioner shall schedule a hearing within ten business days after receipt of the request. If a hearing is not requested and the Commissioner does not order one, the order shall remain in effect until modified or vacated by the Commissioner. If the Commissioner finds that one or more grounds exist for the suspension or revocation of a license issued under this part, or for a cease and desist order, the Commissioner may, in lieu of or in addition to the suspension, revocation or cease and desist order, impose a reasonable fine upon the pharmacy benefit manager.

Section 10 Effective Date.

This rule shall take effect on May 19, 2025.

History

• EFFECTIVE DATE:
• 5/19/2025 Secretary of State Rule Log #25-014
• STATUTORY AUTHORITY: 18 V.S.A. §§ 3603, 3611

Subagency 020 INSURANCE DIVISION

Chapter 006 CREDIT LIFE AND CREDIT ACCIDENT AND HEALTH INSURANCE

21-006 Code Vt. R. 21-020-006-X CREDIT LIFE AND CREDIT ACCIDENT AND HEALTH INSURANCE

Section 1 Purpose and Authority

The purpose of this regulation is to protect the interests of debtors and the public in this state by providing a system of rate, policy form, and operating standards for the transaction of credit life and credit accident and health insurance. This rule interprets and implements Title 8, Vermont Statutes Annotated, including but not limited to Sections 3801 through 3825 (as applicable) and Sections 4101 through 4115, and is issued pursuant to powers granted the Commissioner by 8 V.S.A., Sections 75, 4108(b) and 4113.

Section 2 Definitions

As used in this regulation:

(1) Credit accident and health insurance means insurance as defined in Section 4103 of Title 8, Vermont Statutes Annotated.

(2) Credit Insurance means both credit life insurance and credit accident and health insurance.

(3) Non contributory credit insurance means both credit life and credit accident and health insurance where the debtor does not directly pay for the insurance.

(4) Credit life insurance means insurance as defined in Sections 4103 and 3805 of Title 8, Vermont Statutes Annotated.

(5) Net written premium means gross written premium minus refunds on termination as defined in Section 8 herein.

(6) Indebtedness means the total amount payable by a debtor to a creditor in connection with a loan or other transaction.

(7) Total amount payable means the total outstanding amount owed by the debtor at the time of the death insured against, excluding any unearned interest or finance charges.

Section 3 Rights and Treatment of Debtors

(1) Multiple Plans of Insurance. If a creditor makes available to the debtors more than one plan of credit life insurance or more than one plan of credit accident and health insurance, which are applicable to the credit transaction, all debtors must be informed of such plans.

(2) Substitution. When a creditor requires credit life insurance, credit accident and health insurance or both, as additional security for an indebtedness, the debtor shall be given the option of furnishing the required amount of insurance through existing policies of insurance owned or controlled by the debtor or of procuring and furnishing the required coverage through any insurer authorized to transact insurance business in this state, If this subsection is applicable, the debtor shall be informed by the creditor of the right to provide alternative coverage before the transaction is completed.

(3) Evidence of Coverage.

(a) All credit insurance shall be evidenced by an individual policy, or, in the case of group insurance, by a certificate of insurance. The individual policy or certificate of insurance shall be delivered to the debtor in accord with Section 4107 of Title 8, Vermont Statutes Annotated.

(b) Each individual policy or certificate of insurance shall set forth such information as is required by Section 4107 of the Credit Insurance Law and any other appropriate sections of the Vermont Statutes.

(4) Claims Processing. All credit insurance claims shall be processed in accord with Chapters 109 and 129 of Title 8, Vermont Statutes Annotated and with Regulation No. 79-2 as amended.

(5) Termination of group credit insurance policy.

(a) If a debtor is covered by a group credit insurance policy providing for the payment of single premiums to the insurer, then provision shall be made by the insurer that in the event of termination of the policy for any reason, insurance coverage with respect to any debtor insured under such policy shall be continued for the entire period for which the single premium has been paid unless the indebtedness is discharged.

(b) If a debtor is covered by a group credit insurance policy providing for the payment of premiums to the insurer on a monthly outstanding balance basis, then the policy shall provide that, in the event of termination of such policy for whatever reason, termination notice thereof shall be given to the insured debtor by the insurer of by the creditor at least thirty (30) days prior to the effective date of termination except where replacement of the coverage by the same or another insurer in the same or greater amount takes place without lapse of coverage. The notice required in this paragraph shall be given by the insurer or, at the option of the insurer by the creditor.

(6) Renewal or Refinancing of Indebtedness. If the indebtedness is discharged due to renewal or refinancing prior to the scheduled maturity date, the insurance in force shall be terminated before any new insurance may be issued in connection with the renewed or refinanced indebtedness. In all cases of such termination prior to scheduled maturity, a refund shall be paid or credited to the debtor as provided in Section 8. In any renewal or refinancing of the indebtedness, the effective date of the coverage as respects any policy provision shall be deemed to be the first date on which the debtor became insured under the policy covering the indebtedness which was renewed or refinanced, at least to the extent of the amount and term of the indebtedness outstanding at the time of renewal and refinancing of the debt.

(7) Maximum Aggregate Provisions. A provision in a policy or certificate that sets a maximum limit on total payments must apply only to that policy or certificate. The maximum limit on the life of one debtor covered under a group credit life insurance policy shall be $ 40,000. n1

n1 Changed from $ 25,000 per Act No. 249 of 1990 (House Bill 253).

(8) Voluntary Prepayment of Indebtedness. If a debtor prepays the indebtedness other than as a result of death or through a lump sum disability payment:

(a) Any credit life insurance covering such indebtedness shall be terminated and an appropriate refund of the credit life insurance premium shall be paid to the debtor in accordance with Section 8; or paid to the creditor to be credited the debtors account; and

(b) Any credit accident and health insurance covering such indebtedness shall be terminated and an appropriate refund of the credit accident and health insurance premium shall be paid to the debtor in accordance with Section 8, or paid to the creditor to be credited to the debtors account. If a claim under such coverage is in progress at the time of prepayment, the amount of refund may be determined as if the prepayment did not occur until the payment of benefits terminates. No refund need be paid during any period of disability for which credit accident and health benefits are payable. A refund shall be computed as if prepayment occurred at the end of the disability period.

(9) Involuntary Prepayment of Indebtedness. If an indebtedness is prepaid by the proceeds of a credit life insurance policy covering the debtor or by a lump sum payment of a disability claim under a credit insurance policy covering the debtor, then it shall be the responsibility of the insurer to see that the following are paid to the insured debtor if living or the beneficiary, other than the creditor, named by the debtor or to the debtor's estate:

(a) In the case of prepayment by the proceeds of a credit life insurance policy, or by the proceeds of a lump sum total and permanent disability benefit under credit life coverage, an appropriate refund of the credit accident and health insurance premium in accordance with Section 8;

(b) In the case of prepayment by a lump sum disability claim, an appropriate refund of the credit life insurance premium in accordance with Section 8.

(c) In either case, the amount of the benefits in excess of the amount required to repay the indebtedness after crediting any unearned interest, finance or insurance charges.

(10) Amounts to be Insured:

(a) Credit life insurance may provide benefits for which premiums are computed not exceeding.

(i) the total amount payable, as defined in Section 2(6), plus two monthly payments.

(ii) If the type of loan instrument or business practice of a lender renders the amount of credit life insurance not appropriate for a class of loans or a lender, then, the insurer may file with the Commissioner an alternate plan providing the appropriate level of credit life insurance benefits in accord with the requirements of Title 8, Section 4108. The insurer shall demonstrate that the provision of the policy and certificate are fair, just and equitable.

(b) Credit accident and health insurance may provide benefits not exceeding the amount permitted by 8 V.S.A., Section 4105(b).

(11) Ineligible Debtors:

(a) An insurer shall not restrict a debtor's eligibility for credit insurance or cancel coverage because of age, employment status or health condition unless an application containing specific questions relating to those restrictions is filled out and signed by the debtor.

(b) If a debtor, who is eligible for coverage under Group Credit Life Insurance for a closed end loan has correctly stated his or her age, employment status or health condition on an application, the insurer may make adjustments to premiums or benefits or both or may cancel the insurance. Notice of such adjustments or cancellation must be mailed by the insurer to the creditor and the debtor at his last known address within seventy-five (75) days of the effective date of coverage. The insurer may comply with the provisions of this Section by requiring the creditor to provide or mail the notices to the debtor. Any adjustments of premiums or benefits shall be effective from the effective date of coverage.

(c) Notwithstanding subsection (11)(b) of this Section, an insurer shall not cancel coverage or deny a claim under a policy of group credit life insurance solely because of the non-fraudulent misstatement of age by a debtor. The group life insurance policy may contain a provision specifying an equitable adjustment of premiums or benefits or both to be made in the event the age has been misstated, such provision to contain a clear statement of the method of adjustment to be used.

(d) Any methods to adjust premiums or benefits must be filed with the Commissioner in accordance with 8 V.S.A., Section 4108.

(e) The Commissioner may waive any of the provisions of this Section as they apply to insurers selling non-contributory credit insurance, if the insurer can demonstrate that it is not necessary for the protection of the public.

Section 4 Policy Forms and Related Material

(1) Permissible Forms. Credit life and credit accident and health insurance shall be issued only in the forms described in Sections 4104, 4107, and 4108 of Title 8, Vermont Statutes Annotated.

(2) Filing Requirements. All policy forms, certificates of insurance, notices of proposed insurance, applications for insurance, endorsements and riders to be delivered or issued for delivery in this state and the schedules of premium rates pertaining thereto shall be filed with the Commissioner as required by Section 4108 of Title 8, Vermont Statutes Annotated.

Section 5 Determination of Reasonableness of Benefits in Relation to Premium Charge

(1) General Standard. Under Title 8, Vermont Statutes Annotated, benefits provided by credit insurance policies must be reasonable in relation to the premium charged. This requirement is satisfied if the premium rate charged develops or may be reasonably expected to develop a loss ratio of not less than 60% for credit life insurance and not less than 70% for credit accident and health insurance.

(2) Nonstandard Coverage. If any insurer files for approval of any form providing coverage more restrictive than that described in Sections 6 and 7, the insurer shall demonstrate to the satisfaction of the Commissioner that the premium rates to be charged for such restricted coverage will develop or may be reasonably expected to develop a loss ratio not less than that contemplated for standard coverage at the premium rates described in these sections.

(3) Coverage Without Separate Charge. If no specific charge is made to the debtor for credit insurance the standards of Section 5 are not required to be used but any premium rates resulting from such standards as are used which exceed the premium rate standards set out in Sections 6 and 7 must be filed with the Commissioner. For purposes of this Subsection, it will be considered that the debtor is charged a specific amount for insurance if an identifiable charge for insurance is disclosed in the credit or other instrument furnished the debtor which sets out the financial elements of the credit transactions, or if there is a differential in finance, interest, service or other similar charge made to debtors who are in like circumstances, except for their insured or noninsured status.

Section 6 Credit Life Insurance Rates

(1) Premium Rate. Credit life insurance premium rates for the insured portion of an indebtedness repayable in equal monthly installments.

(a) $ 0.55 per month per $ 1,000 of outstanding insured indebtedness if premiums are payable on a monthly outstanding balance basis.

(b) If premiums are payable on a single premium basis, the following formula or such other formula approved by the Commissioner that produces substantially equivalent premiums shall be used to develop single premium rates from the outstanding balance rate:

[See graphic or tabular material in printed version]

SP = Single Premium per $ 100 of initial credit life insurance coverage.

MP = $ .055, the prima facie maximum credit life insurance premium rate for monthly outstanding balance coverage, or a different amount calculated in accordance with Section 10.

It = The amount of insurance for month t including up to two months for t delinquencies.

Ii = Initial amount of insurance.

dis = .0054, representing annual rate of discount for interest and mortality of 6.48%.

n = The number of months in the term of the debt.

(c) Joint coverage on either of the basis in (a), or (b), of Subsection 1, shall be one hundred and fifty percent of the specific rate for that type of coverage.

(d) If the benefits provided are other than those described in Subsection (1) above, rates for such benefits shall be actuarially consistent with the rates provided in Paragraphs (a), (b) and (c).

(2) The premium rates in Subsection (1) shall apply to policies providing credit life insurance to be issued with or without evidence of insurability, to be offered to all debtors, and containing:

(a) No exclusions other than suicide within six months of the incurred indebtedness; and

(b) Either no age restrictions or age restrictions making ineligible for coverage debtors 65 or over at the time the indebtedness is incurred or debtors having attained age 66 or over on the maturity date of the indebtedness. Ages 70 and 71 may be substituted for ages 65 and 66; in which case the prima facie premium rates in this section may be increased by 5%. Rates may be increased by 10% if there is no age limit.

(c) A revolving credit insurance policy may exclude from the classes eligible for insurance, classes of debtors determined by age, and provide for the cessation of insurance or reduction in the amount of insurance upon attainment of not less than age 65.

(d) No actively-at-work condition requiring that the debtor be employed more than thirty (30) hours per week.

(e) The policy and certificate shall have prominently printed a notice of the effect that the insured debtor has at least ten (10) days after his or her receipt of said policy or certificate to write to the insurance company, in the case of a policy, or to the creditor, in the case of a certificate, and request cancellation of the policy or certificate and a full refund of premiums or insurance charges paid.

Section 7 Credit Accident and Health Insurance

(1) Premium Rate. Credit accident and health insurance premium rates for the insured portion of an indebtedness repayable in equal monthly installments, where the insured portion of the indebtedness decreases uniformly by the amount of the monthly installment paid, shall be as set forth in Paragraphs (a) and (b). Paragraphs (c), (d), and (e), refer to premium rates for other types of benefits either alone or in combination with the type of benefits applicable to (a) and (b).

(a) As set forth in Appendix I if premiums are payable on a single- premium basis for the duration of the coverage; or

(b) If premiums are paid on the basis of a premium rate per month per thousand of outstanding insured indebtedness, these premiums shall be computed according to the following formula or according to a formula approved by the Commissioner which produces rates actuarially equivalent to the single premium rates in Appendix I:

Opn = 20 x (1 + .0019n) x SPn / n + 1

Where SPn = Single Premium Rate per $ 100 of initial insured indebtedness repayable in n equal monthly installments (Appendix I).

OPn = Monthly Outstanding Balance Premium Rate per $ 1,000. n = Original repayment period, in months.

(c) The actuarial equivalent of Paragraphs (a) and (b) shall be used if the coverage provided is a constant maximum indemnity for a given period of time.

(d) If the benefits provided are other than those described in Subsection (1) above, rates for such benefits shall be actuarially consistent with rates provided on Paragraphs (a), (b) and (c).

(e) The outstanding balance rate for credit accident and health insurance, may be either a term specified rate or may be a single composite term outstanding balance rate applicable to all loans made under an open-end credit plan.

(2) The premium rates in Subsection (1) shall apply to policies providing credit accident and health insurance to be issued with or without evidence of insurability, to be offered to all eligible debtors, and containing:

(a) No provision excluding or denying a claim for disability resulting from pre-existing conditions except for those conditions for which the insured debtor received medical advice, diagnosis, or treatment within six months preceding the effective date of the debtor's coverage and which caused loss within the six months following the effective date of coverage.

(b) No other provision which excludes or restricts liability in the event of disability caused in a specific manner except that it may contain provisions excluding or restricting coverage in the event of normal pregnancy and intentionally self-inflicted injuries.

(c) No Actively At Work Test may require that the debtor be employed more than thirty (30) hours per week.

(d) No age restrictions or only age restrictions making ineligible for coverage debtors 65 or over at the time the indebtedness is incurred or debtors who will have attained age 66 or over on the maturity date of the indebtedness. Ages 70 and 71 may be substituted for ages 65 and 66, in which case the prima facie rate may be increased by 5%. Rates may be increased 10% if there is no age limit.

(e) A daily benefit equal in amount to one-thirtieth of the monthly benefit payable under the policy for the indebtedness.

(f) A definition of disability which provides that during the first 24 months of disability the insured shall be unable to perform the duties of his occupation at the time the disability occurred, and thereafter the duties of any occupation for which the insured is reasonably fitted by education, training, or experience. This paragraph shall not apply to lump sum disability coverage.

(g) A revolving credit insurance policy may exclude from the classes eligible for insurance classes of debtors determined by age, and provide for the cessation of insurance or reduction in the amount of insurance upon attainment of not less than age 65.

Section 8 Refund Formulas

(1) Refund formulas which any insurer desires to use must be filed with the Commissioner for approval prior to use. The following methods or such other methods approved by the Commissioner that produce substantially equivalent results shall be used:

(a) Pro Rata Method. The pro rata unearned gross premium method shall be used for level term credit life insurance, credit accident and health insurance wherein the insured is covered for a constant maximum indemnity which begins to decrease in even amounts per month, and for credit insurance coverage wherein premiums are collected from the debtor on a basis other than the single premium basis.

(b) Rule of Anticipation. For coverages other than those listed in paragraph (a), the refund shall not be less than the premium that would be charged for the remaining coverage for the remaining term of the indebtedness. An insurer may file other methods if they yield substantial similar results.

(2) In the event of termination, no charge for credit insurance may be made for the first 15 days of a loan month; and a full month may be charged for 16 days or more of a loan month.

(3) The requirements of the Credit Insurance Law that refund formulas be filed with the Commissioner shall be considered fulfilled if the refund formulas are set forth in the individual policy or group certificate filed with the Commissioner.

(4) No refund of $ 1 or less need be made.

Section 9 Experience Reports

(1) Each insurer doing credit insurance business in this state shall annually by June 1 submit the experience reports in Appendix II.

Section 10 Use of Rates Direct Business Only

(See Glossary of terms and definitions herein.)

(1) Minimum Loss Ratio Test.

(a) Loss Ratio Test. Benefits will be considered reasonable in relation to the premium charged if the loss ratio equals or exceeds the Minimum Loss Ratio Standard specified in Section 5.

(b) Scope of Test When Deviated Rates are in Use. If an insurer has deviated rates approved under (3)(a) or (3)(b), the test will exclude the experience of the accounts for which deviated rates are in use. The reasonableness of rates for those accounts will be determined by subsection (3).

(c) Frequency of Test. The test will be made each year when submitting the experience reports required by Section 10.

(2) Use of Prima Facie Rates.

An insurer that has filed rates which are equal to or lower than prima facie rates may retain on file and use those rates without further proof of their reasonableness while the experience of the insurer in this state for the accounts to which they are applied continues to satisfy the Minimum Loss Ratio Test specified in subsection (1).

(3) Use of Deviated Rates.

(a) Use of Rates Higher Than Prima Facie Rates.

If the Minimum Loss Ratio Test produces a loss ratio that exceeds the Minimum Loss Ratio Standard, the insurer may file for approval and use rates that are higher than prima facie rates if it can be expected that the use of such higher rates will continue to produce a loss ratio for the accounts to which they are applied that will satisfy the Minimum Loss Ratio Test.

(b) Use of Rates Lower Than Prima Facie Rates.

If the Minimum Loss Ratio Test produces a loss ratio that is lower than the Minimum Loss Ratio Standard, the insurer shall either file adjusted rates that can be expected to produce a loss ratio that will satisfy the Minimum Loss Ratio Test or submit reasons acceptable to the Commissioner why it should not be required to do so.

(c) Determination of Deviated Rates.

If deviated rates are to be filed under (a) or (b) above, the insurer may file rates for approval that will be:

(i) Applied uniformly to all accounts of the insurer.

(ii) Applied on an equitable basis approved by the Commissioner to only one or more accounts of the insurer for which the experience has been more favorable or less favorable than expected, or

(iii) Applied according to a case rating procedure on file with the Commissioner (an insurer electing to file a case rating procedure may either file its own plan for the approval of the Commissioner or may use the Standard Case Rating Procedure specified herein by notice to him.)

The rate for each account which has been deviated must be redetermined on the same basis thereafter or until the rate for the account is no longer deviated.

(4) Use of Rates Determined by Standard Case Rating Procedure.

An insurer, by written notice to the Commissioner of its election to do so, may file and use premium rates determined by this Standard Case Rating Procedure. If elected, the procedure will be used by the insurer to rate all of its credit insurance in this State. Once elected, the procedure will remain in effect for the insurer until a different procedure has been filed with the Commissioner and approved by him.

(a) Determination of Case Rate.

An insurer may use a rate for an account not greater than the case rate for that account as follows:

(i) Single Account Cases and Multiple Account Cases. If the account is within the definition of a single account case or of a multiple account case as filed by the insurer, the case rate for the account or for each account comprising the multiple account case will be determined by the formula set forth in (b) below.

(ii) Pooled Account Cases.

If the account is in a pooled account case, the case rate for each account comprising the case will be the case rate for that pooled account case as determined by the formula set forth in (b) below.

(iii) New Accounts Without Experience.

If a new account of an insurer has no experience in this State, the case rate for the account will be the prima facie rate under Sections 6 and 7.

(b) Calculation of Case Rate.

(i) Symbols and Definitions.

PFR = Prima Facie Rate

ALR = Actual Loss Ratio for case at Prima Facie Rate Basis.

ELR = Minimum Loss Ratio Required by Section 5.

Z = Credibility Factor for Case

CLR Credibility Adjusted Case Loss Ratio at Prima Facie Basis.

= Z (ALR) + (1 - Z) (ELR)

E = Expense Loading in prima facie rate.

= (1 - ELR)PFR

(ii) New Case Rate.

NCR = New Case Rate = PFR(CLR) + E

(c) Minimum Changes.

If the new case rate does not differ by more than 5% from the current case rate, the new case rate will be the current case rate.

(d) Case Rate Period.

A case rate will be in effect for a period of time not longer than the experience period used to establish the case rate (i.e. 1 year, 2 years, 3 years). An insurer may file for a new case rate before the end of a case rate period, but not more often than once during any 12 month period.

(e) Change of Insurers.

If a creditor changes insurers, the case rate established under this Regulation in effect for his account on the date of the change will continue to be in effect for the account with the succeeding insurer for the remainder of the case rate period or until a new case rate for his account is established if sooner.

(5) Filing of Rates.

When submitting the Experience Reports required by Section 9, an insurer who has elected to file higher rates under (3)(a) above or who is required to file reduced rates under (3)(b) above, shall also file a new schedule of rates as determined by those subsections. If the Commissioner does not disapprove the new schedule of rates within 30 days after receipt of filing, or July 1, whichever is later, rates not higher than the new rates shall be placed in effect on September 1 next following unless a different effective date has been approved by the Commissioner. In no event, however, may a rate increase be placed in effect earlier than the date rate decreases are required to be placed in effect.

(6) Glossary of Terms and Definitions as Used in this Section 11.

(a) Account means the aggregate credit life insurance or credit accident and health insurance coverage for a single plan of insurance and for a single class of business written through a single creditor by the insurer whether coverage is written on a group or individual policy basis. With the approval of the Commissioner, the account may also mean the credit life insurance or the credit accident and health insurance of two or more classes of business of a single creditor.

(b) Case means either a Single Account Case or a Multiple Account Case or a Pooled Account Case as follows:

(i) Single Account Case, means an account that is at least as credible as the minimum level of credibility elected by the insurer for defining a single account case excluding all of these accounts which have been included in multiple account cases. An insurer may make this election by notice of the Commissioner, in writing, of the minimum credibility factor it will use to define a Single Account Case. Once notified, the minimum credibility factor will remain in effect for the insurer until a different factor has been filed by the insurer and approved by the Commissioner. If an insurer makes no written election, its minimum credibility factor will be 100%.

(ii) Multiple Account Case means, with the approval of the Commissioner, two or more accounts of the same insurer having similar underwriting characteristics are combined by the insurer for premium rating purposes, excluding all cases defined in (i) above and which, when combined, are at least as credible as the minimum level of credibility elected in (i) above.

(iii) Pooled Account Case means a combination of all the insurer's accounts of the same plan of insurance and class of business which combination has experience in this State, excluding all cases defined in (i) and (ii) above.

(c) Plan of Insurance unless otherwise filed and approved means

(i) credit life insurance on a flat rated basis other than revolving accounts (i.e. including joint and single life coverage, decreasing and level insurance, outstanding balance and single premium),

(ii) credit life insurance on a revolving account basis,

(iii) credit life insurance on an age-graded basis,

(iv) credit accident and health insurance other than on revolving accounts combining outstanding balance and single premium but separately for each combination of waiting period and retroactive or non-retroactive.

(v) credit accident and health insurance on a revolving account basis separately for each combination of waiting period and retroactive or non-retroactive.

(d) Class of business means a grouping of the classes of business referenced in Section 9 having the same prima facie rate.

(e) Experience means earned premiums, incurred claims incurred claim count, number of life years insured, and average amount of insurance during the experience period.

(f) State Experience means the most recent published claim rates or loss ratios based on the experience of all insurers in this State for a plan of insurance and class of business. However, if this State enters into agreements with other similar States, the use of the appropriate multi-State experience will be substituted for the experience in this State. If published experience is not available in this State or multi-State region, the claim rates assumed in this State's prima facie rate and the minimum loss ratio required by Section 5 will be used.

(g) Experience Period means the most recent period of time for which experience is reported, but not a period longer than three full years.

(i) If a case develops 100% credibility in less than three years, the experience period for that case will be the number of full years needed to develop credibility.

(ii) If a case develops the minimum elected by the insurer in less than three years, the experience period for that case, at the option of the insurer, will be the number of full years needed to develop minimum credibility or three full years.

(iii) New Accounts with Experience.

If a new account of an insurer has experience in this State with a prior insurer, the new insurer must use the most recent experience of the account to the extent necessary to fill out an experience period.

(iv) Accounts with Multi-State Experience.

If an account has experience in more than this State, an insurer may use only the experience of the account in this State to rate the case or with the approval of the Commissioner may use the multi-State experience of the account for this purpose applied on an equitable basis.

(h) Prima Facie Rates means those rates shown in Sections 6 and 7.

(i) Earned premiums at rates in use means actual earned premiums, that is, the premiums earned at the premium rates actually charged and in force during the experience period in accordance with the instructions and method of calculation in Appendix II.

(j) Earned premium at prima facie rate means the actual earned premiums adjusted to the amount which would have been earned had the premium rate during the experience period been equal to the current prima facie rate in accordance with Appendix II. Reasonable methods of approximations may be used.

(k) Incurred Claims means total claims paid during the experience period, adjusted for the change in the claim reserve.

(l) Credibility Factor means the extent to which the past experience of a case can be expected to recur in the future. For the Standard Case Rating Procedure, the credibility factor may be either the Number of Claims incurred or on the Average Number of Life Years for the case during the experience period using the Credibility Table.

The insurer shall notify the Commissioner in advance which method it will use to measure the credibility of all its cases in this State and may not change its method without the prior approval of the Commissioner. If Claim Count or Life Year data is not available, reasonable methods of approximation approved by the Commissioner may be used until such data is developed.

(m) Incurred Claim Count means the number of claims incurred for the case during the experience period. This means the total number of claims reported during the experience period, whether paid or in the process of payment plus any incurred but not reported (IBNR) at the end of the experience period less the number of claims incurred but not reported at the beginning of the experience period. If a debtor has been issued more than one certificate for the same plan of insurance, only one claim is counted. If a debtor receives disability benefits, only the initial claim payment for the period of disability is counted.

(n) Average Number of Life Years means the average number of group certificates or individual policies in force during the Experience Period (without regard to multiple coverage) times the number of years in the experience period, or some equivalent calculation.

(o) Loss Ratio means, for accounts in which premiums are on the monthly outstanding balance or level premium basis, the ratio of incurred claims to earned premiums at the prima facie rate. For accounts on the single premium basis, it means the ratio of incurred claims to earned premiums at the prima facie rate, where such premiums are augmented by an investment income factor that is actuarially consistent with the interest discounts in Sections 6 and 7.

(p) Credibility Table for Purposes of the Standard Case Rating Procedure means the following table:

| CREDIBILITY TABLE | | | | | | | --- | --- | --- | --- | --- | --- | | Average Number of Life Years Credit Accident and Health Plans Credit Retroactive and Non-Retroactive Life | Incurred Claim Count | Credibility Factor | | | | | | 7 day | 14 day | Waiting Periods 30 days | | | | 1 | 1 | 1 | 1 | 1 | .00 | | 1,800 | 95 | 141 | 209 | 9 | .25 | | 2,400 | 126 | 188 | 279 | 12 | .30 | | 3,000 | 158 | 234 | 349 | 15 | .35 | | 3,600 | 189 | 281 | 419 | 18 | .40 | | 4,600 | 242 | 359 | 535 | 23 | .45 | | 5,600 | 295 | 438 | 651 | 28 | .50 | | 6,600 | 347 | 516 | 767 | 33 | .55 | | 7,600 | 400 | 594 | 884 | 38 | .60 | | 9,600 | 505 | 750 | 1,116 | 48 | .65 | | 11,600 | 611 | 906 | 1,349 | 53 | .70 | | 14,600 | 768 | 1,141 | 1,698 | 73 | .75 | | 17,600 | 926 | 1,375 | 2,047 | 83 | .80 | | 20,600 | 1,084 | 1,609 | 2,395 | 103 | .85 | | 25,600 | 1,347 | 2,000 | 2,977 | 128 | .90 | | 30,600 | 1,611 | 2,391 | 3,558 | 153 | .95 | | 40,000 | 2,106 | 3,125 | 4,651 | 200 | 1.00 |

The above integral numbers represent the lower end of the bracket for each Z factor. The upper end is 1 less than the lower end for the next higher Z factor.

Section 11 Supervision of Credit Insurance Operations

(1) Each insurer transacting credit insurance in this state shall be responsible to conduct a thorough periodic review of creditors with respect to their credit insurance business with such creditors to assure compliance with the insurance laws of this state and the regulation promulgated by the Commissioner.

(2) Written records of such reviews shall be maintained by the insurer for review by the Insurance Commissioner and retained for a period of at least 5 years.

Section 12 Prohibited Transactions

The following practices, when engaged in by insurers in connection with the sale or placement of credit insurance, or as an inducement thereto, shall constitute unfair methods of competition and shall be subject to the Unfair Trade Practices Act of this State.

(1) The offer or grant by an insurer to a creditor of any special advantage or any service not set out in either the group insurance contract or in the agent contract, other than the payment of agents' commissions;

(2) Agreement by an insurer to deposit with a bank or financial institution money or securities of the insurer with the design or intent that the same shall affect or take the place of a deposit or money or securities which otherwise would be required of the creditor by such bank or financial institution as a compensating balance or offsetting deposit for a loan or other advancement; and

(3) [This provision has been enjoined by the Vermont Supreme Court.]

Section 13 Disclosure and Readability

A. Disclosure. When a premium or identifiable charge is payable by a debtor for credit insurance coverage offered by a creditor, at the time such insurance is applied for, disclosures shall be made to the principal debtor and copies given and retained, in accordance with State and Federal law. The creditor shall also disclose the optional nature of the coverage, premium or identifiable charge separately by type of coverage, eligibility requirements, and policy limitations and exclusions. These disclosures shall be made prominently above the space for the signature indicating election to obtain such coverage. These disclosures may be made in conjunction with either (a) the Federal Truth- In- Lending disclosure, or (b) a Notice of Proposed Insurance, or insurance policy or certificate.

B. Readability. The Commissioner shall not approve any form unless the policy or certificate is written in non-technical, readily understandable language, using words of common everyday usage:

(1) each insurer is required to test the readability of its policies or certificates by use of the Flesch Readability Formula, as set forth in Rudolf Flesch, the Art of Readable Writing, (1949, as revised 1974);

(2) a total readability score of forty (40) or more on the Flesch scale is required;

(3) all policies or certificates within the scope of this Section shall be filed with the Commissioner accompanied by the certification setting forth the Flesch score and certifying compliance with the guidelines set forth in this section.

Section 14 Severability

If any provision or clause of this Regulation or the application thereof to any person or situation is held invalid such invalidity shall not affect any other provision or application of the regulation which can be given effect without the invalid provision or application, and to this end the provisions of the regulation are declared severable.

Section 15 Effective Date

(1) This regulation shall take effect January 1, 1987 as to premium rates.

(2) Approval of all forms not in compliance with this Regulation are hereby withdrawn as of January 1, 1987. No such form may be issued after January 1, 1987 unless it has been submitted to and approved by the Commissioner subsequent to December 1, 1986 or unless a rider approved subsequent to such date has been attached bringing such form into compliance with this Regulation.

(3) Any deviations thought to be appropriate by an insurer as a result of promulgation of this regulation shall be filed in accordance with the provisions of Section 10 no later than January 15, 1987.

(4) Certificates, notices of proposed insurance and premium rates in connection with existing group policies shall conform to the requirements of this regulation not later than December 31, 1987.

(5) Any group policy issued to replace an existing group policy of credit insurance or an amendment of an existing group policy of credit insurance shall be ignored for the purposes of determining the anniversary date if such change is made after October 1, 1986.

Appendix I CREDIT ACCIDENT AND HEALTH PREMIUM RATES

(A) The following table contains prima facie maximum credit accident and health program rates. The rates in this table are single premium rates applicable to an indebtedness repayable in equal monthly installments.

(B) Prima facie maximum premium rates for terms of coverage not specified in Appendix I shall be actuarially consistent with this table of rates.

| SINGLE PREMIUM ACCIDENT AND HEALTH RATES PER $ 100 | | | | | | --- | --- | --- | --- | --- | | INITIAL INSURED INDEBTEDNESS | | | | | | Non-Retroactive Basis | | Retroactive Basis | | | | Number of Monthly Installments | 14-Day Elimination Period | 30-Day Elimination Period | 14-Day Waiting Period | 30-Day Waiting Period | | 12 | $ 1.44 | $ .96 | $ 2.01 | $ 1.56 | | 24 | 1.83 | 1.34 | 2.41 | 1.96 | | 36 | 2.13 | 1.65 | 2.72 | 2.27 | | 48 | 2.41 | 1.92 | 3.00 | 2.55 | | 60 | 2.68 | 2.19 | 3.27 | 2.82 |

Appendix II FORM A INSTRUCTIONS

The purpose of this form is to provide state-wide experience data under various classifications which will permit the review and regulation of premium rates and loss ratios at both company and state level.

A. Class of Business means any of the following:

1. Credit Unions;

2. Commercial and savings banks;

3. Finance companies;

4. Motor vehicle dealers;

5. Other sales finance;

6. Production credit associations; and bank agricultural loans;

7. All others.

B. Earned Premiums

1. Actual earned premiums (Line 1f) ___ The total of all premiums earned at the premium rate(s) actually charged and in force during the experience period.

2. Earned premiums at prima facie rate (Line 1g) ___. Actual earned premiums adjusted on Form B to the amount which would have been earned had the premium rate during the experience period been equal to the current prima facie rate. Note that if premiums infoce differ from the current prima facie rate inforce, Line 1f will not equal Line 1g.

3. Earned premiums at prima facie rates, adjusted for investment income (Form A, line 1, h) - Investment Income must be imputed to gross premiums at rates specified in Sections 6 and 7 (if written on a single-premium basis) by a generally-accepted actuarial procedure, which procedure must be explained in detail.

C. Experience Period

1. The experience period will consist of a maximum of three calendar years, except that in the first and second years after implementation of this regulation, the experience period may, at the insurers option, include only one or two year's experience, respectively. Thereafter, three years experience will be required.

2. Data included in this report is to be the direct business of the current insurer, only, without adjustment for reinsurance assumed or ceded.

CREDIT LIFE OR DISABILITY INSURANCE EXPERIENCE REPORT STATE OF VERMONT** CALENDAR YEAR OF 19 ___ FORM A

CLASSES OF BUSINESS: Check One;

| [] (a) credit unions; | [] (e) other sales finance; | | --- | --- | | [] (b) commercial & savings | [] (f) Production credit associations; bank | | bank; | agricultural | | loans; | | | [] (c) finance companies; | [] (g) all others. | | [] (d) motor vehicle dealers; | | | Mode of Premium Payment: | | | [] Single Premium | [] Outstanding Balance | | [] Revolving Account | (Monthly Premium) |

Plan of Benefits:

| [] Credit Life | [] Decreasing | [] Single Life | [] Gross | | --- | --- | --- | --- | | | [] Level | [] Joint Life | [] Net | | [] Credit Disability ___ | [] Retro | [] Non-Retro | | | Days, | | | |

Actual Earned Premiums 19 ___ 19 ___ 19 ___ Total

a. Gross premiums written (before deduction for Dividends and Experience Rating Credits ___

b. Refunds on terminations ___

c. Net (a-b) ___

d. Premium reserve, beginning of period ___

e. Premium reserve, end of period

---

f. Actual earned premiums (c+d-e) ___

g. Earned premiums at prima facie rate (Form B) ___

h. Earned premiums at prima facie rate, adjusted for investment income (attach explanation) ___

Incurred Claims

a. Claims Paid ___

b. Unreported claims, beginning of period ___

c. Unreported claims, end of period ___

d. Claim reserve, beginning of period ___

e. Claim reserve, end of period ___

f. Incurred claims (a-b+c-d+e) ___

3. Loss Ratio

a. Actual Loss Ratio (2f-1f) ___

b. Loss ratio at prima facie rate (2f-1g) ___

c. Adjusted loss ratio (2f / 1h)

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4. During this reporting period, have you changed the method for calculating premium reserves, unreported claims, claim reserves, or incurred claims? If yes, please explain:

5. What were the company's exposures during the reporting period, expressed per $ 1,000 per month separately for each class of business defined herein.

• Unreported claims are claims received by the insurer but not yet processed.

** This report shall be completes for each Class, Mode, and Benefit Plan.

FORM B INSTRUCTIONS

The purpose of this form is to convert actual earned premiums (Form A, Line 1f) to the amount of premiums which would have been earned had all business been written at the current prima facie rate.

Form B1 is applicable to Credit Life insurance and Form B2 is applicable to Credit Disability insurance.

GENERAL

A. A Form B (Life or Disability Section) must be completed for each Form A where prima facie earned premium differs from actual earned premium. More than one Form B may be required when more than one year's data is presented, due to changes in prima facie rates or other factors.

B. Actual earned premiums are to be converted to prima facie earned premiums by the use of a conversion factor which is the ratio of the prima facie premium rate to the actual premium rate. This conversion must be performed for each premium rate with premiums inforce during the experience period.

C. The overall totals presented on Form B (either life or disability) must agree to the appropriate lines on the Form A to which they are attached.

D. Note that both Form B1 and Form B2 include actual earned premium at prima facie rate on Line A. This data is for balancing purposes only, and in no way indicates that Form B must be completed if actual earned premium is equal to prima facie earned premium.

Form B1 - Credit Life Insurance A. Prima facie earned premium (Col. 5) is the product of actual earned premium (Col. 1) times the conversion factor (Col. 2 - Col. 3).B. See also General Note C.

Form B2 - Credit Disability Insurance

A. The conversion of actual earned premiums to prima facie earned premiums is accomplished in basically the same manner as described in Section 1A above. The conversion factor to be utilized, however, is the average of three ratios taken between prima facie and actual rates from 12, 24 and 36 month terms. The sum of these ratios, divided by three, becomes the conversion factor.

B. Prima facie premium rates are to be presented on Form B2, Appendix II, Line A, Col. 2-4. All ratios (Line b) are to be calculated by dividing Line A by Line a.

C. This form should be reproduced as necessary to present the required conversion for all premium rates inforce during the experience period.

D. See also General Note C.

Company ___

Signature ___

Title ___

CREDIT LIFE INSURANCE EXPERIENCE REPORT

STATE OF VERMONT

PRIMA FACIE EARNED PREMIUM

Class of Business ___ Calendar Year 19___

Premium Mode ___ Plan of Benefits ___

Credit Life Insurance

| | Actual Earned Premiums | Prima Facie Rate | Actual Premium Rate | Prima Facie Earned Premium | | --- | --- | --- | --- | --- | | | Col. 1 | Col. 2 | Col. 3 | Col. 4 | | A. Earned Premiums at prima facie rate | | | | | | B. Earned premiums at other than prima facie rates: | | XXX | XXX | | | 1. ___ | | | | | | 2. ___ | | | | | | 3. ___ | | | | | | 4. ___ | | | | | | 5. ___ | | | | | | 6. ___ | | | | | | ___ | | | | | | Totals | | XXX | XXX | | | | To Form A, | | | To Form A, | | | Line 1f | | | Line 1g |

C. Explain any changes in calculation methods made during this period.

CREDIT DISABILITY INSURANCE EXPERIENCE REPORT RECONCILIATION TO STATE PAGE STATE OF VERMONT FOR THE CURRENT YEAR 19___ FORM C2

| | | Premiums | Claims | | | | --- | --- | --- | --- | --- | --- | | | | Written | Earned | Paid | Incurred | | | | Line 1c | Line 1f | Line 2a | Line 2f | | 1. | Credit Disability | | | | | | | Page ___ of ___ | | | | | | | Page ___ of ___ | | | | | | | Page ___ of ___ | | | | | | | Page ___ of ___ | | | | | | | Page ___ of ___ | | | | | | | Page ___ of ___ | | | | | | | Page ___ of ___ | | | | | | | Page ___ of ___ | | | | | | | Page ___ of ___ | | | | | | | Page ___ of ___ | | | | | | | Page ___ of ___ | | | | | | | Page ___ of ___ | | | | | | | Total Life | | | | |

2. Annual Statement Page 46, Line 31 ___

Explain any differences between "Total Disability" and Page 46, Line 31.

4. Explain any changes in calculation methods made during this reporting period.

5. What were the company's exposures during the reporting period, expressed per $ 1,000 per month separately for each class of business defined herein?

History

• Effective Date: January 1, 1987 (SOS Rule Log #86-35)
• March 1, 1991
• Statutory Authority: 8 V.S.A. §§ 75, 4108, 4113

Subagency 010 BANKING DIVISION

Chapter 007 STATE-CHARTERED CREDIT UNIONS

21-007 Code Vt. R. 21-010-007-X STATE-CHARTERED CREDIT UNIONS

INTRODUCTION: Regulation B-06-1 supersedes former credit union regulation B-83-1, and is promulgated by the Commissioner under the authority established by 8 V.S.A. Section 30203.

Section I Minimum Bond Coverage

1. The governing body of each credit union shall acquire and maintain a blanket fidelity bond covering the directors, officers, employees, members of official committees, attorneys at law, and other agents with protection against loss to the credit union caused by dishonesty, burglary, robbery, larceny, theft, holdup, forgery or alteration of instruments, misplacement, or mysterious disappearance and for faithful performance of duty. (See Title 8, V.S.A., Sections 31302(3) and 31602(a)). This Section I prescribes the amount of minimum bond coverage required for all credit unions, which in no way absolves the governing body of their responsibility as noted in this regulation and in applicable statute.

2. The governing body of each credit union shall, at least annually, carefully review the bond and insurance coverage in force in order to ascertain its adequacy in relation to the exposure and potential risks facing the credit union and to the minimum requirements set forth herein by the Department of Banking, Insurance, Securities and Health Care Administration (the "Department").

3. The form of surety bond, at a minimum, shall satisfy the requirements of 8 V.S.A. §

4. The credit union shall receive written confirmation from the bonding company that the surety bond, at a minimum, covers the directors, officers, employees, members of official committees, attorneys at law, and other agents and that the bond provides protection against loss caused by dishonesty, burglary, robbery, larceny, theft, holdup, forgery or alteration of instruments, misplacement or mysterious disappearance, and for faithful performance of duty.

5. The following schedule sets forth the minimum coverage and maximum deductible requirements:

| Assets | Coverage | Deductible | | --- | --- | --- | | 0-$ 1,000,000 | lesser of assets or $ 100,000 | $ 2,000 | | $ 1,000,001-$ 4,000,000 | $ 250,000 | $ 4,000 | | $ 4,000,001-$ 50,000,000 | $ 250,000 plus $ 50,000 for each million or fraction thereof of assets over $ 4,000,000 | $ 2,000 plus 1/1000 of the total assets | | Over $ 50,000,000 | $ 2,550,000 plus $ 10,000 for each million or fraction thereof of assets over $ 50,000,000 | $ 2,000 plus 1/1000 of the total assets up to a maximum deductible of $ 200,000 |

It shall be the duty of the governing body to provide proper protection to meet potential risks by obtaining adequate bond and insurance coverage in excess of the above minimum requirements when circumstances require such additional coverage.

(a) Notwithstanding the minimum coverage requirements set forth in subsection 4 above, the minimum coverage required under this regulation for a credit union shall be increased to be equal to the greater of either of the following amounts:

(1) The aggregate amount of the daily cash fund (plus maximum anticipated daily money receipts) on the credit union's premises, or

(2) The aggregate amount of the credit union's money placed in transit in any one shipment.

(b) Such increased limits must be obtained no more than 30 days after the discovery of the need for such increase.

(c) Notwithstanding subsection 5(a), no increase in coverage shall be required when a credit union temporarily increases its cash fund because of an unusual event that cannot reasonably be expected to recur. The Commissioner shall determine whether this subsection applies to a given situation.

6. The Commissioner may require additional coverage for any credit union when, in the Commissioner's opinion, the surety bonds in force are inadequate. The credit union shall obtain such additional coverage within 30 days after the date of written notice.

Section II Directors Acknowledgment of Report of Examination; Examination Expenses

The Department must receive a properly completed Directors Acknowledgment of Report of Examination, and payment of any invoice for examination expenses, no later than thirty (30) calendar days after the date of the transmittal letter to the credit union accompanying the report of examination or the invoice for examination expenses, as applicable.

Section III Real Estate Loans

1. A credit union may grant loans or lines of credit secured by an instrument providing a direct lien(s) on real property owned, in whole or in part, by one or more members.

2. Each contract between the credit union and the borrower shall include a provision that the credit union may, at its option, declare immediately due and payable all or any part of the loan if all or any part of the real property securing the loan is sold or transferred by the borrower without the prior written consent of the credit union.

Section IV Delinquent Loans

A loan shall be deemed delinquent if payment has not been made thereon for a period of two (2) or more months after the most recent contractual payment was due and not paid. In calculating whether a particular loan is delinquent, no consideration is to be given to partial payments, unless in the aggregate they total one or more contractual payment.

Section V Reserved

Section VI Community Development Credit Unions

1. For purposes of this section and 8 V.S.A. § 30101(3):

(a) "Low income members" shall include (1) those members whose annual income falls at or below the lower level standard of living classification as established by the Bureau of Labor Statistics and as updated by the Employment and Training Administration of the U.S. Department of Labor, (2) those members who are residents of a public housing project who qualify for such residency because of low income, (3) those members who qualify as recipients in a community action program, and (4) those members who are enrolled as full-time or part-time students in a college, university, high school, or vocational school.

(b) "Predominantly" is so defined as a simple majority.

2. A credit union which is designated by the Commissioner as a community development credit union as defined in 8 V.S.A. § 30101(3) may receive and hold deposits on account from non-members, provided the National Credit Union Administration concurs with the Commissioner's designation and confirms in writing to the Commissioner that such accounts will be insured to the same extent as member deposits.

3. The burden of demonstrating that a credit union is a community development credit union shall be on the credit union seeking such designation. After receiving such designation, the governing body shall regularly review its membership list, and report on an annual basis to the Commissioner, to ensure that it continues to qualify as a community development credit union.

4. The rate of interest paid on any non-member deposits shall not exceed the rate being paid on member share certificates with similar terms and conditions.

Section VII Fixed Assets

1. Definitions. As used in this section IX:

(a) "Abandoned premises" means real property previously used to transact credit union business but no longer used for that purpose and real property originally acquired for future expansion for which the credit union no longer contemplates such use.

(b) "Fixed assets" means premises, furniture, fixtures and equipment.

(c) "Premises" means any office, branch office, service center, parking lot, other facility, or other real property where the credit union transacts or intends to transact business.

(d) "Furniture, fixtures, and equipment" means all office furnishings, office machines, computer hardware and software, automated terminals, and heating and cooling equipment.

(a) A credit union may invest in real property (including both improved or unimproved real property) or leasehold improvements, which the credit union is using or intends to use as its premises, provided the aggregate of all such investments shall not exceed six percent of the credit union's share accounts and total retained earnings.

(b) Additionally, a credit union may invest in furniture, fixtures, and equipment provided the aggregate of all such investments does not exceed one and one-half percent of the credit union's share accounts and retained earnings.

3. A credit union shall not exceed the limitations set forth in this section without the express prior written consent of the Commissioner.

4. Premises Not Currently Used To Transact Credit Union Business.

(a) When a credit union acquires premises for future expansion and does not fully occupy the space within one year, the credit union must have a board resolution in place by the end of that year with definitive plans for full occupation. Premises are fully occupied when the credit union, or a combination of the credit union, CUSOs, or vendors, use the entire space on a full-time basis. CUSOs and vendors must be using the space primarily to support the credit union or to serve the credit union's members. The credit union must make any plans for full occupation available to the Department and its examiner upon request.

(b) When a credit union acquires premises for future expansion, the credit union must partially occupy the premises within one year and must substantially occupy the premises within three years. Premises are "partially occupied" when the credit union is using some part of the space on a fulltime basis. Premises are "substantially occupied" when the credit union (or combination of credit union, CUSOs, or vendors as described in subsection 4(a) above) occupies at least 60% of the space on a fulltime basis. The Commissioner may waive this occupation requirement in writing upon written request.

(c) A credit union must make diligent efforts to dispose of abandoned premises and any other real property not intended for use in the conduct of credit union business. The credit union must seek fair market value for the property, and record its efforts to dispose of abandoned premises. After premises have been abandoned for four years, the credit union must publicly advertise the property for sale. Unless otherwise approved in writing by the Department, the credit union must complete the sale within five years of abandonment.

History

• EFFECTIVE DATE: April 15, 1989 Secretary of State Rule Log #89-08
• AMENDED: April 10, 1996 Secretary of State Rule Log #96-24; August 29, 2007 Secretary of State Rule Log #07-032; July 1, 2014 Secretary of State Rule Log #14-015.

Chapter 008 MORTGAGE BROKERS

21-008 Code Vt. R. 21-010-008-X MORTGAGE BROKERS

INTRODUCTION: Regulation B-2014-02 supersedes and replaces Mortgage Broker Regulation B-96-1.

Section 1 Authority and Purpose

This regulation is promulgated pursuant to Title 8 VSA Section 15 and Section 2214 Its purpose is to set forth rules for the licensing and regulation of Mortgage Brokers

Section 2 Individuals Authorized to Act as Mortgage Loan Originators under the Mortgage Broker's License

(a) A Mortgage Broker license may be issued to a partnership, corporation, or other legal entity, as well as to an individual

(b) The licensee must identify in the Nationwide Mortgage Licensing System and Registry ("NMLS"), and sponsor, all employees who are authorized to act as a mortgage loan originator on behalf of the licensee. Such individuals must have a mortgage loan originator license in an "approved" status and must have his/her sponsorship accepted by the Commissioner prior to acting as a mortgage loan originator under the Mortgage Broker's license. The Commissioner shall be notified immediately of any changes to the individuals authorized to act as mortgage loan originators on behalf of the Mortgage Broker.

(c) No individual may act as a mortgage loan originator under the Mortgage Broker's license without the prior approval of the Commissioner.

(d) All individuals authorized to act as a mortgage loan originator under the Mortgage Broker's license must be assigned to a licensed location of the Mortgage Broker. All mortgage loan originators must live within a reasonable commuting distance from the licensed location to which they are assigned. All advertisements and solicitations must use a licensed location. (For example, an authorized mortgage loan originator may not use a home address for advertisements, solicitations, business cards, or correspondence unless such home address is one of the Mortgage Broker's licensed locations.)

(e) All authorized individuals must be an employee of the Mortgage Broker (i.e., a W-2 employee) and not an independent contractor (i.e., a 1099 independent contractor).

(f) An independent contractor must obtain his/her/its own Mortgage Broker license.

(g) No individual may be authorized to act as a mortgage loan originator under more than one Mortgage Broker license at any one time.

Section 3 Surrender of Mortgage Broker License

(a) A licensee that does not intend to renew a Mortgage Broker license must surrender the license by filing a request for surrender through the NMLS and by delivering the original Mortgage Broker license to the Commissioner Failure to renew the license (or surrender the license) in a timely manner may result in the suspension, termination, or refusal to renew the license and may result in the imposition of administrative fines and penalties

(b) A Mortgage Broker that surrenders its license is still obligated to file:

(i) a quarterly mortgage call report for the last quarter in which the licensee is active; and

(ii) a final annual report.

Failure to deliver the reports to the Commissioner in a timely manner may result in the suspension, termination, or refusal to renew the license and may result in the imposition of administrative fines and penalties.

Section 4 Contract Requirements

(a) Before a Mortgage Broker takes any fee or collects any charges, or at the time the prospective borrower submits a signed application, whichever first occurs, the Mortgage Broker and the prospective borrower must both sign a contract that sets forth

(i) the particulars of the service to be performed by the Mortgage Broker, including specifics as to what shall constitute reasonable efforts on the part of the Mortgage Broker to perform the agreed upon service;

(ii) that the Mortgage Broker shall represent the interests of the prospective borrower rather than those of any lender; and

(iii) all fees received by the Mortgage Broker for services.

(b) Any amount received by the Mortgage Broker in excess of the amount set forth in the approved form of the Mortgage Broker contract shall be reimbursed to the prospective borrower.

(c) The form of the contract must be approved by the Commissioner prior to use by the Mortgage Broker. The Appendix contains a sample form of Mortgage Broker contract that is approved by the Commissioner.

(d) The Mortgage Broker shall not use any form of Mortgage Broker contract that has not been approved by the Commissioner for use by the Mortgage Broker.

Section 5 Segregated Accounts

(a) Any money collected from the prospective borrower by the Mortgage Broker must be deposited in one or more accounts in a federally insured bank The Mortgage Broker has a fiduciary duty with respect to the funds in the account(s), and shall use the funds only for purposes consistent with the contract required under 8 VSA § 2219, consistent with 8 VSA § 2218, and consistent with this regulation The account(s) must be segregated from the personal accounts and operating or other business accounts of the Mortgage Broker The funds of prospective borrowers are not required to be segregated from the funds of other prospective borrowers

(b) Repayment of charges collected from the prospective borrower shall be governed by the application, the contract, and applicable state and federal law.

Section 6 Quarterly Mortgage Call Reports

Each Mortgage Broker shall file a quarterly mortgage call report through the NMLS The quarterly mortgage call report shall be in such form, shall contain such information, and shall be filed with such frequency as the NMLS may require. Currently, the NMLS requires that quarterly mortgage call reports shall be filed within 45 days of the end of each calendar quarter:

Quarter 1 data (January 1 - March 31) is due by May 15;

Quarter 2 data (April 1 - June 30) is due by August 14;

Quarter 3 data (July 1 - September 30) is due by November 14;

Quarter 4 data (October 1 - December 31) is due by February 14.

Failure to file accurate and timely reports may result in the suspension, termination, or refusal to renew the license and may result in the imposition of administrative fines and penalties.

Section 7 Prohibited Mortgage Broker Activities

A Mortgage Broker may not act as the lender in connection with any loan closing including, without limitation

(a) A Mortgage Broker may not, in its own name, provide a prospective borrower with a rate lock, extend a rate lock, or accept discount points or any other funds from a prospective borrower for the purpose of buying down a rate of interest. A Mortgage Broker may, however, forward a lender's rate lock to a prospective borrower provided the rate lock is on behalf of the lender and is in the lender's name.

(b) A Mortgage Broker may not accept and keep escrow waiver fees or other fees that are associated with the terms and conditions of the loan.

(c) A Mortgage Broker may not issue a commitment letter or be identified as the lender in any commitment letter.

(d) A Mortgage Broker may not close a loan in its own name.

Section 8 Other Vermont Law

In addition to the requirements of 8 VSA chapter 73, Mortgage Brokers are subject to the requirements of 8 VSA §§ 1020110205 (financial privacy) The loans placed by the Mortgage Broker may be subject to all or part of the requirements of 8 VSA §§ 10403 (prohibition against discrimination), 10404 (mortgage loan escrow accounts), 9 VSA chapter 4 (permitted charges, actuarial method, prohibition against prepayment penalties), Banking Bulletin 29 (nontraditional lending), and Banking Bulletin 32 (subprime lending) Pursuant to a Mortgage Broker's obligation to represent the interests of the borrower, Mortgage Brokers shall not knowingly negotiate, place, assist in placement, or find Vermont mortgage loans that violate Vermont or federal laws or regulations This is not intended to be an exhaustive list; other laws and regulations may also apply

Section 9 Effective Date

This Regulation shall become effective on October 1, 2014

Appendix Regulation B-96-1

This Regulation shall become effective on October 1, 2014

Appendix. Broker/Prospective Borrower Agreement.

This agreement is between [name of prospective borrower(s)] (individually and jointly the "Borrower" or "you") and [name of mortgage broker] ("Mortgage Broker") located at [address of mortgage broker] .

Property to be financed: ____________________

1. Mortgage Broker will assist Borrower in securing financing for the above-referenced property. Mortgage Broker's services include, but are not limited to, the following (check appropriate boxes) :

[] Counseling on available mortgage products; Counseling on general mortgage qualification procedures and requirements; Assistance in obtaining information required to complete the mortgage application; Assistance in processing the loan application and in meeting conditions of the loan commitment; and Coordinating the closing.

[] Other (describe) _______________________

Mortgage Broker represents your interests while performing the above services. The services are consultative only. You will rely on your own judgment in deciding which available loan product best suits your needs and financial means.

2. You agree to provide true, complete, and accurate information to Mortgage Broker.

3. Mortgage Broker is compensated for arranging a mortgage loan. Mortgage Broker's compensation may be paid either by you or by the lender, but not by both.

SELECT ONE:

[] The maximum fee you will pay Mortgage Broker will not be more than (check appropriate box) :

[] $______

[] _______% of the loan amount.

OR

[] The maximum fee or other compensation Mortgage Broker will receive from the lender will be not more than ____% of the loan amount.

4. All fees and charges payable to any third party will be disclosed on the federal Good Faith Estimate and on the federal HUD-1 Settlement Statement. Effective August 1, 2015, all fees and charges payable to any third party will be disclosed on the federally required Loan Estimate disclosure and the federally required Closing Disclosure.

5. Mortgage Broker does not distribute the products of all lenders and cannot guarantee the lowest price or the best terms.

Mortgage Broker will not be making the loan to you. The lender, not the Mortgage Broker, underwrites your loan application, approves or denies your loan application, and sets the terms and conditions of your loan. Mortgage Broker acts only to facilitate your mortgage loan application.

7. Signing this contract does not obligate you to obtain a mortgage loan through this Mortgage Broker nor does it constitute a mortgage loan approval.

8. In the event you terminate your relationship with Mortgage Broker prior to the closing of any loan, you are relieved from all obligations under this Agreement, other than the payment of any actual third party fees disclosed on the Good Faith Estimate or the federally required Loan Estimate, as applicable, and actually incurred by the Mortgage Broker.

9. There is no other mortgage broker agreement between the Borrower and the Mortgage Broker.

Borrower and Mortgage Broker agree to the above terms and conditions. Borrower authorizes the release of all information (including the release of credit reports to the lender) required by the lender relating to the disposition and status of the mortgage application.

NOTICE TO CONSUMER: Do not sign this agreement before you read it. You are entitled to a copy of this agreement.

---

Borrower

---

Date

---

Borrower

---

Date

---

Mortgage Borrower

---

Date

Mortgage Broker NMLS number: ____________

Mortgage Loan Originator NMLS number: _____

History

• STATUTORY AUTHORITY: 8 V.S.A. §§ 15, 2214
• EFFECTIVE DATE: January 1, 1997 Secretary of State Rule Log #96-81 [as regulation B-96-1]
• AMENDED: October 1, 2014 Secretary of State Rule Log #14-029 [as regulation B-2014-02]

Chapter 009 REGULATION B-96-2, HOUSEHOLD MEMBERS AS ELIGIBLE FOR CREDIT UNION MEMBERSHIP

21-009 Code Vt. R. 21-010-009-X REGULATION B-96-2, HOUSEHOLD MEMBERS AS ELIGIBLE FOR CREDIT UNION MEMBERSHIP

Section 1 Authority and Purpose

This Regulation is promulgated pursuant to Title 8 Sections 75 and 2055, for the purpose of defining the term "household member" for use in establishing credit union membership.

Section 2 Definition

"Household member" for purposes of Section 2055 of Title 8:

(a) Shall mean an individual who is the sole partner of an individual credit union member, with whom the credit union member has

(1) been in an enduring relationship which includes the sharing of residence for at least the preceding 6 consecutive months, and

(2) agreed that the credit union member and the individual shall each be responsible for the welfare of one another. Such individual and the credit union member must beth be at least 18 years of age, and competent to enter into a legally binding contract. Such individual and the credit union member may not be married to anyone else, and may not be related by blood closer than would bar marriage under Vermont law;

(b) Shall mean any child of a person defined in subsection (a);

(c) Shall not mean an individual who shares residence with a credit union member for primarily economic reasons, and who has not agreed with the credit union member to be mutually responsible for the welfare of the two.

Section 3 Membership

A credit union may extend membership to the household member of a credit union member. Application for such membership shall include an attestation by the household member that he or she meets the definitiion set forth in Section 2 of this regulation.

Section 4 Verification

A credit union may require production of documentary evidence to support the application of a household member when there is sufficient reason to question the eligibility for credit union membership. Acceptable forms of evidence may include:

(a) evidence of joint purchase of a home, or contract for joint purchase of a home,

(b) a copy of a lease for a residence identifying both parties as responsible for payment of rent,

(c) evidence of a joint savings or checking account,

(d) title for a car showing joint ownership,

(e) evidence of joint liability for credit cards,

(f) other forms of evidence showing significant joint interdependance.

Section 5 Effective Date

This regulation shall become effective on December 28, 1996.

History

• Effective Date: December 28, 1996 (Secretary of State Rule Log #96-80)
• Statutory Authority: 8 V.S.A. § 75 and § 2055

Chapter 010 FORM, CONTENT AND TIMING OF RESIDENTIAL REAL ESTATE MORTGAGE LOAN COMMITMENT LETTERS

21-010 Code Vt. R. 21-010-010-X FORM, CONTENT AND TIMING OF RESIDENTIAL REAL ESTATE MORTGAGE LOAN COMMITMENT LETTERS

Section 1 Authority, Scope and Purpose

This regulation is promulgated pursuant to Title 9 V.S.A. § 103, and applies to every mortgage loan, as hereinafter defined. Title 9 V.S.A. §§ 103(a) and (b) require that lenders issue commitment letters in connection with residential mortgage loans. Title 9 V.S.A. § 103(c) grants the Commissioner the authority to promulgate rules specifying the form, content, and timing of commitment letters required by § § 103(a) and (b). The purposes of this regulation are to create the minimum framework within which commitment letters are to be issued in this state and to encourage complete and timely disclosure of information in the furtherance of consumer protection.

Section 2 Definitions

For the purposes of this regulation, the following terms shall be defined as set forth herein:

Borrower means a person or persons to whom credit is extended in a transaction in which a lender takes a security interest against residential real estate used or to be used by such person or persons as a dwelling.

Closing means the time a borrower executes a note or a mortgage, or becomes contractually obligated on a credit transaction, whichever occurs sooner.

Dwelling means an owner occupied residential structure that contains one to four units. The term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.

Mortgage loan means any loan primarily for personal, family, or household purposes that is secured by a first lien on owner occupied residential real estate, including first and second homes.

NMLS means the Nationwide Multistate Licensing System and Registry developed and maintained by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators for the licensing and registration of licensees, or any successor to the Nationwide Multistate Licensing System and Registry.

Residential real estate means any real property located in Vermont, upon which is constructed or intended to be constructed a dwelling.

Reverse mortgage loan means a mortgage loan that:

(A) is a loan wherein the committed principal amount is secured by a mortgage on residential real estate owned by the borrower;

(B) is due upon sale of the property securing the loan or upon the death of the last surviving borrower or upon the borrower terminating use of the real property as a principal residence or upon the borrower's default;

(C) provides cash advances to the borrower based upon the equity or the value in the borrower's owner occupied principal residence; and

(D) requires no payment of principal or interest until the entire loan becomes due and payable.

Section 3 Form

The information contained in the commitment letter shall be written in clear, understandable language and easily read type.

Section 4 Content

All lenders shall issue a commitment letter in connection with every mortgage loan. The commitment letter shall be signed by the lender. A commitment letter may be signed electronically pursuant to the Vermont Uniform Electronic Transactions Act, 9 V.S.A. §§ 270 - 290, as amended from time to time.

The commitment letter shall include, but not be limited to, the information required by subdivision A, B, or C of this section, as applicable. The information shall be (i) grouped together in a meaningful way, and/or (ii) bolded or otherwise made easily distinguishable from the remainder of the text:

For a lender required to issue a Closing Discourse under Federal Regulation Z (12 C.F.R. Part 1026), as amended from time to time, the lender has the option of either:

(i) issuing a commitment letter that complies with the requirements of subdivision A; or

(ii) issuing a commitment letter that complies with the requirements of subdivision B. (A lender is not required to comply with both subdivision A and subdivision B.)

A. General Commitment Letter Requirements.

Except for commitment letters issued in accordance with subdivision B or C of this section, the commitment letter shall include the following information:

1. Name of borrower

2. Date of issuance of the commitment letter

3. Property address and/or any other real property being taken by the lender as security for the mortgage loan (for a loan that includes a mobile home, include a description of the mobile home)

Loan type (fixed or adjustable interest rate)

5. Commitment expiration date

6. Principal loan amount or maximum credit limit, as applicable

7. Loan term

(a) If the lender is required to use a HUD-1 or HUD-IA Settlement Statement under Federal Regulation X (12 R Part 1024), all amounts required to be disclosed on lines 801 and 802 of the HUD-1 or HUD-1 A Settlement Statement, as amended from time to time

(b) If the lender is not required to use a HUD-1 or HUD-1 A Settlement Statement, disclose:

(i) all amounts for originating services, including administrative and processing services performed by or on behalf of the lender;

(ii) any credit or charge for the specific interest rate chosen; and

(iii) any annual maintenance fee

9. Loan disbursement and repayment periods

10. Amount of monthly payment, including but not limited to the following:

a. Principal and interest amount (if known)

b. Escrow

i. State whether or not escrow will be required for the loan

ii. If escrow is required, list all components of the escrow, including the amounts of such items, if known

c. All other components of the monthly payment including the amounts of such items, if known

11. Rate program (locked or floating)

a. If the interest rate is not locked as of the date of issuance of the commitment letter, the lender shall notify the borrower as to the maximum interest rate for which he or she qualifies or if no maximum rate is stated, then the lender shall state the conditions upon which the lender may terminate the commitment.

b. Rate lock expiration date (if applicable and if different than the commitment expiration date)

12. Interest rate

a. The rate (if known); and

b. If the rate is adjustable, the lender shall state the index, the margin, and the frequency at which such rate may be adjusted.

13. Prepayment terms

14. Name and phone number of the licensed or registered mortgage loan originator whom the borrower may contact with questions

15. The NMLS identification number for both the lender and the mortgage loan originator

16. If a condition to the loan commitment is that the closing occur more than 24 hours prior to the commitment expiration date, the commitment letter shall include a closing deadline

B. Optional Short Form Commitment Letter When a Closing Disclosure is Required by Federal Regulation Z.

Instead of issuing the commitment letter required by subdivision A, a lender that is required to issue a Closing Disclosure under Federal Regulation Z, at its option, may issue a short form commitment letter that includes the following information:

1. Name of the borrower

2. Date of issuance of the commitment letter

3. Commitment expiration date

4. Rate lock expiration date (if applicable and if different than the commitment expiration date)

5. If a condition to the loan commitment is that the closing occur more than 24 hours prior to the commitment expiration date, the commitment letter shall include a closing deadline

6. A statement that the Closing Disclosure issued with the commitment letter contains the interest rate and additional terms of the mortgage loan, and the commitment letter is delivered concurrently with the Closing Disclosure

C. Reverse Mortgage Loans.

For a reverse mortgage loan, the commitment letter shall include the following information:

Name of borrower

2. Date of issuance of the commitment letter

3. Property address and/or any other real property being taken by the lender as security for the reverse mortgage loan (for a loan that includes a mobile home, include a description of the mobile home)

4. Loan type (fixed or adjustable interest rate)

Commitment expiration date

Principal limit the borrower may draw under the reverse mortgage loan

7. Initial disbursement limit

8. Disbursement program (lump-sum, monthly draw, or other options)

9. A description of when the reverse mortgage loan must be repaid

10. All charges and discounts

11. All amounts required to be disclosed on lines 801 and 802 of the HUD-1 or HUD-1 A Settlement Statement, as amended from time to time

12. Rate program (locked or floating)

a. If the interest rate is not locked as of the date of issuance of the commitment letter, the lender shall notify the borrower as to the maximum interest rate for which he or she qualifies or if no maximum rate is stated, then the lender shall state the conditions upon which the lender may terminate the commitment

b. Rate lock expiration date (if applicable and if different than the commitment expiration date)

13. Interest rate

a. The rate (if known); and

b. If the rate is adjustable, the lender shall state the index, the margin, and the frequency at which such rate may be adjusted

14. Escrow

a. State whether or not escrow will be required for the loan

b. If escrow is required, list all components of the escrow, including the amounts of such items, if known

c. State whether the escrow account will be funded from draws on the reverse mortgage loan or the borrower will be required to make escrow payments

d. If there is no escrow, a statement that the borrower is responsible for property tax payments and homeowner's insurance

15. Prepayment terms

16. Name and phone number of the licensed or registered mortgage loan originator whom the borrower may contact with questions

17. The NMLS identification number for both the lender and the mortgage loan originator

18. If a condition to the loan commitment is that the closing occur more than 24 hours prior to the commitment expiration date, the commitment letter shall include a closing deadline

Section 5 Timing of Issuance

All commitment letters, except as provided in sub sections 5(A), 5(B), and 5(C) of this regulation, shall be delivered to the borrower no less than three business days prior to the closing, provided, however:

A. A lender may deliver a commitment letter less than three business days prior to the closing, only when it has sufficient cause to do so and failure to close the mortgage loan within less than three business days after the delivery of the letter, shall create a hardship for the borrower. This exception shall apply only to the timing of the delivery of the commitment letter, and shall in no way exempt any lender from all other requirements of this regulation;

B. For every transaction in which a commitment letter is delivered less than three business days before the closing, the lender shall document and keep on file for examination purposes, a written explanation stating the circumstances and reasons for the application of subsection 5A to the transaction; and

C. A borrower may waive or modify the three business day period only after the lender has delivered the commitment letter. The borrower must have a bona fide personal financial emergency that necessitates closing the mortgage loan before the end of the three business day period. The facts surrounding the individual situation will determine whether a bona fide personal financial emergency exists; for example, the imminent sale of the borrower's home in foreclosure where the foreclosure sale will proceed unless the mortgage loan proceeds are made available to the borrower during the three business day period. To modify or waive the waiting period, the borrower must give the lender a dated written statement that describes the emergency, specifically waives or modifies the three business day period, and bears the signature of all borrowers who are primarily liable on the mortgage loan. Printed forms for this purpose are prohibited. The lender shall keep the borrower's statement on file for examination purposes.

For the purpose of this section:

"Deliver" (including any form of the word) means the time at which the borrower has received the commitment letter. A commitment letter may be delivered electronically pursuant to the Vermont Uniform Electronic Transactions Act, 9 V.S.A. §§ 270 - 290, as amended from time to time, including the requirement that the borrower has consented to the electronic delivery of the commitment letter and has not withdrawn such consent.

"Business day" means all calendar days except Sundays and legal public holidays referenced in 12 C.F.R. § 1026. 2(a)(6), as amended from time to time.

If the commitment letter is not provided to the borrower in person, the borrower is considered to have received the commitment letter three business days after it is placed in the mail. Likewise, the borrower is considered to have received the commitment letter three business days after the lender sends it by email. Alternatively, the lender may rely on evidence that the borrower received the commitment letter earlier, such as an acknowledgement from a courier that the borrower has received the commitment letter, or an acknowledgment by the borrower of receipt of the emailed commitment letter.

Section 6 Effective Date

This regulation is effective October 1, 2018. Lenders shall be in compliance with the provisions of this regulation commencing 90 days from the effective date hereof (During the 90-day transition period, a lender may comply with either this regulation or prior Regulation B-98-1.) The commissioner may waive compliance with this regulation for a lender for additional 30 days,, not to exceed 120 days from adoption, for good cause shown.

Section 7 Severability

If any provision of this regulation, or the application of it to any person or circumstance, is determined to be invalid by a court of competent jurisdiction, such invalidity shall not affect other provisions of this regulation which can be given effect without the invalid provision or application, and to that end the provisions of this regulation are severable.

History

• EFFECTIVE DATE:
• January 1, 1999 Secretary of State Rule Log #98-071
• AMENDED:
• October 1, 2018 Secretary of State Rule Log #18-035

Chapter 011 REGULATION B-98-2 - HIGH RATE, HIGH POINT NOTICES FOR RESIDENTIAL REAL ESTATE LOANS

21-011 Code Vt. R. 21-010-011-X REGULATION B-98-2 - HIGH RATE, HIGH POINT NOTICES FOR RESIDENTIAL REAL ESTATE LOANS

Section 1 Authority and Purpose

This regulation is promulgated pursuant to Title 9 V.S.A. § 104, for the purposes of specifying the form, content and timing of the disclosures required by Title 9 V.S.A. § 104 (the "Disclosure"), to increase the flow of information to consumers and encourage them to take advantage of a competitive market. The Disclosure shall be required for every loan secured by a first lien on residential real estate in which the borrower is expected to be charged in excess of four points or an interest rate in excess of three percent over the rate established pursuant to Title 32 V.S.A. § 3108, or both on the loan. The rate established pursuant to Title 32 V.S.A. § 3108 shall hereinafter be referred to as the "Declared Rate."

Section 2 Form

The Disclosure shall be printed on a single sheet of colored paper that is easily distinguished from all other disclosures, applications or other loan documents presented to the borrower.

Except as otherwise required herein, the print shall be in a size equal to at least 12 point type.

Section 3 Content of Written Disclosure

The Disclosure shall:

A. Contain the following notice in uppercase letters and in a size equal to at least 14 point bold type and otherwise distinguishable from all other text of the Disclosure:

YOU MAY BE ELIGIBLE FOR A LOAN WITH EITHER A LOWER INTEREST RATE, FEWER POINTS, OR BOTH, FROM ANOTHER LENDER

B. Inform the borrower(s) that they are applying for a loan with an interest rate that exceeds the Declared Rate by more than 3 percent and/or for which the lender shall charge more than 4 points.

C. Include a statement informing the borrower(s) that they can obtain a list of other lenders by calling or writing to the Department of Banking, Insurance, Securities and Health Care Administration (the "Department"), including the Department's telephone number and mailing address.

D. Be signed and dated by the lender and all borrowers to be obligated under the note.

For purposes of this Regulation, points shall be defined as all amounts required to be listed on a HUD-1A Disclosure form lines 801 and 802, as in use on July 1, 1998.

Section 4 Timing

The Disclosure shall be presented to the borrower in conjunction with the Good Faith Estimate, as required by Regulation Z, or at any time that the lender notifies the borrower that the lender will only offer the borrower a loan with an interest rate in excess of three percent of the Declared Rate and/or for more than 4 points, regardless of whether the borrower or a third party shall pay such points.

Section 5 Relief

The commissioner of the Department (the "Commissioner") may temporarily suspend or modify the disclosure requirements of this Regulation if the Prime Rate, described in Title 32 V.S.A. § 3108, increases by more than 3 percentage points over the Declared Rate during the calendar year or if the Commissioner deems such temporary suspension or modification to be in the best interests of the public.

Section 6 Effective Date

This Regulation is effective on January 1, 1999. Lenders shall be obligated to provide the required disclosures commencing 60 days after the effective date of this Regulation.

Section 7 Severability

If any provision of this regulation, or the application of it to any person or circumstance, is determined to be invalid by a court of competent jurisdiction, such invalidity shall not affect other provisions of this regulation which can be given effect without the invalid provision or application, and to that end the provisions of this regulation are severable.

History

• Effective Date: January 1, 1999 (Secretary of State Rule Log #98-73)

Chapter 012 REGULATION B-99-1; SECURED CREDIT CARDS

21-012 Code Vt. R. 21-010-012-X REGULATION B-99-1; SECURED CREDIT CARDS

Section 1 Authority and Purpose

This regulation is promulgated pursuant to Title 9 V.S.A. § 43, for the purposes of promoting the informed use of consumer credit by requiring the inclusion of specific minimum contract terms in the cardholder agreement, in the furtherance of consumer protection. The ability of creditors to offer secured credits cards will make credit available to riskier borrowers who may not be eligible for unsecured credit cards or other unsecured credit. The following minimum contract terms shall apply to every credit cardholder agreement that is secured by a deposit account of a cardholder.

Section 2 Contract Requirements

The terms of the cardholder agreement shall be written in clear, understandable language and easily read type and in a form the consumer may keep. All deposits required under the cardholder agreement shall be held in a federally insured account.

Section 3 Definitions

Cardholder means a natural person to whom a credit card is issued for consumer credit purposes, or a natural person who has agreed with the card issuer to pay consumer credit obligations arising from the issuance of a credit card to another natural person.

Card Issuer means a person that issues a credit card or that person's agent with respect to that card, and is the creditor that has agreed to extend credit to the cardholder in accordance with a credit card cardholder agreement.

Credit Card means any card, plate, or other single credit device that may be used from time to time to obtain credit.

Security Interest means an interest in the deposit account that secures performance of a consumer credit card obligation.

Section 4 Content of Agreement

The cardholder agreement shall:

A. Contain the following clause in a size no less prominent than any other printed portion of the cardholder agreement provided to the cardholder:

"You must maintain a deposit account as security for this credit card account, and shall grant us a security interest in this deposit account."

B. Inform the cardholder the minimum amount required to be maintained in the deposit account.

C. Set forth the manner and upon what circumstance the cardholder may terminate the card issuer's security interest in the deposit account and/or withdraw the funds from the deposit account.

D. Set forth under what circumstance and in what manner the card issuer may exercise an offset against the security interest.

Section 5 Timing

All contract terms relating to a secured credit card shall be provided to the cardholder prior to the activation of the credit card account.

Section 6 Effective Date

This Regulation is effective on December 1, 1999. Lenders shall be obligated to comply with this regulation commencing 60 days after the effective date hereof.

Section 7 Severability

If any provision of this Regulation, or the application of it to any person or circumstance, is determined to be invalid by a court of competent jurisdiction, such invalidity shall not affect other provisions of this regulation which can be given effect without the invalid provision or application, and to that end the provisions of this Regulation are severable.

History

• Effective Date: December 1, 1999 (Secretary of State Rule Log #99-64)

Chapter 013 REGULATION B-99-2; CONVERSION OF A FEDERAL CREDIT UNION INTO A STATE CHARTERED CREDIT UNION

21-013 Code Vt. R. 21-010-013-X REGULATION B-99-2; CONVERSION OF A FEDERAL CREDIT UNION INTO A STATE CHARTERED CREDIT UNION

Section 1 Authority, Scope and Purpose

This Regulation is promulgated pursuant to Title 8 V.S.A. § 2084. This Regulation establishes procedures for the conversion of a federal credit union to a credit union chartered under Title 8, Vermont Statutes Annotated, Chapter 71. Compliance with these regulations is in addition to any other state or federal laws and regulations which may be applicable to the proposed transaction, including state corporate laws and state and federal securities laws.

Section 2 Application for Conversion to a State Credit Union

(a) Contents of Application. The board of directors of the credit union shall approve a plan for conversion (the "Plan") and shall file an application for conversion (the "Application") with the department. The Application shall include:

(1) The Plan

(2) Current financial reports;

(3) Current delinquent loan schedules annotated to reflect collection problems;

(4) Combined financial report, if applicable;

(5) Any contingencies;

(6) Explanation of any provisions for reserves, undivided earnings or dividends;

(7) Explanation of any adjustments to members' share accounts;

(8) Analyses of the regulatory effect of the conversion brought about by the change in government regulator;

(9) Explanation of procedure for discontinuing nonconforming activities;

(10) Explanation of any other relevant effects on the members; and

(11) Any additional information, as required by the commissioner.

(b) Confidentiality. Nothing in this Regulation shall preclude an applicant from segregating and designating any portion of the application, and any amendments thereto, as confidential due to content that is proprietary or privileged or otherwise confidential under Vermont law. Any determination as to the confidentiality of submitted materials shall be made in accordance with applicable law.

Section 3 Submission of Plan to Commissioner

(a) Submissions to the Commissioner. Upon approval of the Plan by the board of directors of the credit union, the Application shall be submitted to the commissioner together with the following:

(1) A resolution of the board of directors approving the Plan;

(2) A proposed Notice of Meeting, as set forth below;

(3) A copy of the form ballot and any accompanying materials to be sent to the members, as set forth below;

(4) A complete copy of any materials submitted to any other regulatory agencies relating to the conversion. The credit union shall remain under a continuing obligation to update the application with any amendments to these materials.

(b) Coordination with NCUA. For purposes of maintaining deposit insurance continuity

(1) The commissioner will coordinate with the NCUA; and

(2) The commissioner will not approve any conversion until the NCUA has certified that there shall be no change or lapse in deposit insurance coverage for the resulting state chartered credit union.

Section 4 Approval of Application by Commissioner

If the commissioner finds that the Application complies with the provisions of this regulation and does not present an undue risk to the state or unduly prejudice the members, the commissioner may approve the Application subject to conditions he or she may prescribe. The Application shall not be approved if the Plan does not clearly inform the members of any rights, if any, they would be giving up if their credit union converts into a state credit union.

Section 5 Approval of Plan by Members

(a) Submission to Membership. Once the commissioner has approved the Plan, the credit union shall submit the approved Plan to the membership in accordance with this section.

(b) Notification of Members. The members shall:

(1) Have the option of voting on the Plan either in person at a membership meeting or by mail ballot.

(2) Be given advance notice of the membership meeting in accordance herewith. The notice shall be delivered in person to each member, or mailed to each member at the address for such member as it appears on the records of the credit union, in accordance with its by-laws and federal law.

(3) The notice of meeting must include the following:

(a) The date, time and place of the meeting;

(b) A description of the matters to be voted upon at the meeting;

(c) The following statement in a prominent location in bold letters: "A DISCLOSURE STATEMENT HAS BEEN PROVIDED TO YOU WITH THIS NOTICE OF MEETING, YOU ARE URGED TO READ THE DISCLOSURE BEFORE VOTING ON THE PROPOSED CONVERSION," and

(d) A statement that a mail ballot for the meeting is enclosed.

(4) The disclosure provided with the notice must at a minimum provide the following information to the members:

(a) Factual information about the credit union, i.e. name and address of the credit union and telephone number of a contact person;

(b) Summary of the proposal which shall contain but not necessarily be limited to current financial reports for the credit union; a projected financial report for the continuing institution; analyses of share values; an explanation of any proposed share adjustments; and an explanation of any changes relative to insurance such as insurance of member accounts and life savings and loan protection insurance.

(c) Summary of the direct and indirect benefits to the credit union members, as well as any disadvantages, including a clear explanation of the nature of the change in the members' ownership interest in the reserves and undivided earnings of the credit union as a result of the conversion, if any;

(d) Summary of the direct and indirect benefits to management and other key persons at the credit union; copies of the certifications from the directors and committee members that they will receive no compensation either directly or indirectly from the new institution for a period of two years, provided, however, the treasurer may be a paid employee pursuant to 8 V.S.A. § 2064;

(e) A dollar expenditure comparison chart of the estimated increases/decreases in regulatory and insurance fees;

(f) Itemized expenses incurred to date in the conversion process with an estimate as to future expenses;

(g) Management's discussion and analysis of the proposed conversion, including its economic advisability and how it will serve the needs of the members of the converting credit union;

(h) Description and comparison of the competition of the existing credit union and why it believes it can effectively compete as a state credit union;

(j) sic(i) State in bold on the cover "PLEASE READ THIS DISCLOSURE DOCUMENT. IT CONTAINS IMPORTANT INFORMATION ABOUT YOUR CREDIT UNION."

(5) The mail ballot must:

(a) State at the top in bold letters using 12 point pitch or greater that "THE ATTACHED DISCLOSURE STATEMENT SHOULD BE READ BEFORE VOTING ON THE PROPOSED CONVERSION";

(b) Present the issues for the member to vote as follows:

Please vote for either (i) or (ii) by checking the appropriate box.

(i) Approve the conversion []

(ii) Disapprove the conversion []

(c) Advise the member of the right to terminate the mail ballot and attend and vote at the meeting.

(6) Be made aware that the complete Application and Plan, subject to section 2(b) hereof, are available for inspection at the credit union's main and branch offices during normal business hours and the offices of the department.

(c) Vote by Members. The Plan must be approved in accordance with the existing credit union's by-laws and federal law.

(d) Notice of Approval to Members. If the Plan is approved by the membership and the commissioner, prompt and reasonable notice shall be given to all members.

Section 6 Certification and Completion of Conversion

(a) Certification of Vote. An authorized officer of the corporation shall certify the results of the membership vote to the commissioner within 10 days after the vote is taken.

(b) Completion. Upon approval of the Application by the commissioner, the NCUA, the members, and any federal agency with approval or regulatory authority for the transaction, the credit union may complete the conversion.

(c) Certification of Completion. Within 30 days after the effective date of the conversion, the board of directors of the continuing institution shall certify the completion of the transaction to the commissioner. The board of directors shall promptly notify the commissioner if the conversion will not be completed within 30 days of the effective date of the Plan. Such notification shall state the reasons for the delay and the expected completion date.

(d) Issuance of Certificate of Authority. Upon the commissioner's receipt of certification that the transaction has been completed in accordance with the Plan, and approved by the NCUA. and any federal agency with approval or regulatory authority for the transaction. the commissioner shall issue a Certificate of Authority to the resulting state credit union. The credit union shall file the Certificate of Authority with the Vermont secretary of state.

Section 7 Effective Date

This Regulation is effective December 1, 1999.

Section 8 Severability

If any provision of this regulation, or the application of it to any person or circumstance, is determined to be invalid by a court of competent jurisdiction, such invalidity shall not affect other provisions of this regulation which can be given effect without the invalid provision or application, and to that end the provisions of this regulation are severable.

History

• Effective Date: December 1, 1999 (Secretary of State Rule Log #99-65)
• Statutory Authority: 8 V.S.A. § 2084

Chapter 014 NON-DISCRIMINATION IN FINANCIAL SERVICES

21-014 Code Vt. R. 21-010-014-X NON-DISCRIMINATION IN FINANCIAL SERVICES

Section One Authority, Scope, and Purpose

1.1 This Regulation is issued by the Department of Financial Regulation pursuant to authority granted by 8 V.S.A. § 15; 8 V.S.A. § 10403; and 3 V.S.A. § 831(a).

1.2 This Regulation applies to all financial institutions as defined in 8 V.S.A. § 10403, offering personal and/or commercial credit services in Vermont.

1.3 The purpose of this Regulation is to implement 8 V.S.A. § 10403, entitled "Prohibition on discrimination based on sex, marital status, race, color, religion, national origin, age, sexual orientation, gender identity, or disability" and to identify requirements of the Vermont law which supplement both Federal Regulation B of the Board of Governors of the Federal Reserve System, Equal Credit Opportunity Act, as revised effective December 30, 2011 and thereafter; and Federal Regulation B of the Bureau of Consumer Financial Protection, Equal Credit Opportunity Act, effective December 21, 2011 and as revised thereafter.

Section Two Notice of Adverse Action

2.1 Each applicant against whom adverse action is taken shall receive a written statement of reasons for such action from the financial institution.

(a) A financial institution may not provide a written disclosure of the right to a statement of reasons in lieu of providing an actual statement, as is permitted by 12 R section 202.9(a)(2) or 12 R 1002.9 (a)(2).

(b) A financial institution may not comply with sub- section 2.1 herein by providing a statement of reasons only upon request by the applicant as is permitted by 12 R section 202.9(a)(3) or 12 R 1002.9 (a)(3).

2.2 For commercial credit only, a statement of reasons meets the requirements of subsection 2.1 herein only if it contains the specific reasons for adverse action taken, and cites the specific documentation or business judgment which supports the adverse decision on the application.

(a) "Documentation" includes, but is not limited to, all borrower supplied external documents, credit reports, appraisals, business or market projections, demographic data, tax returns, financial history, business records or government surveys and reports.

(b) "Business Judgment" includes any subjective method of evaluation used in lieu of or in addition to an empirically derived, demonstrably and statistically sound, credit scoring system.

Section Three Effective Date

3.1 This rule shall take effect upon adoption.

History

• STATUTORY AUTHORITY: 3 V.S.A. § 831; 8 V.S.A. §§ 15, 10403
• EFFECTIVE DATE: January 1, 1990 Secretary of State Rule Log #89-51 [as B-89-1]
• AMENDED: September 25, 2014 Secretary of State Rule Log #14-030 [as regulation B-2014-03]; October 23, 2015 Secretary of State Rule Log #15-045 [as regulation B-2015-01]

Chapter 015 CREDIT UNION MEMBER BUSINESS LOANS

21-015 Code Vt. R. 21-010-015-X CREDIT UNION MEMBER BUSINESS LOANS

Section 1 Authority, Scope and Purpose

This regulation is promulgated pursuant to 8 V.S.A. §§ 30203 and 32401 for the purpose of setting guidelines for credit unions to make member business loans. This regulation provides the basis for a system of member business lending that is consistent with safe and sound credit union practices. The objective of this regulation is to ensure that member business loans are made in such a way as to minimize the controllable risks inherent in this type of lending.

Section 2 Definitions

As used in this regulation:

(1) "Associated member" means any member of the credit union with a common ownership, investment, or other pecuniary interest in the business or commercial endeavor for which the business loan is being made.

(2) "Construction or development loan" means a financing arrangement for acquiring property or rights to property, including land or structures, with the intent to use it for or convert it to income producing property such as residential housing for rental or sale; commercial use; industrial use or similar uses. A construction or development loan also includes a financing arrangement for the major renovation or development of property already owned by the member that will convert the property to income producing property, that will convert the use of income producing property to a different use, or that is a major expansion of its current use. A construction and development loan does not include a loan to finance maintenance, repairs, or improvements to an existing income producing property that does not change its use.

The following examples illustrate when a loan is or is not a construction or development loan:

Example 1. If a member borrows money to repair a roof on a barn on an existing farming operation, this is a member business loan but is not a construction or development loan. A construction or development loan does not include a loan for routine maintenance of a member's existing business or a loan to enhance or expand a member's existing business unless those renovations convert the property to a different use or are so major as to be considered the equivalent of converting the use of the property.

Example 2. A loan to convert a movie theater into a restaurant is a construction or development loan. A loan to convert a large Victorian home used for residential purposes into a six-room inn also would be a construction or development loan. In both instances, the loans are for the purpose of converting the use of the properties. By contrast, a loan to repair the roof or replace the carpet and wallpaper of an operating inn would not be a construction or development loan as it neither converts the use of the property, nor is so major a renovation to be considered the equivalent of converting the use of the property.

Example 3. A loan to expand the parking lot of a small strip shopping center would not be a construction or development loan, but a loan to renovate the small strip shopping center into a mega-mall would be a construction or development loan as it would be viewed as a major renovation that converts the use of the property.

Example 4. A hotel with a fair market value of $ 10 million borrows $ 1 million to build an exercise facility in the hotel to enhance the property. The loan amount is 10% of the fair market value of the property. This is not a construction or development loan. It is a member business loan to improve or renovate an existing income producing property, but it is not so major a renovation as to be considered the equivalent of converting the use of the property. In another scenario, a hotel with a fair market value of $ 10 million borrows $ 5 million to build a luxury health spa on the hotel grounds. The loan amount is 50% of the fair market value of the property. This is a construction or development loan, even if the use of the property has not been converted, as the renovation is so major as to be considered the equivalent of converting the use of the property.

(3) "Loan-to-value ratio" means the aggregate amount of all sums borrowed including outstanding balances plus any unfunded commitment or line of credit from all sources on an item of collateral divided by the market value of the collateral.

(4) "Member business loan" means any loan, line of credit, or letter of credit, (including any unfunded commitments) the proceeds of which will be used by the member for any of the following purposes:

(a) commercial;

(b) corporate;

(c) agricultural; or

(d) other business investment property or venture;

A member business loan also includes any interest a credit union obtains in a loan made by another lender where the proceeds of the loan will be or are used by the member for any of the purposes described in (a) - (d) above.

Provided however, the following shall not be considered a member business loan for the purposes of this regulation:

(i) A loan that is fully secured by a lien on a 1 to 4 unit dwelling that is the member's primary residence.

(ii) A loan that is fully secured by shares in the credit union or by perfected security interests in federally insured deposits in other financial institutions.

(iii) A loan, the repayment of which is fully guaranteed or fully insured by the federal government or by the state of Vermont or any of its political subdivisions. A binding advance commitment to purchase a member business loan in full by any such entity shall be considered a guarantee for the purposes of this paragraph.

(iv) One or more business purpose loans as described in (a) - (d) above (excluding loans described in (i), (ii), or (iii) of this subsection 4 ) to a member or associated members, which in the aggregate do not exceed $ 50,000.00. The entire amount of such a loan that exceeds $ 50,000.00, or the entire amount of the loan that causes the aggregate amount to exceed $ 50,000.00, is a member business loan.

For purposes of any risk based net worth calculation, once a loan is classified as a member business loan it remains a member business loan until the loan is paid in full or otherwise discharged.

(5) "Net worth" means retained earnings at quarter end as determined under Generally Accepted Accounting Principles. Retained earnings normally include undivided earnings, regular reserves and any other appropriations designated by management or regulatory authorities. Only undivided earnings and appropriations of undivided earnings are included in net worth. For low income designated credit unions, net worth also includes secondary capital accounts that are uninsured and subordinate to all other claims, including claims of creditors, shareholders, and the National Credit Union Share Insurance Fund ("NCUSIF"). For any credit union, net worth does not include the allowance for loan and lease losses account.

Section 3 Policy Requirements

A credit union that engages in the business of making member business loans shall adopt specific member business loan policies, which shall be reviewed at least annually. The member business loan policies shall be consistent with safe and sound practices and shall be appropriate to the size of the credit union and the nature and scope of its operations.

The credit union must utilize the services of personnel with qualifications and experience (minimum of 5 years) with the type of lending in which the credit union will engage. The qualifications and experience must provide the credit union sufficient expertise given the complexity and risk exposure of the loans in which the credit union intends to engage. Credit unions do not have to hire staff to meet the requirements of this section, however, the credit union must ensure that the expertise is available. A credit union can meet the experience requirement through various approaches. For example, a credit union can use the services of a credit union service organization ("CUSO"), an employee of another credit union, an independent contractor, or other third parties. However, the actual decision to grant, purchase, or participate in a loan must reside with the credit union.

The member business loan policies, at a minimum, shall address all of the following areas:

(1) Types of business loans to be made.

(2) Trade area.

(3) The maximum amount of credit union assets, relative to credit union net worth, that will be invested in member business loans.

(4) The maximum amount of credit union assets, relative to the credit union net worth, that will be invested in a given category or type of business.

(5) The maximum amount of credit union assets, relative to credit union net worth, that will be invested in a given category or type of member business loan.

(6) The maximum amount of credit union assets, relative to credit union net worth, that will be loaned to any one member or associated members, subject to Section 4 of this regulation.

(7) The qualifications and experience of personnel (minimum of 5 years) involved in making and administering member business loans.

(8) Collateral requirements, which must include all of the following:

(a) Loan-to-value (LTV) ratios. The maximum loan-to-value ratio for all liens must not exceed 80%, unless the value in excess of 80% is covered through private mortgage insurance or equivalent type of insurance, or insured, guaranteed, or subject to advance commitment to purchase by an agency of the federal government, an agency of a state or any of its political subdivisions, but in no case may the ratio exceed 95%. The credit union may make vehicle loans without complying with this loan to value ratio, provided the vehicle is a car, van, pick-up truck, or sports utility vehicle and is not part of a fleet of vehicles;

(b) Determination of value;

(c) Determination of ownership, including title search and UCC searches;

(d) Insurance requirements;

(e) Environmental impact assessments;

(f) Steps to be taken to secure various types of collateral, including obtaining proper corporate resolutions and security agreements authorizing the pledge of business assets.

(g) How often the credit union will reevaluate the value and the marketability of the collateral.

(9) Analysis and documentation of the member's ability to repay the loan consistent with, at a minimum, the following underwriting requirements:

(a) Present financial status based on documentation supporting each request for an extension of credit or an increase in an existing loan or line of credit, which shall address all of the following:

(i) A balance sheet, or its equivalent if a sole proprietorship;

(ii) An income statement, or its equivalent if a sole proprietorship;

(iii) A cash flow analysis;

(iv) Tax returns for the two most recent years;

(v) Analysis of debt-to-income and loan-to-value ratios;

(vi) Personal guarantees of the principals;

(vii) Current credit report of the business and principals; and

(viii) The periodic updating of financial statements, tax returns, and other documentation.

(b) Analysis of the member's initial and ongoing financial capacity to repay the debt, including the review of at least 2 years of pro-forma financial statements and cash flow projections.

(c) A feasibility analysis of the project considering local economic conditions and comparative industry trends for the type of venture involved.

(d) Capacity of the member to repay from assets not related to the venture in case of failure.

(e) Certification by the appropriately designated loan officer or credit committee that the loan under consideration meets all applicable credit union and statutory requirements.

(10) The interest rates and maturities of member business loans, which shall be consistent with the purpose, security, and creditworthiness of the borrower and sound lending policies;

(11) General loan procedures which include:

(a) loan monitoring;

(b) servicing and follow-up; and

(c) collections.

(12) Requirements for personal liability and guarantees of principals.

(13) Identification, by position, of the officials and senior management employees who are prohibited from receiving member business loans which, at a minimum, shall include individuals who perform the following functions regardless of the title given to such person: the credit union's chief executive officer, any assistant chief executive officers, the chief financial officer, and any associated member, immediate family member or household member of such persons.

(14) Guidelines for the purchase and sale of member business loans and loan participations, if the credit union engages in that activity.

Section 4 Loans to One Borrower

Subject to the limitations set forth in Section 7 hereof, the aggregate amount of outstanding member business loans (including any unfunded commitments) to any one member or group of associated members shall not exceed 15% of the credit union's net worth or $ 100,000.00, whichever is higher. If any portion of a member business loan is secured by shares in the credit union or deposits in another financial institution, or is fully or partially insured or guaranteed by, or subject to an advance commitment to purchase by, any agency of the Federal government or of a state or any of its political subdivisions, such portion shall not be used in calculating the 15% limit or the $ 100,000.00 limit, whichever is higher.

Section 5 Small Business Administration and US Department of Agriculture Rural Development Loan Programs

A credit union authorized to make member business loans that makes a loan as part of a Small Business Administration guaranteed loan program or as part of a U.S. Department of Agriculture Rural Development guaranteed loan program with loan requirements that are less restrictive than those required by this regulation may follow the loan requirements of the relevant Small Business Administration or U.S. Department of Agriculture Rural Development guaranteed loan program to the extent they are consistent with this regulation. The collateral and security requirements of Section 3(8)(a) and Section 6 do not apply to member business loans made as part of a Small Business Administration or as part of a U.S. Department of Agriculture Rural Development guaranteed loan program.

Section 6 Construction Loans

Construction and development of commercial or residential property are subject to the following additional requirements:

(1) The aggregate of all construction and development loans must not exceed 15% of the credit union's net worth. To determine the aggregate, a credit union may exclude any portion of a loan:

(a) Secured by shares in the credit union;

(b) Secured by federally insured deposits in another financial institution;

(c) Fully or partially insured or guaranteed by any agency of the federal government, state, or its political subdivisions;

(d) Subject to an advance commitment to purchase by an agency of the federal government, state, or its political subdivisions; or

(e) To finance the construction of a single family residence if a prospective homeowner has contracted to purchase the property.

(2) The member must have a minimum of 25% equity interest in the project being financed. This minimum equity requirement shall not apply in the case of a loan made to finance the construction of a single-family residence if a prospective homeowner has contracted to purchase the property, however, the collateral requirements of Section 3(8) shall apply.

(3) The funds may be released only after on-site, written inspections by qualified personnel and according to a preapproved draw schedule and any other conditions as set forth in the loan documentation.

(4) The credit union must not make any construction and development loans unless it utilizes the services of an individual with at least five years of direct experience in construction and development lending.

Section 7 Member Business Loans Aggregate Limit

Unless the Commissioner gives his or her prior consent, the aggregate limit of a credit union's outstanding member business loans (including any unfunded commitments) shall be the lesser of 1.75 times the credit union's net worth or 12.25% of the credit union's total assets. Loans that are exempt from the definition of member business loans shall not be used in calculating the aggregate loan limit.

A credit union may submit a request to the Commissioner to exceed the above aggregate member business loan limitation. An exception to the aggregate member business loan limitation is not effective until it is specifically approved in writing by the Commissioner. In no event may the aggregate member business loan limitation exceed any limitation establish by state law, federal law, or by applicable regulations (including regulations and limitations established by the National Credit Union Administration ("NCUA") or any successor thereto).

The request to increase the credit union's aggregate member business loan amount must include:

(1) A copy of the credit union's member business loan policy;

(2) The higher limit sought;

(3) An explanation of the need to raise the limit;

(4) Documentation supporting the credit union's ability to manage the increased member business loan activity;

(5) An analysis of the credit union's prior expertise making member business loans, including, at a minimum:

(a) The history of loan losses and loan delinquency;

(b) Volume and cyclical or seasonal patterns;

(c) Diversification of loan portfolio;

(d) Concentrations of credit to any member or group of associated members in excess of 15% of net worth;

(e) Underwriting standards and practices;

(f) Types of loans grouped by purpose and collateral;

(g) The qualifications and experience of personnel responsible for underwriting and administering member business loans; and

(h) Such additional information as the Commissioner may request.

The Commissioner may approve or deny the request in his or her sole discretion. Federal regulations may require the approval of the NCUA or its successor in addition to the Commissioner's approval.

Section 8 Prohibitions, Unsecured Loans

(1) A credit union may not grant a member business loan if any additional income received by the credit union or senior management employees is tied to the profit or sale of the business or commercial endeavor for which the loan is made.

(2) A credit union shall not make unsecured member business loans, except the following:

(a) An unsecured loan made by a credit union where the loan and the credit union meet each of the following criteria:

(i) The aggregate of unsecured member business loans to any one member or group of associated members does not exceed $ 100,000.00 or 2.5% of the credit union's net worth, whichever is less; and

(ii) The aggregate of all unsecured member business loans under this subsection (b) does not exceed 10% of the credit union's net worth;

and

(b) Credit card line of credit programs offered to non-natural persons that are limited to routine purposes normally made available under such programs

Section 9 Loan Purchases and Loan Participations

Any loan purchased and any loan participation held by a credit union that would constitute a member business loan if made to a member shall be considered a member business loan for purposes of this regulation. Such purchased loan or loan participation is subject to all of the requirements and limitations of this regulation, including underwriting requirements, individual loan limits, and aggregate loan limits.

Section 10 Allowance for Loan Loss Account

An allowance for member business loan losses account shall be established in accordance with Generally Accepted Accounting Principles.

Section 11 Commissioner Approval

A credit union shall obtain the Commissioner's written approval prior to engaging in the business of making member business loans. The Commissioner may condition such approval upon review of the following:

(1) The written loan policy adopted by the board of the credit union;

(2) Sample copies of all loan and security documents to be used by the credit union in connection with member business loans, including, without limitation, copies of notes, loan agreements, securities agreements, and form corporate resolutions.

(3) Written member business loan monitoring and collection procedures to be employed by the credit union;

(4) The qualifications and experience of credit union personnel involved in the approval, closing, and administering of member business loans on behalf of the credit union.

(5) The credit union is well capitalized under the prompt corrective action guidelines of the National Credit Union Administration.

(6) Such additional matters as the Commissioner deems relevant.

The Commissioner may restrict a credit union's member business loan activity to certain products, types, or categories of member business loans.

A credit union that has made business loans under an authorization under this regulation and that is not, as of its most recent quarterly call report, well capitalized, may not make any member business loans, until such time as the credit union becomes well capitalized, as reflected in a subsequent quarterly call report, and obtains the approval of the Commissioner.

Section 12 Record Keeping Requirements

Member business loans must be separately identified in the credit union's records, and in the aggregate on the credit union's financial reports.

Section 13 Effective Date

This regulation is effective May 15, 2012.

Section 14 Severability

If any provision of this regulation, or the application of it to any person or circumstance, is determined to be invalid by a court of competent jurisdiction, such invalidity shall not affect other provisions of this regulation which can be given effect without the invalid provision or application, and to that end the provisions of this regulation are severable.

History

• STATUTORY AUTHORITY: 8 V.S.A. §§ 30203, 32401
• EFFECTIVE DATE: March 9, 2001 Secretary of State Rule Log #01-9
• AMENDED: May 15, 2012 Secretary of State Rule Log #12-012 (Regulation B-2012-01)

Chapter 016 PRIVACY OF CONSUMER FINANCIAL AND HEALTH INFORMATION

21-016 Code Vt. R. 21-010-016-X PRIVACY OF CONSUMER FINANCIAL AND HEALTH INFORMATION

REGULATION IH-2001-01 (Revised)

ARTICLE I. GENERAL PROVISIONS

Section 1. Authority.

This regulation is promulgated pursuant to the authority granted by 8 V.S.A. §§ 10, 15, 3381, 3541-3543, 3688, 3858, 4062, 4108, 4113, 4201, 4362, 4373, 4464, 4480, 4481, 4515a, 4587, 4690, Chapter 129, 4812, 4836, 4902, 4990, 5104, 5111, 6 015, 8005, 8014, and 8084, and 1972, Act No. 72 (Adj. Sess.), § 1.

Section 2. Purpose; Scope; Compliance.

A. Purpose. This regulation governs the treatment of nonpublic personal financial information and nonpublic personal health information about individuals by all licensees under part 3 of Title 8 V.S.A. This regulation:

(1) Requires a licensee to provide notice to individuals about its privacy policies and practices;

(2) Describes the conditions under which a licensee may disclose nonpublic personal financial information and nonpublic personal health information about individuals to nonaffiliated third parties; and

(3) Requires licensees to obtain consumer consent prior to disclosing that information, subject to the exceptions in sections 14, 15, 16, and 17 of this regulation and subject to the federal Fair Credit Reporting Act and Vermont Fair Credit Reporting Act.

B. Scope.

(1) This regulation applies to:

(a) Nonpublic personal financial information about individuals who obtain or are claimants or beneficiaries of products or services from licensees primarily for personal, family, or household purposes; and

(b) All nonpublic personal health information.

(2) This regulation does not apply to information about companies or individuals who obtain financial products or services for business, commercial, or agricultural purposes.

C. Compliance.

(1) A licensee subject to this regulation, regardless of its jurisdiction of domicile, shall comply with the provisions of this regulation for transactions with Vermont consumers.

(2) For a consumer who is not a Vermont resident, a licensee domiciled in this State shall be deemed to be in compliance with Title V of the Gramm-Leach-Bliley Act in this State with respect to that consumer if the licensee is in compliance with a law or regulation enacted in the state of the consumer's domicile that meets the requirements of Title V of the Gramm-Leach-Bliley Act (PL 106-102).

Section 3. Rule of Construction.

The examples in this regulation and the sample clauses in Appendix A are guidance concerning this regulation's application in ordinary circumstances but are not exclusive. The facts and circumstances of each individual situation will determine whether compliance with an example or use of a sample clause constitutes compliance with this regulation.

Section 4. Definitions.

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

A. "Affiliate" has the same meaning as in 8 V.S.A. § 3681(1).

B. "Clear and conspicuous" means that a notice is reasonably understandable and designed to call attention to the nature and significance of the information in the notice.

(1) Examples.

(a) Reasonably understandable. A licensee makes its notice reasonably understandable if it:

i. Presents the information in the notice in clear, concise sentences, paragraphs, and sections;

ii. Uses short explanatory sentences or bullet lists whenever possible;

iii. Uses definite, concrete, everyday words and active voice whenever possible;

iv. Avoids multiple negatives;

v. Avoids legal and highly technical business terminology whenever possible;

vi. Avoids explanations that are imprecise and readily subject to different interpretations; and

vii. Avoids contradictory, confusing, and misleading language.

(b) Designed to call attention. A licensee designs its notice to call attention to the nature and significance of the information in it if the licensee:

i. Uses a plain-language heading to call attention to the notice;

ii. Uses a typeface and type size that are easy to read;

iii. Provides wide margins and ample line spacing;

iv. Uses boldface or italics for key words; and

v. In a form that combines the licensee's notice with other information, uses distinctive type size, style, and graphic devices, such as shading or sidebars.

(c) Notices on websites. If a licensee provides a notice on a web page, the licensee designs its notice to call attention to the nature and significance of the information in it if the licensee:

i. Uses text or visual cues to encourage scrolling down the page if necessary to view the entire notice and ensure that other elements on the website (such as text, graphics, hyperlinks, or sound) do not distract attention from the notice; and

ii. Places the notice on a screen that consumers frequently access, such as a page on which transactions are conducted or that connects directly to the notice and is labeled appropriately to convey the importance, nature, and relevance of the notice.

C. "Collect" means to obtain information that the financial institution organizes or can retrieve by the name of an individual or by identifying number, symbol, or other identifying particular assigned to the individual, irrespective of the source of the underlying information.

D. "Commissioner" means the commissioner of the Department of Financial Regulation.

E. "Company" means any corporation, limited liability company, business trust, general or limited partnership, association, sole proprietorship or similar organization.

F.

(1) "Consumer" means an individual who seeks to obtain, obtains or has obtained a financial product or service from a financial institution that is to be used primarily for personal, family, or household purposes, or that individual's legal representative.

(2) Examples.

(a) An individual who provides nonpublic personal information to a licensee in connection with obtaining or seeking to obtain financial, investment, or economic advisory services relating to an insurance product or service is a consumer regardless of whether the licensee establishes an ongoing advisory relationship.

(b) An applicant for insurance prior to the inception of insurance coverage is a licensee's consumer.

(c) An individual who is a consumer of another financial institution is not a licensee's consumer solely because the licensee is acting as agent for, or provides processing or other services to, that financial institution.

(d) An individual is a licensee's consumer if the licensee discloses nonpublic personal financial information about the individual to a nonaffiliated third party and one of the following exist:

i. The individual is a beneficiary of a life insurance policy underwritten by the licensee;

ii. The individual is a claimant under an insurance policy issued by the licensee;

iii. The individual is an insured or an annuitant under an insurance policy or an annuity, respectively, issued by the licensee; or

iv. The individual is a mortgagor of a mortgage covered under a mortgage insurance policy.

(e) Provided that the licensee provides the initial, annual, and revised notices under sections 5, 6, and 9 to the plan sponsor, group or blanket insurance policyholder, group annuity contract holder, or workers' compensation plan participant, and further provided that the licensee does not disclose to a nonaffiliated third party nonpublic personal financial information about such an individual other than as permitted under sections 14, 15, and 16, an individual is not a consumer of the licensee solely because he or she is:

i. A participant in or beneficiary of an employee benefit plan that the licensee administers or sponsors or for which the licensee acts as a trustee, insurer, or fiduciary;

ii. Covered under a group or blanket insurance policy or group annuity contract issued by the licensee; or

iii. A claimant covered by a workers' compensation plan.

(f) The individuals described in subdivisions (e)(i) through (iii) of this subsection F are consumers of a licensee if the licensee does not meet all the conditions of subdivision (e).

(g) In no event shall the individuals, solely by virtue of the status described in subdivisions (e)(i) through (iii) of this subsection F, be deemed to be customers for purposes of this regulation.

(h) An individual is not a licensee's consumer solely because he or she is a beneficiary of a trust for which the licensee is a trustee.

(i) An individual is not a licensee's consumer solely because he or she has designated the licensee as trustee for a trust.

G. "Consumer reporting agency" has the same meaning as in section 603(f) of the federal Fair Credit Reporting Act (15 U.S.C. § 1681a(f)) and shall include any "credit reporting agency" within the meaning of 9 V.S.A. § 2480a(4).

H. "Control" has the same meaning as in 8 V.S.A. § 3681(3).

I. "Customer" means a consumer who has a customer relationship with a licensee.

J. "Customer relationship" means a continuing relationship between a consumer and a licensee under which the licensee provides one or more insurance products or services to the consumer that are to be used primarily for personal, family, or household purposes.

(1) Examples.

(a) A consumer has a continuing relationship with a licensee if:

i. The consumer is a current policyholder of an insurance product issued by or through the licensee; or

ii. The consumer obtains financial, investment, or economic advisory services relating to an insurance product or service from the licensee for a fee.

(b) A consumer does not have a continuing relationship with a licensee if:

i. The consumer applies for but does not purchase insurance from the licensee;

ii. The licensee sells the consumer travel insurance in an isolated transaction;

iii. The consumer is no longer a current policyholder of an insurance product or no longer obtains insurance services with or through the licensee;

iv. The consumer is a beneficiary or claimant under a policy and has submitted a claim under a policy choosing a settlement option involving an ongoing relationship with the licensee;

v. The consumer is a beneficiary or claimant under a policy and has submitted a claim under that policy choosing a lump sum settlement option;

vi. The consumer's policy is lapsed, expired, or otherwise inactive or dormant under the licensee's business practices, and the licensee has not communicated with the consumer about the relationship for a period of 12 consecutive months, other than annual privacy notices, material required by law or regulation, communication at the direction of a state or federal authority, or promotional materials;

vii. The consumer is an insured or annuitant under an insurance policy or annuity, respectively, but is not the policyholder or owner of the insurance policy or annuity; or

viii. The consumer's last known address according to the licensee's records is invalid. For purposes of this regulation, an address of record is invalid if mail sent to that address by the licensee has been returned by the postal authorities as undeliverable and if subsequent attempts by the licensee to obtain a current valid address for the consumer have been unsuccessful.

K. "Financial institution" means any institution the business of which is engaging in activities that are financial in nature or incidental to such financial activities as described in section 4(k) of the Bank Holding Company Act of 1956 (12 U.S.C. § 1843(k)).

(1) Financial institution does not include:

(a) Any person or entity with respect to any financial activity that is subject to the jurisdiction of the Commodity Futures Trading Commission under the Commodity Exchange Act (7 U.S.C. § 1 et seq.);

(b) The Federal Agricultural Mortgage Corporation or any entity charged and operating under the Farm Credit Act of 1971 (12 U.S.C. § 2001 et seq.); or

(c) Any institution chartered by Congress specifically to engage in securitizations, secondary market sales (including sales of servicing rights), or similar transactions related to a transaction of a consumer, as long as the institution does not sell or transfer nonpublic personal information to a nonaffiliated third party.

L. "Financial product or service" means any product or service that a financial holding company could offer by engaging in an activity that is financial in nature or incidental to such a financial activity under section 4(k) of the Bank Holding Company Act of 1956 (12 U.S.C. § 1843(k)).

(1) Financial service includes a financial institution's evaluation or brokerage of information that the financial institution collects in connection with a request or an application from a consumer for a financial product or service.

M. "Health care" means:

(1) Preventive, diagnostic, therapeutic, rehabilitative, maintenance or palliative care, services, procedures, tests or counseling that:

(a) Relates to the physical, mental or behavioral condition of an individual; or

(b) Affects the structure or function of the human body or any part of the human body, including the banking of blood, sperm, organs or any other tissue; or

(c) Prescribing, dispensing, or furnishing to an individual drugs or biologicals, medical devices, or health care equipment and supplies.

N. "Health care provider" means a physician or other health care practitioner licensed, accredited or certified to perform specified health services consistent with state law, or a health care facility.

O. "Health information" means any information or data except age or gender, whether oral or recorded in any form or medium, created by or derived from a health care provider or the consumer that relates to:

(1) The past, present or future physical, mental or behavioral health or condition of an individual;

(2) The provision of health care to an individual; or

(3) Payment for the provision of health care to an individual.

P. "Insurance product or service" means any product or service that is offered by a licensee pursuant to Part 3 of Title 8 V.S.A.

(1) Insurance service includes a licensee's evaluation, brokerage, or distribution of information that the licensee collects in connection with a request or an application from a consumer for an insurance product or service.

Q. "Licensee" means any licensed insurer, producer, or other person licensed or required to be licensed, authorized or required to be authorized, or registered or required to be registered pursuant to Part 3 of Title 8 V.S.A., except for a person registered under 8 V.S.A. § 4248.

(1) "Licensee" also means an unauthorized insurer that accepts business placed through a licensed surplus lines broker in this State, but only in regard to the surplus lines insurance placed pursuant to Chapter 138 of Title 8 V.S.A.

(2) A licensee is not subject to the notice and opt-in requirements for nonpublic personal financial information set forth in Articles 1, II, III and IV if the licensee is an employee, agent, or other representative of another licensee ("the principal") and:

(a) The principal otherwise complies with and provides the notices required by this regulation; and

(b) The licensee does not disclose any nonpublic personal financial information to any person other than the principal or its affiliates except in a manner permitted by this regulation.

(3) A surplus lines broker or surplus lines insurer shall be deemed to be in compliance with the notice and opt- in requirements for nonpublic personal financial information set forth in Articles I, II, III and IV provided that:

(a) The broker or insurer does not disclose nonpublic personal information of a consumer or customer to nonaffiliated third parties for any purpose, including joint servicing or marketing under section 14, except as permitted by section 15 or 16; and

(b) The broker or insurer delivers a notice to the consumer at the time a customer relationship is established on which the following is printed in 16 -point type:

PRIVACY NOTICE

"Neither the U.S. brokers that handled this insurance nor the insurers that have underwritten this insurance will disclose nonpublic personal information concerning the buyer to nonaffiliates of the brokers or insurers except as permitted by law."

R. "Nonaffiliated third party" means any person except a licensee's affiliate or a person employed jointly by a licensee and any company that is not the licensee's affiliate (but nonaffiliated third party includes the other company that jointly employs the person).

(1) "Nonaffiliated third party" includes any company that is an affiliate solely by virtue of the direct or indirect ownership or control of the company by the licensee or its affiliate in conducting merchant banking or investment banking activities of the type described in section 4(k)(4)(H) of the federal Bank Holding Company Act and 8 V.S.A. § 12603 or insurance company investment activities of the type described in section 4(k)(4)(I) of the federal Bank Holding Company Act (12 U.S.C. § 1843(k)(4)(H) and (I)).

S. "Nonpublic personal health information" means health information:

T. "Nonpublic personal financial information" means personally identifiable financial information and any list, description, or other grouping of consumers (and publicly available information pertaining to them) that is derived using any personally identifiable financial information that is not publicly available.

(1) "Nonpublic personal financial information" does not include:

(a) Health information;

(b) Publicly available information, except as included on a list described in subdivision (1)(c) of this subsection 1T; or

(c) Any list, description or other grouping of consumers (and publicly available information pertaining to them) that is derived without using any personally identifiable financial information that is not publicly available.

(2) Examples.

(a) Nonpublic personal financial information includes any list of individuals' names and street addresses that is derived in whole or in part using personally identifiable financial information that is not publicly available, such as account numbers.

(b) Nonpublic personal financial information does not include any list of individuals' names and addresses that contains only publicly available information, is not derived in whole or in part using personally identifiable financial information that is not publicly available, and is not disclosed in a manner that indicates that any of the individuals on the list is a consumer of a financial institution.

U. "Nonpublic personal health information" means health information that identifies an individual who is the subject of the information or with respect to which there is a reasonable basis to believe that the information could be used to identify an individual.

V. "Opt in" or "Opt-in" means the written or, if the consumer agrees, electronic authorization of the consumer allowing a licensee to disclose nonpublic personal financial information to a nonaffiliated third party, other than as permitted under sections 14, 15, or 16.

W. "Personally identifiable financial information" means any information that a consumer provides to a licensee to obtain an insurance product or service from the licensee, that is about a consumer a n d results from a transaction involving an insurance product or service between a licensee and a consumer, or that the licensee otherwise obtains about a consumer in connection with providing an insurance product or service to that consumer.

(1) Examples.

(a) Information included. Personally identifiable financial information includes:

i. Information a consumer provides to a licensee on an application to obtain an insurance product or service;

ii. Account balance information and payment history;

iii. The fact that an individual is or has been one of the licensee's customers or has obtained an insurance product or service from the licensee;

iv. Any information about the licensee's consumer if it is disclosed in a manner that indicates that the individual is or has been the licensee's consumer;

v. Any information that a consumer provides to a licensee or that the licensee or its agent otherwise obtains in connection with collecting on a loan or servicing a loan;

vi. Any information the licensee collects through an Internet cookie (an information-collecting device from a web server); and

vii. Any information from a consumer report.

(b) Information not included. Personally identifiable financial information does not include:

i. Health information;

ii. A list of names and addresses of customers of an entity that is not a financial institution; or

iii. Information that does not identify a consumer, such as aggregate information or blind data that does not contain personal identifiers such as account numbers, names, or addresses.

X. "Publicly available information" means any information that a licensee has a reasonable basis to believe is lawfully made available to the general public from federal, state, or local government records, widely distributed media, or disclosures to the general public that are required to be made by federal, state, or local law.

(1) Reasonable basis. A licensee has a reasonable basis to believe that information is lawfully made available to the general public if the licensee has taken steps to determine:

(a) That the information is of the type that is available to the general public; and

(b) Whether an individual can direct that the information not be made available to the general public and, if so, that the licensee's consumer has not done so.

(2) Examples.

(a) Government records. Publicly available information in government records includes information in government real estate records and security interest filings.

(b) Widely distributed media. Publicly available information from widely distributed media includes information from a telephone book, television or radio program, newspaper, or website that is available to the general public on an unrestricted basis. A website is not restricted merely because an Internet service provider or site operator requires a fee or password, so long as access is available to the general public.

(c) Reasonable basis.

i. A licensee has a reasonable basis to believe that mortgage information is lawfully made available to the general public if the licensee has determined that the information is of the type included on the public record in the jurisdiction where the mortgage would be recorded.

ii. A licensee has a reasonable basis to believe that an individual's telephone number is lawfully made available to the general public if the licensee has located the telephone number in the telephone book or the consumer has informed the licensee that the telephone number is not unlisted.

ARTICLE II. PRIVACY AND OPT IN NOTICES FOR NONPUBLIC PERSONAL INFORMATION

Section 5. Initial Privacy Notice to Consumers Required.

A. Initial notice requirement. A financial institution shall provide a clear and conspicuous notice that accurately reflects its privacy policies and practices with respect to nonpublic personal information to:

(1) Customer. An individual who becomes the financial institution's customer, not later than when the financial institution establishes a customer relationship, except as provided in subsection E of this section; and

(2) Consumer. A consumer, before the financial institution discloses any nonpublic personal information about the consumer to any nonaffiliated third party, if the financial institution makes a disclosure other than as authorized by Sections 15, 16 and 17.

B. When initial notice to a consumer is not required. A financial institution is not required to provide an initial notice to a consumer under subsection A(2) of this section if:

(1) the financial institution does not disclose any nonpublic personal information about the consumer to any nonaffiliated third party, other than as authorized by Sections 15, 16 and 17, and the financial institution does not have a customer relationship with the consumer; or

(2) a notice has been provided by an affiliate, as long as the notice clearly identifies all affiliates to whom the notice applies and is accurate with respect to the financial institution and the other affiliates.

C. When the financial institution establishes a customer relationship.

(1) General rule. A licensee establishes a customer relationship at the time the licensee and the consumer enter into a continuing relationship.

(2) Examples of establishing customer relationship. A licensee establishes a customer relationship when the consumer:

(a) Becomes a policyholder of a licensee that is an insurer when the insurer delivers an insurance policy or contract to the consumer, or in the case of a licensee that is an insurance producer or insurance broker, obtains insurance through that licensee; or

(b) Agrees to obtain financial, economic, or investment advisory services relating to insurance products or services for a fee from the licensee.

D. Existing customers. When an existing customer obtains a new insurance product or service from a licensee that is to be used primarily for personal, family, or household purposes, the licensee satisfies the initial notice requirements of subsection A of this section 5 as follows:

(1) The licensee provides a revised policy notice under section 9 that covers the customer's new insurance product or service; or

(2) If the initial, revised, or annual notice that the licensee most recently provided to the customer was accurate with respect to the new insurance product or service, the licensee does not need to provide a new privacy notice under subsection A of this section 5.

E. Exceptions to allow subsequent delivery of notice.

(1) A licensee may provide the initial notice required by subdivision A(1) of this section 5 within a reasonable time after the licensee establishes a customer relationship if:

(a) Establishing the customer relationship is not at the customer's election; or

(b) Providing notice not later than when the financial institution establishes a customer relationship would substantially delay the customer's transaction and the customer agrees to receive the notice at a later time.

(2) Examples.

(a) Not at customer's election. Establishing a customer relationship is not at the customer's election if the licensee acquires or is assigned the customer's policy from another financial institution or residual market mechanism and the customer does not have a choice about the licensee's acquisition or assignment.

(b) Substantial delay of customer's transaction. Providing notice not later than when a licensee establishes a customer relationship would substantially delay the customer's transaction when the licensee and the individual agree over the phone to enter into a customer relationship involving prompt delivery of the insurance product or service.

(c) No substantial delay of customer's transaction. Providing notice not later than when the licensee establishes a customer relationship would not substantially delay the customer's transaction when the relationship is initiated in person at the licensee's office or through other means by which the customer may view the notice, such as on a website.

F. Delivery. When a financial institution is required to deliver an initial privacy notice by this section, the financial institution shall deliver it according to Section 10. If the financial institution uses a short-form initial notice for non-customers according to Section 7D, the financial institution may deliver its privacy notice according to Section 7D(3).

Section 6. Annual Privacy Notice to Customers Required.

A. General rule. Except as provided in subsection D of this section 6, a licensee shall provide a clear and conspicuous notice to customers that accurately reflects its privacy policies and practices with respect to nonpublic personal information not less than annually during the continuation of the customer relationship. Annually means at least once in any period of 12 consecutive months during which that relationship exists. A licensee may define the 12 consecutive-month period, but the licensee shall apply it to the customer on a consistent basis.

(1) Example. A licensee provides a notice annually if it defines the 12 consecutive-month period as a calendar year and provides the annual notice to the customer once in each calendar year following the calendar year in which the licensee provided the initial notice. For example, if a customer opens an account on any day of year one, the licensee shall provide an annual notice to that customer by December 31 of year two.

B. Termination of customer relationship. A licensee is not required to provide an annual notice to a former customer. A former customer is an individual with whom a licensee no longer has a continuing relationship.

(1) Examples. A licensee no longer has a continuing relationship with an individual in any of the following circumstances:

(a) The individual no longer is a current policyholder of an insurance product or no longer obtains insurance services with or through the licensee.

(b) The individual's policy is lapsed, expired, or otherwise inactive or dormant under the licensee's business practices, and the licensee has not communicated with the individual about the relationship for a period of twelve (12) consecutive months, other than to provide annual privacy notices, material required by law or regulation, or promotional materials.

(c) The individual's last known address according to the licensee's records is deemed invalid. An address of record is deemed invalid if mail sent to that address by the licensee has been returned by the postal authorities as undeliverable and if subsequent attempts by the licensee to obtain a current valid address for the individual have been unsuccessful.

(d) In the case of providing real estate settlement services, at the time the individual completes execution of all documents related to the real estate closing, payment for those services has been received, or the licensee has completed all of its responsibilities with respect to the settlement, including filing documents on the public record, whichever is later.

C. Delivery. When a licensee is required by this section to deliver an annual privacy notice, the licensee shall deliver it according to section 10.

D. Exception to general rule.

(1) When exception available. A licensee is not required to deliver an annual privacy notice to a customer if the licensee:

(a) Provides nonpublic personal information to nonaffiliated third parties only in accordance with sections 14, 15, and 16;

(b) Has not changed its policies and practices with regard to disclosing nonpublic personal information from the policies and practices that were disclosed in the most recent privacy notice (whether initial, annual, or revised) provided pursuant to this regulation;

(c) Posts its current privacy notice continuously and in a clear and conspicuous manner on a page of its website on which the only content is the privacy notice and instructions for a consumer to revoke a prior opt-in direction with respect to the licensee's sharing of the consumer's nonpublic personal information, if applicable, and which is accessible without requiring a consumer to provide any information such as a login name or password or agree to any conditions to access the page; and

(d) Maintains availability of its current privacy notice to customers upon request.

(2) Delivery of annual privacy notice after licensee no longer meets the requirements for the exception. If a licensee has been excepted from delivering an annual privacy notice pursuant to subsection D(1) of this section 6 and changes its policies and practices in such a way that it no longer meets the requirements for the exception, the licensee must deliver a new privacy notice to customers at least 6 0 days prior to the effective date of the change in its policies or practices. The new privacy notice will be treated as an initial privacy notice for purposes of this regulation and the licensee's obligation to provide an annual privacy notice thereafter shall be determined in accordance with the requirements and exceptions of this section.

Section 7. Information to be Included in Privacy Notices.

A. General rule. The initial, annual, and revised privacy notices that a licensee provides under sections 5, 6, and 9 shall include each of the following items of information, in addition to any other information the licensee wishes to provide, that applies to the licensee and to the consumers to whom the licensee sends its privacy notice:

(1) The categories of nonpublic personal information that the licensee collects;

(2) The categories of nonpublic personal information that the licensee discloses;

(3) The categories of affiliates and nonaffiliated third parties to whom the licensee discloses nonpublic personal information, other than those parties to whom the licensee discloses information under sections 14, 15 and 16;

(4) The categories of nonpublic personal information about the licensee's former customers that the licensee discloses and the categories of affiliates and nonaffiliated third parties to whom the licensee discloses nonpublic personal information about the licensee's former customers, other than those parties to whom the licensee discloses information under sections 14, 15 and 16;

(5) If a licensee discloses nonpublic personal financial information to a nonaffiliated third party under section 14 (and no other exception in section 15 or 16 applies to that disclosure), a separate description of the categories of information that the licensee discloses as modified by section 14 and the categories of nonaffiliated third parties with whom the licensee has contracted;

(6) An explanation of the consumer's right to opt in under subsection 11A prior to the disclosure of nonpublic personal financial information to nonaffiliated third parties, including the methods by which the consumer may exercise that right at any time;

(7) Any disclosures that the licensee makes under section 603(d)(2)(A) (iii) of the federal Fair Credit Reporting Act (15 U.S.C. § 1681a(d)(2)(A)(iii)) and the federal implementing regulations, as modified by 15 U.S.C. § 1681t(b)(2) and the Vermont Fair Credit Reporting Act, 9 V.S.A. § 2480e (those that, under Vermont law, require that consumers consent prior to disclosures of information among affiliates);

(8) The licensee's policies and practices with respect to protecting the confidentiality and security of nonpublic personal information; and

(9) Any disclosure that the licensee makes under subsection B of this section 7.

B. Description of parties subject to exceptions. If a financial institution discloses nonpublic personal information as authorized under Sections 15, 16 and 17, the financial institution is not required to list those exceptions in the initial or annual privacy notices required by Sections 5 and 6. When describing the categories of parties to whom disclosure is made, the financial institution is required to state only that it makes disclosures to other affiliated or nonaffiliated third parties, as applicable, as permitted by law.

C. Examples.

(1) Categories of nonpublic personal information that the financial institution collects. A financial institution satisfies the requirement to categorize the nonpublic personal information it collects if the financial institution categorizes it according to the source of the information, as applicable:

(a) Information from the consumer;

(b) Information about the consumer's transactions with the financial institution or its affiliates;

(c) Information about the consumer's transactions with nonaffiliated third parties; and

(d) Information from a consumer reporting agency.

(2) Categories of nonpublic personal financial information a financial institution discloses.

(a) A financial institution satisfies the requirement to categorize nonpublic personal information it discloses if the financial institution categorizes the information according to source, as described in subdivision (1) of this subsection C, as applicable, and provides a few examples to illustrate the types of information in each category. These might include:

(i) Information from the consumer, including application information, such as assets and income and identifying information, such as name, address and social security number;

(ii) Transaction information, such as information about balances, payment history and parties to the transaction; and

(iii) Information from consumer reports, such as a consumer's creditworthiness and credit history.

(b) A financial institution does not adequately categorize the information that it discloses if the financial institution uses only general terms, such as transaction information about the consumer.

(c) If a financial institution reserves the right to disclose all of the nonpublic personal financial information about consumers that it collects, the financial institution may simply state that fact without describing the categories or examples of nonpublic personal financial information that the financial institution discloses.

(3) Categories of affiliates and nonaffiliated third parties to whom the financial institution discloses.

(a) A licensee satisfies the requirement to categorize the affiliates and nonaffiliated third parties to which the licensee discloses nonpublic personal financial information about consumers if the licensee identifies the types of businesses in which they engage.

(b) Types of businesses may be described by general terms only if the licensee uses a few illustrative examples of significant lines of business. For example, a licensee may use the term financial products or services if it includes appropriate examples of significant lines of businesses, such as life insurer, automobile insurer, consumer banking, or securities brokerage.

(c) A licensee also may categorize the affiliates and nonaffiliated third parties to which it discloses nonpublic personal financial information about consumers using more detailed categories.

(4) Disclosures under exception for service providers and joint marketers. If a financial institution discloses nonpublic personal financial information under the exception in Section 14 to a nonaffiliated third party to market products or services that it offers alone or jointly with another financial institution, the financial institution satisfies the disclosure requirement of Subsection A(5) of this section if it:

(a) Subject to the limitations in Section 14, lists the categories of nonpublic personal financial information it discloses, using the same categories and examples the financial institution used to meet the requirements of Subsection A(2) of this section, as applicable; and

(b) States whether the third party is:

(i) A service provider that performs marketing services on the financial institution's behalf or on behalf of the financial institution and another financial institution; or

(ii) A financial institution with whom the financial institution has a joint marketing agreement.

(5) Simplified notices. If a licensee does not disclose, and does not wish to reserve the right to disclose, nonpublic personal financial information about customers or former customers to affiliates or nonaffiliated third parties except as authorized under sections 14, 15, and 16, the licensee may simply state that fact, in addition to the information it must provide under subsections A(1), A(8), A(9), and B of this section 7.

(6) Confidentiality and security. A financial institution describes its policies and practices with respect to protecting the confidentiality and security of nonpublic personal information if it does both of the following:

(a) Describes in general terms who is authorized to have access to the information; and

(b) States whether the financial institution has security practices and procedures in place to ensure the confidentiality of the information in accordance with the financial institution's policy. The financial institution is not required to describe technical information about the safeguards it uses.

D. Short-form initial notice with opt in notice for non-customers.

(1) A financial institution may satisfy the initial notice requirements in Sections 5A(2) and 8C for a consumer who is not a customer by providing a short-form initial notice at the same time as the financial institution delivers an opt in notice under Section 8.

(2) A short-form initial notice shall:

(a) Be clear and conspicuous;

(b) State that the licensee's privacy notice is available upon request; and

(c) Explain a reasonable means by which the consumer may obtain that notice.

(3) The licensee shall deliver its short-form initial notice according to section 10. The licensee is not required to deliver its privacy notice with its short-form initial notice. The licensee instead may simply provide the consumer a reasonable means to obtain its privacy notice. If a consumer who receives the licensee's short-form notice requests the licensee's privacy notice, the licensee shall deliver its privacy notice according to section 10.

(4) Examples of obtaining privacy notice. The licensee provides a reasonable means by which a consumer may obtain a copy of its privacy notice if the licensee:

(a) Provides a toll-free telephone number that the consumer may call to request the notice; or

(b) For a consumer who conducts business in person at the financial institution's office, maintains copies of the notice on hand that the financial institution provides to the consumer immediately upon request.

E. Future disclosures. The financial institution's notice may include:

(1) Categories of nonpublic personal financial information that the financial institution reserves the right to disclose in the future, but does not currently disclose; and

(2) Categories of affiliates or nonaffiliated third parties to whom the financial institution reserves the right in the future to disclose, but to whom the financial institution does not currently disclose, nonpublic personal financial information.

F. Sample clauses. Sample clauses illustrating some of the notice content required by this section are included in Appendix A.

G. Federal Model Privacy Form.

(1) Vermont statutes and regulations relating to consumer privacy contain privacy notice content requirements with significant differences from federal content requirements. Among other differences, Vermont is an "opt-in" state.

(2) Federal Regulation P (Privacy of Consumer Financial Information), 12 C.F.R. Part 1016, contains a model privacy form at Appendix to Part 1016 - Model Privacy Form ("Federal Model Privacy Form").

(3) A licensee that uses the Federal Model Privacy Form in accordance with the instructions for use of the Federal Model Privacy Form as set forth in the Appendix to Part 1016, as supplemented by the requirements of this subsection, is in compliance with the content notice requirements of this regulation. Use of the Federal Model Privacy Form is not required. Licensees may use other types of privacy notices so long as the notices comply with this regulation.

(4) Vermont laws and regulations require licensees to obtain an "opt-in" consent from a consumer prior to sharing nonpublic personal information with an affiliate or nonaffiliated third party, except as otherwise specifically permitted by this regulation. A licensee may use the Federal Model Privacy Form to comply with this regulation in one of the following ways:

Option 1. A licensee may provide a generalized notice to its Vermont consumers that answers "no" to each of the questions about whether it shares information:

(i) "For our affiliates' everyday business purposes - information about your creditworthiness;" and

(ii) "for nonaffiliates to market to you;" OR

Option 2. A licensee may provide a generalized notice to consumers across a number of states, including Vermont, and answer "yes" to the questions in Option 1 above, provided it includes a discussion on the application of Vermont law in the "Other Important Information" box on page 2 of the Federal Model Privacy Form and complies with the requirements in subdivision (5) of this subsection 7G.

(5) A financial institution that chooses to use the Federal Model Privacy Form as provided in Option 2 above shall provide the following information:

(a) The "Other Important Information" box on the Federal Model Privacy Form contains statements that convey the following information:

Other Important Information

For Vermont Members/Customers.

We will not disclose information about your creditworthiness to our affiliates and will not disclose your personal information, financial information, credit report, or health information to nonaffiliated third parties to market to you, other than as permitted by Vermont law, unless you authorize us to make those disclosures.

Additional information concerning our privacy policies can be found at [website link] or call [telephone number].

AND

(b) The additional information provided on the financial institution's website contains the information required by this regulation; to the extent such information is not already included in the financial institution's privacy notice.

Section 8. Form of Opt in Notice to Consumers and Opt in Methods.

A. Form of opt- in notice. A licensee required to provide an opt-in notice under subsection 11A may not disclose any nonpublic personal financial information pertaining to a consumer to a nonaffiliated third party unless the licensee:

(1) Has provided to the consumer a clear and conspicuous notice, in writing or electronic form, of the categories of nonpublic personal financial information that may be disclosed and the categories of nonaffiliated third parties to whom the licensee discloses nonpublic personal financial information;

(2) Has identified the financial products or services that the consumer obtains from the licensee, either singly or jointly, to which the opt-in direction would apply;

(3) Has identified the methods by which the consumer may subsequently revoke the opt-in direction;

(4) Has clearly and conspicuously requested in writing or electronic form that the consumer affirmatively authorizes such disclosure; and

(5) Has obtained from the consumer such affirmative consent and such consent has not been withdrawn.

B. Unreasonable revocation of opt-in direction. The licensee does not provide a reasonable means of revoking an opt- in direction if the only means is for the consumer to write his or her own letter or use a check-off box that was provided with the initial notice but is not included with subsequent notices.

C. Duration and withdrawal of consent. A consumer's direction to opt in under this subsection is effective until the consumer revokes it in writing or, if the consumer agrees, electronically; provided, however, that any withdrawal or revocation of consent is subject to the rights of a licensee that acted reasonably in reliance on the consent prior to knowledge of its withdrawal or revocation. When a customer relationship terminates, the customer's opt-in direction continues to apply to the nonpublic personal financial information collected during or related to that relationship. If the individual subsequently establishes a new customer relationship with the licensee, the opt-in direction that applied to the former relationship does not apply to the new relationship.

D. A licensee may not disclose any aggregate list of consumers containing or derived from nonpublic personal financial information to a nonaffiliated third party unless the licensee has satisfied, for each consumer on the list, the requirements of subdivisions (1) through (5) of subsection 8A.

E. This section shall not restrict a licensee from disclosing nonpublic personal financial information as authorized in sections 14, 15, and 16.

F. A licensee shall retain the opt-in direction in the record of the individual who is the subject of nonpublic personal financial information.

G. Joint relationships. If two or more consumers jointly obtain an insurance product or service from a licensee, the licensee may only disclose nonpublic personal financial information of a consumer to a nonaffiliated third party after obtaining an affirmative consent notice from that consumer. Joint information may only be disclosed after obtaining the affirmative consent notice from all joint consumers of the product or service.

H. Same form as initial notice permitted. A licensee may provide the opt- in notice required by this section together with or on the same written or electronic form as the

initial notice the licensee provide in accordance with Section 5.

I. Initial notice required when opt- in notice under this section delivered subsequent to initial notice. If a licensee provides the opt-in notice later than required for the initial notice in accordance with Section 5, the licensee shall also include a copy of the initial notice with the opt- in notice in writing or, if the consumer agrees, electronically.

J. Delivery. When a licensee is required to deliver an opt- in notice by this section, the licensee shall deliver it according to section 10.

Section 9. Revised Privacy Notices.

A. General rule. Except as otherwise authorized in this regulation, a financial institution shall not, directly or through an affiliate, disclose any nonpublic personal information about a consumer to any nonaffiliated third party other than as described in the initial notice that the financial institution provided to that consumer under Section 5, unless:

(1) The financial institution has provided to the consumer a clear and conspicuous revised notice that accurately describes its policies and practices;

(2) The financial institution has provided to the consumer a new opt in notice; and

(3) The consumer has provided affirmative consent to the disclosure described in the notice.

B. Examples.

(1) Except as otherwise permitted by Sections 14, 15 and 16, a financial institution shall provide a revised notice before it:

(a) Discloses a new category of nonpublic personal financial information to any nonaffiliated third party;

(b) Discloses nonpublic personal financial information to a new category of nonaffiliated third party; or

(c) Discloses nonpublic personal financial information about a former customer to a nonaffiliated third party, if that former customer has not given affirmative consent regarding that disclosure.

(2) A revised notice is not required if the financial institution discloses nonpublic personal financial information to a new nonaffiliated third party that the financial institution adequately described in its prior notice.

C. Delivery. When a financial institution is required to deliver a revised privacy notice by this section, the financial institution shall deliver it according to Section 10.

D. Nothing in this regulation shall relieve any financial institution of any requirement under the federal or Vermont Fair Credit Reporting Acts or regulations promulgated thereunder with respect to notice and consumer consent for disclosures to affiliates.

Section 10. Delivery.

A. How to provide notices. A licensee shall provide any notices that this regulation requires so that each consumer can reasonably be expected to receive actual notice in writing or, if the consumer agrees to electronic receipt, transmit them electronically.

B. Examples of reasonable expectation of actual notice. A licensee may reasonably expect that a consumer will receive actual notice if the licensee:

(1) Hand-delivers a printed copy of the notice to the consumer;

(2) Mails a printed copy of the notice to the last known address of the consumer separately, or in a policy, billing, or other written communication;

(3) For a consumer who conducts transactions electronically, posts the notice on the electronic site and requires the consumer to acknowledge receipt of the notice as a necessary step to obtaining a particular insurance product or service; or

(4) For an isolated transaction with a consumer, such as the licensee providing an insurance quote or selling the consumer travel insurance, posts the notice and requires the consumer to acknowledge receipt of the notice as a necessary step to obtaining the particular insurance product or service.

C. Examples of unreasonable expectation of actual notice. A licensee may not, however, reasonably expect that a consumer will receive actual notice of its privacy policies and practices if it:

(1) Only posts a sign in its office or generally publishes advertisements of its privacy policies and practices; or

(2) Sends the notice via electronic mail to a consumer who does not obtain an insurance product or service from the licensee electronically.

D. Annual notices only. A licensee may reasonably expect that a customer will receive actual notice of the licensee's annual privacy notice if:

(1) The customer uses the licensee's website to access insurance products and services electronically and agrees to receive notices at the website and the licensee posts its current privacy notice continuously in a clear and conspicuous manner on the website; or

(2) The customer has requested that the licensee refrain from sending any information regarding the customer relationship, and the licensee's current privacy notice remains available to the customer upon request.

E. Oral description of notice insufficient. A licensee may not provide any notice required by this regulation solely by orally explaining the notice, either in person or over the phone.

F. Retention or accessibility of notices for customers.

(1) For customers only, a licensee shall provide the initial notice required by subsection 5A, the annual notice required by subsection 6A, and the revised notice required by section 9 so that the customer can retain them or obtain them later in writing or, if the customer agrees, electronically.

(2) Examples of retention or accessibility. A licensee provides a privacy notice to the customer so that the customer can retain it or obtain it later if the licensee:

(a) Hand-delivers a printed copy of the notice to the customer;

(b) Mails a printed copy of the notice to the last known address of the customer; or

(c) Makes its current privacy notice available on a website (or a link to another website) for the customer who obtains an insurance product or service electronically and agrees to receive the notice at the website.

G. Joint notice with other financial institutions. A licensee may provide a joint notice from the licensee and one or more of its affiliates or other financial institutions, as identified in the notice, as long as the notice is accurate with respect to the licensee and the other institutions. A licensee also may provide a notice on behalf of another financial institution.

H. Joint relationships. If two or more consumers jointly obtain an insurance product or service from a licensee, the licensee may satisfy the initial, annual, and revised notice requirements of sub sections 5A, 6A, and 9A, respectively, by providing one notice to those consumers jointly.

ARTICLE III. LIMITS ON DISCLOSURES OF FINANCIAL INFORMATION

Section 11. Limits on Disclosure of Nonpublic Personal Financial Information to Nonaffiliated Third Parties.

A. Conditions for disclosure. Except as otherwise authorized in this regulation, a licensee may not, directly or through any affiliate, disclose any nonpublic personal financial information about a consumer to a nonaffiliated third party unless:

(1) The licensee has provided to the consumer an initial notice as required under section 5;

(2) The licensee has provided to the consumer an opt- in notice under section 8; and

(3) The consumer has authorized the disclosure in writing or electronically.

B. Application of opt- in to all consumers and all nonpublic personal financial information.

(1) A licensee shall comply with this section, regardless of whether the licensee and the consumer have established a customer relationship.

(2) Unless a licensee complies with this section, the licensee may not, directly or through any affiliate, disclose any nonpublic personal financial information about a consumer that the licensee has collected, regardless of whether the licensee collected it before or after providing the opt-in notice.

C. Partial opt-in. A licensee may allow a consumer to select certain nonpublic personal financial information or certain nonaffiliated third parties with respect to which the consumer wishes to opt in.

Section 12. Limits on Redisclosure and Reuse of Nonpublic Personal Financial Information.

A. Information the licensee receives under an exception.

(1) If a licensee receives nonpublic personal financial information from a nonaffiliated financial institution under an exception in section 15 or 16, the licensee's disclosure and use of that information is limited as follows:

(a) The licensee may disclose the information to the affiliates of the financial institution from which the licensee received the information;

(b) The licensee may disclose the information to its affiliates, but the licensee's affiliates may, in turn, disclose and use the information only to the extent that the licensee may disclose and use the information; and

(c) The licensee may disclose and use the information pursuant to an exception in section 15 or 16 in the ordinary course of business to carry out the activity covered by the exception under which the licensee received the information.

(2) Example. If a licensee receives information from a nonaffiliated financial institution for claims settlement purposes, the licensee may disclose the information for fraud prevention or in response to a properly authorized subpoena. The licensee may not disclose that information to a third party for marketing purposes or use that information for its own marketing purposes.

B. Information a licensee receives outside of an exception.

(1) If a licensee receives nonpublic personal financial information from a nonaffiliated financial institution other than pursuant to an exception in section 15 or 16, the licensee may disclose the information only:

(a) To the affiliates of the financial institution from which the licensee received the information;

(b) To its affiliates, but its affiliates may, in turn, disclose the information only to the extent that the licensee may disclose the information; and

(c) To any other person, if the disclosure would be lawful if made directly to that person by the financial institution from which the licensee received the information.

(2) Example. If a licensee obtains a customer list from a nonaffiliated financial institution outside of the exceptions in section 15 and 16:

(a) The licensee may use that list for its own purposes; and

(b) The licensee may disclose that list to another nonaffiliated third party only if the financial institution from which the licensee purchased the list could have lawfully disclosed the list to that third party. That is, the licensee may disclose the list in accordance with the privacy policy of the financial institution from which the licensee received the list, as limited by the absence or limitation of the opt-in direction of each consumer whose nonpublic personal financial information the licensee intends to disclose, and the licensee may disclose the list in accordance with an exception in section 15 or 16, such as to the licensee's attorneys or accountants.

C. Information a licensee discloses under an exception. If a licensee discloses nonpublic personal financial information to a nonaffiliated third party under an exception ins Section 15 or 16, the third party may disclose and use that information only as follows:

(1) The third party may disclose the information to the licensee's affiliates;

(2) The third party may disclose the information to its affiliates, but its affiliates may, in turn, disclose and use the information only to the extent that the third party may disclose and use the information; and

(3) The third party may disclose and use the information pursuant to an exception in section 15 or 16 in the ordinary course of business to carry out the activity covered by the exception under which it received the information.

D. Information a licensee discloses outside of an exception. If a licensee discloses nonpublic personal financial information to a nonaffiliated third party other than under an exception in section 15 or 16, the third party may disclose the information only:

(1) To the licensee's affiliates;

(2) To the third party's affiliates, but the third party's affiliates, in turn, may disclose the information only to the extent the third party can disclose the information; and

(3) To any other person, if the disclosure would be lawful if the licensee made it directly to that person.

E. Nothing in this regulation shall authorize any licensee to make any disclosure to an affiliate not otherwise in compliance with the requirements of the federal Fair Credit Reporting Act or regulations promulgated thereunder or the Vermont Fair Credit Reporting Acts, including, but not limited to, notice and consumer consent.

Section 13. Limits on Sharing Account Number Information for Marketing Purposes.

A. General prohibition on disclosure of policy or account numbers. A licensee shall not, directly or through an affiliate, disclose, other than to a consumer reporting agency, a policy number or similar form of access number or access code for a consumer's policy or transaction account to any nonaffiliated third party for use in telemarketing, direct mail marketing, or other marketing through electronic mail to the consumer. A licensee shall not provide a policy number or similar form of access number or access code to any nonaffiliated third party for use in telemarketing, direct mail marketing, or other marketing through electronic mail to the consumer.

B. Exceptions. Subsection A of this section 13 does not apply if a licensee discloses a policy number or similar form of access number or access code:

(1) To the licensee's service provider solely in order to perform marketing for the licensee's own products or services, as long as the service provider is not authorized to directly initiate charges to the account;

(2) To a licensee who is a producer solely to perform marketing for the licensee's own products or services; or

(3) To a participant in an affinity or similar program where the participants in the program are identified to the customer when the customer enters into the program.

C. Examples.

(1) Policy number. A policy number or similar form of access number or access code includes a number or code in an encrypted form.

(2) Policy or transaction account. For the purposes of this section, a policy or transaction account is an account other than a deposit account or a credit card account. An account is not a transaction account if a third party cannot initiate charges to it.

ARTICLE IV. EXCEPTIONS TO LIMITS ON DISCLOSURES OF NONPUBLIC PERSONAL INFORMATION

Section 14. Exception to Opt In Requirements for Disclosure of Nonpublic Personal Information for Service Providers and Joint Marketing.

A. General rule.

(1) The opt in requirements in Sections 8 and 11 do not apply when a financial institution provides nonpublic personal information to a nonaffiliated third party to perform services for the financial institution or functions on the financial institution's behalf, if the financial institution:

(a) Provides the initial notice in accordance with subsection 5A;

(b) Enters into a contractual agreement with the third party that prohibits the nonaffiliated third party from disclosing or using the information other than to carry out the purposes for which the financial institution disclosed the information, including use under an exception in Sections 15 or 16 in the ordinary course of business to carry out those purposes; and,

(c) For joint agreements for marketing, provides only the consumer's name, contact information, and own transaction and experience information within the meaning of the federal Fair Credit Reporting Act (15 U.S.C. § 1681a(d)(2)(A)(i)) and the Vermont Fair Credit Reporting Act (9 V.S.A. § 2480a(2)(A)).

(2) Examples.

(a) If a licensee discloses nonpublic personal financial information under this section to a financial institution with which the licensee performs joint marketing, the licensee's contractual agreement with that institution meets the requirements of subdivision (1)(b) of subsection A of this section if it prohibits the institution from disclosing or using the nonpublic personal financial information except as necessary to carry out the joint marketing or under an exception in Section 15 or 16 in the ordinary course of business to carry out that joint marketing.

(b) A licensee that complies with the provisions of subdivisions A(1)(a) and (b) of this section 14 may provide nonpublic personal financial information to a service provider that is a nonaffiliated third party agent of that licensee (e.g. an insurance agent who is an independent contractor as to the licensee) to enable the agent to offer, renew, or service products on behalf of the licensee.

Such disclosure shall not be subject to the limitations of subdivision A(1)(c) of this section 14.

B. Service may include joint marketing. The services a nonaffiliated third party performs for a financial institution under subsection A of this section may include marketing of the financial institution's own products or services or marketing of financial products or services offered pursuant to joint agreements between the financial institution and one or more financial institutions.

C. Definition of "joint agreement." "Joint agreement" means a written contract pursuant to which a financial institution and one or more financial institutions jointly offer, endorse or sponsor a financial product or service.

Section 15. Exceptions to Notice and Opt In Requirements for Disclosure of Nonpublic Personal Financial Information for Processing and Servicing Transactions.

A. Exceptions for processing transactions at consumer's request. The requirements for initial notice in Section 5A(2), the opt in requirements in Sections 8 and 11, and service providers and joint marketing in Section 14 do not apply if the financial institution discloses nonpublic personal financial information as necessary to effect, administer or enforce a transaction that a consumer requests or authorizes, or in connection with:

(1) Servicing or processing an insurance product or service that a consumer requests or authorizes;

(2) Maintaining or servicing the consumer's account with a licensee or with another entity as part of a private label credit card program or other extension of credit on behalf of such entity;

(3) A proposed or actual securitization, secondary market sale (including sales of servicing rights), or similar transaction related to a transaction of the consumer;

(4) Reinsurance or stop loss or excess loss insurance; or

(5) Administering a workers compensation claim.

B. Definition of "necessary to effect, administer, or enforce a transaction." For purposes of this section, "necessary to effect, administer, or enforce a transaction" means that the disclosure is:

(1) Required, or is one of the lawful or appropriate methods, to enforce the licensee's rights or the rights of other persons engaged in carrying out the transaction or providing the product or service; or

(2) Required, or is a usual, appropriate, or acceptable method:

(a) To carry out the transaction or the product or service business of which the transaction is a part, and record, service, or maintain the consumer's account in the ordinary course of providing the insurance product or service;

(b) To administer or service benefits or claims relating to the transaction or the product or service business of which it is a part;

(c) To provide a confirmation, statement, or other record of the transaction or information on the status or value of the insurance product or service to the consumer or the consumer's agent or broker;

(d) To accrue or recognize incentives or bonuses associated with the transaction that are provided by a licensee or any other party;

(e) To underwrite insurance at the consumer's request or for any of the following purposes as they relate to a consumer's insurance: account administration; reporting, investigating, or preventing fraud or material misrepresentation; processing premium payments; processing insurance claims; administering insurance benefits (including utilization review activities); participating in research projects; or as otherwise required or specifically permitted by federal or state law; or

(f) In connection with:

i. The authorization, settlement, billing, processing, clearing, transferring, reconciling, or collection of amounts charged, debited, or otherwise paid using a debit, credit, or other payment card, check, or account number, or by other payment means;

ii. The transfer of receivables, accounts, or interests therein; or

iii. The audit of debit, credit, or other payment information.

Section 16. Other Exceptions to Notice and Opt In Requirements for Disclosure of Nonpublic Personal Financial Information.

A. Exceptions to opt-in requirements. The requirements for initial notice to consumers in subdivision 5A(2), opt-in in sections 8 and 11, and service providers and joint marketing in section 14 do not apply when a licensee discloses nonpublic personal financial information:

(1) With the consent or at the direction of the consumer, provided that the consumer has not revoked the consent or direction;

(2) In one of the following circumstances:

(a) To protect the confidentiality or security of a licensee's records pertaining to the consumer, service, product, or transaction;

(b) To protect against or prevent actual or potential fraud or unauthorized transactions;

(c) For required institutional risk control or for resolving consumer disputes or inquiries;

(d) To persons holding a legal or beneficial interest relating to the consumer; or

(e) To persons acting in a fiduciary or representative capacity on behalf of the consumer;

(3) To provide information to insurance rate advisory organizations, guaranty funds or agencies, agencies that are rating a licensee, persons that are assessing the licensee's compliance with industry standards, or the licensee's attorneys, accountants, and auditors;

(4) To the extent specifically permitted or required under other provisions of law and in accordance with the federal Right to Financial Privacy Act of 1978 (12 U.S.C. § 3401 et seq.), to law enforcement agencies (including the Federal Reserve Board, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, Office of Thrift Supervision, National Credit Union Administration, Securities and Exchange Commission, Secretary of the Treasury, with respect to 31 U.S.C. Chapter 53, Subchapter II (Records and Reports on Monetary Instruments and Transactions) and 12 U.S.C. Chapter 21 (Financial Recordkeeping), and Federal Trade Commission), to state or federal civil or administrative authorities (including, but not limited to, a state insurance authority, a state banking authority, and a state securities authority), self-regulatory organizations, or for an investigation on a matter related to public safety;

(5) In one of the following circumstances:

(a) To a consumer reporting agency in accordance with the federal Fair Credit Reporting Act (15 U.S.C. § 1681 et seq.); or

(b) From a consumer report reported by a consumer reporting agency;

(6) In connection with a proposed or actual affiliation, reorganization, sale, merger, transfer, or exchange of all or a portion of a business or operating unit if the disclosure of nonpublic personal financial information concerns solely consumers of the business or unit;

(7) In one of the following circumstances:

(a) To comply with federal, state, or local laws, rules, and other applicable legal requirements;

(b) To comply with a properly authorized civil, criminal, or regulatory investigation, or a subpoena or summons by federal, state, or local authorities; or

(c) To respond to judicial process or government regulatory authorities having jurisdiction over a licensee for examination, compliance, or other purposes as authorized by law;

(8) For purposes related to the replacement of a group benefit plan, group health plan, group welfare plan, or workers' compensation plan; or

(9) In the administration of an order or proceeding under chapter 145 of Title 8 V.S.A.

B. Revocation of consent. A consumer may revoke any authorization given to a licensee at any time, subject to the rights of any person that acted in reliance on the authorization prior to notice of the revocation.

ARTICLE V. RULES FOR HEALTH INFORMATION

Section 17. When Authorization Required for Disclosure of Nonpublic Personal Health Information.

A. General rule. A licensee shall not disclose nonpublic personal health information about a consumer or customer unless an authorization is obtained from the consumer or customer whose nonpublic personal health information is sought to be disclosed.

B. Exceptions.

(1) Nothing in this section shall prohibit, restrict, or require an authorization for the disclosure of nonpublic personal health information by a licensee for the performance of the following insurance functions by or on behalf of the licensee:

(a) claims administration;

(b) claims adjustment and management;

(c) underwriting;

(d) policy placement or issuance;

(e) loss control;

(f) ratemaking and guaranty fund functions;

(g) reinsurance and excess loss insurance;

(h) risk management;

(i) case management;

(j) disease management;

(k) quality assurance;

(l) quality improvement;

(m) performance evaluation;

(n) provider credentialing verification;

(o) utilization review;

(p) peer review activities;

(q) actuarial, scientific, medical or public policy research;

(r) grievance procedures;

(s) internal administration of compliance, managerial and information systems;

(t) policyholder service functions;

(u) auditing;

(v) reporting;

(w) database security;

(x) administration of consumer disputes and inquiries;

(y) external accreditation standards;

(z) the replacement of a group benefit plan or workers compensation policy or program;

(aa) activities in connection with a proposed or actual affiliation, reorganization, sale, merger, transfer, or exchange of all or part of a business or operating unit if the disclosure concerns solely consumers of the business or unit;

(bb) disclosure that is required, or is one of the lawful or appropriate methods, to enforce the licensee's rights or the rights of other persons engaged in carrying out a transaction or providing a product or service that a consumer requests or authorizes; or

(cc) any activity otherwise authorized by law.

(2) Nothing in this regulation shall prohibit, restrict, or require an authorization for the disclosure of nonpublic personal health information by a licensee for the following:

(a) detection, investigation, or reporting of actual or potential fraud, misrepresentation, or criminal activity;

(b) detection, investigation, or reporting of actual or potential violations of law or examinations by a civil or administrative agency;

(c) any activity that permits disclosure without authorization pursuant to the federal Health Insurance Portability and Accountability Act privacy rules promulgated by the U.S. Department of Health and Human Services, except as provided in section 20; or

(d) any activity required pursuant to governmental reporting authority or to comply with legal process.

C. Additional insurance functions may be added with the approval of the Commissioner to the extent they are necessary for appropriate performance of insurance functions and are fair and reasonable to the interest of consumers.

Section 18. Authorizations.

A. A valid authorization to disclose nonpublic personal health information pursuant to this Article V shall be in written or electronic form and shall contain all of the following:

(1) The identity of the consumer or customer who is the subject of the nonpublic personal health information;

(2) A general description of the types of nonpublic personal health information to be disclosed;

(3) General descriptions of the parties to whom the licensee discloses nonpublic personal health information, the purpose of the disclosure, and how the information will be used;

(4) The signature of the consumer or customer who is the subject of the nonpublic personal health information or the individual who is legally empowered to grant authority and the date signed;

(5) The length of time for which the authorization is valid, which in no event shall be more than 24 months; and

(6) Notice that the consumer or customer may revoke the authorization at any time and the procedure for making a revocation.

B. A consumer or customer who is the subject of nonpublic personal health information may revoke an authorization provided pursuant to this section at any time, subject to the rights of an individual who acted in reliance on the authorization prior to notice of the revocation.

C. A licensee shall retain the authorization or a copy thereof in the record of the individual who is the subject of nonpublic personal health information.

Section 19. Authorization Request Delivery.

A request for authorization and an authorization form may be delivered to a consumer or a customer as part of an opt in notice pursuant to Section 10, provided that the request and the authorization form are clear and conspicuous. An authorization form is not required to be delivered to the consumer or customer unless the financial institution intends to disclose protected health information pursuant to Section 17A.

Section 20. Relationship to Federal Rules.

Irrespective of whether a licensee is subject to the federal Health Insurance Portability and Accountability Act privacy rule as promulgated by the U.S. Department of Health and Human Services, 45 C.F.R. Parts 16 0 and 16 4, (the "federal rule"), if a licensee complies with all requirements of the federal rule and its effective date provision, the licensee shall be deemed to be in compliance with the provisions of this Article; provided, however, that a licensee shall be prohibited from making disclosures under the provisions of 45 C.F.R § 164.514(e)(2) without the consumer's prior written consent.

Section 21. Relationship to State Laws.

Nothing in this regulation shall preempt or supersede existing state law related to medical records, health or insurance information privacy.

ARTICLE VI. ADDITIONAL PROVISIONS

Section 22. Protection and Application of Fair Credit Reporting Acts.

A. No inference shall be drawn on the basis of the provisions of this regulation regarding whether information is transaction or experience information under Section 603 of the federal Fair Credit Reporting Act (15 U.S.C. § 1681a).

B. Nothing in this regulation shall be construed to modify, limit, or supersede the operation of the Vermont Fair Credit Reporting Act (9 V.S.A. §§ 2480a-2480g). No inference shall be drawn on the basis of the provisions of this regulation regarding whether information is transaction or experience information under 9 V.S.A. § 2480a(2). These rules shall not be construed to extend the application of the Vermont Fair Credit Reporting Act to persons who are not residents of Vermont.

Section 23. Nondiscrimination.

A. A licensee shall not unfairly discriminate against a consumer or customer because that consumer or customer has not opted in to the disclosure of his or her nonpublic personal financial information pursuant to the provisions of this regulation.

B. A licensee shall not unfairly discriminate against a consumer or customer because that consumer or customer has not opted in to the disclosure of his or her nonpublic personal health information pursuant to the provisions of this regulation.

Section 24. Violations.

In addition to any other sanctions available to the Commissioner under Vermont law for violations of this regulation, any violation of this regulation shall be deemed to be an unfair method of competition or an unfair or deceptive act or practice in the conduct of the business of insurance in this State for the purposes of chapter 129 of Title 8 V.S.A.

Section 25. Severability.

If any provision of this regulation or its applicability to any person or circumstance is held invalid by a court, the remainder of the regulation or the applicability of the provision to other persons or circumstances shall not be affected.

Section 26. Effective Date.

This revised regulation is effective as of June 20, 2023. Appendix A. Sample Clauses.

Licensees, including a group of financial holding company affiliates that use a common privacy notice, may use the following sample clauses, if the clause is accurate for each institution that uses the notice. Note that disclosure of certain information, such as assets, income, and information from a consumer reporting agency, may give rise to obligations under the federal Fair Credit Reporting Act and Vermont Fair Credit Reporting Act, such as a requirement to permit a consumer to opt in to disclosures to affiliates or designation as a consumer reporting agency if disclosures are made to nonaffiliated third parties.

A-1-Categories of information a financial institution collects (all institutions)

A licensee may use this clause, as applicable, to meet the requirement of subdivision 7A(1) to describe the categories of nonpublic personal information the licensee collects.

Sample Clause A-1:

We collect nonpublic personal information about you from the following sources:

-- Information we receive from you on applications or other forms;

-- Information about your transactions with us, our affiliates or others; and

-- Information we receive from a consumer reporting agency.

A-2-Categories of information a financial institution discloses (institutions that disclose outside of the exceptions)

A licensee may use one of these clauses, as applicable, to meet the requirement of subdivision 7A(2) to describe the categories of nonpublic personal financial information the licensee discloses. The licensee may use these clauses if it discloses nonpublic personal financial information other than as permitted by the exceptions in sections 14, 15, and 16.

Sample Clause A-2, Alternative 1:

We may disclose the following kinds of nonpublic personal financial information about you:

-- Information we receive from you on applications or other forms, such as [provide illustrative examples, such as "your name, address, social security number, assets and income"];

-- Information about your transactions with us, our affiliates or others, such as [provide illustrative examples, such as "your account balance, payment history, parties to transactions and credit card usage"]; and

-- Information we receive from a consumer reporting agency, such as [provide illustrative examples, such as "your creditworthiness and credit history"].

Sample Clause A-2, Alternative 2:

We may disclose all of the information that we collect, as described [describe location in the notice, such as "above" or "below"].

A-3-Categories of information a financial institution discloses and parties to whom the financial institution discloses (institutions that do not disclose outside of the exceptions)

A licensee may use this clause, as applicable, to meet the requirements of subdivisions 7A(2), (3), and (4) to describe the categories of nonpublic personal information about customers and former customers that the licensee discloses and the categories of affiliates and nonaffiliated third parties to whom the licensee discloses. A licensee may use this clause if the licensee does not disclose nonpublic personal financial information to any party, other than as permitted by the exceptions in sections 15 and 16.

Sample Clause A-3:

We do not disclose any nonpublic personal financial information about our customers or former customers to anyone, except as permitted by law.

A-4-Categories of parties to whom a licensee discloses (institutions that disclose outside of the exceptions)

A licensee may use this clause, as applicable, to meet the requirement of subdivision 7A(3) to describe the categories of affiliates and nonaffiliated third parties to whom the licensee discloses nonpublic personal information. This clause may be used if the licensee discloses nonpublic personal financial information other than as permitted by the exceptions in sections 14, 15, and 16, as well as when permitted by the exceptions in sections 15 and 16.

Sample Clause A-4:

We may disclose nonpublic personal information about you to the following types of third parties:

-- Financial service providers, such as [provide illustrative examples, such as "mortgage bankers, securities broker-dealers, and insurance agents"];

-- Non-financial companies, such as [provide illustrative examples, such as "retailers, direct marketers, airlines, and publishers"]; and

-- Others, such as [provide illustrative examples, such as "non-profit organizations"].

We may also disclose nonpublic personal information about you to third parties as permitted by law.

A-5-Service provider/joint marketing exception

A licensee may use one of these clauses, as applicable, to meet the requirements of subdivision 7A(5) related to the exception for service providers and joint marketing in Section 1 4. If a licensee discloses nonpublic personal financial information under this exception, the licensee shall describe the categories of nonpublic personal financial information the licensee discloses and the categories of third parties with which the licensee has contracted.

Sample Clause A-5, Alternative 1:

We may disclose the following information to companies that perform marketing services on our behalf:

-- Information we receive from you on applications or other forms, such as [provide illustrative examples, such as "your name, address, social security number, assets, and income"];

-- Information about your transactions with us, our affiliates or others, such as [provide illustrative examples, such as "your account balance, payment history, parties to transactions, and credit card usage"]; and

-- Information we receive from a consumer reporting agency, such as [provide illustrative examples, such as "your creditworthiness and credit history"].

Sample Clause A-5, Alternative 2:

We may disclose all of the information we collect, as described [describe location in the notice, such as "above" or "below"] to companies that perform marketing services on our behalf.

Sample Clause A-5, Alternative 3:

We may disclose the following information to other financial institutions with which we have joint marketing agreements:

-- The following information we receive from you: "your name and contact information";

-- Information about your transactions with us or our affiliates, such as [provide illustrative examples of own transaction and experience information, such as "your account balance, payment history, parties to transactions, and credit card usage"].

A-6-Explanation of opt in (institutions that disclose to nonaffiliates outside of the exceptions)

A licensee may use this clause, as applicable, to meet the requirement of subdivision 7A(6) to provide an explanation of the consumer's right to authorize the disclosure of nonpublic personal financial information to nonaffiliated third parties, including the method(s) by which the consumer may exercise those rights. The licensee may use this clause if the licensee discloses nonpublic personal financial information to nonaffiliated third parties other than as permitted by the exceptions in sections 14, 15, and 16.

Sample Clause A-6:

We will not disclose nonpublic personal financial information about you to nonaffiliated third parties (other than as permitted by law) unless you authorize us to make that disclosure. Your authorization must be in writing or, if you agree, in electronic form. If you wish to authorize us to disclose your nonpublic personal financial information to nonaffiliated third parties, you may [describe the means to opt in, such as "complete and sign the enclosed, postage prepaid card and mail it to us."]

A-7-Confidentiality and security (all institutions)

A licensee may use this clause, as applicable, to meet the requirement of subdivision 7A(8) to describe its policies and practices with respect to protecting the confidentiality and security of nonpublic personal information.

Sample Clause A-7:

We restrict access to nonpublic personal information about you to [provide an appropriate description, such as "those employees who need to know that information to provide products or services to you"]. We maintain physical, electronic, and procedural safeguards that comply with state and federal regulations to guard your nonpublic personal information.

History

• EFFECTIVE DATE:
• November 17, 2001 Secretary of State Rule Log #01-60
• AMENDED:
• December 28, 2015 Secretary of State Rule Log #15-054; March 15, 2018 Secretary of State Rule Log #18-010; 6/20/2023 Secretary of State Rule Log #23-015
• STATUTORY AUTHORITY: 8 V.S.A. §§ 10, 15, 2214, 2766, 2914, 10201 et seq., 30203

Chapter 017 VERMONT DISCLOSURE FORM - AMOUNT TO BE FINANCED IN A MOTOR VEHICLE RETAIL INSTALLMENT CONTRACT (B-2016-01)

21-017 Code Vt. R. 21-010-017-X VERMONT DISCLOSURE FORM - AMOUNT TO BE FINANCED IN A MOTOR VEHICLE RETAIL INSTALLMENT CONTRACT (B-2016-01)

Section 1 Authority and Scope

1.1 This regulation is promulgated pursuant to the authority granted by 8 V.S.A. § 15 and 9 V.S.A. § 2355(f)(1)(J).

1.2 This regulation shall apply to all motor vehicle retail installment transactions governed by Title 9 V.S.A. Chapter 59.

Section 2 Purpose

2.1 The Vermont Disclosure Form ("Disclosure Form") required by 9 V.S.A. 2355(f)(1)(J), must include the "amount financed on the motor vehicle retail installment contract as a percentage of the cash price of the vehicle." The purpose of the Disclosure Form is to inform consumers of the impact of adding negative equity to a motor vehicle retail installment contract. However, this Disclosure Form is required in connection with every motor vehicle retail installment contract regardless of whether or not the transaction involves negative equity.

2.2 The purpose of this regulation is to modify the current version of the Vermont Disclosure Form to clarify the meaning and calculation of the "Cash Price" and the "cash price of the vehicle" (or "Vehicle Price") for purposes of the Disclosure Form.

2.3 The Federal Truth in Lending Act, implemented by Regulation Z, defines "Cash Price" to be "the price at which a creditor, in the ordinary course of business, offers to sell for cash property or service that is the subject of the transaction. At the creditor's option, the term may include the price of accessories; services related to the sale; service contracts; and taxes and fees for license, title, and registration." 12 R Part 1026.2(a)(9).

A motor vehicle dealer may calculate the Cash Price on the motor vehicle retail installment contract in a manner consistent with Regulation Z. However, to fulfill the purpose of the Vermont Disclosure Form, Optional Items that may be included in the Cash Price under Regulation Z must be deducted in order to ensure that the amount financed as a percentage of the Vehicle Price is calculated on a consistent basis.

Therefore, when calculating the amount financed on the motor vehicle retail installment contract as a percentage of the Vehicle Price for purposes of the Disclosure Form, the "Cash Price" as it appears on the motor vehicle retail installment contract must be adjusted by subtracting any optional costs of services related to the sale; service contracts; and taxes and fees for license, title, and registration. By removing the Optional Items that creditors are allowed to include in the Cash Price under Regulation Z, the Vehicle Price on the Disclosure Form accurately reflects negative equity being financed.

Section 3 Definitions

3.1 "Cash Price" means the minimum price for which the motor vehicle, including accessories, subject to the retail installment contract or another motor vehicle of like kind and quality, including similar accessories, may be purchased for cash from the seller by the buyer. 9 V.S.A. § 2351(6). If the dealer charges a documentation fee, it must be included in the cash price.

3.2 "Maintenance Agreement" means a contract of limited duration that provides for scheduled maintenance only. 8 V.S.A. § 4247.

3.3 "Optional Items" means those items that may be included in the Cash Price under Regulation Z and the Truth in Lending Act. This includes services related to the sale, service contracts, purchase and use tax, and fees for license, title and registration. Accessories may also be included in the Cash Price but are not excluded from the Vehicle Price and therefore are not included in the definition of Optional Items.

3.4 "Service Contract" means any contract or agreement to perform or indemnify for a specific duration the repair, replacement, or maintenance of property for operational or structural failure due to a defect in materials, workmanship, or normal wear and tear, with or without additional provisions for incidental payment of indemnity under limited circumstances, including towing, rental, and emergency road service. 8 V.S.A. § 4247.

3.5 "Vehicle Price" means the Cash Price minus any Optional Items included in the Cash Price under Regulation Z. Vehicle Price is equivalent to the "cash price of the vehicle" [as referenced in 9 V.S.A. § 2355(f)(1)(J) ] to be used when calculating the amount financed as a percentage of the cash price of the vehicle for purposes of the Disclosure Form,

3.6 "Warranty" means a warranty made solely by the manufacturer, importer, or seller of property or services, without charge, that is not negotiated or separated from the sale of the product and is incidental to the sale of the product, and that guarantees indemnity for defective parts, mechanical or electrical breakdown, labor, or other remedial measures, such as repair or replacement of the property or repetition of services. 8 V.S.A. § 4247.

Section 4 Calculation of Cash Price

4.1 Multiple forms of motor vehicle retail installment contracts are in use in Vermont. Depending upon the form used or the practices and procedures of a particular dealer, the components of Cash Price may vary. Consistent with Regulation Z, Optional Items may be included in the Cash Price on the motor vehicle retail installment contract. By definition, a Warranty, if applicable, is included in the Cash Price because the cost of a warranty is incorporated into the product pricing and cannot be separated from the sale of the product.

4.2 The Cash Price may not include any insurance, debt cancellation agreements, or similar agreements or contracts. The Cash Price must be consistent on all forms relating to any given transaction wherever the term is used. Regardless of a particular dealer's practices and procedures, the Cash Price on the retail installment contract will also be the Cash Price on the Disclosure Form and the Cash Price on the Department of Motor Vehicles Dealer's Vehicle (Inventory) Record.

4.3 When manufacturer rebates are disclosed on the motor vehicle retail installment contract but are not used to reduce the Cash Price, they must be deducted from the Cash Price on the Disclosure Form to ensure consistent negative equity calculations.

Section 5 Content of Disclosure

5.1 If the method of calculating the Cash Price includes Optional Items, the Disclosure Form requires that they be itemized and then deducted from the Cash Price to reach the Vehicle Price.

5.2 Section 2 of the Disclosure Form discloses the amount financed as a percentage of the Vehicle Price for purposes of determining whether or not negative equity is being financed in the transaction.

Section 6 Form of Disclosure

6.1 The Disclosure Form shall be printed on a separate sheet of paper that is easily distinguished from all other disclosures, applications, or other documents presented to the buyer of the motor vehicle. A copy of the completed Disclosure Form must be given to the buyer(s). The Disclosure Form shall be printed in a size equal to at least 12-point type.

Section 7 Delivery of Disclosure

7.1 The Disclosure Form is required to be delivered with every motor vehicle retail installment contract regardless of whether or not the transaction involves negative equity.

7.2 The Disclosure Form shall be attached to and shall become part of the motor vehicle retail installment contract and must be assigned, sold, or transferred together with any assignment, sale, or transfer of the motor vehicle retail installment contract to which it was originally related.

7.3 Section 2355(f)(1)(J) of Title 9 requires a motor vehicle dealer to provide to the buyer(s) an unexecuted copy of the Disclosure Form prior to consummation of the transaction and requires that the Disclosure Form be signed by the buyer(s).

Section 8 Requirements of the Retail Installment Contract

8.1 The method of calculating the Cash Price may impact the retail installment contract. Optional Items that may be included in the Cash Price must be itemized on the retail installment contract as required by 9 V.S.A. § 2355. Specifically, these items include the cost of service contracts and the amount of all official fees, which the Department interprets to include the purchase and use tax. In order to reconcile these two requirements, if Optional Items are included in the Cash Price, the creditor must itemize the amounts attributed to these Optional Items on the retail installment contract in a conspicuous manner so that the borrower is aware of the Optional Items that are included in the Cash Price.

Section 9 Effective Date

9.1 This regulation shall take effect upon adoption.

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History

• STATUTORY AUTHORITY: 8 V.S.A. § 15 and 9 V.S.A. § 2355(f)(1)(J)
• EFFECTIVE DATE: April 1, 2017 Secretary of State Rule Log #16-048

Subagency 020 INSURANCE DIVISION

Chapter 018 REGULATION TO REQUIRE REPORTING OF FINANCIAL AND STATISTICAL DATA BY PROPERTY AND CASUALTY INSURANCE COMPANIES

21-018 Code Vt. R. 21-020-018-X REGULATION TO REQUIRE REPORTING OF FINANCIAL AND STATISTICAL DATA BY PROPERTY AND CASUALTY INSURANCE COMPANIES

Section 1 Purpose and Authority

This regulation is promulgated pursuant to 8 V.S.A. Sections 75 and 4691.

The purpose of this regulation is to set forth the manner of reporting and the kinds of data that are to be included in financial and statistical reports required to be submitted by property and casualty insurance companies. This regulation shall not be interpreted to limit the powers granted the Commissioner by any laws or part of laws of this state.

Section 2 Definitions

A. Accelerated Reports: Statistical information that provides data on a quarterly basis for the purpose of identifying emerging trends in the commercial liability lines of insurance.

B. Annual Statement: The annual report of an insurer as of each December 31 that provides detailed information on assets and liabilities including data on premiums, losses, and expenses, dividends, taxes and investments.

C. Fast Track Reports: Information generated from the NAIC Fast Track Monitoring System that gives a sampling of significant data for property and casualty insurance on a quarterly basis by insurers comprising a major segment of the market for the lines of insurance indicated.

D. Insurance Expense Exhibit: The supplement to an insurer's annual statement that provides a detailed analysis of expense on a net basis for all lines of business.

E. NAIC: The National Association of Insurance Commissioners.

F. NAIC Diskette Filing Specification: Instructions for filing of Annual Statement information on diskette.

G. NAIC Statistical Handbook: The publication of the National Association of Insurance Commissioners (NAIC) that explains insurance statistical data and details report formats to be furnished by statistical agents.

H. Participating Insurer: An insurer licensed to transact the business of property and casualty insurance in this state which has a market share for a line or class of insurance greater than the amounts defined in Section 8 and is therefor required to report on either a quarterly or annual basis.

I. Statistical Agent: An organization designated by the Commissioner to gather and compile insurance statistical experience.

J. Statistical Plan: A system for collecting and recording insurance premium, loss, exposure and expense information.

K. State Statistical Reports: Reports developed by Statistical Agents to supply information on a regular basis for selected sublines or classes of insurance by year.

L. Special State Reports: Reports developed by Statistical Agents on an as needed basis to supply specific information in the statistical plan requested by the Commissioner.

M. Special Calls for Statistical Data: Reports developed on an as needed basis to supply specific information to the Commissioner that may not be in the statistical plans.

Section 3 Power and Duties

The Commissioner may enter into an agreement with any qualified data collection service corporations, associations or other entities to undertake the compilation and analysis of data collected pursuant to this regulation.

Section 4 Financial Reporting

As a condition of doing business in the state, each insurer licensed to transact the business of property and casualty insurance shall, in addition to any other reports required, report to the Commissioner financial data for the preceding year ended December 31:

A. Annual Statement: An Annual Statement measuring 9"x14" or smaller shall be filed with the Commissioner on or before March 15th of each year, or a later date if appropriate, that provides financial information for the previous calendar year. The Annual Statement shall conform to the format prescribed and modified by the NAIC and shall contain exhibits and schedules that follow specifications developed by the NAIC. Information from the insurer's Annual Statement, as specified and in accordance with the NAIC's Diskette Filing Specification, or as amended, shall be filed with the Commissioner by filing with the Central Office of the NAIC on or before March 15th of each year. The requirement to file with the NAIC shall be in addition to the obligation to file the annual statement with the Commissioner.

B. Insurance Expense Exhibit: An Insurance Expense Exhibit shall be filed with the Commissioner on or before April 1st of each year, or a later date if appropriate, that provides countrywide information on insurer expenses for the previous calendar year. The exhibit shall be in the form prescribed and modified by the NAIC. Information from the insurer's Insurance Expense Exhibit, as specified and in accordance with the NAIC's Diskette Filing Specification, or as amended, shall be filed with the Commissioner by filing with the NAIC's Central Office on or before April 1 each year. The requirement to file with the NAIC shall be in addition to the obligation to file the annual statement with the Commissioner.

C. Other Schedules and Supplements: In addition to the above, other schedules or supplements may be requested at the discretion of the Commissioner including other NAIC schedules.

Section 5 Statistical Reporting by Companies

Every insurance company licensed to transact the business of property and casualty insurance in this state shall report its insurance statistical experience to at least one of the statistical agents designated by Order of the Commissioner. Such information at a minimum shall be submitted in the form and detail outlined below and in the statistical plans adopted by the Commissioner. The statistical agents shall file their plans with the Commissioner for approval to be effective January 1, 1989. Any subsequent changes should also be provided to the Commissioner.

A. Annual Data Reporting: At least annually, insurers shall submit to a statistical agent, data meeting the following specifications:

(1) Lines of Insurance: The following lines of insurance shall be included in the annual data:

(a) Automobile-Commercial;

(b) Automobile-Private Passenger;

(c) Boiler and Machinery;

(d) Burglary;

(e) Businessowners;

(f) Commercial Multiple Peril;

(g) Crop-Hail;

(h) Farmowners

(i) Fidelity and Surety;

(j) Fire and Extended Coverage;

(k) General Liability;

(l) Glass;

(m) Homeowners;

(n) Inland Marine;

(o) Personal Property Other than Homeowners;

(p) Medical Professional Liability;

(q) Workers Compensation;

(r) Other lines as specified by the Commissioner.

(2) Classes of Insurance: Annual data reported shall include, in addition to the lines of insurance defined above, those classes of insurance designated for inclusion in accelerated data reporting.

(3) Data Elements: In accordance with statistical plans adopted by the Commissioner, annual data shall include the following elements, detailed by territory where applicable:

(a) premiums written;

(b) losses paid;

(c) allocated loss adjustment expenses paid;

(d) losses outstanding;

(e) allocated loss adjustment expenses outstanding;

(f) number of claims;

(g) exposure, where reported and meaningful;

(h) other data elements as specified by the Commissioner.

(4) Compilation Bases: Annual data shall be reported according to one of the following compilation bases:

(a) calendar year;

(b) accident year;

(c) policy year.

B. Fast Track Data and Reports:

(1) Fast Track Data: Data necessary to produce Fast Track Reports shall be submitted to statistical agents by selected insurers within 45 days of the close of the calendar quarter according to the following specifications:

(a) Lines and Classes: Loss Ratio Data: Selected insurers shall submit fast track quarterly premium and loss data to statistical agents for the following Lines:

(i) Private Passenger Liability;

(ii) Private Passenger Physical Damage;

(iii) Commercial Auto Liability;

(iv) Commercial Auto Physical Damage;

(v) Homeowners;

(vi) Dwelling Fire;

(vii) Dwelling Allied Lines;

(viii) Commercial Fire;

(ix) Commercial Allied Lines;

(x) Farm Business;

(xi) Commercial Multiple Peril;

(xii) Liability Other than Auto;

(xiii) Medical Malpractice;

(xiv) Other lines as specified by the Commissioner.

(b) Lines and Classes: Claim Data: Fast Track data shall contain claim cost and claim frequency data for the following lines:

(i) Private Passenger Comprehensive;

(ii) private Passenger Collision;

(iii) Private Passenger Bodily Injury Liability;

(iv) Private Passenger property Damage Liability.

(2) Fast Track Reports: Statistical agents shall provide Fast Track Reports within 60 days of the close of the calendar quarter for the Private Passenger Automobile and Homeowners lines of insurance. Fast Track Reports for other lines of business shall be provided within 75 days of the close of the calendar quarter.

Section 6 Statistical Agent Reporting

Statistical Agents shall provide reports to the Commissioner on a schedule as specified in this section. If a Statistical Agent cannot provide the reports as specified in this section, the Statistical Agent shall inform the Commissioner, who may allow an exemption as described in Section 9.

A. Accelerated Data Reports:

(1) Accelerated Data: Data necessary to produce Accelerated Reports shall be submitted to statistical agents by participating insurers within 60 days of the close of the calendar quarter. The data submitted for accelerated reports shall include the following lines and classes and data elements:

(a) Lines and Classes:

(i) Owners, Landlords and Tenants Liability;

(ii) Manufacturers and Contractors Liability;

(iii) Products Liability (countrywide only);

(iv) Premises/Operations Liability;

(v) Liquor Law Liability;

(vi) Lawyers Professional Liability;

(vii) Municipal Liability;

(viii) Public School Liability;

(ix) Day Care Liability;

(x) Recreational Liability;

(xi) Other lines and classes as specified by the Commissioner.

(b) Data Elements:

(i) Direct premiums written;

(ii) Direct premium earned, and;

(iii) Incurred losses, developed as the sum of the following:

• • the dollar amount of paid losses;
• • the dollar amount of allocated loss adjustment expenses, plus;
• • reserves for reported claims at the end of the quarter, minus;
• • reserves for reported claims at the beginning of the quarter.

(2) Accelerated Data Reports: Statistical agents shall provide Accelerated Data Reports to the Commissioner within 180 days of the close of the calendar quarter.

B. State Annual Statistical Reports

Approved statistical agents shall produce state statistical reports and supply them to the Vermont Department of Banking and Insurance based on a schedule approved by the Commissioner. It is the intent of this section that the data shall be combined and reported in the aggregate. The Commissioner may request an insurer to report its data directly to the Commissioner.

The data submitted for State Statistical Reports shall include the following lines, classes and data elements:

(1) General Liability: General Liability is a line of insurance which is typically considered to be liability insurance for all business and commercial risks other than automobile.

(a) The data elements to be reported include the following:

(i) Earned Premium;

(ii) Incurred Losses (including Allocated loss adjustment expense); split between basic and excess limits;

(iii) Incurred Claims;

(iv) Exposures, where reported and meaningful.

(b) The reports will be accumulated as follows:

(i) 5 policy years of data; The losses and loss expenses will be evaluated at a common date as of 3 months past the end of the most recent policy year.

(ii) Monoline and multiline combined;

(iii) Class within class group; except where otherwise specified. All classes are to be reported including manually rated classes as well as a-rated classes.

(iv) Bodily Injury Liability Losses (BI) and Property Damage Liability Losses (PD) will be reported separately.

(c) The following sublines will be reported:

(i) Owners, Landlords, and Tenants Liability - BI only;

(ii) Manufacturers and Contractors Liability;

(iii) Products - Countrywide and Vermont data to be reported. Vermont data will exclude exposures;

(iv) Owners & Contractors Protective Liability and Contractual Liability - only countrywide data to be reported;

(v) Excess, Deductible and other special classes;

(vi) Composite rated risks;

(vii) Professional liability other than medical; class detail not to be reported. Exposure not to be reported;

(viii) Physicians', surgeons' and dentists' data to be split by claims made vs. occurrence. Class group detail only;

(ix) Hospitals. Data to be split by claims made vs. occurrence;

(x) Other classes as specified by the Commissioner.

(2) Commercial Auto Liability: Commercial Auto Liability is a line of insurance generally considered to be liability insurance for trucks, taxis, buses, etc., as well as private passenger cars owned by businesses.

(a) The data elements to be reported include the following:

(i) Earned Premium;

(ii) Incurred losses (including Allocated loss adjustment expense); split between basic and excess limits;

(iii) Incurred Claims;

(iv) Exposures, where reported and meaningful.

(b) The reports will be accumulated as follows:

(i) 3 accident years of data, except for garages where 3 policy years of data will be reported. The losses and loss expenses will be evaluated at a common date as of 3 months past the end of the most recent experience period reported;

(ii) Monoline and multiline combined;

(iii) Class group;

(iv) Territories will be reported separately for Commercial cars;

(v) Bodily Injury Liability losses and Property Damage Liability losses will be reported separately;

(vi) Data for assigned risks will be reported separately from voluntary risks.

(c) The following sublines will be reported:

(i) Commercial cars;

(ii) Private passenger types;

(iii) Garages;

(iv) Publics and Miscellaneous;

(v) Composite Rated Risks;

(vi) Excess, deductible and other special classes;

(vii) Zone rated risks;

(viii) Other classes as specified by the Commissioner.

(3) Commercial Auto Physical Damage: Commercial Automobile Physical Damage is a line of insurance generally considered to be property insurance covering the risk due to loss by collision, fire, theft, etc., of Commercial Automobiles.

(a) The following data elements will be reported:

(i) Earned premium;

(ii) Paid losses with no loss adjustment expense;

(iii) Paid claims;

(iv) Exposures, where reported and meaningful.

(b) The reports will be accumulated as follows:

(i) 3 calendar years of data;

(ii) Monoline and multiline combined;

(iii) Class group;

(iv) All territories will be combined;

(v) Collision and other than collision will be reported separately;

(vi) Data for assigned risks will be reported separately from voluntary risks.

(c) Data will be reported for the following class groups:

The following sublines will be reported:

(i) Commercial cars;

(ii) Private passenger types;

(iii) Garages;

(iv) Publics and Miscellaneous;

(v) Composite Rated Risks;

(vi) Excess, deductible and other special classes;

(vii) Zone rated risks;

(viii) Other classes as specified by the Commissioner.

(4) Commercial Property: Commercial Property is generally considered to be first party property insurance covering business and commercial risks for fire damage, storm damage, and related perils. It is subdivided into coverages which are: Fire, Extended Coverage (EC), and All Other Perils (AOP).

(a) The following data elements will be reported:

(i) Written premium;

(ii) Earned premium;

(iii) Incurred losses;

(iv) Incurred claims.

(b) The data will be accumulated as follows:

(i) For fire and AOP, 5 accident years will be reported;

(ii) For EC, up to 10 accident years will be reported. The losses for Fire, AOP, and EC will be evaluated at a common evaluation date 3 months past the end of the most recent accident year.

(iii) Monoline and multiline combined;

(iv) Each coverage will be reported separately.

(c) The class groups to be reported for fire and EC are:

(i) Apartments;

(ii) Other habitational;

(iii) Restaurants & bars;

(iv) Other Mercantiles;

(v) Public Buildings;

(vi) Churches;

(vii) Schools;

(viii) Offices and banks;

(ix) Recreational facilities;

(x) Hotels & motels;

(xi) Hospitals & Nursing Homes;

(xii) Bldgs under construction;

(xiii) Motor vehicle risks;

(xiv) Other non-manufacturing;

(xv) Storage;

(xvi) Food manufacturing;

(xvii) Wood manufacturing;

(xviii) Wearing apparel;

(xix) Chemical manufacturing;

(xx) Metal manufacturing;

(xxi) Other manufacturing;

(xxii) Other classes as specified by the Commissioner.

(d) The class groups to be reported for AOP are:

(i) Buildings;

(ii) Apartment contents;

(iii) Office contents;

(iv) Mercantile, motel/hotel & institutional contents;

(v) Service industrial/processing & contractors contents.

C. Special State Reports

The Commissioner may specify special reports that are required from time to time. These special state reports may include state statistical reports with additional breakouts of detailed information.

They may also include other items of special interest that the Commissioner requires.

These special state reports may be requested of any designated statistical agent. The agent shall supply the report using the latest available information within a two month time frame. If the statistical agent cannot supply this report within the two month period, it shall report so to the Commissioner along with a schedule of when the information will be supplied.

D. Special Calls for Statistical Data

The Commissioner may require insurance companies to provide data not normally reported or collected in the statistical plans after notice to the statistical agents and providing not less than 30 days for comments. This data shall be compiled and reported to the Commissioner by the statistical agents according to a schedule approved by the Commissioner.

Section 7 Data Reporting Media

Data shall be submitted on hard copy or on a magnetic medium to be specified by the Commissioner.

Section 8 Reporting Thresholds

Insurers shall report in accordance with the following reporting level thresholds. These thresholds are based on an analysis of individual insurer premium volume by line and class. Such an analysis shall be made at least every three years by the statistical agent. Any resulting changes to an insurer's reporting level will apply on a prospective basis only.

A. General Liability

(1) Quarterly Reporting

(a) An insurer must report at least quarterly in accordance with the specifications of Commercial General Liability statistical plans adopted by the commissioner if it is large enough to meet any of the following criteria:

(i) It is in the 80th percentile of the total Countrywide Written Premium for all Commercial General Liability lines;

(ii) It has greater than 1% the Statewide Written Premium for all Commercial General Liability lines; or

(iii) It has greater than $ 5 Million Written Premium Statewide for all Commercial general Liability lines.

(b) An insurer must report at least quarterly in selected market detail consistent with the specification of Commercial General Liability statistical plans adopted by the commissioner if it has not already met the above criteria for reporting quarterly but does meet any of the following criteria:

(i) It has greater than $ 1 Million Written Premium Statewide for a selected market; or

(ii) It has greater than 10% Written Premium Statewide for a selected market and greater than $ 100,000 Written Premium for that market.

(2) Annual Reporting

(a) An insurer must report at least annually in accordance with the specifications of Commercial General Liability statistical plans adopted by the Commissioner if it has not already met the criteria in (1) (a) for reporting quarterly but it is in the 98th percentile of the total Statewide Written Premium for all Commercial General Liability lines.

(b) An insurer must report at least annually in selected market detail consistent with the specification of Commercial General Liability statistical plans adopted by the commissioner if it has not already met any of the above criteria but it has greater than 10% Written Premium Statewide for a selected market and less than $ 100,000 Written Premium for that market.

(c) The experience of all other insurers and any experience not reported in accordance with sections (1) (a), (1) (b), (2) (a) and (2) (b) above shall be reported annually in accordance with Commercial General Liability statistical plans adopted by the Commissioner.

(d) Additional insurers may be required to report if the Commissioner so designates.

B. Other Lines

Insurers shall report on a quarterly or annual basis depending on reporting level thresholds to be established by the Commissioner.

Section 9 Exemption

Upon application by a statistical agent or an individual insurer, the Commissioner may allow the submission of a report or statistical data at a specified later date or with lesser detail if the submission of the report or data on the date required by this Regulation would create a substantial hardship on the statistical agent or insurer.

Section 10 Effective Date

This regulation shall be effective January 1, 1989.

History

• Effective Date: January 1, 1989 (SOS Rule Log # 88-49)
• Statutory Authority: 8 V.S.A. §§ 75, 4691

Subagency 040 DIVISION OF HEALTH CARE ADMINISTRATION

Chapter 019 PRIVACY OF CONSUMER FINANCIAL AND HEALTH INFORMATION

21-019 Code Vt. R. 21-040-019-X PRIVACY OF CONSUMER FINANCIAL AND HEALTH INFORMATION

REGULATION IH-2001-01 (Revised)

ARTICLE I. GENERAL PROVISIONS

Section 1. Authority.

This regulation is promulgated pursuant to the authority granted by 10, 15, 3381, 3541 - 3543, 3688, 3858, 4062, 4108, 4113, 4201, 4362, 4373, 4464, 4480, 4481, 4515a, 4587, 4690, Chapter 129, 4812, 4836, 4902, 4990, 5104, 5111, 6015, 8005, 8014, and 8084, and 1972, Act No. 72 (Adj. Sess.), §1.

Section 2. Purpose; Scope; Compliance.

A. Purpose. This regulation governs the treatment of nonpublic personal financial information and nonpublic personal health information about individuals by all licensees under part 3 of Title 8 V.S.A. This regulation:

(1) Requires a licensee to provide notice to individuals about its privacy policies and practices;

(2) Describes the conditions under which a licensee may disclose nonpublic personal financial information and nonpublic personal health information about individuals to nonaffiliated third parties; and

(3) Requires licensees to obtain consumer consent prior to disclosing that information, subject to the exceptions in sections 14, 15, 16, and 17 of this regulation and subject to the federal Fair Credit Reporting Act and Vermont Fair Credit Reporting Act.

B. Scope.

(1) This regulation applies to:

(a) Nonpublic personal financial information about individuals who obtain or are claimants or beneficiaries of products or services from licensees primarily for personal, family, or household purposes; and

(b) All nonpublic personal health information.

(2) This regulation does not apply to information about companies or individuals who obtain financial products or services for business, commercial, or agricultural purposes.

C. Compliance.

(1) A licensee subject to this regulation, regardless of its jurisdiction of domicile, shall comply with the provisions of this regulation for transactions with Vermont consumers.

(2) For a consumer who is not a Vermont resident, a licensee domiciled in this State shall be deemed to be in compliance with Title V of the Gramm-Leach-Bliley Act in this State with respect to that consumer if the licensee is in compliance with a law or regulation enacted in the state of the consumer's domicile that meets the requirements of Title V of the Gramm-Leach-Bliley Act (PL 106-102).

Section 3. Rule of Construction.

The examples in this regulation and the sample clauses in Appendix A are guidance concerning this regulation's application in ordinary circumstances but are not exclusive. The facts and circumstances of each individual situation will determine whether compliance with an example or use of a sample clause constitutes compliance with this regulation.

Section 4. Definitions.

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

A. "Affiliate" has the same meaning as in 3681.

B. "Clear and conspicuous" means that a notice is reasonably understandable and designed to call attention to the nature and significance of the information in the notice.

(1) Examples.

(a) Reasonably understandable. A licensee makes its notice reasonably understandable if it:

i. Presents the information in the notice in clear, concise sentences, paragraphs, and sections;

ii. Uses short explanatory sentences or bullet lists whenever possible;

iii. Uses definite, concrete, everyday words and active voice whenever possible;

iv. Avoids multiple negatives;

v. Avoids legal and highly technical business terminology whenever possible;

vi. Avoids explanations that are imprecise and readily subject to different interpretations; and

vii. Avoids contradictory, confusing, and misleading language.

(b) Designed to call attention. A licensee designs its notice to call attention to the nature and significance of the information in it if the licensee:

i. Uses a plain-language heading to call attention to the notice;

ii. Uses a typeface and type size that are easy to read;

iii. Provides wide margins and ample line spacing;

iv. Uses boldface or italics for key words; and

v. In a form that combines the licensee's notice with other information, uses distinctive type size, style, and graphic devices, such as shading or sidebars.

(c) Notices on websites. If a licensee provides a notice on a web page, the licensee designs its notice to call attention to the nature and significance of the information in it if the licensee:

i. Uses text or visual cues to encourage scrolling down the page if necessary to view the entire notice and ensure that other elements on the website (such as text, graphics, hyperlinks, or sound) do not distract attention from the notice; and

ii. Places the notice on a screen that consumers frequently access, such as a page on which transactions are conducted or that connects directly to the notice and is labeled appropriately to convey the importance, nature, and relevance of the notice.

C. "Collect" means to obtain information that the financial institution organizes or can retrieve by the name of an individual or by identifying number, symbol, or other identifying particular assigned to the individual, irrespective of the source of the underlying information.

D. "Commissioner" means the commissioner of the Department of Financial Regulation.

E. "Company" means any corporation, limited liability company, business trust, general or limited partnership, association, sole proprietorship or similar organization.

F.

(1) "Consumer" means an individual who seeks to obtain, obtains or has obtained a financial product or service from a financial institution that is to be used primarily for personal, family, or household purposes, or that individual's legal representative.

(2) Examples.

(a) An individual who provides nonpublic personal information to a licensee in connection with obtaining or seeking to obtain financial, investment, or economic advisory services relating to an insurance product or service is a consumer regardless of whether the licensee establishes an ongoing advisory relationship.

(b) An applicant for insurance prior to the inception of insurance coverage is a licensee's consumer.

(c) An individual who is a consumer of another financial institution is not a licensee's consumer solely because the licensee is acting as agent for, or provides processing or other services to, that financial institution.

(d) An individual is a licensee's consumer if the licensee discloses nonpublic personal financial information about the individual to a nonaffiliated third party and one of the following exist:

i. The individual is a beneficiary of a life insurance policy underwritten by the licensee;

ii. The individual is a claimant under an insurance policy issued by the licensee;

iii. The individual is an insured or an annuitant under an insurance policy or an annuity, respectively, issued by the licensee; or

iv. The individual is a mortgagor of a mortgage covered under a mortgage insurance policy.

(e) Provided that the licensee provides the initial, annual, and revised notices under sections 5, 6, and 9 to the plan sponsor, group or blanket insurance policyholder, group annuity contract holder, o r workers' compensation plan participant, and further provided that the licensee does not disclose to a nonaffiliated third party nonpublic personal financial information about such an individual other than as permitted under sections 14, 15, and 16, an individual is not a consumer of the licensee solely because he or she is:

i. A participant in or beneficiary of an employee benefit plan that the licensee administers or sponsors or for which the licensee acts as a trustee, insurer, or fiduciary;

ii. Covered under a group or blanket insurance policy or group annuity contract issued by the licensee; or

iii. A claimant covered by a workers' compensation plan.

(f) The individuals described in subdivisions (e)(i) through (iii) of this subsection F are consumers of a licensee if the licensee does not meet all the conditions of subdivision (e).

(g) In no event shall the individuals, solely by virtue of the status described in subdivisions (e)(i) through (iii) of this subsection F, be deemed to be customers for purposes of this regulation.

(h) An individual is not a licensee's consumer solely because he or she is a beneficiary of a trust for which the licensee is a trustee.

(i) An individual is not a licensee's consumer solely because he or she has designated the licensee as trustee for a trust.

G. "Consumer reporting agency" has the same meaning as in section 603 of the federal Fair Credit Reporting Act (15 U.S.C. §1681 a(f)) and shall include any "credit reporting agency" within the meaning of 2480 a(4).

H. "Control" has the same meaning as in 3681.

I. "Customer" means a consumer who has a customer relationship with a licensee.

J. "Customer relationship" means a continuing relationship between a consumer and a licensee under which the licensee provides one or more insurance products or services to the consumer that are to be used primarily for personal, family, or household purposes.

(1) Examples.

(a) A consumer has a continuing relationship with a licensee if:

i. The consumer is a current policyholder of an insurance product issued by or through the licensee; or

ii. The consumer obtains financial, investment, or economic advisory services relating to an insurance product or service from the licensee for a fee.

(b) A consumer does not have a continuing relationship with a licensee if:

i. The consumer applies for but does not purchase insurance from the licensee;

ii. The licensee sells the consumer travel insurance in an isolated transaction;

iii. The consumer is no longer a current policyholder of an insurance product or no longer obtains insurance services with or through the licensee;

iv. The consumer is a beneficiary or claimant under a policy and has submitted a claim under a policy choosing a settlement option involving an ongoing relationship with the licensee;

v. The consumer is a beneficiary or claimant under a policy and has submitted a claim under that policy choosing a lump sum settlement option;

vi. The consumer's policy is lapsed, expired, or otherwise inactive or dormant under the licensee's business practices, and the licensee has not communicated with the consumer about the relationship for a period of 12 consecutive months, other than annual privacy notices, material required by law or regulation, communication at the direction of a state or federal authority, or promotional materials;

vii. The consumer is an insured or annuitant under an insurance policy or annuity, respectively, but is not the policyholder or owner of the insurance policy or annuity; or

viii. The consumer's last known address according to the licensee's records is invalid. For purposes of this regulation, an address of record is invalid if mail sent to that address by the licensee has been returned by the postal authorities as undeliverable and if subsequent attempts by the licensee to obtain a current valid address for the consumer have been unsuccessful.

K. "Financial institution" means any institution the business of which is engaging in activities that are financial in nature or incidental to such financial activities as described in section 4 of the Bank Holding Company Act of 1956 (12 U.S.C. §1843).

(1) Financial institution does not include:

(a) Any person or entity with respect to any financial activity that is subject to the jurisdiction of the Commodity Futures Trading Commission under the Commodity Exchange Act (7 U.S.C. §1 et seq.);

(b) The Federal Agricultural Mortgage Corporation or any entity charged and operating under the Farm Credit Act of 1971 (12 U.S.C. §2001 et seq.); or

(c) Any institution chartered by Congress specifically to engage in securitizations, secondary market sales (including sales of servicing rights), or similar transactions related to a transaction of a consumer, as long as the institution does not sell or transfer nonpublic personal information to a nonaffiliated third party.

L. "Financial product or service" means any product or service that a financial holding company could offer by engaging in an activity that is financial in nature or incidental to such a financial activity under section 4 of the Bank Holding Company Act of 1956 (12 U.S.C. §1843).

(1) Financial service includes a financial institution's evaluation or brokerage of information that the financial institution collects in connection with a request or an application from a consumer for a financial product or service.

M. "Health care" means:

(1) Preventive, diagnostic, therapeutic, rehabilitative, maintenance or palliative care, services, procedures, tests or counseling that:

(a) Relates to the physical, mental or behavioral condition of an individual; or

(b) Affects the structure or function of the human body or any part of the human body, including the banking of blood, sperm, organs or any other tissue; or

(c) Prescribing, dispensing, or furnishing to an individual drugs or biologicals, medical devices, or health care equipment and supplies.

N. "Health care provider" means a physician or other health care practitioner licensed, accredited or certified to perform specified health services consistent with state law, or a health care facility.

O. "Health information" means any information or data except age or gender, whether oral or recorded in any form or medium, created by or derived from a health care provider or the consumer that relates to:

(1) The past, present or future physical, mental or behavioral health or condition of an individual;

(2) The provision of health care to an individual; or

(3) Payment for the provision of health care to an individual.

P. "Insurance product or service" means any product or service that is offered by a licensee pursuant to Part 3 of Title 8 V.S.A.

(1) Insurance service includes a licensee's evaluation, brokerage, or distribution of information that the licensee collects in connection with a request or an application from a consumer for an insurance product or service.

Q. "Licensee" means any licensed insurer, producer, or other person licensed or required to be licensed, authorized or required to be authorized, or registered or required to be registered pursuant to Part 3 of Title 8 V.S.A., except for a person registered under 4248.

(1) "Licensee" also means an unauthorized insurer that accepts business placed through a licensed surplus lines broker in this State, but only in regard to the surplus lines insurance placed pursuant to Chapter 138 of Title 8 V.S.A.

(2) A licensee is not subject to the notice and opt-in requirements for nonpublic personal financial information set forth in Articles 1, II, III and IV if the licensee is an employee, agent, or other representative of another licensee ("the principal") and:

(a) The principal otherwise complies with and provides the notices required by this regulation; and

(b) The licensee does not disclose any nonpublic personal financial information to any person other than the principal or its affiliates except in a manner permitted by this regulation.

(3) A surplus lines broker or surplus lines insurer shall be deemed to be in compliance with the notice and opt- in requirements for nonpublic personal financial information set forth in Articles I, II, III and IV provided that:

(a) The broker or insurer does not disclose nonpublic personal information of a consumer or customer to nonaffiliated third parties for any purpose, including joint servicing or marketing under section 14, except as permitted by section 15 or 16; and

(b) The broker or insurer delivers a notice to the consumer at the time a customer relationship is established on which the following is printed in 16-point type:

PRIVACY NOTICE

"Neither the U.S. brokers that handled this insurance nor the insurers that have underwritten this insurance will disclose nonpublic personal information concerning the buyer to nonaffiliates of the brokers or insurers except as permitted by law."

R. "Nonaffiliated third party" means any person except a licensee's affiliate or a person employed jointly by a licensee and any company that is not the licensee's affiliate (but nonaffiliated third party includes the other company that jointly employs the person).

(1) "Nonaffiliated third party" includes any company that is an affiliate solely by virtue of the direct or indirect ownership or control of the company by the licensee or its affiliate in conducting merchant banking or investment banking activities of the type described in section 4 of the federal Bank Holding Company Act and 12603 or insurance company investment activities of the type described in section 4 of the federal Bank Holding Company Act (12 U.S.C. §1843).

S. "Nonpublic personal health information" means health information:

T. "Nonpublic personal financial information" means personally identifiable financial information and any list, description, or other grouping of consumers (and publicly available information pertaining to them) that is derived using any personally identifiable financial information that is not publicly available.

(1) "Nonpublic personal financial information" does not include:

(a) Health information;

(b) Publicly available information, except as included on a list described in subdivision (1)(c) of this subsection 1 T; or

(c) Any list, description or other grouping of consumers (and publicly available information pertaining to them) that is derived without using any personally identifiable financial information that is not publicly available.

(2) Examples.

(a) Nonpublic personal financial information includes any list of individuals' names and street addresses that is derived in whole or in part using personally identifiable financial information that is not publicly available, such as account numbers.

(b) Nonpublic personal financial information does not include any list of individuals' names and addresses that contains only publicly available information, is not derived in whole or in part using personally identifiable financial information that is not publicly available, and is not disclosed in a manner that indicates that any of the individuals on the list is a consumer of a financial institution.

U. "Nonpublic personal health information" means health information that identifies an individual who is the subject of the information or with respect to which there is a reasonable basis to believe that the information could be used to identify an individual.

V. "Opt in" or "Opt-in" means the written or, if the consumer agrees, electronic authorization of the consumer allowing a licensee to disclose nonpublic personal financial information to a nonaffiliated third party, other than as permitted under sections 14, 15, or 16.

W. "Personally identifiable financial information" means any information that a consumer provides to a licensee to obtain an insurance product or service from the licensee, that is about a consumer a n d results from a transaction involving an insurance product or service between a licensee and a consumer, or that the licensee otherwise obtains about a consumer in connection with providing an insurance product or service to that consumer.

(1) Examples.

(a) Information included. Personally identifiable financial information includes:

i. Information a consumer provides to a licensee on an application to obtain an insurance product or service;

ii. Account balance information and payment history;

iii. The fact that an individual is or has been one of the licensee's customers or has obtained an insurance product or service from the licensee;

iv. Any information about the licensee's consumer if it is disclosed in a manner that indicates that the individual is or has been the licensee's consumer;

v. Any information that a consumer provides to a licensee or that the licensee or its agent otherwise obtains in connection with collecting on a loan or servicing a loan;

vi. Any information the licensee collects through an Internet cookie (an information-collecting device from a web server); and

vii. Any information from a consumer report.

(b) Information not included. Personally identifiable financial information does not include:

i. Health information;

ii. A list of names and addresses of customers of an entity that is not a financial institution; or

iii. Information that does not identify a consumer, such as aggregate information or blind data that does not contain personal identifiers such as account numbers, names, or addresses.

X. "Publicly available information" means any information that a licensee has a reasonable basis to believe is lawfully made available to the general public from federal, state, or local government records, widely distributed media, or disclosures to the general public that are required to be made by federal, state, or local law.

(1) Reasonable basis. A licensee has a reasonable basis to believe that information is lawfully made available to the general public if the licensee has taken steps to determine:

(a) That the information is of the type that is available to the general public; and

(b) Whether an individual can direct that the information not be made available to the general public and, if so, that the licensee's consumer has not done so.

(2) Examples.

(a) Government records. Publicly available information in government records includes information in government real estate records and security interest filings.

(b) Widely distributed media. Publicly available information from widely distributed media includes information from a telephone book, television or radio program, newspaper, or website that is available to the general public on an unrestricted basis. A website is not restricted merely because an Internet service provider or site operator requires a fee or password, so long as access is available to the general public.

(c) Reasonable basis.

i. A licensee has a reasonable basis to believe that mortgage information is lawfully made available to the general public if the licensee has determined that the information is of the type included on the public record in the jurisdiction where the mortgage would be recorded.

ii. A licensee has a reasonable basis to believe that an individual's telephone number is lawfully made available to the general public if the licensee has located the telephone number in the telephone book or the consumer has informed the licensee that the telephone number is not unlisted.

ARTICLE II. PRIVACY AND OPT IN NOTICES FOR NONPUBLIC PERSONAL INFORMATION

Section 5. Initial Privacy Notice to Consumers Required.

A. Initial notice requirement. A financial institution shall provide a clear and conspicuous notice that accurately reflects its privacy policies and practices with respect to nonpublic personal information to:

(1) Customer. An individual who becomes the financial institution's customer, not later than when the financial institution establishes a customer relationship, except as provided in subsection E of this section; and

(2) Consumer. A consumer, before the financial institution discloses any nonpublic personal information about the consumer to any nonaffiliated third party, if the financial institution makes a disclosure other than as authorized by Sections 15, 16 and 17.

B. When initial notice to a consumer is not required. A financial institution is not required to provide an initial notice to a consumer under subsection A(2) of this section if:

(1) the financial institution does not disclose any nonpublic personal information about the consumer to any nonaffiliated third party, other than as authorized by Sections 15, 16 and 17, and the financial institution does not have a customer relationship with the consumer; or

(2) a notice has been provided by an affiliate, as long as the notice clearly identifies all affiliates to whom the notice applies and is accurate with respect to the financial institution and the other affiliates.

C. When the financial institution establishes a customer relationship.

(1) General rule. A licensee establishes a customer relationship at the time the licensee and the consumer enter into a continuing relationship.

(2) Examples of establishing customer relationship. A licensee establishes a customer relationship when the consumer:

(a) Becomes a policyholder of a licensee that is an insurer when the insurer delivers an insurance policy or contract to the consumer, or in the case of a licensee that is an insurance producer or insurance broker, obtains insurance through that licensee; or

(b) Agrees to obtain financial, economic, or investment advisory services relating to insurance products or services for a fee from the licensee.

D. Existing customers. When an existing customer obtains a new insurance product or service from a licensee that is to be used primarily for personal, family, or household purposes, the licensee satisfies the initial notice requirements of subsection A of this section 5 as follows:

(1) The licensee provides a revised policy notice under section 9 that covers the customer's new insurance product or service; or

(2) If the initial, revised, or annual notice that the licensee most recently provided to the customer was accurate with respect to the new insurance product or service, the licensee does not need to provide a new privacy notice under subsection A of this section 5.

E. Exceptions to allow subsequent delivery of notice.

(1) A licensee may provide the initial notice required by subdivision A(1) of this section 5 within a reasonable time after the licensee establishes a customer relationship if:

(a) Establishing the customer relationship is not at the customer's election; or

(b) Providing notice not later than when the financial institution establishes a customer relationship would substantially delay the customer's transaction and the customer agrees to receive the notice at a later time.

(2) Examples.

(a) Not at customer's election. Establishing a customer relationship is not at the customer's election if the licensee acquires or is assigned the customer's policy from another financial institution or residual market mechanism and the customer does not have a choice about the licensee's acquisition or assignment.

(b) Substantial delay of customer's transaction. Providing notice not later than when a licensee establishes a customer relationship would substantially delay the customer's transaction when the licensee and the individual agree over the phone to enter into a customer relationship involving prompt delivery of the insurance product or service.

(c) No substantial delay of customer's transaction. Providing notice not later than when the licensee establishes a customer relationship would not substantially delay the customer's transaction when the relationship is initiated in person at the licensee's office or through other means by which the customer may view the notice, such as on a website.

F. Delivery. When a financial institution is required to deliver an initial privacy notice by this section, the financial institution shall deliver it according to Section 10. If the financial institution uses a short-form initial notice for non-customers according to Section 7 D, the financial institution may deliver its privacy notice according to Section 7 D(3).

Section 6. Annual Privacy Notice to Customers Required.

A. General rule. Except as provided in subsection D of this section 6, a licensee shall provide a clear and conspicuous notice to customers that accurately reflects its privacy policies and practices with respect to nonpublic personal information not less than annually during the continuation of the customer relationship. Annually means at least once in any period of 12 consecutive months during which that relationship exists. A licensee may define the 12 consecutive-month period, but the licensee shall apply it to the customer on a consistent basis.

(1) Example. A licensee provides a notice annually if it defines the 12 consecutive-month period as a calendar year and provides the annual notice to the customer once in each calendar year following the calendar year in which the licensee provided the initial notice. For example, if a customer opens an account on any day of year one, the licensee shall provide an annual notice to that customer by December 31 of year two.

B. Termination of customer relationship. A licensee is not required to provide an annual notice to a former customer. A former customer is an individual with whom a licensee no longer has a continuing relationship.

(1) Examples. A licensee no longer has a continuing relationship with an individual in any of the following circumstances:

(a) The individual no longer is a current policyholder of an insurance product or no longer obtains insurance services with or through the licensee.

(b) The individual's policy is lapsed, expired, or otherwise inactive or dormant under the licensee's business practices, and the licensee has not communicated with the individual about the relationship for a period of twelve (12) consecutive months, other than to provide annual privacy notices, material required by law or regulation, or promotional materials.

(c) The individual's last known address according to the licensee's records is deemed invalid. An address of record is deemed invalid if mail sent to that address by the licensee has been returned by the postal authorities as undeliverable and if subsequent attempts by the licensee to obtain a current valid address for the individual have been unsuccessful.

(d) In the case of providing real estate settlement services, at the time the individual completes execution of all documents related to the real estate closing, payment for those services has been received, or the licensee has completed all of its responsibilities with respect to the settlement, including filing documents on the public record, whichever is later.

C. Delivery. When a licensee is required by this section to deliver an annual privacy notice, the licensee shall deliver it according to section 10.

D. Exception to general rule.

(1) When exception available. A licensee is not required to deliver an annual privacy notice to a customer if the licensee:

(a) Provides nonpublic personal information to nonaffiliated third parties only in accordance with sections 14, 15, and 16;

(b) Has not changed its policies and practices with regard to disclosing nonpublic personal information from the policies and practices that were disclosed in the most recent privacy notice (whether initial, annual, or revised) provided pursuant to this regulation;

(c) Posts its current privacy notice continuously and in a clear and conspicuous manner on a page of its website on which the only content is the privacy notice and instructions for a consumer to revoke a prior opt-in direction with respect to the licensee's sharing of the consumer's nonpublic personal information, if applicable, and which is accessible without requiring a consumer to provide any information such as a login name or password or agree to any conditions to access the page; and

(d) Maintains availability of its current privacy notice to customers upon request.

(2) Delivery of annual privacy notice after licensee no longer meets the requirements for the exception. If a licensee has been excepted from delivering an annual privacy notice pursuant to subsection D(1) of this section 6 and changes its policies and practices in such a way that it no longer meets the requirements for the exception, the licensee must deliver a new privacy notice to customers at least 60 days prior to the effective date of the change in its policies or practices. The new privacy notice will be treated as an initial privacy notice for purposes of this regulation and the licensee's obligation to provide an annual privacy notice thereafter shall be determined in accordance with the requirements and exceptions of this section.

Section 7. Information to be Included in Privacy Notices.

A. General rule. The initial, annual, and revised privacy notices that a licensee provides under sections 5, 6, and 9 shall include each of the following items of information, in addition to any other information the licensee wishes to provide, that applies to the licensee and to the consumers to whom the licensee sends its privacy notice:

(1) The categories of nonpublic personal information that the licensee collects;

(2) The categories of nonpublic personal information that the licensee discloses;

(3) The categories of affiliates and nonaffiliated third parties to whom the licensee discloses nonpublic personal information, other than those parties to whom the licensee discloses information under sections 14, 15 and 16;

(4) The categories of nonpublic personal information about the licensee's former customers that the licensee discloses and the categories of affiliates and nonaffiliated third parties to whom the licensee discloses nonpublic personal information about the licensee's former customers, other than those parties to whom the licensee discloses information under sections 14, 15 and 16;

(5) If a licensee discloses nonpublic personal financial information to a nonaffiliated third party under section 14 (and no other exception in section 15 or 16 applies to that disclosure), a separate description of the categories of information that the licensee discloses as modified by section 14 and the categories of nonaffiliated third parties with whom the licensee has contracted;

(6) An explanation of the consumer's right to opt in under subsection 11 A prior to the disclosure of nonpublic personal financial information to nonaffiliated third parties, including the methods by which the consumer may exercise that right at any time;

(7) Any disclosures that the licensee makes under section 603 (iii) of the federal Fair Credit Reporting Act (15 U.S.C. §1681 a(d)(2)(A)(iii)) and the federal implementing regulations, as modified by 15 U.S.C. §1681 t(b)(2) and the Vermont Fair Credit Reporting Act, 2480 e (those that, under Vermont law, require that consumers consent prior to disclosures of information among affiliates);

(8) The licensee's policies and practices with respect to protecting the confidentiality and security of nonpublic personal information; and

(9) Any disclosure that the licensee makes under subsection B of this section 7.

B. Description of parties subject to exceptions. If a financial institution discloses nonpublic personal information as authorized under Sections 15, 16 and 17, the financial institution is not required to list those exceptions in the initial or annual privacy notices required by Sections 5 and 6. When describing the categories of parties to whom disclosure is made, the financial institution is required to state only that it makes disclosures to other affiliated or nonaffiliated third parties, as applicable, as permitted by law.

C. Examples.

(1) Categories of nonpublic personal information that the financial institution collects. A financial institution satisfies the requirement to categorize the nonpublic personal information it collects if the financial institution categorizes it according to the source of the information, as applicable:

(a) Information from the consumer;

(b) Information about the consumer's transactions with the financial institution or its affiliates;

(c) Information about the consumer's transactions with nonaffiliated third parties; and

(d) Information from a consumer reporting agency.

(2) Categories of nonpublic personal financial information a financial institution discloses.

(a) A financial institution satisfies the requirement to categorize nonpublic personal information it discloses if the financial institution categorizes the information according to source, as described in subdivision (1) of this subsection C, as applicable, and provides a few examples to illustrate the types of information in each category. These might include:

(i) Information from the consumer, including application information, such as assets and income and identifying information, such as name, address and social security number;

(ii) Transaction information, such as information about balances, payment history and parties to the transaction; and

(iii) Information from consumer reports, such as a consumer's creditworthiness and credit history.

(b) A financial institution does not adequately categorize the information that it discloses if the financial institution uses only general terms, such as transaction information about the consumer.

(c) If a financial institution reserves the right to disclose all of the nonpublic personal financial information about consumers that it collects, the financial institution may simply state that fact without describing the categories or examples of nonpublic personal financial information that the financial institution discloses.

(3) Categories of affiliates and nonaffiliated third parties to whom the financial institution discloses.

(a) A licensee satisfies the requirement to categorize the affiliates and nonaffiliated third parties to which the licensee discloses nonpublic personal financial information about consumers if the licensee identifies the types of businesses in which they engage.

(b) Types of businesses may be described by general terms only if the licensee uses a few illustrative examples of significant lines of business. For example, a licensee may use the term financial products or services if it includes appropriate examples of significant lines of businesses, such as life insurer, automobile insurer, consumer banking, or securities brokerage.

(c) A licensee also may categorize the affiliates and nonaffiliated third parties to which it discloses nonpublic personal financial information about consumers using more detailed categories.

(4) Disclosures under exception for service providers and joint marketers. If a financial institution discloses nonpublic personal financial information under the exception in Section 14 to a nonaffiliated third party to market products or services that it offers alone or jointly with another financial institution, the financial institution satisfies the disclosure requirement of Subsection A(5) of this section if it:

(a) Subject to the limitations in Section 14, lists the categories of nonpublic personal financial information it discloses, using the same categories and examples the financial institution used to meet the requirements of Subsection A(2) of this section, as applicable; and

(b) States whether the third party is:

(i) A service provider that performs marketing services on the financial institution's behalf or on behalf of the financial institution and another financial institution; or

(ii) A financial institution with whom the financial institution has a joint marketing agreement.

(5) Simplified notices. If a licensee does not disclose, and does not wish to reserve the right to disclose, nonpublic personal financial information about customers or former customers to affiliates or nonaffiliated third parties except as authorized under sections 14, 15, and 16, the licensee may simply state that fact, in addition to the information it must provide under subsections A(1), A(8), A(9), and B of this section 7.

(6) Confidentiality and security. A financial institution describes its policies and practices with respect to protecting the confidentiality and security of nonpublic personal information if it does both of the following:

(a) Describes in general terms who is authorized to have access to the information; and

(b) States whether the financial institution has security practices and procedures in place to ensure the confidentiality of the information in accordance with the financial institution's policy. The financial institution is not required to describe technical information about the safeguards it uses.

D. Short-form initial notice with opt in notice for non-customers.

(1) A financial institution may satisfy the initial notice requirements in Sections 5 A (2) and 8C for a consumer who is not a customer by providing a short-form initial notice at the same time as the financial institution delivers an opt in notice under Section 8.

(2) A short-form initial notice shall:

(a) Be clear and conspicuous;

(b) State that the licensee's privacy notice is available upon request; and

(c) Explain a reasonable means by which the consumer may obtain that notice.

(3) The licensee shall deliver its short-form initial notice according to section 10. The licensee is not required to deliver its privacy notice with its short-form initial notice. The licensee instead may simply provide the consumer a reasonable means to obtain its privacy notice. If a consumer who receives the licensee's short-form notice requests the licensee's privacy notice, the licensee shall deliver its privacy notice according to section 10.

(4) Examples of obtaining privacy notice. The licensee provides a reasonable means by which a consumer may obtain a copy of its privacy notice if the licensee:

(a) Provides a toll-free telephone number that the consumer may call to request the notice; or

(b) For a consumer who conducts business in person at the financial institution's office, maintains copies of the notice on hand that the financial institution provides to the consumer immediately upon request.

E. Future disclosures. The financial institution's notice may include:

(1) Categories of nonpublic personal financial information that the financial institution reserves the right to disclose in the future, but does not currently disclose; and

(2) Categories of affiliates or nonaffiliated third parties to whom the financial institution reserves the right in the future to disclose, but to whom the financial institution does not currently disclose, nonpublic personal financial information.

F. Sample clauses. Sample clauses illustrating some of the notice content required by this section are included in Appendix A.

G. Federal Model Privacy Form.

(1) Vermont statutes and regulations relating to consumer privacy contain privacy notice content requirements with significant differences from federal content requirements. Among other differences, Vermont is an "opt-in" state.

(2) Federal Regulation P (Privacy of Consumer Financial Information), 12 C.F.R. Part 1016, contains a model privacy form at Appendix to Part 1016 - Model Privacy Form ("Federal Model Privacy Form").

(3) A licensee that uses the Federal Model Privacy Form in accordance with the instructions for use of the Federal Model Privacy Form as set forth in the Appendix to Part 1016, as supplemented by the requirements of this subsection, is in compliance with the content notice requirements of this regulation. Use of the Federal Model Privacy Form is not required. Licensees may use other types of privacy notices so long as the notices comply with this regulation.

(4) Vermont laws and regulations require licensees to obtain an "opt-in" consent from a consumer prior to sharing nonpublic personal information with an affiliate or nonaffiliated third party, except as otherwise specifically permitted by this regulation. A licensee may use the Federal Model Privacy Form to comply with this regulation in one of the following ways:

Option 1. A licensee may provide a generalized notice to its Vermont consumers that answers "no" to each of the questions about whether it shares information:

(i) "For our affiliates' everyday business purposes - information about your creditworthiness;" and

(ii) "for nonaffiliates to market to you;" OR

Option 2. A licensee may provide a generalized notice to consumers across a number of states, including Vermont, and answer "yes" to the questions in Option 1 above, provided it includes a discussion on the application of Vermont law in the "Other Important Information" box on page 2 of the Federal Model Privacy Form and complies with the requirements in subdivision (5) of this subsection 7 G.

(5) A financial institution that chooses to use the Federal Model Privacy Form as provided in Option 2 above shall provide the following information:

(a) The "Other Important Information" box on the Federal Model Privacy Form contains statements that convey the following information:

Other Important Information For Vermont Members/Customers.

We will not disclose information about your creditworthiness to our affiliates and will not disclose your personal information, financial information, credit report, or health information to nonaffiliated third parties to market to you, other than as permitted by Vermont law, unless you authorize us to make those disclosures.

Additional information concerning our privacy policies can be found at [website link] or call [telephone number].

AND

(b) The additional information provided on the financial institution's website contains the information required by this regulation; to the extent such information is not already included in the financial institution's privacy notice.

Section 8. Form of Opt in Notice to Consumers and Opt in Methods.

A. Form of opt- in notice. A licensee required to provide an opt-in notice under subsection 11 A may not disclose any nonpublic personal financial information pertaining to a consumer to a nonaffiliated third party unless the licensee:

(1) Has provided to the consumer a clear and conspicuous notice, in writing or electronic form, of the categories of nonpublic personal financial information that may be disclosed and the categories of nonaffiliated third parties to whom the licensee discloses nonpublic personal financial information;

(2) Has identified the financial products or services that the consumer obtains from the licensee, either singly or jointly, to which the opt-in direction would apply;

(3) Has identified the methods by which the consumer may subsequently revoke the opt-in direction;

(4) Has clearly and conspicuously requested in writing or electronic form that the consumer affirmatively authorizes such disclosure; and

(5) Has obtained from the consumer such affirmative consent and such consent has not been withdrawn.

B. Unreasonable revocation of opt-in direction. The licensee does not provide a reasonable means of revoking an opt- in direction if the only means is for the consumer to write his or her own letter or use a check-off box that was provided with the initial notice but is not included with subsequent notices.

C. Duration and withdrawal of consent. A consumer's direction to opt in under this subsection is effective until the consumer revokes it in writing or, if the consumer agrees, electronically; provided, however, that any withdrawal or revocation of consent is subject to the rights of a licensee that acted reasonably in reliance on the consent prior to knowledge of its withdrawal or revocation. When a customer relationship terminates, the customer's opt-in direction continues to apply to the nonpublic personal financial information collected during or related to that relationship. If the individual subsequently establishes a new customer relationship with the licensee, the opt-in direction that applied to the former relationship does not apply to the new relationship.

D. A licensee may not disclose any aggregate list of consumers containing or derived from nonpublic personal financial information to a nonaffiliated third party unless the licensee has satisfied, for each consumer on the list, the requirements of subdivisions (1) through (5) of subsection 8 A.

E. This section shall not restrict a licensee from disclosing nonpublic personal financial information as authorized in sections 14, 15, and 16.

F. A licensee shall retain the opt-in direction in the record of the individual who is the subject of nonpublic personal financial information.

G. Joint relationships. If two or more consumers jointly obtain an insurance product or service from a licensee, the licensee may only disclose nonpublic personal financial information of a consumer to a nonaffiliated third party after obtaining an affirmative consent notice from that consumer. Joint information may only be disclosed after obtaining the affirmative consent notice from all joint consumers of the product or service.

H. Same form as initial notice permitted. A licensee may provide the opt- in notice required by this section together with or on the same written or electronic form as the initial notice the licensee provide in accordance with Section 5.

I. Initial notice required when opt- in notice under this section delivered subsequent to initial notice. If a licensee provides the opt-in notice later than required for the initial notice in accordance with Section 5, the licensee shall also include a copy of the initial notice with the opt- in notice in writing or, if the consumer agrees, electronically.

J. Delivery. When a licensee is required to deliver an opt- in notice by this section, the licensee shall deliver it according to section 10.

Section 9. Revised Privacy Notices.

A. General rule. Except as otherwise authorized in this regulation, a financial institution shall not, directly or through an affiliate, disclose any nonpublic personal information about a consumer to any nonaffiliated third party other than as described in the initial notice that the financial institution provided to that consumer under Section 5, unless:

(1) The financial institution has provided to the consumer a clear and conspicuous revised notice that accurately describes its policies and practices;

(2) The financial institution has provided to the consumer a new opt in notice; and

(3) The consumer has provided affirmative consent to the disclosure described in the notice.

B. Examples.

(1) Except as otherwise permitted by Sections 14, 15 and 16, a financial institution shall provide a revised notice before it:

(a) Discloses a new category of nonpublic personal financial information to any nonaffiliated third party;

(b) Discloses nonpublic personal financial information to a new category of nonaffiliated third party; or

(c) Discloses nonpublic personal financial information about a former customer to a nonaffiliated third party, if that former customer has not given affirmative consent regarding that disclosure.

(2) A revised notice is not required if the financial institution discloses nonpublic personal financial information to a new nonaffiliated third party that the financial institution adequately described in its prior notice.

C. Delivery. When a financial institution is required to deliver a revised privacy notice by this section, the financial institution shall deliver it according to Section 10.

D. Nothing in this regulation shall relieve any financial institution of any requirement under the federal or Vermont Fair Credit Reporting Acts or regulations promulgated thereunder with respect to notice and consumer consent for disclosures to affiliates.

Section 10. Delivery.

A. How to provide notices. A licensee shall provide any notices that this regulation requires so that each consumer can reasonably be expected to receive actual notice in writing o r, if the consumer agrees to electronic receipt, transmit them electronically.

B. Examples of reasonable expectation of actual notice. A licensee may reasonably expect that a consumer will receive actual notice if the licensee:

(1) Hand-delivers a printed copy of the notice to the consumer;

(2) Mails a printed copy of the notice to the last known address of the consumer separately, or in a policy, billing, or other written communication;

(3) For a consumer who conducts transactions electronically, posts the notice on the electronic site and requires the consumer to acknowledge receipt of the notice as a necessary step to obtaining a particular insurance product or service; or

(4) For an isolated transaction with a consumer, such as the licensee providing an insurance quote or selling the consumer travel insurance, posts the notice and requires the consumer to acknowledge receipt of the notice as a necessary step to obtaining the particular insurance product or service.

C. Examples of unreasonable expectation of actual notice. A licensee may not, however, reasonably expect that a consumer will receive actual notice of its privacy policies and practices if it:

(1) Only posts a sign in its office or generally publishes advertisements of its privacy policies and practices; or

(2) Sends the notice via electronic mail to a consumer who does not obtain an insurance product or service from the licensee electronically.

D. Annual notices only. A licensee may reasonably expect that a customer will receive actual notice of the licensee's annual privacy notice if:

(1) The customer uses the licensee's website to access insurance products and services electronically and agrees to receive notices at the website and the licensee posts its current privacy notice continuously in a clear and conspicuous manner on the website; or

(2) The customer has requested that the licensee refrain from sending any information regarding the customer relationship, and the licensee's current privacy notice remains available to the customer upon request.

E. Oral description of notice insufficient. A licensee may not provide any notice required by this regulation solely by orally explaining the notice, either in person or over the phone.

F. Retention or accessibility of notices for customers.

(1) For customers only, a licensee shall provide the initial notice required by subsection 5 A, the annual notice required by subsection 6 A, and the revised notice required by section 9 so that the customer can retain them or obtain them later in writing or, if the customer agrees, electronically.

(2) Examples of retention or accessibility. A licensee provides a privacy notice to the customer so that the customer can retain it or obtain it later if the licensee:

(a) Hand-delivers a printed copy of the notice to the customer;

(b) Mails a printed copy of the notice to the last known address of the customer; or

(c) Makes its current privacy notice available on a website (or a link to another website) for the customer who obtains an insurance product or service electronically and agrees to receive the notice at the website.

G. Joint notice with other financial institutions. A licensee may provide a joint notice from the licensee and one or more of its affiliates or other financial institutions, as identified in the notice, as long as the notice is accurate with respect to the licensee and the other institutions. A licensee also may provide a notice on behalf of another financial institution.

H. Joint relationships. If two or more consumers jointly obtain an insurance product or service from a licensee, the licensee may satisfy the initial, annual, and revised notice requirements of subsections 5 A, 6A, and 9A, respectively, by providing one notice to those consumers jointly.

ARTICLE III. LIMITS ON DISCLOSURES OF FINANCIAL INFORMATION

Section 11. Limits on Disclosure of Nonpublic Personal Financial Information to Nonaffiliated Third Parties.

A. Conditions for disclosure. Except as otherwise authorized in this regulation, a licensee may not, directly or through any affiliate, disclose any nonpublic personal financial information about a consumer to a nonaffiliated third party unless:

(1) The licensee has provided to the consumer an initial notice as required under section 5;

(2) The licensee has provided to the consumer an opt- in notice under section 8; and

(3) The consumer has authorized the disclosure in writing or electronically.

B. Application of opt- in to all consumers and all nonpublic personal financial information.

(1) A licensee shall comply with this section, regardless of whether the licensee and the consumer have established a customer relationship.

(2) Unless a licensee complies with this section, the licensee may not, directly or through any affiliate, disclose any nonpublic personal financial information about a consumer that the licensee has collected, regardless of whether the licensee collected it before or after providing the opt-in notice.

C. Partial opt-in. A licensee may allow a consumer to select certain nonpublic personal financial information or certain nonaffiliated third parties with respect to which the consumer wishes to opt in.

Section 12. Limits on Redisclosure and Reuse of Nonpublic Personal Financial Information.

A. Information the licensee receives under an exception.

(1) If a licensee receives nonpublic personal financial information from a nonaffiliated financial institution under an exception in section 15 or 16, the licensee's disclosure and use of that information is limited as follows:

(a) The licensee may disclose the information to the affiliates of the financial institution from which the licensee received the information;

(b) The licensee may disclose the information to its affiliates, but the licensee's affiliates may, in turn, disclose and use the information only to the extent that the licensee may disclose and use the information; and

(c) The licensee may disclose and use the information pursuant to an exception in section 15 or 16 in the ordinary course of business to carry out the activity covered by the exception under which the licensee received the information.

(2) Example. If a licensee receives information from a nonaffiliated financial institution for claims settlement purposes, the licensee may disclose the information for fraud prevention or in response to a properly authorized subpoena. The licensee may not disclose that information to a third party for marketing purposes or use that information for its own marketing purposes.

B. Information a licensee receives outside of an exception.

(1) If a licensee receives nonpublic personal financial information from a nonaffiliated financial institution other than pursuant to an exception in section 15 or 16, the licensee may disclose the information only:

(a) To the affiliates of the financial institution from which the licensee received the information;

(b) To its affiliates, but its affiliates may, in turn, disclose the information only to the extent that the licensee may disclose the information; and

(c) To any other person, if the disclosure would be lawful if made directly to that person by the financial institution from which the licensee received the information.

(2) Example. If a licensee obtains a customer list from a nonaffiliated financial institution outside of the exceptions in section 15 and 16:

(a) The licensee may use that list for its own purposes; and

(b) The licensee may disclose that list to another nonaffiliated third party only if the financial institution from which the licensee purchased the list could have lawfully disclosed the list to that third party. That is, the licensee may disclose the list in accordance with the privacy policy of the financial institution from which the licensee received the list, as limited by the absence or limitation of the opt-in direction of each consumer whose nonpublic personal financial information the licensee intends to disclose, and the licensee may disclose the list in accordance with an exception in section 15 or 16, such as to the licensee's attorneys or accountants.

C. Information a licensee discloses under an exception. If a licensee discloses nonpublic personal financial information to a nonaffiliated third party under an exception ins Section 15 or 16, the third party may disclose and use that information only as follows:

(1) The third party may disclose the information to the licensee's affiliates;

(2) The third party may disclose the information to its affiliates, but its affiliates may, in turn, disclose and use the information only to the extent that the third party may disclose and use the information; and

(3) The third party may disclose and use the information pursuant to an exception in section 15 or 16 in the ordinary course of business to carry out the activity covered by the exception under which it received the information.

D. Information a licensee discloses outside of an exception. If a licensee discloses nonpublic personal financial information to a nonaffiliated third party other than under an exception in section 15 or 16, the third party may disclose the information only:

(1) To the licensee's affiliates;

(2) To the third party's affiliates, but the third party's affiliates, in turn, may disclose the information only to the extent the third party can disclose the information; and

(3) To any other person, if the disclosure would be lawful if the licensee made it directly to that person.

E. Nothing in this regulation shall authorize any licensee to make any disclosure to an affiliate not otherwise in compliance with the requirements of the federal Fair Credit Reporting Act or regulations promulgated thereunder or the Vermont Fair Credit Reporting Acts, including, but not limited to, notice and consumer consent.

Section 13. Limits on Sharing Account Number Information for Marketing Purposes.

A. General prohibition on disclosure of policy or account numbers. A licensee shall not, directly or through an affiliate, disclose, other than to a consumer reporting agency, a policy number or similar form of access number or access code for a consumer's policy or transaction account to any nonaffiliated third party for use in telemarketing, direct mail marketing, or other marketing through electronic mail to the consumer. A licensee shall not provide a policy number or similar form of access number or access code to any nonaffiliated third party for use in telemarketing, direct mail marketing, or other marketing through electronic mail to the consumer.

B. Exceptions. Subsection A of this section 13 does not apply if a licensee discloses a policy number or similar form of access number or access code:

(1) To the licensee's service provider solely in order to perform marketing for the licensee's own products or services, as long as the service provider is not authorized to directly initiate charges to the account;

(2) To a licensee who is a producer solely to perform marketing for the licensee's own products or services; or

(3) To a participant in an affinity or similar program where the participants in the program are identified to the customer when the customer enters into the program.

C. Examples.

(1) Policy number. A policy number or similar form of access number or access code includes a number or code in an encrypted form.

(2) Policy or transaction account. For the purposes of this section, a policy or transaction account is an account other than a deposit account or a credit card account. An account is not a transaction account if a third party cannot initiate charges to it.

ARTICLE IV. EXCEPTIONS TO LIMITS ON DISCLOSURES OF NONPUBLIC PERSONAL INFORMATION

Section 14. Exception to Opt In Requirements for Disclosure of Nonpublic Personal Information for Service Providers and Joint Marketing.

A. General rule.

(1) The opt in requirements in Sections 8 and 11 do not apply when a financial institution provides nonpublic personal information to a nonaffiliated third party to perform services for the financial institution or functions on the financial institution's behalf, if the financial institution:

(a) Provides the initial notice in accordance with subsection 5 A;

(b) Enters into a contractual agreement with the third party that prohibits the nonaffiliated third party from disclosing or using the information other than to carry out the purposes for which the financial institution disclosed the information, including use under an exception in Sections 15 or 16 in the ordinary course of business to carry out those purposes; and,

(c) For joint agreements for marketing, provides only the consumer's name, contact information, and own transaction and experience information within the meaning of the federal Fair Credit Reporting Act (15 U.S.C. §1681 a(d)(2)(A)(i)) and the Vermont Fair Credit Reporting Act (2480 a (2)(A)).

(2) Examples.

(a) If a licensee discloses nonpublic personal financial information under this section to a financial institution with which the licensee performs joint marketing, the licensee's contractual agreement with that institution meets the requirements of subdivision (1)(b) of subsection A of this section if it prohibits the institution from disclosing or using the nonpublic personal financial information except as necessary to carry out the joint marketing or under an exception in Section 15 or 16 in the ordinary course of business to carry out that joint marketing.

(b) A licensee that complies with the provisions of subdivisions A(1)(a) and (b) of this section 14 may provide nonpublic personal financial information to a service provider that is a nonaffiliated third party agent of that licensee (e.g. an insurance agent who is an independent contractor as to the licensee) to enable the agent to offer, renew, or service products on behalf of the licensee.

Such disclosure shall not be subject to the limitations of subdivision A(1)(c) of this section 14.

B. Service may include joint marketing. The services a nonaffiliated third party performs for a financial institution under subsection A of this section may include marketing of the financial institution's own products or services or marketing of financial products or services offered pursuant to joint agreements between the financial institution and one or more financial institutions.

C. Definition of "joint agreement." "Joint agreement" means a written contract pursuant to which a financial institution and one or more financial institutions jointly offer, endorse or sponsor a financial product or service.

Section 15. Exceptions to Notice and Opt In Requirements for Disclosure of Nonpublic Personal Financial Information for Processing and Servicing Transactions.

A. Exceptions for processing transactions at consumer's request. The requirements for initial notice in Section 5 A(2), the opt in requirements in Sections 8 and 11, and service providers and joint marketing in Section 14 do not apply if the financial institution discloses nonpublic personal financial information as necessary to effect, administer or enforce a transaction that a consumer requests or authorizes, or in connection with:

(1) Servicing or processing an insurance product or service that a consumer requests or authorizes;

(2) Maintaining or servicing the consumer's account with a licensee or with another entity as part of a private label credit card program or other extension of credit on behalf of such entity;

(3) A proposed or actual securitization, secondary market sale (including sales of servicing rights), or similar transaction related to a transaction of the consumer;

(4) Reinsurance or stop loss or excess loss insurance; or

(5) Administering a workers compensation claim.

B. Definition of "necessary to effect, administer, or enforce a transaction." For purposes of this section, "necessary to effect, administer, or enforce a transaction" means that the disclosure is:

(1) Required, or is one of the lawful or appropriate methods, to enforce the licensee's rights or the rights of other persons engaged in carrying out the transaction or providing the product or service; or

(2) Required, or is a usual, appropriate, or acceptable method:

(a) To carry out the transaction or the product or service business of which the transaction is a part, and record, service, or maintain the consumer's account in the ordinary course of providing the insurance product or service;

(b) To administer or service benefits or claims relating to the transaction or the product or service business of which it is a part;

(c) To provide a confirmation, statement, or other record of the transaction or information on the status or value of the insurance product or service to the consumer or the consumer's agent or broker;

(d) To accrue or recognize incentives or bonuses associated with the transaction that are provided by a licensee or any other party;

(e) To underwrite insurance at the consumer's request or for any of the following purposes as they relate to a consumer's insurance: account administration; reporting, investigating, or preventing fraud or material misrepresentation; processing premium payments; processing insurance claims; administering insurance benefits (including utilization review activities); participating in research projects; or as otherwise required or specifically permitted by federal or state law; or

(f) In connection with:

i. The authorization, settlement, billing, processing, clearing, transferring, reconciling, or collection of amounts charged, debited, or otherwise paid using a debit, credit, or other payment card, check, or account number, or by other payment means;

ii. The transfer of receivables, accounts, or interests therein; or

iii. The audit of debit, credit, or other payment information.

Section 16. Other Exceptions to Notice and Opt In Requirements for Disclosure of Nonpublic Personal Financial Information.

A. Exceptions to opt-in requirements. The requirements for initial notice to consumers in subdivision 5A(2), opt-in in sections 8 and 11, and service providers and joint marketing in section 14 do not apply when a licensee discloses nonpublic personal financial information:

(1) With the consent or at the direction of the consumer, provided that the consumer has not revoked the consent or direction;

(2) In one of the following circumstances:

(a) To protect the confidentiality or security of a licensee's records pertaining to the consumer, service, product, or transaction;

(b) To protect against or prevent actual or potential fraud or unauthorized transactions;

(c) For required institutional risk control or for resolving consumer disputes or inquiries;

(d) To persons holding a legal or beneficial interest relating to the consumer; or

(e) To persons acting in a fiduciary or representative capacity on behalf of the consumer;

(3) To provide information to insurance rate advisory organizations, guaranty funds or agencies, agencies that are rating a licensee, persons that are assessing the licensee's compliance with industry standards, or the licensee's attorneys, accountants, and auditors;

(4) To the extent specifically permitted or required under other provisions of law and in accordance with the federal Right to Financial Privacy Act of 1978 (12 U.S.C. §3401 et seq.), to law enforcement agencies (including the Federal Reserve Board, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, Office of Thrift Supervision, National Credit Union Administration, Securities and Exchange Commission, Secretary of the Treasury, with respect to 31 U.S.C. Chapter 53, Subchapter II (Records and Reports on Monetary Instruments and Transactions) and 12 U.S.C. Chapter 21 (Financial Recordkeeping), and Federal Trade Commission), to state or federal civil or administrative authorities (including, but not limited to, a state insurance authority, a state banking authority, and a state securities authority), self-regulatory organizations, or for an investigation on a matter related to public safety;

(5) In one of the following circumstances:

(a) To a consumer reporting agency in accordance with the federal Fair Credit Reporting Act (15 U.S.C. §1681 et seq.); or

(b) From a consumer report reported by a consumer reporting agency;

(6) In connection with a proposed or actual affiliation, reorganization, sale, merger, transfer, or exchange of all or a portion of a business or operating unit if the disclosure of nonpublic personal financial information concerns solely consumers of the business or unit;

(7) In one of the following circumstances:

(a) To comply with federal, state, or local laws, rules, and other applicable legal requirements;

(b) To comply with a properly authorized civil, criminal, or regulatory investigation, or a subpoena or summons by federal, state, or local authorities; or

(c) To respond to judicial process or government regulatory authorities having jurisdiction over a licensee for examination, compliance, or other purposes as authorized by law;

(8) For purposes related to the replacement of a group benefit plan, group health plan, group welfare plan, or workers' compensation plan; or

(9) In the administration of an order or proceeding under chapter 145 of Title 8 V.S.A.

B. Revocation of consent. A consumer may revoke any authorization given to a licensee at any time, subject to the rights of any person that acted in reliance on the authorization prior to notice of the revocation.

ARTICLE V. RULES FOR HEALTH INFORMATION

Section 17. When Authorization Required for Disclosure of Nonpublic Personal Health Information.

A. General rule. A licensee shall not disclose nonpublic personal health information about a consumer or customer unless an authorization is obtained from the consumer or customer whose nonpublic personal health information is sought to be disclosed.

B. Exceptions.

(1) Nothing in this section shall prohibit, restrict, or require an authorization for the disclosure of nonpublic personal health information by a licensee for the performance of the following insurance functions by or on behalf of the licensee:

(a) claims administration;

(b) claims adjustment and management;

(c) underwriting;

(d) policy placement or issuance;

(e) loss control;

(f) ratemaking and guaranty fund functions;

(g) reinsurance and excess loss insurance;

(h) risk management;

(i) case management;

(j) disease management;

(k) quality assurance;

(l) quality improvement;

(m) performance evaluation;

(n) provider credentialing verification;

(o) utilization review;

(p) peer review activities;

(q) actuarial, scientific, medical or public policy research;

(r) grievance procedures;

(s) internal administration of compliance, managerial and information systems;

(t) policyholder service functions;

(u) auditing;

(v) reporting;

(w) database security;

(x) administration of consumer disputes and inquiries;

(y) external accreditation standards;

(z) the replacement of a group benefit plan or workers compensation policy or program;

(aa) activities in connection with a proposed or actual affiliation, reorganization, sale, merger, transfer, or exchange of all or part of a business or operating unit if the disclosure concerns solely consumers of the business or unit;

(bb) disclosure that is required, or is one of the lawful or appropriate methods, to enforce the licensee's rights or the rights of other persons engaged in carrying out a transaction or providing a product or service that a consumer requests or authorizes; or

(cc) any activity otherwise authorized by law.

(2) Nothing in this regulation shall prohibit, restrict, or require an authorization for the disclosure of nonpublic personal health information by a licensee for the following:

(a) detection, investigation, or reporting of actual or potential fraud, misrepresentation, or criminal activity;

(b) detection, investigation, or reporting of actual or potential violations of law or examinations by a civil or administrative agency;

(c) any activity that permits disclosure without authorization pursuant to the federal Health Insurance Portability and Accountability Act privacy rules promulgated by the U.S. Department of Health and Human Services, except as provided in section 20; or

(d) any activity required pursuant to governmental reporting authority or to comply with legal process.

C. Additional insurance functions may be added with the approval of the Commissioner to the extent they are necessary for appropriate performance of insurance functions and are fair and reasonable to the interest of consumers.

Section 18. Authorizations.

A. A valid authorization to disclose nonpublic personal health information pursuant to this Article V shall be in written or electronic form and shall contain all of the following:

(1) The identity of the consumer or customer who is the subject of the nonpublic personal health information;

(2) A general description of the types of nonpublic personal health information to be disclosed;

(3) General descriptions of the parties to whom the licensee discloses nonpublic personal health information, the purpose of the disclosure, and how the information will be used;

(4) The signature of the consumer or customer who is the subject of the nonpublic personal health information or the individual who is legally empowered to grant authority and the date signed;

(5) The length of time for which the authorization is valid, which in no event shall be more than 24 months; and

(6) Notice that the consumer or customer may revoke the authorization at any time and the procedure for making a revocation.

B. A consumer or customer who is the subject of nonpublic personal health information may revoke an authorization provided pursuant to this section at any time, subject to the rights of an individual who acted in reliance on the authorization prior to notice of the revocation.

C. A licensee shall retain the authorization or a copy thereof in the record of the individual who is the subject of nonpublic personal health information.

Section 19. Authorization Request Delivery.

A request for authorization and an authorization form may be delivered to a consumer or a customer as part of an opt in notice pursuant to Section 10, provided that the request and the authorization form are clear and conspicuous. An authorization form is not required to be delivered to the consumer or customer unless the financial institution intends to disclose protected health information pursuant to Section 17 A.

Section 20. Relationship to Federal Rules.

Irrespective of whether a licensee is subject to the federal Health Insurance Portability and Accountability Act privacy rule as promulgated by the U.S. Department of Health and Human Services, 45 C.F.R. Parts 160 and 164, (the "federal rule"), if a licensee complies with all requirements of the federal rule and its effective date provision, the licensee shall be deemed to be in compliance with the provisions of this Article; provided, however, that a licensee shall be prohibited from making disclosures under the provisions of 45 C.F.R §164.514 without the consumer's prior written consent.

Section 21. Relationship to State Laws.

Nothing in this regulation shall preempt or supersede existing state law related to medical records, health or insurance information privacy.

ARTICLE VI. ADDITIONAL PROVISIONS

Section 22. Protection and Application of Fair Credit Reporting Acts.

A. No inference shall be drawn on the basis of the provisions of this regulation regarding whether information is transaction or experience information under Section 603 of the federal Fair Credit Reporting Act (15 U.S.C. §1681 a).

B. Nothing in this regulation shall be construed to modify, limit, or supersede the operation of the Vermont Fair Credit Reporting Act (2480 a - 2480g). No inference shall be drawn on the basis of the provisions of this regulation regarding whether information is transaction or experience information under 2480 a(2). These rules shall not be construed to extend the application of the Vermont Fair Credit Reporting Act to persons who are not residents of Vermont.

Section 23. Nondiscrimination.

A. A licensee shall not unfairly discriminate against a consumer or customer because that consumer or customer has not opted in to the disclosure of his or her nonpublic personal financial information pursuant to the provisions of this regulation.

B. A licensee shall not unfairly discriminate against a consumer or customer because that consumer or customer has not opted in to the disclosure of his or her nonpublic personal health information pursuant to the provisions of this regulation.

Section 24. Violations.

In addition to any other sanctions available to the Commissioner under Vermont law for violations of this regulation, any violation of this regulation shall be deemed to be an unfair method of competition or an unfair or deceptive act or practice in the conduct of the business of insurance in this State for the purposes of chapter 129 of Title 8 V.S.A.

Section 25. Severability.

If any provision of this regulation or its applicability to any person or circumstance is held invalid by a court, the remainder of the regulation or the applicability of the provision to other persons or circumstances shall not be affected.

Section 26. Effective Date.

This revised regulation is effective as of June 20, 2023. Appendix A. Sample Clauses.

Licensees, including a group of financial holding company affiliates that use a common privacy notice, may use the following sample clauses, if the clause is accurate for each institution that uses the notice. Note that disclosure of certain information, such as assets, income, and information from a consumer reporting agency, may give rise to obligations under the federal Fair Credit Reporting Act and Vermont Fair Credit Reporting Act, such as a requirement to permit a consumer to opt in to disclosures to affiliates or designation as a consumer reporting agency if disclosures are made to nonaffiliated third parties.

A-1-Categories of information a financial institution collects (all institutions)

A licensee may use this clause, as applicable, to meet the requirement of subdivision 7A(1) to describe the categories of nonpublic personal information the licensee collects.

Sample Clause A-1:

We collect nonpublic personal information about you from the following sources:

-- Information we receive from you on applications or other forms;

-- Information about your transactions with us, our affiliates or others; and

-- Information we receive from a consumer reporting agency.

A-2-Categories of information a financial institution discloses (institutions that disclose outside of the exceptions)

A licensee may use one of these clauses, as applicable, to meet the requirement of subdivision 7A(2) to describe the categories of nonpublic personal financial information the licensee discloses. The licensee may use these clauses if it discloses nonpublic personal financial information other than as permitted by the exceptions in sections 14, 15, and 16.

Sample Clause A-2, Alternative 1:

We may disclose the following kinds of nonpublic personal financial information about you:

-- Information we receive from you on applications or other forms, such as [provide illustrative examples, such as "your name, address, social security number, assets and income"];

-- Information about your transactions with us, our affiliates or others, such as [provide illustrative examples, such as "your account balance, payment history, parties to transactions and credit card usage"]; and

-- Information we receive from a consumer reporting agency, such as [provide illustrative examples, such as "your creditworthiness and credit history"].

Sample Clause A-2, Alternative 2:

We may disclose all of the information that we collect, as described [describe location in the notice, such as "above" or "below"].

A-3-Categories of information a financial institution discloses and parties to whom the financial institution discloses (institutions that do not disclose outside of the exceptions)

A licensee may use this clause, as applicable, to meet the requirements of subdivisions 7A(2), (3), and (4) to describe the categories of nonpublic personal information about customers and former customers that the licensee discloses and the categories of affiliates and nonaffiliated third parties to whom the licensee discloses. A licensee may use this clause if the licensee does not disclose nonpublic personal financial information to any party, other than as permitted by the exceptions in sections 15 and 16.

Sample Clause A-3:

We do not disclose any nonpublic personal financial information about our customers or former customers to anyone, except as permitted by law.

A-4-Categories of parties to whom a licensee discloses (institutions that disclose outside of the exceptions)

A licensee may use this clause, as applicable, to meet the requirement of subdivision 7A(3) to describe the categories of affiliates and nonaffiliated third parties to whom the licensee discloses nonpublic personal information. This clause may be used if the licensee discloses nonpublic personal financial information other than as permitted by the exceptions in sections 14, 15, and 16, as well as when permitted by the exceptions in sections 15 and 16.

Sample Clause A-4:

We may disclose nonpublic personal information about you to the following types of third parties:

-- Financial service providers, such as [provide illustrative examples, such as "mortgage bankers, securities broker-dealers, and insurance agents"];

-- Non-financial companies, such as [provide illustrative examples, such as "retailers, direct marketers, airlines, and publishers"]; and

-- Others, such as [provide illustrative examples, such as "non-profit organizations"].

We may also disclose nonpublic personal information about you to third parties as permitted by law.

A-5-Service provider/joint marketing exception

A licensee may use one of these clauses, as applicable, to meet the requirements of subdivision 7A(5) related to the exception for service providers and joint marketing in section 14. If a licensee discloses nonpublic personal financial information under this exception, the licensee shall describe the categories of nonpublic personal financial information the licensee discloses and the categories of third parties with which the licensee has contracted.

Sample Clause A-5, Alternative 1:

We may disclose the following information to companies that perform marketing services on our behalf:

-- Information we receive from you on applications or other forms, such as [provide illustrative examples, such as "your name, address, social security number, assets, and income"];

-- Information about your transactions with us, our affiliates or others, such as [provide illustrative examples, such as "your account balance, payment history, parties to transactions, and credit card usage"]; and

-- Information we receive from a consumer reporting agency, such as [provide illustrative examples, such as "your creditworthiness and credit history"].

Sample Clause A-5, Alternative 2:

We may disclose all of the information we collect, as described [describe location in the notice, such as "above" or "below"] to companies that perform marketing services on our behalf.

Sample Clause A-5, Alternative 3:

We may disclose the following information to other financial institutions with which we have joint marketing agreements:

-- The following information we receive from you: "your name and contact information";

-- Information about your transactions with us or our affiliates, such as [provide illustrative examples of own transaction and experience information, such as "your account balance, payment history, parties to transactions, and credit card usage"].

A-6-Explanation of opt in (institutions that disclose to nonaffiliates outside of the exceptions)

A licensee may use this clause, as applicable, to meet the requirement of subdivision 7A(6) to provide an explanation of the consumer's right to authorize the disclosure of nonpublic personal financial information to nonaffiliated third parties, including the method(s) by which the consumer may exercise those rights. The licensee may use this clause if the licensee discloses nonpublic personal financial information to nonaffiliated third parties other than as permitted by the exceptions in sections 14, 15, and 16.

Sample Clause A-6:

We will not disclose nonpublic personal financial information about you to nonaffiliated third parties (other than as permitted by law) unless you authorize us to make that disclosure. Your authorization must be in writing or, if you agree, in electronic form. If you wish to authorize us to disclose your nonpublic personal financial information to nonaffiliated third parties, you may [describe the means to opt in, such as "complete and sign the enclosed, postage prepaid card and mail it to us."]

A-7-Confidentiality and security (all institutions)

A licensee may use this clause, as applicable, to meet the requirement of subdivision 7A(8) to describe its policies and practices with respect to protecting the confidentiality and security of nonpublic personal information.

Sample Clause A-7:

We restrict access to nonpublic personal information about you to [provide an appropriate description, such as "those employees who need to know that information to provide products or services to you"]. We maintain physical, electronic, and procedural safeguards that comply with state and federal regulations to guard your nonpublic personal information.

History

• EFFECTIVE DATE:
• November 17, 2001 Secretary of State Rule Log #01-60
• AMENDED:
• December 28, 2015 Secretary of State Rule Log #15-054; March 15, 2018 Secretary of State Rule Log #18-010; 6/20/2023 Secretary of State Rule Log #23-015
• STATUTORY AUTHORITY: 10, 15, 2214, 2766, 2914, 10201 et seq., 30203

Chapter 020 REGULATION NO. H-2007-05 - HEALTH CARE PRICE AND QUALITY TRANSPARENCY RULE

21-020 Code Vt. R. 21-040-020-X REGULATION NO. H-2007-05 - HEALTH CARE PRICE AND QUALITY TRANSPARENCY RULE

Section 1 Purpose

The purpose of this Rule is to provide consumers with access to information concerning health care prices, health care quality, and other information necessary to empower consumers, including uninsured consumers, to make economically sound and medically appropriate decisions.

Section 2 Authority

This Rule is issued pursuant to the authority vested in the Commissioner by law, including but not limited to 18 V.S.A. § 9410(a)(2), 8 V.S.A. § 15(a), and 18 V.S.A. § 9404(d).

Section 3 Definitions

As used in this Rule:

(1) "Brand Name Drug" means a drug marketed under a proprietary, trademark-protected name.

(2) "Charge" means the amount sought as payment by a Health Care Facility, Health Care Provider, or seller of prescription drugs, durable medical equipment, or medical supplies for a health care service or product before the application of any discount, write-off, contract or plan adjustment or allowance, or other reduction to such amount.

(3) "Commissioner" means the Commissioner of the Department.

(4) "Consumer Information Plan" means the Consumer Information Plan filed by a Health Insurer for the benefit of the Health Insurer's Members, and approved by the Commissioner under Section 4 of this Rule.

(5) "Department" means the Vermont Department of Banking, Insurance, Securities and Health Care Administration.

(6) "Diagnostic Related Group" or "DRG" means any of the diagnostic categories which Medicare accepts that can be used to classify a patient's inpatient service for reimbursement purposes.

(7) "Generic Drug" means a drug which has been approved by the Food and Drug Administration as a generic drug to be equivalent to a Brand Name Drug in dosage, safety, strength, how it is taken, quality, performance, and intended use.

(8) "Health Care Facility" means all institutions, whether public or private, proprietary or nonprofit, which offer diagnosis, treatment, inpatient or ambulatory care to two or more unrelated persons, and the buildings in which those services are offered. The term shall not apply to any facility operated by religious groups relying solely on spiritual means through prayer or healing, but includes all institutions included in subdivision 9432(7) of Title 18, except health maintenance organizations.

(9) "Health Care Provider" means a person, partnership or corporation, other than a facility or institution, licensed or certified or authorized by law to provide professional health care service in this state to an individual during that individual's medical care, treatment or confinement, and, except in connection with the requirements of Section 6 of this Rule, practicing under a participating provider agreement with a Health Insurer.

(10) " Health Care Provider Practice" means an organization of Health Care Providers whose financial information is reported annually by a Hospital pursuant to 18 V.S.A. Chapter 221, subchapter 7

(11) "Health Insurer" means:

(A) any health insurance company, nonprofit hospital and medical services corporation, or health maintenance organization with at least five percent of the lives covered in the insured market in Vermont, as reported by the Department for the prior calendar year. The requirements of this Rule apply to:

(i) a Health Insurer in connection with its insured plans;

(ii) a Health Insurer, or the controlled affiliate of a Health Insurer, acting as a third-party administrator for a health benefit plan, and

(iii) the agents or affiliates of the Health Insurer who contract to administer the benefits covered or administered by the Health Insurer, such as pharmacy benefit managers and mental health services review agents licensed under 8 V.S.A. § 4089a; and

(B) the employee health benefit plan offered by the State of Vermont, or any agency or instrumentality of the state; and

(C) Medicaid, VHAP, SCHIP and any other health benefit plan offered or administered by the Vermont Office of Health Access, to the extent permitted by federal law or authority.

(12) "Hospital" means an acute care hospital licensed under chapter 43 of Title 18, Vermont Statutes Annotated, and except for purposes of Section 6 of this Rule, any out of state hospital with more than 1,000 annual inpatient discharges of Vermont residents. The Department shall publish annually a list of hospitals that satisfy the criteria of this subdivision.

(13) "Member" means an individual or dependent covered by the health benefit plan of a Health Insurer.

(14) "Physician" means a physician practicing under a participating provider agreement with a Health Insurer, except in connection with the requirements of Section 6 of this Rule.

(15) "Price" means the amount due to a Health Care Facility, Health Care Provider, or seller of durable medical equipment, or medical supplies for a health care service or product after the application of any discount, write-off, contract or plan adjustment or allowance, or other reduction to the Charge amount, and before the application of any individual Member cost-sharing, including deductibles, co-payments, co-insurance, and out-of-pocket maximums. The "Price" of prescription drugs means the amount due to the pharmacy or other entity for the delivery of prescription drugs to the Health Insurer's Members, or the pharmacy's or other entity's usual and customary charge, whichever is lower; provided that the Health Insurer may, but is not required to disclose the lower usual and customary charge.

(16) "Primary Care Physician" means a Physician who provides primary care services, and who is designated as a primary care physician by the Health Insurer.

(17) "Rule" means the administrative rule adopted herein.

(18) "Therapeutic Equivalent Drug" means drug products classified as therapeutically equivalent by the Food and Drug Administration that can be substituted with the full expectation that the substituted product will produce the same clinical effect and safety profile as the prescribed product.

(19) "Uninsured Consumer Information Plan" means the Uninsured Consumer Information Plan filed by a Hospital or by a Health Care Provider Practice and approved by the Commissioner under Section 6 of this Rule.

Section 4 Health Insurer Consumer Price and Quality Information Plans

(a) General. Each Health Insurer shall establish, maintain and administer a Consumer Information Plan approved by the Commissioner.

(b) Filing and Approval. On or before January 1, 2009, on or before January 1, 2011, and if required thereafter under subdivision (c)(4) of this Section, each Health Insurer shall file in writing with the Commissioner a Consumer Information Plan that complies with the requirements of this Rule. The Consumer Information Plan shall be deemed approved unless the Commissioner, within 30 calendar days of filing, approves, disapproves, or approves the Consumer Information Plan subject to such conditions as the Commissioner may prescribe as necessary to ensure that the Consumer Information Plan is consistent with the provisions of this Rule, and with the provisions of 18 V.S.A. § 9410(a)(2). The Commissioner may extend the time period to review and act upon the Plan for one additional 30 day period if necessary. The Commissioner shall not disapprove a Consumer Information Plan unless the Commissioner finds that it is in noncompliance with one or more of the requirements of this Rule. The Consumer Information Plan shall take effect and be implemented six months after approval, unless the Health Insurer demonstrates and the Commissioner finds that a later effective date is needed to avoid undue financial or administrative burden. The Consumer Information Plan of a Health Insurer as defined by Section 3(11)(C) shall be deemed approved upon filing; however the Department may offer guidance to Plans filed by the Vermont Office of Health Access as is necessary and appropriate to carry out the purposes of this Rule.

(c) Phased-In Consumer Information Plan Price Information.

(1) First Phase. On and after October 1, 2008, each Health Insurer shall provide Members with a link on the Health Insurer's website to, or information on how to access, at least the information identified or described in the Department's Act 53 Hospital Community Report website for hospital quality and Charge information, and free care and discount policies.

(2) Second Phase. A Consumer Information Plan filed with the Commissioner on or before January 1, 2009 shall describe how the Health Insurer will provide consumers with Price information concerning at least the information identified or described in subdivisions (A) through (E), below.

(A) The in-patient, out-patient diagnostic and other procedures and services provided by each Hospital, as identified in the Act 53 Hospital Community Report pursuant to 18 V.S.A. § 9405b(c).

(B) The following procedures or services provided by individual Physicians or Physician practices:

(i) the list of procedures and services identified in Appendix A; or

(ii) an alternative list filed with the Commissioner, if the Commissioner determines that the alternative list will accomplish the purposes of this Rule. Such alternative list may include for Physician services and procedures a list approved by the Commissioner of "examination and management" codes, plus the code for routine obstetrical care;

(C) The 100 prescription drugs most frequently prescribed to the Health Insurer's Members, not including prescription drugs administered by a Health Care Provider in the office environment. Price information shall permit Price comparison of the list of most frequently prescribed drugs with those Brand Name Drugs, Therapeutic Equivalent Drugs, and Generic Drugs, which can be prescribed for a specific illness or condition, or for a category of illnesses or conditions. In counting the 100 most frequently prescribed drugs, a Brand Name Drug and its Generic Drug equivalent shall be counted as one drug, and different dosages of the same drug shall be counted as one drug. If a Health Insurer's Price for prescription drugs does not vary from pharmacy to pharmacy, the Health Insurer may disclose to Members that one Price applies for all pharmacies, and the Health Insurer need not list Price for individual pharmacies;

(D) The 20 items of durable medical equipment most frequently purchased or leased by the Health Insurer's Members; and

(E) The 10 items of medical supplies such as diabetic supplies, excluding any items obtained through the Health Insurer's pharmacy benefit manager's website most frequently purchased by the Health Insurer's Members.

(3) Third Phase. A Consumer Information Plan filed with the Commissioner on or before January 1, 2011 shall describe how the Health Insurer will provide consumers with Price information concerning at least the information identified or described in subdivisions (A) through (E) below.

(A) The in-patient, out-patient, diagnostic and other procedures and services provided by each Hospital, as identified in the Act 53 Hospital Community Report pursuant to 18 V.S.A. § 9405b(c).

(i) Where applicable to, and feasible for a specific Hospital in connection with inpatient procedures and services, Price information shall be aggregated for Hospital and Physician Price information for procedures and services typically associated with Diagnostic Related Group codes in a manner approved by the Commissioner upon consideration of the recommendations of the Act 53 Financial Workgroup.

(ii) Where applicable to, and feasible for a specific Hospital in connection with outpatient procedures and services, Price information shall be aggregated for Hospital and Physician Price information in a manner approved by the Commissioner upon consideration of the recommendations of the Act 53 Financial Workgroup.

(iii) The Health Insurer shall disclose to Members the methodology used to derive the Price for the Diagnostic Related Group.

(B) The following procedures or services provided by individual Physicians or Physician practices:

(i) The list of procedures and services identified in Appendix A; or an alternative list filed with the Commissioner, if the Commissioner determines that the alternative list will accomplish the purposes of this Rule.

(ii) Such alternative list may include for Physician services and procedures a list approved by the Commissioner of "examination and management" codes, plus the code for routine obstetrical care.

(iii) Such alternative list may also include a list approved by the Commissioner after consideration of an advisory committee of affected parties convened by the Department to assist in the development of filing instructions for Consumer Information Plans filed on or before January 1, 2011. The Commissioner may require Health Insurers to use a uniform or substantially uniform list of Physician procedures and services in the Health Insurer's Consumer Information Plan, if the Commissioner determines that a reasonable state-wide or national consensus has been reached with respect to the disclosure of Price information for Physician procedures and services;

(C) The 200 prescription drugs most frequently prescribed to the Health Insurer's Members, not including prescription drugs administered by a health care provider in the office environment. Price information shall permit comparison of the list of most frequently prescribed drugs with those Brand Name Drugs, Therapeutic Equivalent Drugs, and Generic Drugs, which can be prescribed for a specific illness or condition, or for a category of illnesses or conditions. In counting the 200 most frequently prescribed drugs, a Brand Name Drug and its Generic Drug equivalent shall be counted as one drug, and different dosages of the same drug shall be counted as one drug. If a Health Insurer's Price for prescription drugs does not vary from pharmacy to pharmacy, the Health Insurer may disclose to Members that one Price applies for all pharmacies, and the Health Insurer need not list Price for individual pharmacies;

(D) The 40 items of durable medical equipment most frequently purchased or leased by the Health Insurer's Members; and

(E) The 20 items of medical supplies, such as diabetic supplies, excluding any items obtained through the Health Insurer's pharmacy benefit manager's website most frequently purchased by the Health Insurer's Members.

(4) Fourth Phase. A Consumer Information Plan filed with the Commissioner on or before January 1, 2013, and every two years thereafter, shall describe how the Health Insurer will provide consumers with the following Price information:

(A) At least the information identified or described in subdivisions (3)(A) through (E), above;

(B) After consultation with affected parties, and with the approval of the Commissioner, Price information shall include an increase of the number of items disclosed of up to 400 prescription drugs, and up to 80 items of durable medical equipment, and up to 40 medical supply items; and

(C) after consultation with affected parties, and with the approval of the Commissioner by means of an order issued pursuant to 8 V.S.A. § 15, Price information concerning the following categories of care and treatment, if such care and treatment is covered by the Health Insurer: chiropractic, psychological and other mental health care and treatment, naturopathic, dental, physical therapy, osteopathic, nursing home, home health, and other care and treatment provided by Health Care Providers. A person aggrieved by an order issued under this subdivision may file an administrative appeal pursuant to BISHCA Regulation 82-1 (Revised), and the order appealed from shall be stayed as to the appellant until the final decision of the Commissioner is issued.

(D) Upon request of a Health Insurer, the Commissioner may waive or modify one or more requirements of this subdivision (4) if the Health Insurer demonstrates and the Commissioner finds that application of the requirement is unreasonable, unnecessary, or contrary to the purposes of this Rule.

(d) Phased-In Consumer Information Plan Quality Information.

(1) Hospital Quality Information.

(A) On and after October 1, 2008, each Health Insurer shall provide Members with a link on the Health Insurer's website to, or information on how to access the Department of Health and Human Services, or Centers for Medicare and Medicaid Services "Compare" websites for hospitals, nursing homes, home health agencies, and other Health Care Providers and Health Care Facilities for which similar information resources are developed in the future.

(B) In a Consumer Information Plan filed with the Commissioner on or before January 1, 2009, a Health Insurer shall use, or provide a link to the hospital quality information maintained pursuant to Act 53 to satisfy the Hospital quality information requirements of this Rule. In addition, the Health Insurer may use other Hospital quality measures approved by the Commissioner as valid and reliable, after consultation with affected parties.

(2) Physician Quality Information.

(A) In the Consumer Information Plan filed with the Commissioner on or before January 1, 2009, the Health Insurer shall describe how the Health Insurer will provide quality information at least with respect to Primary Care Physicians. In connection with such Plan, the Health Insurer shall use either:

(i) NCQA physician recognition certification to satisfy the Health Care Provider quality information requirements of this Rule. The Health Insurer shall not be obligated to secure, facilitate or promote NCQA physician recognition certification for Physicians, but shall report on whether the Physician has been certified by NCQA. The Health Insurer shall not be required to report that a Physician has not been certified by NCQA; or

(ii) quality measures approved by the Commissioner, after consultation with affected parties, as valid and reliable, or designated as "nationally recognized" by the Commissioner, after consultation with affected parties. The Commissioner may prescribe terms and conditions in connection with any such approval or designation relating to the reliable and comprehensive use of such measures. The Commissioner may require Health Insurers to use uniform or substantially uniform quality measures if the Commissioner determines that a reasonable, national consensus has been reached with respect to uniform quality measures. The Commissioner shall designate as "nationally recognized" those quality information and reporting measures endorsed by the Centers for Medicare and Medicaid Services, the National Quality Forum, or the Ambulatory Quality Alliance. The Commissioner, after consultation with affected parties, may designate other nationally recognized quality information and reporting measures.

(B) In the Consumer Information Plan filed with the Commissioner on or before January 1, 2011, the Health Insurer shall describe how the Health Insurer will provide quality information with respect to Primary Care Physicians and with respect to other Physicians. In connection with such Plan, the Health Insurer shall use both:

(i) NCQA physician recognition certification to satisfy the Health Care Provider quality information requirements of this Rule with respect to Primary Care Physicians and with respect to other Physicians. The Health Insurer shall not be obligated to secure, facilitate or promote NCQA physician recognition certification for Physicians, but shall report on whether the Physician has, or has not been certified by NCQA; and

(ii) quality measures approved by the Commissioner, after consultation with affected parties, as valid and reliable, or designated as "nationally recognized" by the Commissioner, after consultation with affected parties. The Commissioner may prescribe terms and conditions in connection with any such approval or designation relating to the reliable and comprehensive use of such measures. The Commissioner may require Health Insurers to use uniform or substantially uniform quality measures if the Commissioner determines that a reasonable, national consensus has been reached with respect to uniform quality measures. The Commissioner shall designate as "nationally recognized" quality information and reporting measures those measures endorsed by the Centers for Medicare and Medicaid Services, the National Quality Forum, or the Ambulatory Quality Alliance. The Commissioner, after consultation with affected parties, may designate other nationally recognized quality information and reporting measures.

(3) The Health Insurer may elect to not provide quality information for particular procedures and services performed by an individual Physician, or by a Hospital if the number of procedures or services performed by such individual Physician or Hospital is too small to be statistically significant; and in such circumstances, the Commissioner may approve a Health Insurer's proposed use of alternative means of obtaining statistically significant quality measures.

(4) A Consumer Information Plan filed with the Commissioner on or before January 1, 2013, and every two years thereafter, shall describe how the Health Insurer will provide consumers with the following quality information:

(A) at least the information identified or described in subdivisions (d)(1) and (2), above;

(B) after consultation with affected parties, and with the approval of the Commissioner by means of an order issued pursuant to 8 V.S.A. § 15, quality information concerning the following categories of care and treatment, if disclosure of Price information with respect to such categories of care and treatment is required under Section 4(c)(4)(C) of this Rule, and if such care and treatment is covered by the Health Insurer: chiropractic, psychological and other mental health care and treatment, naturopathic, dental, physical therapy, osteopathic, nursing home, home health, and other care and treatment provided by Health Care Providers. A person aggrieved by an order issued under this subdivision may file an administrative appeal pursuant to BISHCA Regulation 82-1 (Revised), and the order appealed from shall be stayed as to the appellant until the final decision of the Commissioner is issued; and

(C) the reporting of Price and quality information together in a manner that identifies or describes the relative value of procedures, services, prescription drugs, and major medical equipment and medical supplies.

(D) Upon request of a Health Insurer, the Commissioner may waive or modify one or more requirements of this subdivision (4) if the Health Insurer demonstrates and the Commissioner finds that application of the requirement is unreasonable, unnecessary, or contrary to the purposes of this Rule.

(e) General Content Requirements. A Consumer Information Plan shall state the manner in which the Health Insurer will comply with the following requirements during the period of time for which the Consumer Information Plan is applicable:

(1) The Health Insurer shall permit Members to view, by means of the Health Insurer's website, the Price for a particular Hospital, Physician, pharmacy, or other entity of the procedures, services, prescription drugs, and major medical equipment and supplies identified in the Health Insurer's Consumer Information Plan, or the median Price if there is a range of Prices. The Health Insurer shall permit Members to compare Prices and median Prices among specific Hospitals, Physicians, pharmacies and other entities.

(2) Price information shall be updated at least annually, and when Hospital, Physician, pharmaceutical, or other seller contracts are issued or reissued.

(3) If the Price for a particular procedure, service, prescription drug, item of medical equipment, or medical supply varies depending upon the different reimbursement rates of different Health Insurer products, the Health Insurer shall disclose the different Prices associated with the different products of the Health Insurer.

(4) During the First Phase of reporting, the Health Insurer has the option to use a link on the Health Insurer's website to the website of the applicable government agency to access the information required by subdivision (c)(1) of this Section, or to provide access to such information on the Health Insurer's own website.

(5) The Health Insurer may use a link on the Health Insurer's website to the website of the Health Insurer's pharmacy benefit manager for reporting of prescription drug information required by subdivisions (c)(2)(C), (c)(3)(C), and (c)(4) of this Section, or medical supplies purchased through the pharmacy benefit manager.

(6) The Health Insurer shall provide Members with guidance on how to estimate their out-of-pocket costs (including co-payments, coinsurance, and deductibles) for the procedures, services, prescription drugs, and major medical equipment and supplies identified in the Health Insurer's Consumer Information Plan. Upon request the Health Insurer shall provide Members assistance with estimating out-of-pocket costs. A Health Insurer shall not be required to provide on-line calculators to estimate out-of-pocket costs, provided that any alternative method offers adequate guidance to Members for estimating out-of-pocket costs.

(7) The Health Insurer shall permit Members, by means of the Health Insurer's website, to view and compare quality of care among specific Hospitals and Health Care Providers, in accordance with subsection (d) of this Section, for the procedures and services identified in the Health Insurer's Consumer Information Plan.

(8) The Health Insurer shall establish for Members alternative mechanisms other than a website for obtaining the Price and quality information required by this Rule, such as through a toll-free telephone number available during normal business hours, or by providing printed price and quality information.

(9) The Health Insurer shall disclose to Members the source or sources of Price and quality information, information relating to reliability and reporting period for the Price and quality information provided in accordance with the Consumer Information Plan. The Health Insurer may communicate to Members suitable provisions disclaiming responsibility for the reliability and accuracy of the Price and quality information provided under the Consumer Information Plan.

(10) A Health Insurer may request that the Commissioner permit the substitution of one or more of the procedures, prescription drugs, or durable medical equipment and supplies for which Price information would be otherwise provided if the Health Insurer demonstrates and the Commissioner finds that the availability of price information would have anticompetitive consequences detrimental to consumers.

(11) Upon request by a Health Insurer, the Commissioner may waive one or more requirements of this Rule if the Health Insurer demonstrates and the Commissioner finds that application of the requirement is unreasonable, unnecessary, or contrary to the purposes of this Rule.

(12) The Health Insurer shall establish a procedure for Health Care Providers to review the Price and quality information related to the Health Care Provider, and to comment on its accuracy. The Health Insurer shall promptly correct inaccuracies where warranted. The Health Insurer shall maintain records of such comments, the Health Insurer's response to such comments, and corrections for five years, in accordance with Department Regulation 99-1 (Record Retention).

Section 5 Security Measures

A Health Insurer may establish and maintain security procedures for limiting access to the Health Insurer's Price and other information to Members only, through the on-line submission of a user name and password, or through some other Member verification and security procedure described in the Consumer Information Plan and approved by the Commissioner.

Section 6 Consumer Charge and Quality Information for Uninsured Consumers

(a) Each Hospital and Health Care Provider Practice shall establish, maintain, and administer an Uninsured Consumer Information Plan that is approved by the Commissioner, and that complies with the requirements of this Rule. The Uninsured Consumer Information Plan shall be deemed approved unless the Commissioner, within 30 calendar days of filing, approves, disapproves, or approves the Uninsured Consumer Information Plan subject to such conditions as the Commissioner may prescribe as necessary to carry out the purposes of 18 V.S.A. § 9410(a)(2). The Commissioner may extend the time period to review and act upon the Plan for one additional 30 day period if necessary. The Uninsured Consumer Information Plan shall take effect and be implemented six months after approval, unless the Hospital or Health Care Provider Practice demonstrates and the Commissioner finds that a later effective date is needed to avoid undue financial or administrative burden. The Uninsured Consumer Information Plan shall be filed with the Commissioner on or before January 1, 2009. The Hospital quality and charge information shall be updated annually, and when relevant charge and other changes are made.

(b) A Hospital Uninsured Consumer Information Plan shall provide, or describe a mechanism for consumers to access the following information, and to seek additional information and assistance in understanding Hospital quality and Charge information:

(1) Hospital quality information. A Hospital shall use the hospital quality information maintained pursuant to Act 53 to satisfy the hospital quality information requirements of this Rule. In addition, a Hospital may use Hospital quality information approved by the Commissioner under Section 4(d)(1)(B);

(2) Hospital Charge information, accompanied by:

(i) free care and discount policies;

(ii) eligibility criteria, the application process, and toll-free numbers for public health insurance programs such as Medicaid, VHAP, and Catamount Health Premium Assistance; and

(iii) information on how to access the Prescription Drug Price Finder of the Vermont Attorney General's Office; and

(3) A mechanism for a consumer to learn the estimated Charge for a specific in-patient, out-patient or diagnostic procedure or service offered by the Hospital.

(c) A Health Care Provider Practice Uninsured Consumer Information Plan shall provide or describe a mechanism for consumers to access the following information:

(1) Health Care Provider quality information. A Health Care Provider Practice shall use NCQA physician recognition certification for reporting on Health Care Provider quality. The Health Care Provider shall not be obligated by this Rule to secure NCQA physician recognition certification. In addition, a Health Care Provider Practice Uninsured Consumer Information Plan may use Health Care Provider quality information approved by the Commissioner under Section 4(d)(2)(B). The Commissioner may require the use of additional quality information and reporting standards and protocols approved under Section 4(d)(2)(B)(ii) as a condition of approval of an Uninsured Consumer Information Plan.

(2) Health Care Provider Practice Charge information, accompanied by free care and discount policies; and

(3) A mechanism for any uninsured patient of a Health Care Provider Practice to learn the estimated Charge for a specific health care procedure or service offered by the Health Care Provider Practice.

(d) Upon the request of any uninsured patient of a Health Care Provider, a Health Care Provider shall inform the patient of the estimated Charge for a specific health care procedure or service offered by the Health Care Provider, and shall inform the consumer of the provider's free care and discount policies, if any.

Section 7 Effective Date

This Rule shall take effect on October 1, 2008.

Appendix A. CPT Codes.

| CPT Code | Service Unit | CPT Code Descriptions | Plain English Descriptions | | --- | --- | --- | --- | | Anesthesia | | | | | 00790 | | Anes Intraperitoneal Inc Shunts; Nos | Anesthesia for upper abdominal procedures | | 00840 | | Anes Intraperitoneal Low Abd; Nos | Anesthesia for lower abdominal procedures | | 01967 | | Neuraxial Labor Analgesia/Anesthesia For Planned V | Epidural obstetric anesthesia | | Surgery | | | | | 11100 | 1,030 | BX SKIN/SUBQ TISS (SEP PRO); 1 LES | Skin biopsy | | 17000 | 1,985 | DESTRCT-ANY METHD-BEN LES; W/ANE; 1 | Destruction of a single skin lesion | | 17003 | 2,452 | DESTRCT-ANY METHD-BEN LES; 2-14, EA | Destruction of multiple skin lesions | | 20610 | 755 | ARTHROCENTESIS/ASPIR/INJ; MAJOR JT | Aspiration or injection of a major joint | | 36415 | 33,713 | ROUTINE VENIPUNCT/FINGER/HEEL STICK | Obtaining a sample of blood | | 45378 | 858 | COLONOSCOPY FLEX; DX (SEP PRO) | Colonoscopy | | 45385 | 541 | COLONOSCOPY FLEX; W/REMOV LES-SNARE | Colonoscopy with removal of lesion | | Radiology | | | | | 71010 | 5,150 | RADIOLOGIC EXAMINATION, CHEST; SINGLE VIEW, FRONTAL | Chest X-ray (single view) | | 71020 | 10,715 | X-Ray Chest, Two Views, Frontal and Late | Chest X-ray (two views) | | 76083 | | Cmpt Aided Detect Phys Rev for Intepr; Scr Mammo | Computer aided reading of a screening mammogram | | 76092 | | Screening Mammography, Bilateral | Screening Mammography | | Laboratory/Pathology | | | | | 80061 | 2,128 | LIPID PANEL | Cholesterol and lipid testing | | 81000 | 3,554 | UA DIPSTIK/TABLET; NON-AUTO W/MICRO | Microscopic and chemical urine testing | | 81002 | 20,968 | Urinalysis DIP STIK/TABLT; WO MICRO NON-AUTO | Chemical urine testing only | | 81025 | 6,754 | URINE PREGNANCY TEST, BY VISUAL COLOR COMPARISON METHODS | Pregnancy test (urine) | | 82270 | 2,823 | BLD OCCULT; FECES 1-3 SIMULT DETERM | Stool blood test | | 83036 | 652 | HGB; GLYCATED | Hemoglobin A1C blood test | | 85018 | 7,656 | BLD CT; HGB | Hemoglobin test | | 85025 | 1,347 | Bld Cnt;hemo/Pit,Auto,Cmplt Dif.Wbc | Complete blood count (CBC) | | 85610 | 756 | PROTHROMBIN TIME | Blood clotting test (prothrombin time) | | 87880 | 13,625 | AGT-IMMUNASSAY DIR OBS; STREP GRP A | Strep test, group A | | 88305 | 12,421 | LEVEL IV-SURG PATH GROSS/MICRO EXAM | Level IV surgical pathology examination | | Medicine - Immunizations | | | | | 90465 | 4,399 | IMMUNIZATION ADMINISTRATION UNDER 8 YEARS OF AGE (INCLUDES PERCUTANEOUS, INTRADERMAL, SUBCUTANEOUS, OR INTRAMU | Childhood immunization administration | | 90471 | 39,995 | IMMUNIZATION ADMINSTRATION | Immunization administration | | 90472 | 24,662 | Immunization administration two or more single or | Administration of multiple immunizations | | 90658 | 11,121 | INFLUENZA VIRUS VACCINE | Influenza virus vaccine | | 90718 | | Tetanus and diptheria toxoids for intramuscular or | Tetanus and diptheria vaccines | | 90772 | 6,760 | THERAPEUTIC, PROPHYLACTIC OR DIAGNOSTIC INJECTION | Any injection | | Medicine - Mental Health Visits | | | | | 90805 | 6,787 | PSYCHOTHER OP 20-30 MIN; W/MED E&M | Psychotherapy 20-30 minutes with medical evaluation | | 90806 | 19,194 | PSYCHOTHER OV/OP-BEHV MOD 45-50 MN; | Psychotherapy 45-50 minutes | | 90807 | 12,085 | PSYCHOTHER OP 45-50 MIN; W/MED E&M | Psychotherapy 45-50 minutes with medical evaluation | | 90853 | 21,982 | GROUP MEDICAL PSYCHOTHERAPY (OTHER THAN OF A MULTIPLE-FAMILY GROUP) - ONE UNIT = 15 MINUTES | Group Psychotherapy 15 minutes | | 90862 | 9,187 | PHARM MGMT W/SCRIPT USE & REVIEW | Management of psychiatric medications | | Medicine - Eye & Ear Exams | | | | | 92004 | 1,319 | Opthalmalogical exam; new patient, intermediate | Eye examination, new patient, intermediate amount of time | | 92012 | 2,690 | OPHTH SERV: MED EXAM; INTERM ESTAB | Ophthalmological services intermediate established patient | | 92014 | 4,835 | OPHTH SERV: MED EXAM; COMP ESTAB PT | Ophthalmological services comprehensive exam established patient | | 92015 | 6,838 | DETERM REFRACTIVE STATE | Eye refraction determination | | 92567 | 4,246 | TYMPANOMETRY | Middle ear test (tympanometry) | | Medicine - Non-Invasive Vascular Studies | | | | | 93000 | 3,621 | ECG-ROUTINE 12 LEAD; W/INTRPT & RPT | Electrocardiogram (EKG) | | 93010 | 10,046 | Ecg;interpretation & Report Only | Electrocardiogram reading and report only | | 94760 | 690 | NONINVAS OXIMETRY-O2 SAT; 1 DETERM | Test of blood oxygen saturation | | 95004 | 8,967 | Percut Tests W/Extrac Immed React # | Allergy testing | | Physical Medicine - PT/Chiro Procedures | | | | | 95165 | 3,169 | Professional Services Supervision Provisions Antig | Supervision of allergen preparation | | 97001 | 2,299 | Physical Therapy Evaluation | Physical Therapy Evaluation | | 97010 | 6,403 | App. Of Modality, hot or cold packs | Application of hot or cold packs | | 97012 | 1,302 | Phys. Med, traction, mechanical | Mechanical traction | | 97014 | 2,945 | Phys. Med - Electrical Stimulation (unattended) | Electrical stimulation | | 97032 | 7,313 | Appl. Of modality, electrical stimulation (manual) | Electrical stimulation requiring constant provider attendance | | 97033 | 1,530 | Phys.Med., iontophoresis | Iontophoresis requiring constant attendance |

History

• STATUTORY AUTHORITY: 8 V.S.A. § 15; 18 V.S.A. §§ 9404, 9410
• EFFECTIVE DATE: October 1, 2008 [Secretary of State Rule Log #08-041]

Subagency 020 INSURANCE DIVISION

Chapter 021 UNFAIR DISCRIMINATION ON THE BASIS OF BLINDNESS OR PARTIAL BLINDNESS

21-021 Code Vt. R. 21-020-021-X UNFAIR DISCRIMINATION ON THE BASIS OF BLINDNESS OR PARTIAL BLINDNESS

Action 1.

This regulation is promulgated pursuant to authority granted by 8 V.S.A., Section 75. The purpose of this regulation is to identify specific acts or practices which are prohibited by 8 V.S.A., Chapter 129, Section 4724(7) (Insurance Trade Practices).

The following are hereby identified as acts or practices which constitute unfair discrimination between individuals of the same class: Refusing to insure, or refusing to continue to insure, or limiting the amount, extent or kind of coverage available to an individual, or charging an individual a different rate for the same coverage solely because of blindness or partial blindness, except where the refusal, limitation or rate differential is based on sound actuarial principles or is related to actual or reasonably anticipated experience.

History

• Effective Date: September 4, 1978 (SOS Rule Log # 78-90)
• Statutory Authority: Title 8 V.S.A., Section 75

Chapter 022 VARIABLE LIFE INSURANCE MODEL REGULATION

21-022 Code Vt. R. 21-020-022-X VARIABLE LIFE INSURANCE MODEL REGULATION

Article I AUTHORITY

Section I Authority

The following regulations applicable to variable life insurance policies are promulgated under the authority of 8 V.S.A., Section 3858, the Insurance Laws of Vermont, and are effective January 1, 1989. Nothing in these regulations shall be construed to be inconsistent with any provision under the Vermont Securities Act, 9 V.S.A., Chapter 131.

Article II DEFINITIONS

Section 1 Affiliate

"Affiliate" of an insurer means any person, directly or indirectly, controlling, controlled by, or under common control with such insurer; any person who regularly furnishes investment advice to such insurer with respect to its separate accounts for which a specific fee or commission is charged; or any director, officer, partner, or employee of any such insurer, controlling or controlled person, or person providing investment advice or any member of the immediate family of such person.

Section 2 Agent

"Agent" means any person, corporation, partnership, or other legal entity which is licensed by this state as a life insurance agent.

Section 3 Assumed Investment Rate

"Assumed Investment Rate" means the rate of investment return which would be required to be credited to a variable life insurance policy, after deduction of charges for taxes, investment expenses, and mortality and expense guarantees to maintain the variable death benefit equal at all times to the amount of death benefit, other than incidental insurance benefits, which would be payable under the plan of insurance if the death benefit did not vary according to the investment experience of the separate account.

Section 4 Benefit Base

"Benefit Base" means the amount, to which the net investment return is applied.

Section 5 Commissioner

"Commissioner" means the Insurance Commissioner of this state.

Section 6 Control

"Control" (including the terms "controlling," "controlled by" and "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or non-management services, or otherwise, unless the power is the result of an official position with or corporate office held by the person. Control shall be presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing more than ten (10) percent of the voting securities of any other person. This presumption May be rebutted by a showing made to the satisfaction of the Commissioner that control does not exist in fact. The Commissioner May determine, after furnishing all persons in interest notice and opportunity to be heard and making specific findings of fact to support such determination, that control exists in fact, notwithstanding the absence of a presumption to that effect.

Section 7 Flexible Premium Policy

"Flexible Premium Policy" means any variable life insurance policy other than a scheduled premium policy as specified in Section 15 of this Article II.

Section 8 General Account

"General Account" means all assets of the insurer other than assets in separate accounts established pursuant to 8 V.S.A., Section 3855 laws of this state, or pursuant to the corresponding section of the Insurance Laws of the State of Domicile of a foreign or alien insurer, whether or not for variable life insurance.

Section 9 Incidental Insurance Benefit

"Incidental Insurance Benefit" means all insurance benefits in a variable life insurance policy, other than the variable death benefit and the minimum death benefit, including but not limited to accidental death and dismemberment benefits, disability benefits, guaranteed insurability options, family income, or term riders.

Section A 5 Group annuity or pure endowment contracts

A. The 1983 GAM Table and the 1983 Table "a" are recognized and approved as group annuity mortality tables for valuation and, at the option of the company, either table may be used for purposes of valuation for any annuity or pure endowment purchased on or after January 1, 1980 under a group annuity or pure endowment contract.

B. The 1983 GAM Table is to be used for determining the minimum standard of valuation for any annuity or pure endowment purchased on or after December 31, 1985 under a group annuity or pure endowment contract.

Section B 1 Authority

This Part B. of Regulation I-88-4 is promulgated by the Commissioner of Banking and Insurance pursuant to 8 V.S.A., Section 3747(a) and 8 V.S.A., Section 3784 of the Vermont Insurance Statutes.

Section B 2 Purpose

The purpose of this Part is to permit the use of mortality tables that reflect differences in mortality between smokers and non-smokers in determining minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits for plans of insurance with separate premium rates for smokers and non-smokers.

Section 10 May

"May" is permissive.

Section 11 Minimum Death Benefit

"Minimum Death Benefit" means the amount of the guaranteed death benefit, other than incidental insurance benefits, payable under a variable life insurance policy regardless of the investment performance of the separate account.

Section 12 Net Investment Return

"Net Investment Return" means the rate of investment return in a separate account to be applied to the benefit base.

Section 13 Person

"Person" means an individual, corporation, partnership, association, trust, or fund.

Section 14 Policy Processing Day

"Policy Processing Day" means the day on which charges authorized in the policy are deducted from the policy's cash value.

Section 15 Scheduled Premium Policy

"Scheduled Premium Policy" means any variable life insurance policy under which both the amount and timing of premium payments are fixed by the insurer.

Section 16 Separate Account

"Separate Account" means a separate account established pursuant to 8 V.S.A., Section 3855 of the Insurance Laws of this state or pursuant to the corresponding Section of the Insurance Laws of the State of Domicile of a foreign or alien insurers.

Section 17 Shall

"Shall" is mandatory.

Section 18 Variable Death Benefit

"Variable Death Benefit" means the amount of the death benefit, other than incidental insurance benefits, payable under a variable life insurance policy dependent on the investment performance of the separate account, which the insurer would have to pay in the absence of any minimum death benefit.

Section 19 Variable Life Insurance Policy

"Variable Life Insurance Policy" means any individual policy which provides for life insurance the amount or duration of which varies according to the investment experience of any separate account or accounts established and maintained by the insurer as to such policy, pursuant to 8 V.S.A., Section 3855 or pursuant to the corresponding section of the Insurance Laws of the State of Domicile of a foreign or alien insurer.

Article III OUALIFICATION OF INSURER TO ISSUE VARIABLE LIFE INSURANCE

Section 1 Licensing And Approval To Do Business In This State

An insurer shall not deliver or issue for delivery in this state any variable life insurance policy unless:

a. the insurer is licensed or organized to do a life insurance business in this state;

b. the insurer has obtained the written approval of the Commissioner for the issuance of variable life insurance policies in this state. The Commissioner shall grant such written approval only after he has found that:

(1) the plan of operation for the issuance of variable life insurance policies is not unsound;

(2) the general character, reputation, and experience of the management and those persons or firms proposed to supply consulting, investment, administrative, or custodial services to the insurer are such as to reasonably assure competent operation of the variable life insurance business of the insurer in this state; and

(3) the present and foreseeable future financial condition of the insurer and its method of operation in connection with the issuance of such policies is not likely to render its operation hazardous to the public or its policyholders in this state. The Commissioner shall consider, among other things:

(A) the history of operation and financial condition of the insurer;

(B) the qualifications, fitness, character, responsibility, reputation, and experience of the officers and

directors and other management of the insurer and those persons or firms proposed to supply consulting, investment, administrative, or custodial services to the insurer;

(C) the applicable law and regulations under which the insurer is authorized in its State of Domicile to issue variable life insurance policies. The state of entry of an alien insurer shall be deemed its State of Domicile for this purpose; and

(D) if the insurer is a subsidiary of, or is affiliated by common management or ownership with another company, its relationship to such other company and the degree to which the requesting insurer, as well as the other company, meet these standards.

Section 2 Filing For Approval To Do Business In This State

The Commissioner May, at his discretion, require that an insurer, before it delivers or issues for delivery any variable life insurance policy in this state, file with this Department the following information for the consideration of the Commissioner in making the determination required by Section 1, Subsection b of this Article.

a. copies of and a general description of the variable life insurance policies it intends to issue;

b. a general description of the methods of operation of the variable life insurance business of the insurer, including methods of distribution of policies and the names of those persons or firms proposed to supply consulting, investment, administrative, custodial or distribution services to the insurer.

c. with respect to any separate account maintained by an insurer for any variable life insurance policy, a statement of the investment policy the issuer intends to follow for the investment of the assets held in such separate account, and a statement of procedures for changing such investment policy. The statement of investment policy shall include a description of the investment objectives intended for the separate account;

d. a description of any investment advisory services contemplated as required by Section 10 of Article VI;

e. a copy of the statutes and regulations of the State Of Domicile of the insurer under which it is authorized to issue variable life insurance policies; and

f. biographical data with respect to officers and directors of the insurer on the National Association of Insurance Commissioners Uniform Biographical Data Form; and

g. a statement of the insurer's actuary describing the mortality and expense risks which the insurer will bear under the policy.

Section 3 Standards of Suitability

Every insurer seeking approval to enter into the variable life insurance business in this state shall establish and maintain a written statement specifying the Standards of Suitability to be used by the insurer. Such Standards of Suitability shall specify that no recommendations shall be made to an applicant to purchase a variable life insurance policy and that no variable life insurance policy shall be issued in the absence of reasonable grounds to believe that the purchase of such policy is not unsuitable for such applicant on the basis of information furnished after reasonable inquiry of such applicant concerning the applicant's insurance and investment objectives, financial situation and needs, and any other information known to the insurer or to the agent making the recommendation.

Section 4 Use of Sales Materials

An insurer authorized to transact variable life insurance business in this state shall not use any sales material, advertising material, or descriptive literature or other materials of any kind in connection with its variable life insurance business in this state which is false, misleading, deceptive, or inaccurate.

Section 5 Requirements Applicable To Contractual Services

Any material contract between an insurer and suppliers of consulting, investment, administrative, sales, marketing, custodial, or other services with respect to variable life insurance operations shall be in writing and provide that the supplier of such services shall furnish the Commissioner with any information or reports in connection with such services which the Commissioner May request in order to ascertain whether the variable life insurance operations of the insurer are being conducted in a manner consistent with these regulations and any other applicable law or regulations.

Section 6 Reports To The Commissioner

Any insurer authorized to transact the business of variable life insurance in this state shall submit to the Commissioner, in addition to any other materials which May be required by this regulation or any other applicable laws or regulations:

a. an Annual Statement of the business of its separate account or accounts in such form as May be prescribed by the National Association of Insurance Commissioners; and

b. prior to the use in this state any information furnished to applicants as provided for in Article VII; and

c. prior to the use in this state the form of any of the Reports to Policyholders as provided for in Article IX; and

d. such additional information concerning its variable life insurance operations or its separate accounts as the Commissioner shall deem necessary.

Any material submitted to the Commissioner under this Section shall be disapproved if it is found to be false, misleading, deceptive, or inaccurate in any material respect and, if previously distributed, the Commissioner shall require the distribution of amended material.

Section 7 Authority Of Commissioner To Disapprove

Any material required to be filed with and approved by the Commissioner shall be subject to disapproval if at any time it is found by him not to comply with the standards established by this regulation.

Article IV INSURANCE POLICY REOUIREMENTS [REQUIREMENTS]

Section 1 Filing Of Variable Life Insurance Policies

All variable life insurance policies, and all riders, endorsements, applications and other documents which are to be attached to and made a part of the policy and which relate to the variable nature of the policy, shall be filed with the Commissioner and approved by him prior to delivery or issuance for delivery in this state.

a. The procedures and requirements for such filing and approval shall be, to the extent appropriate and not inconsistent with this regulation, the same as those otherwise applicable to other life insurance policies.

b. The Commissioner May approve variable life insurance policies and related forms with provisions the Commissioner deems to be not less favorable to the policyholder and the beneficiary than those required by this regulation.

Section 2 Mandatory Policy Benefit And Design Requirements

Variable life insurance policies delivered or issued for delivery in this state shall comply with the following minimum requirements:

a. Mortality and expense risks shall be borne by the insurer. Expense charges include, but are not limited to commissions and administrative and/or management fees. The mortality and expense charges shall be subject to the maximums stated in the contract;

b. For scheduled premium policies, a minimum death benefit shall be provided in an amount at least equal to the initial face amount of the policy so long as premiums are duly paid (subject to the provisions of Section 4b of this Article);

c. The policy shall reflect the investment experience of one or more separate accounts established and maintained by the insurer. The insurer must demonstrate that the reflection of investment experience in the variable life insurance policy is actuarially sound;

d. Each variable life insurance policy shall be credited with the full amount of the net investment return applied to the benefit base;

e. Any changes in variable death benefits of each variable life insurance policy shall be determined at least annually;

f. The cash value of each variable life insurance policy shall be determined at least monthly. The method of computation of cash values and other nonforfeiture benefits, as described either in the policy or in a statement filed with the Commissioner of the state in which the policy is delivered, or issued for delivery, shall be in accordance with actuarial procedures that recognize the variable nature of the policy. The method of computation must be such that, if the net investment return credited to the policy at all times from the date of issue should be equal to the assumed investment rate with premiums and benefits determined accordingly under the terms of the policy, then the resulting cash values and other nonforfeiture benefits must be at least equal to the minimum values required by Subchapter 3 of Chapter 103 of Title 8, V.S.A., for a general account policy with such premiums and benefits. The assumed investment rate shall not exceed the maximum interest rate permitted under the Standard Nonforfeiture Law of this state. If the policy does not contain an assumed investment rate this demonstration shall be based on the maximum interest rate permitted under the Standard Non Forefiture Law. The method of computation May disregard incidental minimum guarantees as to the dollar amounts payable.

Incidental minimum guarantees include, for example, but are not to be limited to, a guarantee that the amount payable at death or maturity shall be at least equal to the amount that otherwise would have been payable if the net investment return credited to the policy at all times from the date of issue had been equal to the assumed investment rate;

g. The computation of values required for each variable life insurance policy May be based upon such reasonable and necessary approximations as are acceptable to the Commissioner.

Section 3 Mandatory Policy Provisions

Every variable life insurance policy filed for approval in this state shall contain at least the following:

a. The cover page or pages corresponding to the cover pages of each such policy shall contain:

(1) A prominent statement in either contrasting color or in boldface type that the amount or duration of death benefit May be variable or fixed under specified conditions;

(2) A prominent statement in either contrasting color or in boldface type that cash values May increase or decrease in accordance with the experience of the separate account subject to any specified minimum guarantees;

(3) A statement describing any minimum death benefit required pursuant to Section 2b of this Article IV;

(4) The method, or a reference to the policy provision which describes the method, for determining the amount of insurance payable at death:

(5) A captioned provision that the policyholder May return the variable life insurance policy within ten (10) days of receipt of the policy by the policyholder, and receive a refund equal to the total of all premium payments for such policy.

(6) Such other items as are currently required for fixed benefit life insurance policies and which are not inconsistent with this Regulation.

b.

(1) For scheduled premium policies, a provision for a grace period of not less than thirty-one (31) days from the premium due date which shall provide that when the premium is paid within the grace period, policy values will be the same, except for the deduction of any overdue premium, as if the premium were paid on or before the due date.

(2) For flexible premium policies, a provision for a grace period beginning on the policy processing day when the total charges authorized by the policy which are necessary to keep the policy in force until the next policy processing day exceed the amounts available under the policy to pay such charges in accordance with the terms of the policy. Such grace period shall end on a date not less than sixty-one (61) days after the mailing date of the Report To Policyholders required by Section 3 of Article IX.

The death benefit payable during the grace period will equal the death benefit in effect immediately prior to such period less any overdue charges. If the policy processing days occur monthly, the insurer May require the payment of not more than three times the charges which were due on the policy processing day on which the amounts available under the policy were insufficient to pay all charges authorized by the policy that are necessary to keep such policy in force until the next policy processing day.

c. For scheduled premium policies, a provision that the policy will be reinstated at any time within two (2) years from the date of default upon the written application of the insured and evidence of insurability, including good health, satisfactory to the insurer, unless the cash surrender value has been paid or the period of extended insurance has expired, upon the payment of any outstanding indebtedness arising subsequent to the end of the grace period following the date of default together with accrued interest thereon to the date of reinstatement and payment of an amount not exceeding the greater of:

(1) All overdue premiums with interest at a rate not exceeding that rate specified in 8 V.S.A., Section 3731(9) relating to reinstatement (compounded annually) and any indebtedness in effect at the end of the grace period following the date of default with interest at a rate as above enumerated and compounded annually; or

(2) 110% of the increase in cash value resulting from reinstatement plus all overdue premiums for incidental insurance benefits with interest at a rate not exceeding that enumerated in Subsection (1) above and compounded annually.

d. A full description of the benefit base and of the method of calculation and application of any factors used to adjust variable benefits under the policy;

e. A provision designating the separate account to be used and stating that:

(1) The assets of such separate account shall be available to cover the liabilities of the general account of the insurer only to the extent that the assets of the separate account exceed the liabilities of the separate account arising under the variable life insurance policies supported by the separate account.

(2) The assets of such separate account shall be valued at least as often as any policy benefits vary but at least monthly.

f. A provision specifying what documents constitute the entire insurance contract under state law;

g. A designation of the officers who are empowered to make an agreement or representation on behalf of the insurer and an indication that statements by the insured, or on his behalf, shall be considered as representations and not warranties;

h. An identification of the owner of the insurance contract;

i. A provision setting forth conditions or requirements as to the designation, or change of designation, of a beneficiary and a provision for disbursement of benefits in the absence of a beneficiary designation;

j. A statement of any conditions or requirements concerning the assignment of the policy;

k. A description of any adjustments in policy values to be made in the event of misstatement of age or gender of the insured;

l. A provision that the policy shall be incontestable by the insurer after it has been in force for two (2) years during the lifetime of the insured, provided, however, that any increase in the amount of the policy's death benefits subsequent to the policy issue date, which increase occurred upon a new application or request of the owner and was subject to satisfactory proof of the insured's insurability, shall be incontestable after any such increase has been in force, during the lifetime of the insured, for two (2) years from the date of issue of such increase;

m. A provision stating that the investment policy of the separate account shall not be changed without the approval of the Insurance Commissioner of the State of Domicile of the insurer, and that the approval process is on file with the Commissioner of this state;

n. A provision that payment of variable death benefits in excess of any minimum death benefits, cash values, policy loans, or partial withdrawals (except when used to pay premiums) or partial surrenders May be deferred:

(1) For up to six (6) months from the date of request, if such payments are based on policy values which do not depend on the investment performance of the separate account, or

(2) Otherwise, for any period during which the New York Stock Exchange is closed for trading (except for normal holiday closing) or when the Securities and Exchange Commission has determined that a state of emergency exists which May make such payment impractical.

o. If settlement options are provided, at least one such option shall be provided on a fixed basis only;

p. A description of the basis for computing the cash value and the surrender value under the policy shall be included;

q. Premiums or charges for incidental insurance benefits shall be stated separately;

r. Any other policy provision required by this Regulation;

s. Such other items as are currently required for fixed benefit life insurance policies and are not inconsistent with this regulation;

t. A provision for nonforfeiture insurance benefits. The insurer May establish a reasonable minimum cash value below which any nonforfeiture insurance options will not be available.

Section 4 Policy Loan Provisions

Every variable life insurance policy, other than term insurance policies and pure endowment policies, delivered or issued for delivery in this state shall contain provisions which are not less favorable to the policyholder than the following:

A provision for policy loans after the policy has been in force for three (3) full years which provides the following:

(1) At least 75% of the policy's cash surrender value May be borrowed;

(2) The amount borrowed shall bear interest at a rate not to exceed that permitted by state insurance law;

(3) Any indebtedness shall be deducted from the proceeds payable on death;

(4) Any indebtedness shall be deducted from the cash surrender value upon surrender or in determining any nonforfeiture benefit;

(5) For scheduled premium policies, whenever the indebtedness exceeds the cash surrender value, the insurer shall give notice of any intent to cancel the policy if the excess indebtedness is not repaid within thirty-one (31) days after the date of mailing of such notice. For flexible premium policies, whenever the total charges authorized by the policy that are necessary to keep the policy in force until the next following processing day exceed the amounts available under the policy to pay such charges, a report must be sent to the policyholder containing the information specified by Section 3 of Article IX;

(6) The policy May provide that if, at any time, so long as premiums are duly paid, the variable death benefit is less than it would have been if no loan or withdrawal had ever been made, the policyholder May increase such variable death benefit up to what it would have been if there had been no loan or withdrawal by paying an amount not exceeding 110% of the corresponding increase in cash value and by furnishing such evidence of insurability as the insurer May request;

(7) The policy May specify a reasonable minimum amount which May be borrowed at any time but such minimum shall not apply to any automatic premium loan provision;

(8) No policy loan provision is required if the policy is under extended insurance nonforfeiture option;

(9) The policy loan provisions shall be constructed so that variable life insurance policyholders who have not exercised such provisions are not disadvantaged by the exercise thereof;

(10) Amounts paid to the policyholders upon the exercise of any policy loan provision shall be withdrawn from the separate account and shall be returned to the separate account upon repayment except that a stock insurer May provide the amounts for policy loans from the general account.

Section 5 Other Policy Provisions

The following provision May in substance be included in a variable life insurance policy or related form delivered or issued for delivery in this state:

a. An exclusion for suicide within two (2) years of the issue date of the policy; provided, however, that to the extent of the increased death benefits only, the policy May provide an exclusion for suicide within two (2) years of any increase in death benefits which results from an application of the owner subsequent to the policy issue date;

b. Incidental insurance benefits May be offered on a fixed or variable basis;

c. Policies issued on a participating basis shall offer to pay dividend amounts in cash. In addition, such policies May offer the following dividend options:

(1) the amount of the dividend May be credited against premium payments;

(2) the amount of the dividend May be applied to provide amounts of additional fixed or variable benefit life insurance;

(3) the amount of the dividend May be deposited in the general account at a specified minimum rate of interest;

(4) the amount of the dividend May be applied to provide paid-up amounts of fixed benefit one-year term insurance;

(5) the amount of the dividend May be deposited as a variable deposit in a separate account.

d. A provision allowing the policyholder to elect in writing in the application for the policy or thereafter an automatic premium loan on a basis not less favorable than that required of policy loans under Section 4 of this Article, except that a restriction that no more than two consecutive premiums can be paid under this provision May be imposed;

e. A provision allowing the policyholder to make partial withdrawals;

f. Any other policy provision approved by the Commissioner.

Article V RESERVE LIABILITIES FOR VARIABLE LIFE INSURANCE

1. Reserve liabilities for variable life insurance policies shall be established under the Standard Valuation Law in accordance with actuarial procedures that recognize the variable nature of the benefits provided and any mortality guarantees.

2. For schedule premium policies, reserve liabilities for the guaranteed minimum death benefit shall be the reserve needed to provide for the contingency of death occurring when the guaranteed minimum death benefit exceeds the death benefit that would be paid in the absence of the guarantee, and shall be maintained in the general account of the insurer and shall be not less than the greater of the following minimum reserves:

a. The aggregate total of the term costs, if any, covering a period of one full year from the valuation date, of the guarantee on each variable life insurance contract, assuming an immediate one-third depreciation in the current value of the assets of the separate account followed by a net investment return equal to the assumed investment rate; or

b. The aggregate total of the "attained age level" reserves on each variable life insurance contract. The "attained age level" reserve on each variable life insurance contract shall not be less than zero and shall equal the "residue", as described in paragraph (1), of the prior year's "attained age level" reserve on the contract, with any such "residue", increased or decreased by a payment computed on an attained age basis as described in paragraph (2) below.

(1) The "residue" of the prior year's "attained age level" reserve on each variable life insurance contract shall not be less than zero and shall be determined by adding interest at the valuation interest rate to such prior year's reserve, deducting the tabular claims based on the "excess", if any, of the guaranteed minimum death benefit over the death benefit that would be payable in the absence of such guarantee, and dividing the net result by the tabular probability of survival. The "excess" referred to in the preceding sentence shall be based on the actual level of death benefits that would have been in effect during the preceding year in the absence of the guarantee, taking appropriate account of the reserve assumptions regarding the distribution of death claim payments over the year.

(2) The payment referred to in Subsection 2b of this Article shall be computed so that the present value of a level payment of that amount each year over the future premium paying period of the contract is equal to (A) minus (B) minus (C), where (A) is the present value of the future guaranteed minimum death benefits, (B) is the present value of the future death benefits that would be payable in the absence of such guarantee, and (C) is any "residue", as described in paragraph (1), of the prior year's "attained age level" reserve on such variable life insurance contract. If the contract is paid-up, the payment shall equal (A) minus (B) minus (C). The amounts of future death benefits referred to in (B) shall be computed assuming a net investment return of the separate account which May differ from the assumed investment rate and/or the valuation interest rate but in no event May exceed the maximum interest rate permitted for the valuation of life contracts.

c. The valuation interest rate and mortality table used in computing the two minimum reserves described in (a) and (b) above shall conform to permissible standards for the valuation of life insurance contracts. In determining such minimum reserve, the company May employ suitable approximations and estimates, including but not limited to groupings and averages.

3. For flexible premium policies, reserve liabilities for any guaranteed minimum death benefit shall be maintained in the general account of the insurer and shall be not less than the aggregate total of the term costs, if any, covering the period provided for in the guarantee not otherwise provided for by the reserves held in the separate account assuming an immediate one-third depreciation in the current value of the assets of the separate account followed by a net investment return equal to the valuation interest rate.

The valuation interest rate and mortality table used in computing this additional reserve, if any, shall conform to permissible standards for the valuation of life insurance contracts. In determining such minimum reserve, the company May employ suitable approximations and estimates, including but not limited to groupings and averages.

4. Reserve liabilities for all fixed incidental insurance benefits and any guarantees associated with variable incidental insurance benefits shall be maintained in the general account and reserve liabilities for all variable aspects of the variable incidental insurance benefits shall be maintained in a separate account, in amounts determined in accordance with the actuarial procedures appropriate to such benefit.

Article VI SEPARATE ACCOUNTS

Section 1 Establishment and Administration Of Separate Accounts

Any domestic insurer issuing variable life insurance shall establish one or more separate accounts pursuant to Section 3855 of Title 8, V.S.A. of the Insurance Laws of this state:

a. If no law or other regulation provides for the custody of separate account assets and if such insurer is not the custodian of such separate account assets, all contracts for custody of such assets shall be in writing and the Commissioner shall have authority to review and approve both the terms of any such contract and the proposed custodian prior to the transfer of custody.

b. Such insurer shall not without the prior written approval of the Commissioner employ in any material connection with the handling of separate account assets any person who:

(1) within the last ten (10) years has been convicted of any felony or a misdemeanor arising out of such person's conduct involving embezzlement, fraudulent conversion, or misappropriation of funds or securities or involving violation of Sections 1341, 1342, or 1343 of Title 18, United States Code; or

(2) within the last ten (10) years has been found by any state regulatory authority to have violated or has acknowledged violation of any provision of any state insurance law involving fraud, deceit, or knowing misrepresentation; or

(3) within the last ten (10) years has been found by federal or state regulatory authorities to have violated or has acknowledged violation of any provision of federal or state securities laws involving fraud, deceit, or knowing misrepresentation.

c. All persons with access to the cash, securities, or other assets of the separate account shall be under bond in the amount of not less than the greater of the amount required pursuant to the Investment Company Act Of 1940 or such other amount as the Commissioner shall deem appropriate.

d. The assets of such separate accounts shall be valued at least as often as variable benefits are determined but in any event at least monthly.

Section 2 Amounts In The Separate Account

The insurer shall maintain in each separate account assets with a value at least equal to the greater of the valuation reserves for the variable portion of the variable life insurance policies or the benefit base for such policies.

Section 3 Investments By The Separate Account

a. No sale, exchange, or other transfer of assets May be made by an insurer or any of its affiliates between any of its separate accounts or between any other investment account and one or more of its separate accounts unless:

(1) in case of a transfer into a separate account, such transfer is made solely to establish the account or to support the operation of the policies with respect to the separate account to which the transfer is made; and

(2) such transfer, whether into or from a separate account, is made by a transfer of cash; but other assets May be transferred if approved by the Commissioner in advance.

b. The separate account shall have sufficient net investment income and readily marketable assets to meet anticipated withdrawals under policies funded by the account.

Section 4 Limitations On Ownership

a. A separate account shall not purchase or otherwise acquire the securities of any issuer, other than securities issued or guaranteed as to principal and interest by the United States, if immediately after such purchase or acquisition the value of such investment, together with prior investments of such account in such security valued as required by these Regulations, would exceed 10% of the value of the assets of the separate account. The Commissioner May waive this limitation in writing if he believes such waiver will not render the operation of the separate account hazardous to the public or the policyholders in this state.

b. No separate account shall purchase or otherwise acquire the voting securities of any issuer if as a result of such acquisition the insurer and its separate accounts, in the aggregate, will own more than 10% of the total issued and outstanding voting securities of such issuer. The Commissioner May waive this limitation in writing if he believes such waiver will not render the operation of the separate account hazardous to the public or the policyholders in this state or jeopardize the independent operation of the issuer of such securities.

c. The percentage limitation specified in Subsection (a) of this Section shall not be construed to preclude the investment of the assets of separate accounts in shares of investment companies registered pursuant to the investment Company Act Of 1940 or other pools of investment assets if the investments and investment policies of such investment companies or asset pools comply substantially with the provisions of Section 3 of this Article and other applicable portions of this Regulation.

Section 5 Valuation Of Separate Account Assets

Investments of the separate account shall be valued at their market value on the date of valuation, or at amortized cost if it approximates market value.

Section 6 Separate Account Investment Policy

The investment policy of a separate account operated by a domestic insurer filed under Section 2c of Article III shall not be changed without first filing such change with the Insurance Commissioner:

(1) Any change filed pursuant to this Section shall be effective sixty (60) days after the date it was filed with the Commissioner, unless the Commissioner notifies the insurer before the end of such sixty (60) day period of his disapproval of the proposed change. At any time the Commissioner May, after notice and public hearing, disapprove any change that has become effective pursuant to this Section.

(2) The Commissioner May disapprove the change if he determines that the change would be detrimental to the interests of the policyholders participating in such separate account.

Section 7 Charges Against Separate Account

The insurer must disclose in writing, prior to or contemporaneously with delivery of the policy, all charges that May be made against the separate account, including, but not limited to, the following:

(1) taxes or reserves for taxes attributable to investment gains and income of the separate account;

(2) actual cost of reasonable brokerage fees and similar direct acquisition and sale costs incurred in the purchase or sale of separate account assets;

(3) actuarially determined costs of insurance (tabular costs) and the release of separate account liabilities;

(4) charges for administrative expenses and investment management expenses, including internal costs attributable to the investment management of assets of the separate account;

(5) a charge, at a rate specified in the policy, for mortality and expense guarantees;

(6) any amounts in excess of those required to be held in the separate accounts;

(7) charges for incidental insurance benefits.

Section 8 Standards Of Conduct

Every insurer seeking approval to enter into the variable life insurance business in this state shall adopt by formal action of its Board of Directors a written statement specifying the Standards Of Conduct of the insurer, its officers, directors, employees, and affiliates with respect to the purchase or sale of investments of separate accounts. Such Standards of Conduct shall be binding on the insurer and those to whom it refers. A code or codes of ethics meeting the requirements of Section 17j under the Investment Company Act Of 1940 and applicable rules and regulations thereunder shall satisfy the provisions of this Section.

Section 9 Conflicts of Interest

Rules under any provision of the Insurance Laws of this state or any regulation applicable to the officers and directors of insurance companies with respect to conflicts of interest shall also apply to members of any separate account's committee or other similar body.

Section 10 Investment Advisory Services To A Separate Account

An insurer shall not enter into a contract under which any person undertakes, for a fee, to regularly furnish investment advice to such insurer with respect to its separate accounts maintained for variable life insurance policies unless:

(1) the person providing such advice is registered as an investment adviser under the Investment Advisers Act Of 1940; or

(2) the person providing such advice is an investment manager under the Employee Retirement Income Security Act Of 1974 with respect to the assets of each employee benefit plan allocated to the separate account; or

(3) the insurer has filed with the Commissioner and continues to file annually the following information and statements concerning the proposed adviser:

(a) the name and form of organization, state of organization, and its principal place of business;

(b) the names and addresses of its partners, officers, directors, and persons performing similar functions or, if such an investment advisor be an individual, of such individual;

(c) a written Standard of Conduct complying in substance with the requirements of Section B of this Article which has been adopted by the investment adviser and is applicable to the investment adviser, its officers, directors, and affiliates;

(d) a statement provided by the proposed adviser as to whether the adviser or any person associated therewith:

(i) has been convicted within ten (10) years of felony or misdemeanor arising out of such person's conduct as an employee, salesman, officer or director or of an insurance company, a banker, an insurance agent, a securities broker, or an investment advisor involving embezzlement, fraudulent conversion, or misappropriation of funds or securities, or involving the violation of Sections 1341, 1342 or 1343 of Title 18 of United States Code:

(ii) has been permanently or temporarily enjoined by order, judgement, or decree of any court of competent jurisdiction from acting as an investment advisor, underwriter, broker, or dealer, or as an affiliated person or as an employee of any investment company, bank, or insurance company, or from engaging in or continuing any conduct or practice in connection with any such activity;

(iii) has been found by federal or state regulatory authorities to have willfully violated or have acknowledged willful violation of any provision of federal or state securities laws or state insurance laws or of any rule or regulation under any such laws; or

(iv) has been censured, denied an investment adviser registration, had a registration as an investment adviser revoked or suspended, or been barred or suspended from being associated with an investment adviser by order of federal or state regulatory authorities; and

(4) such investment advisory contract shall be in writing and provide that it May be terminated by the insurer without penalty to the insurer or the separate account upon no more than sixty (60) days' written notice to the investment advisor.

The Commissioner May, after notice and opportunity for hearing, by order require such investment advisory contract to be terminated if he deems continued operation thereunder to be hazardous to the public or the insurer's policyholders.

Article VII INFORMATION FURNISHED TO APPLICANTS

An insurer delivering or issuing for delivery in this state any variable life insurance policies shall deliver to the applicant for the policy, and obtain a written acknowledgement of receipt from such applicant coincident with or prior to the execution of the application, the following information. The requirements of this Article shall be deemed to have been satisfied to the extent that a disclosure containing information required by this Article is delivered, either in the form of (1) a prospectus included in the requirements of the Securities Act of 1933 and which was declared effective by the Securities and Exchange Commission; or (2) all information and reports required by the Employee Retirement Income Security Act of 1974 if the policies are exempted from the registration requirements of the Securities Act of 1933 pursuant to Section 3(a) (2) thereof:

1. A summary explanation, in non-technical terms, of the principal features of the policy, including a description of the manner in which the variable benefits will reflect the investment experience of the separate account and the factors which affect such variation. Such explanation must include notices of the provision required by Article IV, Sections 3a(5) and 3f;

2. A statement of the investment policy of the separate account, including:

(a) a description of the investment objectives intended for the separate account and the principal types of investments intended to be made; and

(b) any restriction or limitations on the manner in which the operations of the separate account are intended to be conducted.

3. A statement of the net investment return of the separate account for each of the last ten (10) years or such lesser period as the separate account has been in existence;

4. A statement of the charges levied against the separate account during the previous year;

5. A summary of the method to be used in valuing assets held by the separate account;

6. A summary of the federal income tax aspects of the policy applicable to the insured, the policyholder and the beneficiary;

7. Illustrations of benefits payable under the variable life insurance contract. Such illustrations shall be prepared by the insurer and shall not include projections of past investment experience into the future or attempted predictions of future investment experience, provided that nothing contained herein prohibits use of hypothetical assumed rates of return to illustrate possible levels of benefits if it is made clear that such assumed rates are hypothetical only.

Article VIII APPLICATIONS

The application for a variable life insurance policy shall contain:

(1) a prominent statement that the death benefit May be variable or fixed under specified conditions;

(2) a prominent statement that cash values May increase or decrease in accordance with the experience of the separate account (subject to any specified minimum guarantees);

(3) questions designed to elicit information which enables the insurer to determine the suitability of variable life insurance for the applicant.

Article IX REPORTS TO POLICYHOLDERS

Any insurer delivering or issuing for delivery in this state any variable life insurance policies shall mail to each variable life insurance policyholder at his or her last known address the following reports:

(1) Within thirty (30) days after each anniversary of the policy, a statement or statements of the cash surrender value, death benefit, any partial withdrawal or policy loan, any interest charge, any optional payments allowed pursuant to Section 4 of Article IV under the policy computed as of the policy anniversary date. Provided, however, that such statement May be furnished within thirty (30) days after a specified date in each policy year so long as the information contained therein is computed as of a date not more than sixty (60) days prior to the mailing of such notice. This statement shall state that, in accordance with the investment experience of the separate account, the cash values and the variable death benefit May increase or decrease, and shall prominently identify any value described therein which May be recomputed prior to the next statement required by this Section. If the policy guarantees that the variable death benefit on the next policy anniversary date will not be less than the variable death benefit specified in such statement, the statement shall be modified to so indicate. For flexible premium policies, the report must contain a reconciliation of the change since the previous report in cash value and cash surrender value, if different, because of payments made (less deductions for expense charges), withdrawals, investment experience, insurance charges and any other charges made against the cash value. In addition, the report must show the projected cash value and cash surrender value, if different, as of one (1) year from the end of the period covered by the report assuming that:

(i) planned periodic premiums, if any, are paid as scheduled;

(ii) guaranteed costs of insurance are deducted; and

(iii) the net investment return is equal to the guaranteed rate or, in the absence of a guaranteed rate, is not greater than zero. If the projected value is less than zero, a warning message must be included that states that the policy May be in danger of terminating without value in the next twelve (12) months unless additional premium is paid.

(2) Annually, a statement or statements including:

a. a summary of the financial statements of the separate account based on the annual statement last filed with the Commissioner.

b. the net investment return of the separate account for the last year and, for each year after the first, a comparison of the investment rate of the separate account during the last year with the investment rate during prior years, up to a total of not less than five (5) years when available;

c. a list of investments held by the separate account as of a date not earlier than the end of the last year for which an annual statement was filed with the Commissioner;

d. any charges levied against the separate account during the previous year;

e. a statement of any change, since the last report, in the investment objective and orientation of the separate account, in any investment restriction or material quantitative or qualitative investment requirement applicable to the separate account or in the investment adviser of the separate account.

(3) For flexible premium policies, a report must be sent to the policyholder if the amounts available under the policy on any policy processing day to pay the charges authorized by the policy are less than the amount necessary to keep the policy in-force until the next following policy processing day. The report must indicate the minimum payment required under the terms of the policy to keep it in force and the length of the grace period for payment of such amount.

Article X FOREIGN COMPANIES

If the law or regulation in the place of domicile of a foreign company provides a degree of protection to the policyholders and the public which is substantially similar to that provided by these regulations, the Commissioner to the extent deemed appropriate by him in his discretion, May consider compliance with such law or regulation as compliance with these regulations.

Article XI OUALIFICATIONS [QUALIFICATIONS] OF AGENTS FOR THE SALE OF VARIABLE LIFE INSURANCE

1. Qualification to Sell Variable Life Insurance

a. No person May sell or offer for sale in this state any variable life insurance policy unless such person is an agent and has filed with the Commissioner, in a form satisfactory to the Commissioner, evidence that such person holds any license or authorization which May be required for the solicitation or sale of variable life insurance.

b. Any examination administered by the Department for the purpose of determining the eligibility of any person for licensing as an agent shall, after the effective date of this regulation, include such questions concerning the history, purpose, regulation, and sale of variable life insurance as the Commissioner deems appropriate.

2. Reports of Disciplinary Actions: Any person qualified in this state under this Article to sell or offer to sell variable life insurance shall immediately report to the Commissioner:

a. any suspension or revocation of his agent's license in any other state or territory of the United States;

b. the imposition of any disciplinary sanction, including suspension or expulsion from membership, suspension, or revocation of or denial of registration, imposed upon him by any national securities exchange, or national securities association, or any federal, state, or territorial agency with jurisdiction over securities or variable life insurance;

c. any judgement or injunction entered against him on the basis of conduct deemed to have involved fraud, deceit, misrepresentation, or violation of any insurance or securities law or regulation.

3. Refusal to Qualify Agent To Sell Variable Life Insurance: Suspension, Revocation, or Nonrenewal of Qualification: The Commissioner May reject any application or suspend or revoke or refuse to renew any agent's qualification under this Article to sell or offer to sell variable life insurance upon any ground that would bar such applicant or such agent from being licensed to sell other life insurance contracts in this state. The rules governing any proceeding relating to the suspension or revocation of an agent's license shall also govern any proceeding for suspension or revocation of an agent's qualification to sell or offer to sell variable life insurance.

Article XII SEPARABILITY ARTICLE

If any provision of this Regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of the Regulation and the application of such provision to other persons or circumstances shall not be affected thereby.

History

• Effective Date: January 15, 1989 (SOS Rule Log # 88-69)

Chapter 023 RULES GOVERNING INTERMUNICIPAL INSURANCE AGREEMENTS

21-023 Code Vt. R. 21-020-023-X RULES GOVERNING INTERMUNICIPAL INSURANCE AGREEMENTS

Section 1 Purpose and Authority

This rule is promulgated pursuant to and in accordance with the provisions of Title 24, Chapter 121, Subchapter 6 of the Vermont Statutes Annotated. The purpose of this rule is to set forth rules, forms and procedures regarding Intermunicipal Insurance Agreements that the Commissioner deems necessary to assist in the formation of intermunicipal insurance associations, to expedite approval of any plan of operation, to provide for the fiscal integrity of agreements entered into under the Act, and to regulate trade, market and claim practices engaged in by such associations.

Section 2 Definitions

A. "Act" means Title 24, Chapter 121, Subchapter 6 of the Vermont Statutes Annotated.

B. "Actuary" means a person who is not an employee of the Association, has experience in the area of self-insured programs, and is qualified to sign the applicable statement of actuarial opinion in accordance with the American Academy of Actuaries qualification standards for actuaries signing such statements.

C. "Administrator" means an individual, partnership, corporation or other entity authorized to serve as a representative of an Association in carrying out the policies of the Members' Supervisory Board and managing the Association's activities.

D. "Association" means an association, compact or corporation any of which shall be organized not for profit, and formed for the purpose of entering into Intermunicipal Insurance Agreements under the Act.

E. "Commissioner" means the Commissioner of the Department of Financial Regulation of the State of Vermont.

F. "Contribution" means money, or a money equivalent approved by the Commissioner, required of a Member for the purpose of distributing, sharing or pooling any risk in an Intermunicipal Insurance Agreement.

G. "Fiscal integrity" means the economic soundness and fairness of an Intermunicipal Insurance Agreement.

H. "Health Benefit Association" means an association that offers one or more health benefit plans to school employers, as defined in 16 V.S.A. § 2101, for coverage of their school employees, as defined in 16 V.S.A. § 2101.

I. "Intermunicipal Insurance Agreement" means an agreement entered into by two or more Members for obtaining or effecting insurance by self-insurance, for obtaining or effecting insurance from any insurer authorized to transact business in this state as an admitted or surplus lines carrier, or for obtaining and effecting insurance secured in accordance with any other method provided by law.

J. "Member" means a Vermont municipality, as defined in 24 V.S.A. § 4941, which has entered into a Member Agreement and thereby becomes a member in an Association.

K. "Member Agreement" means the written agreement executed between the Member and the Association setting forth the conditions of membership in the Association, the obligations, if any, of each Member to the other Members, and the terms of the Plan, including coverages, limits and deductibles, where applicable.

L. "Members' Supervisory Board" means the governing authority of the Association.

M. "Plan" means the plan of insurance, self-insurance or intermunicipal risk management offered by the Association to its Members.

N. "Service Agent" means any individual, partnership, corporation or other entity that may provide any or all of the services necessary to create or maintain an approved Intermunicipal Insurance Agreement, including but not limited to claims adjustment, safety engineering, compilation of statistics, the preparation and collection of Contribution payments, loss reports and the administration of a claims fund.

O. "Trade, marketing and claim practices" means the methods employed by an Association in advertising, promoting, selling, administering and managing its Intermunicipal Insurance Agreement to and for its Members and prospective Members, and the Association's treatment of any third-party claimants that may file a claim against or sue a Member.

Section 3 Application for Approval of an Intermunicipal Insurance Agreement; Requirements; Approval; Review

A. Two or more municipalities, by resolution of their respective legislative bodies, may establish and enter into agreements for obtaining or effecting insurance by self-insurance, for obtaining or effecting insurance from any insurer authorized to transact business in this state as an admitted or surplus lines carrier, or for obtaining and effecting insurance secured in accordance with any other method provided by law. No Association shall receive funds from any municipality for the purpose of distributing, sharing or pooling any risk until a plan for the operation of the Association together with all contracts, agreements, and any other documents underlying or implementing the Plan, and all amendments thereto, have been filed with and approved by the Commissioner. All Members must be municipalities of the State of Vermont. An application for approval shall be verified by oath or affidavit of at least one member of the Members' Supervisory Board.

B. If, after review of the Association's application and other required information, the Commissioner is satisfied that the application is complete, that the Association's financial condition and method of operation are such that the Association may reasonably be expected to meet the obligations which it has undertaken, that the disclosure to its Members and potential Members is adequate, and that all documents and forms required pursuant to Section 3 of this rule are fair and reasonable, then the Commissioner shall issue approval to the Association. The Commissioner shall act on the application within 90 days of the date that the Commissioner deems the application complete.

C. An application submitted by an Association shall be accompanied by the following items:

1. A copy of the articles of association, constitution, or other instrument which sets forth the powers of the Association.

2. A copy of the bylaws or the governing rules of the proposed Association.

3. A copy of the proposed forms to be used for the Member Agreement.

4. A copy of the proposed form of power of attorney.

5. Designation of the initial or interim Members' Supervisory Board and the initial or interim Administrator, together with biographical information for each member of the Member's Supervisory Board, the Administrator or the officers of the corporation serving as initial or interim Administrator. This information is to be submitted on a form prescribed by the Commissioner.

A copy of the Plan, which shall consist of two components: the financial program and the operational program.

a. The financial program shall set forth:

i. The insurance coverages to be offered by the Intermunicipal Insurance Agreement, applicable deductible levels, and the maximum liability which the Association will retain;

ii. A composite list of the estimated annual gross Contributions to be paid by each organizing Member, including individual and total Contributions for all Members;

iii. The aggregate amount of reserves to be set aside for the payment of claims;

iv. The amount of specific excess insurance to be purchased and maintained by the Association;

v. The amount of aggregate excess insurance to be purchased and maintained by the Association;

vi. Pro-forma financial projections for the first 5 years of operation including income statements, balance sheets and projected cash flow statements; and

vii. The identification and description of reserves for the self-insurance coverages provided to Members.

b. The operational program shall, at a minimum, provide for the following:

i. The method of establishing the Members' Supervisory Board of the Association;

ii. Criteria for admitting new Members and allowing existing Members to leave;

iii. The responsibility of the Member's Supervisory Board for fixing Contributions to the Association, maintaining reserves, levying and collecting assessments for deficiencies, disposing of surpluses, and administrating the Association in the event of termination or insolvency;

iv. The methodology for establishing the annual Contributions of its Members;

v. A description of underwriting practices;

vi. A description of trade, marketing and claim practices, including a statement that claims handling practices will adhere to the requirements of 8 V.S.A. §§ 4723 and 4724, and rules promulgated thereunder and biographies describing the experience, and qualifications of persons who shall market the Plan. Persons who market the Plan are subject to approval by the Commissioner;

vii. A description of the loss prevention and safety engineering programs;

viii. The procedure for handling the termination of individual Members, including provisions for refunding Member Contributions;

ix. The procedure for dissolution of the entire Intermunicipal Insurance Agreement and the procedure for the distribution of surplus funds in the event of dissolution;

x. The investment program and guidelines to be employed in making investments;

xi. The procedure for handling a deficit position of the Intermunicipal Insurance Agreement; and

xii. Such other provisions as are necessary or desirable for the operation of the Association.

7. An actuarial feasibility study prepared by an Actuary.

8. Copies of all contracts between the Association and the Service Agent, if one is used, and a copy of the fidelity bond. If the Association uses a Service Agent, the Service Agent shall furnish a fidelity bond to the Association covering all its employees in an amount sufficient to protect all monies administered by the Service Agent. The fidelity bond shall be issued by an insurer or surety licensed to transact such business in the State of Vermont, by a surplus lines insurer on Vermont's approved list, or any other insurer approved by the Commissioner.

9. A copy of the fidelity bond covering the Administrator and its employees in a form and amount acceptable to the Commissioner. The fidelity bond shall be issued by an insurer or surety licensed to transact such business in the State of Vermont, by a surplus lines insurer on Vermont's approved list, or any other insurer approved by the Commissioner.

10. The address in Vermont where the books and records of the Association shall be maintained at all times.

11. Any other information that the Commissioner deems appropriate.

D. The Commissioner may exempt Associations which do not involve risk sharing from some or all of the requirements of Section 3.C of this rule.

Section 4 Terms of Approval, Revocation or Dissolution

A. The Commissioner may suspend or revoke an Association's approval in accordance with the provisions of the Vermont Administrative Procedure Act, 3 V.S.A. § 800 et seq.

B. Supervision, rehabilitation, liquidation, or dissolution of an Association shall be subject to the provisions of 8 V.S.A. Chapter 145.

C. In the event of suspension or revocation of an Association's approval as a result of action undertaken pursuant to Section 4.B of this rule, the Commissioner shall give at least 10 days prior notice to the Association unless the Commissioner determines that the public welfare requires a shorter period. The notice shall be served personally, or by certified or registered mail, to the Administrator and/or a member of the Members' Supervisory Board and shall state the reasons for the proposed suspension or revocation and provide the Association with an opportunity to introduce evidence and be heard. If the Association's approval is suspended or revoked after a hearing, such action shall become effective 30 days after the Commissioner's order is issued. The Commissioner may suspend the Association's authority to operate prior to a hearing, if he or she finds that the public welfare requires such emergency order and incorporates that finding in the order of suspension.

D. Any suspension may be dissolved by the Commissioner upon proof by the Association that the original reasons for suspension have been satisfactorily corrected, and that the Association continues to meet all other requirements for approval.

Section 5 Member Agreement

A. Every Member shall execute a Member Agreement. The Member Agreement shall provide for the following:

1. The election of the Members' Supervisory Board by the Members. A majority of the Members' Supervisory Board shall be elected or appointed officials of the Members, except in the case of Health Benefit Associations, which shall comply with the requirements set forth in 24 V.S.A. § 4947(d);

2. A requirement that the Members' Supervisory Board designate and appoint an Administrator and grant the Administrator a power of attorney to accept service of process on behalf of the Association and to act for and bind the Association and its Members in all transactions relating to or arising out of the operation of the Association;

3. The Members' Supervisory Board's right to substitute the Administrator to revoke the power of attorney and to revoke or amend the duties and obligations of the Administrator;

4. A requirement that the Association, at the request of a Member, provide without unreasonable delay to any person designated by the Member proof of any coverages provided by the Association, including any insurance or reinsurance, deductible levels and the maximum liability which the Association will retain;

5. For newly forming Associations, the Member Agreement shall contain or have attached;

a. A financial program, as set forth in Section 3.C.6.a of this rule;

b. An operation program, as set forth in Section 3.C.6.b of this rule;

6. For new members joining an Association in existence prior to the date of promulgation of this rule, the Member Agreement shall contain or have attached;

a. Copies of financial statements for the most recently completed fiscal year;

b. An operation program as set forth in Section 3.C.6.b of this rule, including a description of any significant changes; and

7. Such other provisions not inconsistent with law or this rule.

B. The Member Agreement shall include a summary that shall fully disclose, where applicable:

1. In regard to each coverage:

a. The coverage provided, including detailed descriptions of claims-made coverage;

b. The period of the coverage;

c. The amount of the deductible per claim or in the aggregate; and

d. The maximum amount of coverage to be borne by the Association.

2. In regard to the Contribution:

a. The Contribution amount and the dates Contribution payments are due;

b. The basis upon which each Member's Contribution is determined; and

c. The conditions under which additional assessments may be made.

3. In regard to excess coverage of the Association:

a. A description of the excess coverage purchased for the Association and its limits for each coverage offered; or

b. A statement that there is no excess coverage for the Association if the Association has not obtained such coverage.

4. The name of the proposed Service Agent and the services to be performed by the Service Agent.

C. The Member Agreement shall include a prominent disclosure notice that must be signed by a duly authorized officer of the Member. The disclosure notice shall use the following or substantially similar language:

An Intermunicipal Insurance Agreement is not protected by any Vermont Guaranty Association against default due to insolvency. In the event of insolvency, Members and persons filing claims against Members may be unable to collect any amount owed to them by the Association regardless of the terms of the Member Agreement. IN THE EVENT THE ASSOCIATION IS INSOLVENT, A MEMBER MAY BE LIABLE FOR ANY AND ALL UNPAID CLAIMS AGAINST SUCH MEMBER.

Section 6 Responsibilities of the Members' Supervisory Board

The Association, its Administrators and the Members' Supervisory Board shall act as fiduciaries to the Members. Service Agents and persons marketing the Plan to current or prospective Members are agents of the Association and owe a fiduciary duty to the Association.

Section 7 Contribution Requirements

A. For the purpose of funding the Association, the Members shall make Contributions to the Association in the manner prescribed in the Member Agreement.

B. The following surplus amounts are required at the effective date of approval:

1. A minimum surplus of $ 500,000.

The Commissioner may require additional surplus funds, based on the coverages and exposures involved.

The Association shall have paid these amounts into a depository designated by the Association. The Commissioner may approve surplus amounts different than those determined above, provided the amounts are sufficient as determined by an actuarial feasibility study performed by an Actuary.

These funds are surplus and are not to be used to fund the Association's normal operations.

C. If the level of surplus falls below the amounts specified in Section 7.B, the Association shall notify the Commissioner within 5 days, and file with the Commissioner within 45 days a plan to return the surplus to the required level. This plan shall include a report of the causes of the Association's insufficiency, the assessments necessary to replenish the minimum surplus and the steps taken to prevent a recurrence of such circumstances.

D. In addition to the surplus designated in Section 7.B of this rule, at the effective date of the Association's approval, the Association shall have paid an amount of at least $ 250,000 from the initial year's Contribution into a designated depository to fund the start-up expenses of the Association's operation. The remainder of the initial year's Contribution shall be collected no later than the end of the ninth month of the Association's operation.

E. For an Association in existence as of the effective date of this rule, the Association shall file with the Commissioner a proposal for meeting, within a time frame acceptable to the Commissioner, the requirements of Sections 7.B through 7.D of this rule.

F. The total amount of each Member's annual Contribution to the Association shall be communicated by the Members' Supervisory Board to the legislative body of each Member at least one month prior to the beginning of each fiscal year. The Association also shall file with the Commissioner, unless waived by the Commissioner, an opinion of an Actuary as to the reasonableness of the proposed funding level for each fiscal year.

G. Each Association may, if permitted by its articles of association or other organizing documents, levy upon its Members an additional assessment whenever needed to supplement the Association's surplus to assure payment of its obligations. A Member may be assessed for any fiscal year during which the Member participated in the Association. Such assessment may be made after the end of the Association's fiscal year or after the Member has discontinued membership in the Association.

Section 8 Reserves

A. Every Association shall calculate and maintain reserves for all liabilities, including but not limited to the following:

1. Reserves for all losses and claims, whether or not reported;

Reserves for all loss adjustment expenses for all claims, whether or not reported; and

3. Reserves for the unearned portion of the gross Contribution or assessment, if any.

B. Discounting of loss reserves is not allowed unless approved in advance by the Commissioner.

C. An Association may reduce its reserves upon prior approval of the Commissioner and subject to the following limitations:

1. No reduction of reserves shall be allowed for insurance or reinsurance where the contract does not result in the complete transfer of liability.

2. No reduction of reserves shall be allowed for insurance or reinsurance unless the coverage remains intact in the event the Association is insolvent or financially impaired.

3. The reinsurer shall be an authorized reinsurer on Vermont's approved list or one approved by the Commissioner.

4. Copies of the complete contracts or policies of insurance or reinsurance, with all endorsements thereto or other evidence satisfactory to the Commissioner, entered into by the Association, shall be filed with the Commissioner prior to becoming effective. The Administrator shall notify, in advance, the Commissioner of the termination or change in the terms of any contracts or policies of insurance or reinsurance.

Section 9 Investments

A. Upon request, the Association shall provide the Commissioner with a complete written description of its investment practices and policies. The investment practices shall follow the requirements set forth in 8 V.S.A. § 3463.

B. The Commissioner may prohibit or limit any investment that threatens the solvency or liquidity of the Association.

Section 10 Changes to the Plan

A. Revisions or alterations to the following items submitted under Section 3.C of this rule shall be filed with the Commissioner at least 45 days prior to their effective date and shall be reviewed by the Commissioner during said 45-day period. Should the Commissioner fail to act to approve or disapprove during the 45-day period, the revision or alteration shall be deemed to be approved. Items to be submitted for approval under this subsection are as follows:

1. Revision or alteration in forms used for the Member Agreement as set forth in Section 3.C.3 of this rule.

2. The election or appointment of new Members' Supervisory Board members or the administrator or officers of the Association as set forth in Section 3.C.5 of this rule. The filing with the Commissioner shall include biographical information for each individual so elected or so appointed.

3. Changes in insurance coverages offered by the Intermunicipal Insurance Agreement, applicable Member deductible levels, or the maximum liability which the Association will retain as set forth in Section 3.C.6.a.i of this rule.

4. Changes in the estimated annual total Contribution for all Members as set forth in Section 3.C.6.a.ii of this rule.

5. Changes in the methodology by which the Association determines the aggregate amount of reserves to be set aside for the payment of claims as set forth in Section 3.C.6.a.iii of this rule.

6. Changes in the amount of specific excess insurance purchased and maintained by the Association as set forth in Section 3.C.6.a.iv of this rule.

7. Changes in methodology relating to the identification and description of reserves for self-insurance coverages provided to Members as set forth in Section 3.C.6.a.vii of this rule.

8. Changes in criteria for admitting new Members and allowing existing Members to leave as set forth in Section 3.C.6.b.ii of this rule.

9. Changes in the methodology for establishing the annual Contributions of the Association's Members as set forth in Section 3.C.6.b.iv of this rule.

10. Changes in underwriting practices as set forth in Section 3.C.6.b.v of this rule.

11. Changes in trade, marketing and claim practices, including any new persons marketing the Plan as set forth in Section 3.C.6.b.vi of this rule.

12. Changes in the procedure for dissolution of the entire Intermunicipal Insurance Agreement or the process for distribution of surplus in the event of dissolution as set forth in Section 3.C.6.b.ix of this rule.

13. Changes in the investment policy or guidelines employed in making investments as set forth in Section 3.C.6.b.x of this rule.

14. Alteration or revision of the fidelity bond covering the Administrator or its employees as set forth in Section 3.C.9 of this rule.

15. Any change in the address in Vermont where the books and records of the Association are maintained as set forth in Section 3.C.10 of this rule.

B. Revisions or alterations to items submitted under the provisions of Section 3.C of this rule other than those set forth above shall be filed with the Commissioner.

C. Revisions or alterations submitted under Section 10.A of this rule may become effective earlier than 45 days after filing if so approved by the Commissioner. Should the Commissioner disapprove a filed revision or alteration under Section 10.A of this rule, the Commissioner shall state the reasons therefor and issue an Order of Disapproval.

Section 11 Distribution of Surplus Funds

A. Any surplus in excess of the amounts described in Section 7.B of this rule, accumulated within an Association's fiscal year, as determined from the annual audited financial statement, may be declared refundable by the Member's Supervisory Board. No distribution of the surplus funds shall be made earlier than 24 months following the end of the Association's fiscal year for which a surplus was declared. Such distribution shall not be made until certified by an Actuary. If the distribution is in excess of 10% of the Association's surplus, it shall be considered an extraordinary distribution and shall require prior approval of the Commissioner. Application for the extraordinary distribution shall be submitted to the Commissioner for approval and certified by an actuary.

The Association may make a distribution prior to 24 months after the end of a fiscal year, if certified by an Actuary and approved by the Commissioner

B. Surpluses accumulated within an Association's fiscal year shall be used exclusively for the benefit of those Members belonging to the Association during that year. The accounting shall be separate for each year.

C. Notwithstanding Section 11.B of this rule, the Commissioner may, in his or her discretion, require or permit an Association's surplus accumulated within a fiscal year be allocated to a different year.

Section 12 Annual Filing Requirements

A. Each Association shall file annually with the Commissioner, and with the Members of the Association within 120 days after the end of the fiscal year, audited financial statements for the most recently completed fiscal year certified by an independent certified public accountant. If the Association fails to file such audited financial statements, the Commissioner may perform the audit and the Association shall reimburse the Commissioner for such cost.

B. At a minimum, the audited financial statements shall contain the following exhibits for the current and prior fiscal years:

1. Balance sheet;

2. Statement of income;

3. Statement of changes in equity;

4. Notes to financial statements; and

5. Management and internal control letters.

C. The financial statements shall be prepared in accordance with generally accepted accounting principles with the following exceptions:

1. Loss reserves shall not be discounted. However, the Commissioner may approve discounting of loss reserves if the Association's Actuary certifies that said discounting is in accordance with the customary practice of the traditional insurance industry, and that said discounting will not adversely affect the fiscal integrity of the Association.

2. Any other exceptions to generally accepted accounting principles the Commissioner finds necessary to preserve the fiscal integrity of the Association.

D. With the financial statements, the Association shall include a statement of opinion as to the loss and loss expense reserves certified by an Actuary.

E. Each Association shall file a copy of the fidelity bond, or evidence acceptable to the Commissioner, covering the Administrator, the Association employees and Service Agents with the audited financial statement.

F. In addition to the annual audited financial statement, the Commissioner may require any Association to file additional financial information, including, but not limited to interim financial reports, additional financial reports or exhibits or statements considered necessary to secure complete information concerning the condition, solvency, experience, transactions or affairs of the Association. The Commissioner shall establish reasonable deadlines for filing these additional reports, exhibits or statements. The Commissioner may require verification of any additional required information.

G. Each Association shall file annually with the Commissioner the methodology for establishing the annual Contributions of its Members. Such Contributions must be based on reasonable assumptions and certified by an Actuary.

Section 13 Examination

A. The Association shall retain and have available for examination by the Commissioner for at least five years after the close of a fiscal year the following:

1. All executed copies of Member Agreements;

2. An executed copy of the resolution of the legislative body of each Member authorizing membership in the Association; and

3. All financial books, records and accounts.

B. The Commissioner may examine the affairs, transactions, accounts, records and any other matters deemed necessary, of the Association and/or its independent accountant, including accounting workpapers and assets of the Association, as often as the Commissioner deems necessary. Such records must be available for examination at a location in Vermont. The manner and frequency in which the examination of financial condition shall be conducted and the release of any reports of financial condition shall be as provided in 8 V.S.A. §§ 3563 and 3565.

Section 14 Dissolution, Suspension, Revocation of an Association; Merger of Associations

A. An Association's approval shall remain in effect until terminated at the request of the Members' Supervisory Board.

B. Before an Association may voluntarily dissolve, it shall present a proposal of dissolution to the Commissioner for approval. Such a proposal shall provide for the payment of all incurred losses and expenses of the fund and its Members, including all incurred but not reported losses, as certified by an Actuary, to the extent of the Association's assets. No assets of the Association may be used for any other purpose until all losses and expenses are paid in full.

C. Subject to the approval of the Commissioner, an Association may merge with another Association if the resulting Association assumes in full all obligations of the merging Associations. The Commissioner may hold a hearing on the merger and shall do so if any Member of either Association so requests.

Section 15 Application of Unfair Trade Practices Act

An Intermunicipal Insurance Agreement shall be subject to the provisions of 8 V.S.A. Chapter 129 and rules promulgated thereunder governing unfair trade, market and claim practices.

Section 16 Transition Provisions

All Intermunicipal Insurance Agreements approved prior to the effective date of this rule shall comply with the terms of this rule.

Section 17 Severability

If any provisions of this rule, or the application of it to any person or circumstances, is determined to be invalid by a court of competent jurisdiction, such invalidity shall not affect other provisions of this rule which can be given effect without the invalid provision or application, and to that end the provisions of this rule are severable.

Section 18 Effective Date

This regulation shall become effective on May 6, 1991; revision shall become effective on July 23, 2019.

History

• EFFECTIVE DATE:
• May 6, 1991 Secretary of State Rule Log #91-15
• AMENDED:
• July 23, 2019 Secretary of State Rule Log #19-031
• STATUTORY AUTHORITY: 24 V.S.A. C. 121, §§ 4941 to 4947

Subagency 040 DIVISION OF HEALTH CARE ADMINISTRATION

Chapter 024 RULE H-2009-02 - HEALTH CARE STOP LOSS INSURANCE

21-024 Code Vt. R. 21-040-024-X RULE H-2009-02 - HEALTH CARE STOP LOSS INSURANCE

Section 1. Authority and Purpose.

This Rule is promulgated under the authority granted to the Commissioner by Title 8 V.S.A. § 15 and Title 8 V.S.A. § 6015 in order to establish criteria for the issuance of health care stop loss insurance policies and contracts. Nothing in this Rule shall be construed as imposing any requirement or duty on any person other than an insurer or as treating any health care stop loss policy as a direct policy of health insurance.

Section 2. Scope.

This Rule applies to each health care stop loss insurance policy or contract that is delivered or issued for delivery by an insurer in Vermont.

Section 3. Definitions.

As used in this Rule:

A. "Actuarial Certification" means a written and signed statement by a member in good standing of the American Academy of Actuaries, or other individual acceptable to the Commissioner, that an insurer is in compliance with the provisions of this Rule, based upon the individual's examination and including a review of the appropriate records and the actuarial assumptions and methods used by the insurer in establishing attachment points and other applicable determinations in conjunction with the provision of health care stop loss insurance coverage.

B. "Attachment Point" means the claims amount incurred by a group health plan beyond which the health care stop loss insurer incurs a liability for payment.

C. "Commissioner" means the Commissioner of the Department of Financial Regulation.

D. "Department" means the Vermont Department of Financial Regulation.

E. "Expected Claims" means the amount of claims that, in the absence of a health care stop loss policy or other insurance, are projected to be incurred by a group health plan.

F. "Health Care Stop Loss Insurance" means insurance or other risk-transfer arrangement that is purchased by a group health plan or by the sponsor or trustee of such plan (or by any guarantor or indemnitor thereof other than a licensed insurance company or reinsurer), to limit the exposure of such person against losses sustained by such plan.

G. "Insurer" means any insurance company, including a captive insurance company formed or licensed under Chapter 141 of Title 8, Vermont Statutes Annotated (other than a pure captive), health maintenance organization, nonprofit hospital service corporation and nonprofit medical service corporation, and to the extent permitted by federal law, a risk retention group chartered and licensed in any state.

H. "Small Employer" has the same meaning provided in 33 V.S.A. § 1811(a)(3)(B), as amended and as may be amended from time to time. For purposes of determining whether an employer is a small employer under this regulation, this section shall apply to employers with employees in plans that are grand fathered under 8 V.S.A. § 4080g.

Section 4. Health Care Stop Loss Insurance Coverage Standards.

A. Each health care stop loss insurance policy or contract issued or renewed by an insurer must:

a) Have an annual attachment point for claims incurred per individual which is at least:

i) $ 33,200; or

ii) $ 40,000 for Small Employers with 25 or fewer employees.

b) Have an annual aggregate attachment point, for Small Employers, with more than 25 employees that is at least the greater of:

i) 120 percent of expected claims; or

ii) $ 33,200.

c) Have an annual aggregate attachment point, for Small Employers with 25 or fewer employees, that is at least the greater of:

i) 120 percent of expected claims; or

ii) $ 40,000

d) Have an annual aggregate attachment point, for any groups other than Small Employers, that is at least 110 percent of expected claims;

e) Not provide direct coverage of health care expenses of an individual; and

f) For Small Employers, not exclude from coverage any individual or group of individuals who are covered by the underlying group health plan.

B. The Commissioner shall, every third year beginning with the year 2020, commission an actuarial study of appropriate attachment point levels. Upon receiving the actuarial study, the Commissioner may, consistent with the study, adjust the attachment points set forth in Paragraph A, above. The Commissioner may amend these dollar amounts in increments of $ 100; any adjustments made to the dollar amounts set forth in Paragraph A or Paragraph B, above, must be in increments of $ 100. The Commissioner shall publish any adjustment to the dollar amounts set forth in Paragraph A, above, at least six (6) months before the date such adjustment is to become effective.

C. If the policy or contract provides for higher attachment points for any individual or group of individuals within the employer group, such attachment points may not be changed during the policy period. For Small Employers, no attachment point for an enrollee shall exceed three times the attachment point chosen for the policy.

D. Notwithstanding any provision to the contrary, a stop loss insurer may renew an existing health care stop loss insurance policy using the annual attachment point for claims incurred per individual specified in subsection A(a)(i) and the annual aggregate attachment point specified in subsection A(b). This provision shall not apply to health care stop loss insurance policies issued after the effective date of this Rule.

Section 5. Required Disclosure Provisions.

Each health care stop loss insurance policy or contract shall include on the first page of the policy or contract, or attached to the policy or contract, in either contrasting color or in boldfaced type at least equal to the size of the type used for policy or contract captions, the following prominent and clear disclosures:

A. A disclosure indicating whether claims under the policy or contract are paid on a "run-in", "paid", "run-out" or other basis. To the extent such terms are used, those terms must be defined in the policy or contract, but the definitions need not appear with the disclosure provisions required by this Section.

B. If a "terminal liability" option is available under the policy or contract, a disclosure shall be provided that shall so state. If a terminal liability option is available, the policy or contract shall include a clear description of such option, but the description need not appear with the disclosure provisions required by this Section.

C. If the policy or contract restricts covered claims to those that are both incurred and paid by the insured during the contract period, then a disclosure statement shall be provided that states:

Only eligible expenses that are both incurred under the group health plan and paid by the group health plan within the stated contract period for health care stop loss insurance are reimbursable under this policy.

D. For Small Employers, the application shall include a prominent statement describing the specific financial risks of self-insuring, including the risk of claims volatility. If the policy or contract provides for higher attachment points for any individual or group of individuals within the employer group, then the application shall also include a prominent statement describing the specific financial risks associated with such higher attachment points. The statement(s) must be signed by a representative of the Small Employer before coverage becomes effective.

E. For groups other than Small Employers, if the policy or contract provides for higher attachment points as described in subsection D or excludes from the policy or contract any individual or group of individuals covered by the underlying group health plan, then the application shall include a prominent statement describing the specific financial risks associated with such higher attachment points or exclusions. The statement must be signed by a representative of the group before coverage becomes effective.

Section 6. Form Filing Requirements.

A. Insurers shall file all forms for approval by the Commissioner prior to use of a stop loss insurance policy form. No form shall be approved if it contains any provision:

a) which is unjust unfair, inequitable, misleading, or contrary to the law of this state;

b) which excludes coverage or benefits from the underlying self-insured plan; or

c) which relates to medical necessity determinations, utilization management requirements, and usual and customary charge determinations.

B. Forms, as used in this Rule, shall include the following: all product forms, including but not limited to, policy forms, member handbooks, certificates, endorsements, riders, and applications.

Section 7. Rate Filing Requirements.

A. Prior to implementation, carriers shall file for approval rate filings that include, at a minimum, the following:

a) a certification by a member of the American Academy of Actuaries which certifies a carrier's compliance with this Rule. Such certification shall include sufficient detail for the Commissioner to verify that such certification is appropriate. Carriers shall provide additional information as requested by the Commissioner in order to verify representations in the rate filing;

b) a statement by a member of the American Academy of Actuaries that the rates are reasonable in relation to the benefits provided, and that they are neither excessive, deficient, nor unfairly discriminatory;

c) a description of the methodology for calculating the requested rate;

d) an identification of the effective date that the rates were designed for and the effective period of the rates; and

e) an explanation of adverse selection factors considered by the carrier.

B. No rate shall be approved if it is unjust, unfair, inequitable, misleading or contrary to the law of this state. Notice of a premium rate increase shall be provided to insureds at least 45 days prior to implementation, subject to waiver as approved by the Commissioner. In no event shall rate increases be implemented without at least 30 days written notice to the insured.

Section 8. Severability.

If any provision of this Rule or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of the Rule and the application of such provisions to other persons or circumstances shall not be affected thereby.

Section 9. Effectiveness.

This Rule shall govern health care stop loss insurance policies with coverage issued or renewed on or after March 1, 2022; provided, the Commissioner may waive or modify one or more of the provisions of this Rule for any health care stop loss insurance issued by a captive insurance company or risk retention group under a plan of operation satisfying the underlying purposes of this Rule as determined by the Commissioner. Administration and enforcement of this Rule with respect to Vermont-domiciled captive insurance companies and Vermont-domiciled risk retention groups shall be by the Department's Captive Insurance Division consistent with the responsibilities of the Division and the Commissioner under Chapter 141 and Chapter 142 and Title 8.

History

• EFFECTIVE DATE:
• October 29, 2009 Secretary of State Rule Log #09-011
• AMENDED:
• December 31, 2016 Secretary of State Rule Log #16-049; April 21, 2018 Secretary of State Rule Log #18-014; 3/1/2022 Secretary of State Rule Log #21-032
• STATUTORY AUTHORITY: 8 V.S.A. §§ 15, 6015

Subagency 020 INSURANCE DIVISION

Chapter 025 INDEPENDENT ANALYSIS OF PROPOSED MEDICARE SUPPLEMENT RATE INCREASES

21-025 Code Vt. R. 21-020-025-X INDEPENDENT ANALYSIS OF PROPOSED MEDICARE SUPPLEMENT RATE INCREASES

Section 1 Purpose

The purpose of this regulation is to set forth rules for the hiring of independent experts to analyze proposed rate increases in Medicare supplement health insurance policies pursuant to Title 33 V.S.A. § 6706.

Section 2 Authority

This regulation is issued pursuant to the authority vested in the Commissioner of Banking, Insurance and Securities ("Commissioner") by Title 33 V.S.A. § 6706.

Section 3 Review by the Commissioner

(a) Proposed rate increases in Medicare supplement rates shall be reviewed by the Commissioner to determine if the best interests of the policyholders or certificate-holders will be served by having an analysis of the proposed increase performed by an independent expert. In determining whether such analysis would serve the policyholders' or certificate-holders' best interests the Commissioner:

(1) shall consider the premium volume and the amount of the proposed increase;

(2) shall weigh the cost of such analysis to each policyholder or certificate-holder against the amount of the proposed rate increase; and

(3) may consider amendments to Medicare law, inflation, and other factors that impact Medicare supplement rates.

(b) When the Commissioner determines that independent analysis is in the best interest of the policyholders or certificate-holders, he shall notify the insurer of such determination no later than thirty (30) days after the filing is received by the Department. Once such notification is given, the Commissioner shall submit the filing to an expert for independent analysis. The filing will not be deemed approved until thirty (30) days after it is returned to the Department by the expert.

(c) The Commissioner's determination under this section shall become part of the Department's rate filing records and shall be made at least five (5) days prior to the granting of the rate increase or any portion thereof.

Section 4 Information Required of Insurers

To enable the Commissioner to adequately review Medicare supplement rates pursuant to Section 3 of this regulation, insurers are required to provide with each rate filing --

(a) the proposed rate increase, expressed as both:

(1) the total dollar amount; and

(2) a percentage of written premiums; and

(b) for the most recent period of experience, the following Vermont data:

(1) the number of individual policyholders or certificate-holders to be affected by the rate increase; and

(2) the average premium per policyholder or certificate-holder both before and after the filing, assuming the filing is approved; and

(c) for the preceding five-year period of sale of the certificates or policies in Vermont, the following Vermont data for each calendar year:

(1) the amount of written premiums;

(2) the amount of earned premiums; and

(3) the incurred claims associated with Vermont insureds.

Section 5 Independent Analysis

(a) The Commissioner shall periodically solicit proposals from and enter into agreements with qualified experts to conduct the required independent analysis.

(b) The Commissioner may set reasonable limits on the expert's fees and costs. Such fees and costs shall be submitted to the Department and the insurer and paid directly by the insurer. The insurer may assess the affected policyholders or certificate-holders.

(c) The independent expert shall submit a report, containing findings, analysis and a summary statement, to the Department within thirty (30) days of the rate filing being submitted to such expert for analysis. The summary shall become part of the Department's rate filing records.

Section 6 Severability

Should a court hold any provision of this regulation invalid in any circumstance, the invalidity shall not affect any other provisions or circumstances.

Section 7 Effective Date

This regulation shall become effective January 1, 1992.

History

• Effective Date: January 1, 1992 (SOS Rule Log # 91-68)

Subagency 040 DIVISION OF HEALTH CARE ADMINISTRATION

Chapter 026 HOSPITAL REPORTING RULE

21-026 Code Vt. R. 21-040-026-X HOSPITAL REPORTING RULE

Section 1.0 Authority

This rule is adopted pursuant to 18 V.S.A. §§ 9405a, 9405b, and 18 V.S.A. § 1919.

Section 2.0 Purpose

The purpose of this rule is to establish the process and time line for data submission and reporting for the generation of a statewide hospital quality report and reporting on the community health needs assessments.

Section 3.0 Definitions

3.1 "Annual Reporting Manual" means the document published annually by the Department and the Green Mountain Care Board (GMCB) that describes in detail the necessary data specifications and guidelines for submission and publication for hospitals and the development of Community Health Needs Assessments (CHNA). The reporting manual shall contain, at a minimum, a list of quantitative measures; the methodology for collecting and analyzing data; and parameters for presenting quantitative and qualitative information. It is maintained on the Department website.

3.2 "Benchmark" means an attribute or achievement that serves as a standard for other providers or institutions to emulate. Benchmarks differ from other standard of care goals in that they derive from empiric data - specifically, performance or outcomes data.

3.3 "Charge" means the amount, in U.S. dollars, that a hospital invoices a purchaser or patient for a particular service or combination of services performed by the hospital prior to the application of any discounts, reductions or mark-downs that may ultimately affect the amount the purchaser or patient is obligated to pay for the performance of such service(s).

3.4 "Community Health Needs Assessment" means a written report made widely available to the public by the hospital that, using qualitative and quantitative data:

3.4.1 Identifies significant health needs of the community it serves;

3.4.2 Prioritizes those health needs; and

3.4.3 Identifies resources (such as organizations, facilities, and programs in the community, including those of the hospital) potentially available to address those health needs.

3.4.4 For these purposes, the health needs of a community include requisites for the improvement or maintenance of health status both in the community at large and in particular parts of the community (such as particular neighborhoods or populations experiencing health disparities).

3.4.4.1 These needs may include, for example, the need to address financial and other barriers to accessing care, to prevent illness, to ensure adequate nutrition, or to address social, behavioral, and environmental factors that influence health in the community.

3.5 "Commissioner" means the Commissioner of the Vermont Department of Health.

3.6 "Department" means the Vermont Department of Health.

3.7 "Hospital" or "Community Hospital" means a place licensed under Chapter 43 of Title 18 devoted primarily to the maintenance and operation of diagnostic and therapeutic facilities for in-patient medical or surgical care of individuals who have an illness, disease, injury, or physical disability, or for obstetrics.

3.8 "Hospital Report Card" means a compilation of standardized quality and financial information for statewide comparisons by hospital.

3.9 "Implementation Plan" means the specific plan to address the results of the Community Health Needs Assessment developed by a hospital. This plan includes a description of identified health needs, strategic initiatives developed to address the identified needs, annual progress on implementation of the proposed initiatives, and opportunities for public participation.

3.10 "Psychiatric Hospital" means a hospital for the diagnosis and treatment of mental illness, as defined in 18 V.S.A. § 1902.

3.11 "Reliability" means the consistency of a measure. A reliable measure of quality should produce consistent results when repeated in the same population and setting, even when assessed by different people at different times. Any variation in a quality measure should reflect a true change in quality and not errors produced by the measurement itself. Such inconsistencies and errors occur when trying to measure quality in rare events (e.g., mortality), a small number of events (e.g., small hospitals may conduct very few of a specific procedure), or restricted samples of events (e.g., counting occurrence of an event over a relatively short period of time). Quality measures should be repeated periodically, and any changes in the measures should reflect a true change in quality.

3.12 "Validity" means the accuracy of a measure, so that a specific quality indicator measures what it is intended to measure. Reliability is a prerequisite to validity, but does not guarantee a valid measure. The validity of a quality measure is assessed by whether it makes sense logically and clinically, correlates well with other measures of the same aspects of quality, and captures the meaningful aspects of quality. Quality measures should be linked to significant processes or outcomes of care as demonstrated by established scientific studies.

Section 4.0 Reporting Requirements to the Department

The Department may require hospitals to report measures by payer, race, gender, socioeconomic status, or other variables indicative of equity in treatment or access. In addition, the Department may require hospitals to report only on measures for which there are enough cases to make reporting reliable. The Department, in consultation with experts in quality measurement, will determine what constitutes adequate case numbers for public reporting. Measures reported to the Health Department may include:

4.1 Quality, patient safety and infection rate measures

4.1.1 Hospitals shall submit valid, reliable, and useful information per the Annual Reporting Manual.

4.2 Nurse Staffing Information

4.2.1 Hospitals shall submit valid, reliable, and useful information on nurse staffing, in accordance with the Annual Reporting Manual.

4.2.2 This information may include system-centered measures such as skill mix, nursing care hours per patient day, and other system-centered measures for which reliable industry benchmarks become available.

4.3 Information on Hospital Pricing

4.3.1 Community hospitals shall submit information on hospital pricing to the Department using a template, and following a deadline established in the Annual Reporting Manual. Community hospitals shall also respond to the Department's comments and questions after the initial submission, and validate the data the Department produces prior to the publication of the Report, as specified in the Annual Reporting Manual.

4.3.2 This information shall include:

4.3.2.1 A comparison of cost for higher volume health care services; and

4.3.2.2 Any other services to be determined by the Commissioner and to include an array of hospital and/or physician services.

Section 5.0 Requirements for Publication on Community Hospital Websites

Community hospitals shall post the following on their website:

5.1 Community Health Needs Assessment in accordance with the Internal Revenue Service, Annual Reporting Manual, and any other Green Mountain Care Board reporting requirements. This shall include the following:

5.1.1 A description of where and how consumers may obtain detailed, information about, or a copy, of the hospital's Community Health Needs Assessment and strategic plan.

5.1.2 Contact information including, but not limited to, the telephone numbers, email addresses, fax numbers and postal addresses of the person in charge of the Community Health Needs Assessment at the hospital.

5.2 Implementation Plan which shall include a description of initiatives that the hospital is undertaking or plans to undertake to meet community health needs identified through the hospital's Community Health Needs Assessment.

5.3 An Annual Progress Report of the Implementation Plan, as described in the Annual Reporting Manual, of the proposed initiatives;

5.4 A summary description of the hospital's process for achieving openness, inclusiveness and meaningful public participation in its Community Health Needs Assessment, strategic planning, decision-making and identification of community health needs. Such description shall include:

5.4.1.1 The manner in which the hospital has incorporated meaningful public participation into its strategic planning, decision-making and identification of health care needs in its service area;

5.4.1.2 A listing of the activities that are available for public participation (e.g., volunteer opportunities, regional or community partnerships, public meetings, community events, interviews with key community leaders, surveys, and/or focus groups); and

5.4.1.3 Contact information, including but not limited to the department(s), telephone numbers, e-mail addresses, fax numbers and postal addresses at the hospital for consumers to use if interested in learning about public participation events; website references may also be included;

5.5 Hospital governance information including the following:

5.5.1 Means of obtaining a schedule of meetings of the hospital's governing body, including times scheduled for public participation; and

5.5.2 A listing of current governing body members and their qualifications, as required in 18 V.S.A. § 9405b(b) (3), including each member's:

5.5.2.1 Name;

5.5.2.2 Town of residence;

5.5.2.3 Occupation;

5.5.2.4 Employers and job title; and

5.5.2.5 The amount of compensation, if any, for serving on the governing body.

5.5.2.6 Contact information including, but not limited to, the telephone numbers, e-mail addresses, fax numbers and postal addresses of the person responsible for public participation at the hospital.

5.5.3 The hospital's affiliation and membership with other hospital, Accountable Care Organizations (ACOs), and/or other managing entities described in the Annual Reporting Manual.

5.6 Summary of the hospital's consumer complaint resolution process, including but not limited to:

5.6.1 A description of the complaint resolution process, including how to register a complaint;

5.6.2 Contact information, including but not limited to telephone numbers, e-mail addresses, fax numbers and postal addresses for the hospital employee(s) responsible for the implementation of the complaint resolution process;

5.6.3 Contact information, including but not limited to telephone numbers, email addresses, fax numbers and postal addresses for Department of Disability, Aging, and Independent Living, Licensing and Protection Division in order to register a complaint against the hospital; and

5.6.4 Contact information for other relevant organizations as described in the Annual Reporting Manual.

5.7 Financial Assistance Policies as required by the Internal Revenue Service (IRS).

Section 6.0 Requirements for Publication on Psychiatric Hospital Websites

Psychiatric hospitals shall post the following on their website:

6.1 Quality of Care measures as described in the Annual Reporting Manual;

6.2 Hospital financial and budget information as described in the Annual Reporting Manual;

6.3 Hospital pricing information following the template established in the Annual Reporting Manual and described in section 4.3 of this rule;

6.4 Information of hospital-acquired infections;

6.5 A description of the hospital's strategic plan, identified areas of need, and strategic initiatives aimed at addressing those needs.

6.6 Hospital governance information as described in section 5.4 of this rule;

6.7 Summary of the hospital's consumers complaint resolution process as described in section 5.5 of this rule; and

6.8 Financial Assistance Policies as described in the Annual Reporting Manual.

Section 7.0 Paper copies of reports

Should an individual or member of the public need a paper copy of any item listed in sections 4.0 - 7.0 of this rule, the hospital will make a paper copy available.

Section 8.0 Reporting by Green Mountain Care Board

The Green Mountain Care Board shall publish reports, based on information provided by hospitals during the budget review process, which shall include:

8.1 Finances: Summaries of the hospitals' finances, including but not limited to ratios, statistics and indicators relating to liquidity, cash flow, productivity, surplus, charges and payer mix. Such ratios, statistics and indicators shall represent two years of actual results and current budget year.

8.2 Budgets: Summaries of the hospitals' budgets which represent two years of actual results and current budget year.

8.3 Cost Shift: Quantification of cost shifting from public payers to private payers for one year of actual results and current budget year.

8.4 Key Performance Indicators: Summaries of the hospitals' capital key performance indicators for two years of actual results and current budget year.

8.5 Capital Investments: Summaries of capital expenditures and plans for one to four years.

Section 9.0 Process for Adding Reporting Measures

9.1 The Department will consider relevant criteria in evaluation of potential measures for inclusion in the reporting manual, including but not limited to:

9.1.1 Reliability;

9.1.2 Validity;

9.1.3 Basis in scientific evidence; 9.1.4 National consensus;

9.1.4 National consensus;

9.1.5 Availability of relevant, reliable and valid external benchmarks;

9.1.6 Well-developed specifications;

9.1.7 Importance to consumers;

9.1.8 Adequacy of case numbers;

9.1.9 Cost of data collection; and

9.1.10 Importance to public health protection.

9.2 Measures requiring new data collection by the hospitals:

When the Department wishes to add measures to reporting requirements that require new data collection not currently required by state or federal requirements, the Department will:

9.2.1 Solicit input from patient safety experts, hospitals, health care professionals, consumer advocates and members of the public.

9.2.1.1 The Department will convene a meeting with at least one member from each group listed in 9.2.1 of this rule.

9.2.1.2 The Department will send a detailed list of the proposed measures with their specifications and the reason the measure is being proposed to the group no later than 2 weeks prior to the first meeting.

9.2.1.3 If a stakeholder is unable to attend the meeting the Department will accept written comments until the close of business on the scheduled meeting day.

9.2.1.4 After the conclusion of the meeting, the Department will compile the feedback from the group and respond in writing to the feedback and make any changes deemed reasonable prior to notifying hospitals of the new measures per 9.2.2 of this rule.

9.2.2 Notify hospitals of the new measures 180 days prior to the inception date for data collection with respect to such measures.

9.3 The Department will, whenever possible, use measures that are required by other measure stewards. Measures adopted by the Department from external sources are the same specifications as those of the original measures steward unless specified otherwise.

9.3.1 Hospitals must adhere to reporting and submission requirements and deadlines set by the measure stewards. Specifications will be provided in the Annual Reporting Manual.

9.3.2 Examples of measure stewards are: Centers for Medicare and Medicaid Services (CMS), Vermont Program for Quality in Health Care (VPQHC), National Healthcare Safety Network (NHSN), Green Mountain Care Board (GMCB), Internal Revenue Service (IRS), and Vermont Association of Hospitals and Health Systems (VAHHS).

9.4 Measures included in existing federal or state reporting:

9.4.1 When the Department adds measures to the reporting requirements that do not require new data collection processes, the Department will notify hospitals by December 1 of the year prior to the scheduled June 1 publication date.

9.4.2 The timeline for reporting the new measures will be dependent on the type of measure and will be specified in the Annual Reporting Manual.

History

• EFFECTIVE DATE:
• August 30, 2010 Secretary of State Rule Log #10-033
• AMENDED:
• September 15, 2018 Secretary of State Rule Log #18-036
• STATUTORY AUTHORITY: R.I.G.L. 18 V.S.A. §§ 1919, 9405a, 9405b

Chapter 027 RULE H-2011-01 LICENSING REQUIREMENTS FOR MENTAL HEALTH REVIEW AGENTS

21-027 Code Vt. R. 21-040-027-X RULE H-2011-01 LICENSING REQUIREMENTS FOR MENTAL HEALTH REVIEW AGENTS

Section 1 Purpose

The purpose of this regulation is to set forth the requirements and standards for the licensing of persons or entities that perform service review activities of mental health care services.

Section 2 Authority

This rule is issued pursuant to the authority vested in the Commissioner of the Department of Banking, Insurance, Securities and Health Care Administration by 8 V.S.A. §§ 15, 4089a, 4089b, and 4724 and 18 V.S.A. § 9414.

Section 3 Definitions

(A) "Adverse benefit determination" means a denial, reduction, modification or termination of, or a failure to provide or make payment (in whole or in part) for, a benefit, including but not limited to:

1. a denial, reduction, termination or failure to provide or make payment that is based on a determination of a participant's or beneficiary's eligibility to participate in a health benefit plan;

2. a denial, reduction, modification or termination of, or a failure to provide or make payment (in whole or in part) for, a benefit resulting from the application of any utilization review; and

3. a failure to cover an item or service for which benefits are otherwise provided because it is determined to be experimental or investigational or not medically necessary or appropriate.

(B) "Clinical review criteria" means the written screening procedures, clinical protocols, practice guidelines and utilization management and review guidelines used by the managed care organization to determine the necessity and appropriateness of health care services.

(C) "Commissioner" means the Commissioner of Banking, Insurance, Securities and Health Care Administration or his or her designee.

(D) "Concurrent review" means utilization review conducted during a member's stay in a hospital or other facility, or other ongoing course of treatment.

(E) "Contracted provider" means a provider employed by, under contract or subcontract with, in a network, designated as preferred or otherwise in an arrangement with a managed care organization for the purpose of furnishing health care services to the members of the managed care organization, regardless of the specific terms of or the terminology applied by the managed care organization to its relationship with the provider.

(F) "De-identified" means there has been a redaction consistent with the requirements in federal privacy rules promulgated pursuant to the Health Insurance Portability and Accountability Act (HIPAA) such that the de-identified information does not identify an individual and there is no reasonable basis to believe that the information can be used to identify an individual.

(G) "Department" means the Department of Banking, Insurance, Securities and Health Care Administration.

(H) "Discharge plan" means the plan that results from the formal process for determining, before discharge from a health care facility, the coordination and management of the care that a member will receive following the discharge.

(I) "File", where used in the context of information to be provided to the Department by a managed care organization, means to file an original document by delivering it, and any copies as requested by the Department, to the Department of Banking, Insurance, Securities and Health Care Administration and, if requested by the Department, to an organization designated by the Department under Section 6(D). The Department may also, at its discretion, permit documents to be filed electronically.

(J) "Grievance" means a complaint submitted by or on behalf of a member regarding the:

1. Adverse benefit determination;

2. Availability, delivery or quality of health care services;

3. Claims payment, handling or reimbursement for health care services; or

4. Matters relating to the contractual relationship between a member and a managed care organization or the health insurer offering the health benefit plan.

(K) "Health benefit plan" means a policy, contract, certificate or agreement entered into, offered or issued by a health insurer to provide, deliver, arrange for, pay for, or reimburse any of the costs of health care services.

(L) "Health care services" or "services" means services for the diagnosis, prevention, treatment, cure or relief of a health condition, illness, injury or disease.

(M) "Health insurer" means any health insurance company, nonprofit hospital service corporation and nonprofit medical service corporation, managed care organization, and, to the extent permitted under federal law, any administrator of an insured, self-insured, or publicly funded health care benefit plan offered by public and private entities.

(N) "License" means a review agent's license granted by the Commissioner

(O) "Manage care organization" means any financing mechanism or system that manages health care delivery for its members or subscribers, including but not limited to health maintenance organizations, preferred provider organizations, exclusive provider organizations and any other health care delivery system or organization that manages health care delivery for its members or subscribers, or that issues a health insurance policy, plan, or subscriber contract which operates to manage health care delivery. The term managed care organization includes a mental health review agent as defined in 8 V.S.A. § 4089a, a health insurer as defined in 18 V.S.A. § 9402, a managed care organization as defined in 18 V.S.A. § 9402, a delegate of a health insurer or managed care organization, and any person or entity that meets the definition of a managed care organization under law.

(P) "Manage health care delivery" means to apply any design or mechanism to a health benefit plan to affect access to or the quality, coordination or cost of the health care available to members under the health benefit plan, including but not limited to the use of any form of utilization management; pharmaceutical benefit management; networks, preferred providers or any other restrictions or incentives for members to use certain providers; and/or disease, care or case management.

(Q) "Medical or scientific evidence" means the following sources:

1. Peer-reviewed scientific studies published in or accepted for publication by medical journals that meet nationally recognized requirements for scientific manuscripts and that submit most of their published articles for review by experts who are not part of the editorial staff.

Peer-reviewed literature, biomedical compendia and other medical literature that meet the criteria of the National Institutes of Health's National Library of Medicine for indexing in Excerpta Medica (EMBASE), Medline, and PubMed Medline, and resources from the Cochrane Library, HSTAT, and the National Guideline Clearinghouse.

3. Medical journals recognized by the federal Secretary of Health and Human Services, under Section 1861(t)(2) of the federal Social Security Act.

4. The following standard reference compendia: the American Hospital Formulary Service-Drug Information (AHFS Drug Information), the American Dental Association Accepted Dental Therapeutics and Monograph Series on Dental Materials and Therapeutics, The United States Pharmacopeia, The National Formulary and the USPDI.

5. Findings, studies or research conducted by or under the auspices of federal government agencies and nationally recognized federal research institutes, including the Agency for Health Care Research and Quality, National Institutes of Health, National Cancer Institute, National Academy of Sciences, Centers for Medicare and Medicaid Services, and any national board recognized by the National Institutes of Health for the purpose of evaluating the medical value of health services.

6. Peer-reviewed abstracts accepted for presentation at major medical association meetings.

(R) "Medically necessary care" means health care services, including diagnostic testing, preventive services and aftercare, that are appropriate in terms of type, amount, frequency, level, setting, and duration to the member's diagnosis or condition. Medically necessary care must be informed by generally accepted medical or scientific evidence and consistent with generally accepted practice parameters as recognized by health care professions in the same specialties as typically provide the procedure or treatment, or diagnose or manage the medical condition; must be informed by the unique needs of each individual patient and each presenting situation; and

1. help restore or maintain the member's health; or

2. prevent deterioration of or palliate the member's condition; or

3. prevent the reasonably likely onset of a health problem or detect an incipient problem.

(S) "Member" means any individual who has entered into a contract with a health insurer or managed care organization for the provision of health care services, or on whose behalf such an arrangement has been made, as well as the individual's dependents covered by the contract.

(T) "Mental health care services" means acts of diagnosis, treatment, evaluation or advice or any other acts permissible under the health care laws of Vermont, whether performed in an outpatient or an institutional setting, and includes alcohol and drug abuse treatment.

(U) "Person" means a natural person, partnership, unincorporated association, corporation, limited liability company, municipality, the state of Vermont or a department, agency or subdivision of the state, or other legal entity.

(V) "Practicing mental health care provider" means any person certified or licensed to provide mental health care services and currently providing such services, including but not limited to a physician, nurse with recognized psychiatric specialties, psychologist, clinical social worker, mental health counselor, or alcohol or drug abuse counselor.

(W) "Review agent" means a person or entity performing service review activities who is either affiliated with, under contract with, or acting on behalf of a business entity in this state; or a third party who provides or administers mental health care benefits to citizens of Vermont, who are members of health benefit plans subject to the Department's jurisdiction, including a health insurer, nonprofit health service plan, health insurance service organization, health maintenance organization or preferred provider organization, including organizations that rely upon primary care physicians to coordinate delivery of services.

(X) "Review agent medical director" means a Vermont-licensed physician who is board-certified or board-eligible in his or her field of specialty as determined by the American Board of Medical Specialties (ABMS) or the American Osteopathic Association (AOA), and who is charged by a mental health review agent with responsibility for overseeing all clinical activities of the mental health review agent in Vermont, or his or her designee.

(Y) "Service review" means any system for reviewing the appropriate and efficient allocations of mental health care services given or proposed to be given to a member or group of members for the purpose of recommending or determining whether such services should be reimbursed, covered or provided by an insurer, plan or other entity or person and includes activities of utilization review and managed care, but does not include professional peer review which does not affect reimbursement for or provision of services.

(Z) "Treating mental health care provider" means any person, corporation, facility or institution certified or licensed to provide mental health care services that is providing treatment to a member of a health benefit plan, including but not limited to a physician, nurse with recognized psychiatric specialties, hospital or other health care facility, psychologist, clinical social worker, mental health counselor, alcohol or drug abuse counselor, employee or agent of such provider acting in the course and scope of employment, or agency related to mental health care services.

(AA) "Utilization management" means the set of organizational functions and related policies, procedures, criteria, standards, protocols and measures used by a managed care organization or pharmaceutical benefit management program to ensure that it is appropriately managing access to and the quality and cost of health care services, including prescription drug benefits, provided to its members.

(BB) "Utilization review" means a set of formal techniques designed to monitor the use of, or evaluate the clinical necessity, appropriateness, efficacy, or efficiency of, health care services, procedures, or settings, including prescription drugs.

Section 4 Applicability and Scope

Any person or entity meeting the definition of review agent shall not conduct or arrange for service review in this state without a valid and current review agent's license. All parties to any contracts between a third party payor and any person or entity conducting service review activities, directly or indirectly, whether affiliated or not, are responsible for compliance with the requirements and standards of this rule and all other applicable state and federal laws and rules, including but not limited to Department Rules H-2009-03 and H-2011-XX. A license is not transferable or assignable and is valid only for the person or entity named in the application.

Section 5 Requirements for Licensure

(A) A review agent license or license renewal may be granted if the applicant demonstrates to the satisfaction of the Department, or its delegate(s), that it:

1. has a sufficient number of qualified licensed mental health care providers to conduct review services in a timely manner;

2. adheres to accepted professional and clinical standards and principles in the review of services;

3. does not agree to any arrangement with a payor or any other entity in which compensation to the review agent or a provider is affected by any incentive or contingent fee arrangement based on any reduction or limitation of covered and medically necessary mental health care services including but not limited to length of stay, treatment, treatment level or setting; or that contains any provision that might be construed to offer an inducement to a reviewer or provider to forgo providing covered and medically necessary mental health care services to a member. Nothing in this subsection shall prohibit capitation arrangements for reimbursement of mental health care services;

4. has a review agent medical director to review and oversee operations and the quality thereof, including the appropriateness of clinical review criteria and their application, and a sufficient number of other Vermont-licensed psychiatrists, who are either board-certified or board-eligible, to conduct reviews, grievances and appeals as required by law;

5. complies with all applicable state and federal confidentiality laws and rules, that would apply to a health benefit plan if it were conducting the service review, including but not limited to Section 2.1 of Department Rule H-2009-03;

6. operates in compliance with this rule and all other state and federal laws and rules that would apply to a health benefit plan if it were conducting the service review and that are applicable to its own activities and to the health benefit plans for which the applicant conducts service review; and

7. maintains liability insurance coverage consistent with the operations it undertakes.

Section 6 License Application

(A) An application for an initial license as a review agent shall include, in a form prescribed by the Commissioner:

1. the applicant's name, business address, contact name, telephone and email address, business website address, EIN;

2. the number of lives for whom the applicant is obligated to provide service reviews in each of the following categories:

a. the number of lives proposed to be or currently covered by health benefit plans subject to the Department's jurisdiction, and within each of those categories, the number of lives that reside in Vermont and the number of lives that do not reside in Vermont, if known;

b. the number of Vermont lives proposed to be or currently covered by health benefit plans not subject to the Department's jurisdiction;

c. the total number of lives nationwide for which the review agent is responsible.

3. an organizational chart that identifies all positions within the organization, including the location within the organization of the position or positions responsible for supervising the service review staff, and the licensed physicians responsible for reviewing adverse benefit determinations prior to their issuance;

4. a list of officers and directors of the review agent, the person or persons with responsibility for supervising the service review staff and the names and license numbers of all physicians responsible for reviewing adverse benefit determinations;

5. a statement explaining any changes in name or acquisition of a majority equity interest by a single individual or entity of the review agent at any time during the previous two calendar years;

6. disclosure of all instances during the past five years in which the review agent and review agent medical director(s) have:

a. had a license, permit, registration, accreditation or other certificate of authority denied, revoked, suspended, limited, conditioned or otherwise sanctioned by a licensing entity in any jurisdiction;

b. been subject to a cease and desist letter or order, or enjoined, either temporarily or permanently, in any judicial, administrative, regulatory, or disciplinary action, from violating any federal or state laws, or law of another country;

c. been subject to any non-confidential business-related administrative, civil or criminal investigations, regulatory actions, disciplinary actions, lawsuits, arbitrations or other proceedings, except for any such actions initiated by the Department.

Any such disclosures shall include a description of the matter, including dates; how the matter was resolved, if not a confidential settlement; and the subsequent history of the matter, including details of any settlement, restrictions, conditions, limitations and penalties.

information about the professions, licensure type and status, qualifications, compensation structure and number of personnel performing service review activities. Information about compensation structure shall not include information about salaries, but shall include information about any bonus or incentive structures, not to include amounts;

8. documentation of any URAC, NCQA or other accreditation, including level and duration of accreditation, and whether the business office(s) location of the review agent responsible for Vermont service reviews has specifically been accredited;

9. copies of all written policies, and procedures, and adverse benefit determination letter templates, used for initial service review, and grievance reviews, if applicable, or a detailed explanation of how such notices to members are handled if not by the review agent;

10. a list of the titles, sources and a brief description of all clinical review criteria, including those that are proprietary; any other resources used by service review staff, including interpretive guidelines for use with the criteria; and an attestation by the review agent medical director that the clinical review criteria:

a. are informed by generally accepted medical or scientific evidence and consistent with generally accepted practice parameters as recognized by health care professions in the same specialties as typically provide the procedure or treatment, or diagnose or manage the condition; and

b. have been reviewed and updated at least annually, taking into account input from practicing mental health care providers, including providers under contract with the review agent, if any. This subsection shall not be construed to require review agents to make modifications to nationally-recognized guidelines. The Department reserves the right to review clinical review criteria at any time;

a detailed description of how the applicant will train and evaluate all service review staff at least annually to ensure consistent and clinically appropriate application of clinical review criteria and how it will assess accuracy and inter-reviewer reliability;

evidence of liability insurance coverage sufficient to ensure financial responsibility in the event of a claim, settlement or judgment against the review agent;

13. a description of the applicant's business activities in the State of Vermont other than mental health or substance abuse service review, if any, and evidence of registration and/or licensure if required for those activities; and if the applicant is not licensed as an insurer by the Department, an attestation that the applicant does not engage in the business of insurance in Vermont;

14. any other information requested by the Department; and

15. the license fee required by law and any additional expenses incurred by the Department to examine and investigate the application or amendment to the application.

(B) The review agent shall report any changes to the information described in Section 6A of this Rule and provided in its application or renewal applications to the Department at least 30 days prior to the anticipated implementation of the change and within 15 days of an unanticipated material change.

(C) A review agent shall apply annually for license renewal on September 15 or an alternative date specified by the Department. The renewal application shall include:

1. a completed renewal application in a form prescribed by the Commissioner;

disclosure of any changes in the information described in Section 6A of this Rule that have occurred since the latter of the initial license application or any renewal application, whether or not previously disclosed to the Department;

3. a de-identified summary of the information specified below for the prior calendar year, in the format specified by the Department, that includes:

a. the number, results and a summary of all service reviews, if applicable and whether benefits were denied or reduced, including the number of members involved. The Department, in its sole discretion, may waive the requirement in this sub-paragraph for review agents that are subject to and in compliance with other rules that would require them to file the identical information with the Department;

b. the number and results of any internal grievances, if applicable, including the number of members involved; and

c. a summary of reasons for the internal grievances, if applicable.

4. current evidence of liability insurance coverage sufficient to ensure financial responsibility in the event of a claim, settlement or judgment against the review agent;

5. an updated attestation, verifying that:

a. the clinical review criteria and standards have been reviewed within the last year, taking into account input from practicing licensed mental health care providers, including providers under contract with the review agent, if any. This subsection shall not be construed to require managed care organizations to make modifications to nationally-recognized guidelines based on input from practicing mental health care providers;

b. the clinical review criteria and standards and policy and procedure manuals have been updated, if necessary, and remain informed by generally accepted medical and scientific evidence and consistent with clinical practice parameters as recognized by health care professions in the same specialties as typically provide the procedure or treatment, or diagnose or manage the condition; and

c. the training required by subsection 6.A.14. of this Rule was conducted within the last year, including a summary of the evaluation of the service reviewer staff's consistency, accuracy and inter-reviewer reliability;

6. current copies of adverse benefit determination letter templates used for initial service reviews, first level grievances and voluntary second level grievances;

7. any other information requested by the Department; and

8. the license renewal fee required by law, including any additional expenses incurred by the Department to examine and investigate the application or amendment to the application.

(D) The Department may, in its discretion, designate another organization to review initial license applications. Any such organization shall have a confidentiality code acceptable to the Department, or shall be subject to the Department's confidentiality code.

Section 7 Requirements for Service Review

(A) A review agent shall adopt and implement written policies and procedures to ensure that its service review practices:

1. comply with applicable state and federal law regarding service review, including but not limited to utilization review and grievance procedures, independent external review of adverse benefit determinations, if applicable, and related notice requirements. In the absence of specific other state law requirements for service review in health benefit plans subject to the Department's jurisdiction, the service review procedures shall be consistent with or more favorable to the member than the utilization review and grievance requirements and procedures set forth in Sections 3.1,
2. 2 and 3.3 of Rule H-2009-03 or any later amendment. In addition, the service review practice shall:

a. provide that if the review agent medical director is not a psychiatrist, there must be at least one consulting psychiatrist with board certification in psychiatry who is licensed in the State of Vermont readily available to the clinical review staff:

b. ensure that the treating mental health care provider or his or her designee has been notified and has been given an opportunity to participate before the review agent initiates contact with a member other than for routine outpatient utilization review purposes. Such notification and opportunity to participate shall be documented in the records of the review agent. Notice shall not be required when a member has a complaint about the treating mental health care provider or is receiving treatment at a non-participating facility.

c. adopt and implement clinical review criteria to make service review decisions which are established and evaluated at least annually and updated with appropriate involvement from practicing mental health care providers and which are the subject of the attestations required by sub sections 6(A)(13) and 6(C)(5) of this rule. Such standards and criteria must be compatible with established principles and standards of mental health care;

d. limit review activities to those necessary to ensure the delivery of quality mental health care in a cost effective manner; and

e. retain all medical and service review records in the possession of the review agent for a period of six (6) years.

Section 8 Disclosing Essential Information

(A) The review agent shall comply with the requirement set forth in Department Rule H-2009-03 Sections 3.2(G) and 3.3(P) regarding the disclosure of information to members for initial service review and grievance review determinations respectively; and

(B) The review agent shall provide members with a Department-approved notice of Vermont appeal rights with each notification of determination.

Section 9 Agreements

(A) A review agent shall not agree with any business entity or third-party payor that the payment to the review agent shall include an incentive or contingent fee arrangement based on the reduction of medically necessary care for mental health services.

(B) All agreements between a review agent and a business entity or person regarding the review of mental health care shall be in writing. If such entity or person is engaging in activity that meets the definition of "service review" under this Rule, it must be licensed under this Rule. In addition, any contracted business entity or person to whom the review agent delegates activities must meet the requirements of Section 1.3(F) of Department Rule H-2009-03.

(C) A review agent, that enters into a contract with a health insurer for the purpose of administering the health insurer's mental health benefits shall COOPERATE with the health insurer to ensure that the portion of the health insurer's premium rate attributable to the coverage of mental health benefits under Title 8 V.S.A. §§ 4062, 4513, 4584, or 5104 is not excessive, inadequate, unfairly discriminatory, unjust, unfair, inequitable, misleading or contrary to the laws of this State prior to implementation.

Premium rates submitted by a health insurer are subject to Department review and approval at least 90 days prior to the first intended use of that premium rate and shall include the following information obtained from the contract currently in effect between the health insurer and the mental health review agent as of the date the premium rate filing is submitted regarding the premium rate component attributable to coverage for mental health benefits administrated by a review agent:

1. the amount that the health insurer has agreed to pay a review agent for administering mental health benefits; and

2. an itemized detailed description of the benefits and administrative services to be financed and/or administered by the review agent or managed care organization;

3. the degree of insurance risk assumed by the review agent;

4. the period of time that the rates are designed to be effective;

5. the amount of the rate(s), variations by benefit level (if any), and any other variations that are contemplated;

6. for other than capitation agreements, the components of the proposed rates, including the expected claims cost, the cost of administration, the profit margin, and any other component not otherwise identified;

7. any other relevant information requested by the Department; and

8. a statement signed by a member of the American Academy of Actuaries attesting that the filing is consistent with actuarial standards of practice and meets the requirements of the Code of Professional Conduct of the American Academy of Actuaries.

(D) Nothing in this section shall prohibit capitation arrangements for reimbursement of mental health services.

Section 10 Enforcement

(A) The Commissioner may refuse to issue or renew a license if the Commissioner finds that the applicant or licensee does not satisfy any standard or requirement of this rule or of any provision of any other applicable state or federal law relating to the qualifications of review agents or the performance of service review.

(B) The Commissioner may suspend or revoke a license or permit continued licensure subject to such conditions as the Commissioner deems necessary to carry out the purposes of applicable law for a violation of this regulation or any provision of applicable state and federal law.

(C) A person who violates any provision of this rule is subject to the penalties provided in Chapters 3, 101, 107 and 129 of Title 8 and such other chapters of Titles 8 and 18 as may be applicable.

Section 11 Severability

If any provision of this regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of the regulation and the application of such provisions to other persons or circumstances shall be not affected thereby.

Section 12 Effective Date

This rule shall take effect ninety (90) days after adoption. The Department may, in its sole discretion and upon good cause shown, permit a review agent to transition to full compliance with any component(s) of this rule over a period of time not to exceed six months from the date of adoption.

History

• STATUTORY AUTHORITY: 8 V.S.A. §§ 15, 4089a, 4089b, 4724; 18 V.S.A. § 9414
• EFFECTIVE DATE: August 15, 1995 Secretary of State Rule Log #95-50
• AMENDED: September 15, 2011 Secretary of State Rule Log #11-030 [amended and renumbered from 21 020 045]

Subagency 020 INSURANCE DIVISION

Chapter 029 REGULATION 91-b4, MINIMUM REQUIREMENTS FOR COMPLIANCE WITH 8 V.S.A. SECITON 4080a (SMALL GROUP CARRIERS)

21-029 Code Vt. R. 21-020-029-X REGULATION 91-b4, MINIMUM REQUIREMENTS FOR COMPLIANCE WITH 8 V.S.A. SECITON 4080a (SMALL GROUP CARRIERS)

Section 1 PURPOSE

The purpose of this regulation is to set forth the rules for registration of small group carriers, requirements for the sale of individual insurance and the standards and process for approval of common health care plans.

Section 2 AUTHORITY

This regulation is issued pursuant to the authority vested in the Commissioner of the Department of Banking, Insurance and Securities ("Commissioner") by Title 8 V.S.A., Section 4080a.

Section 3 REGISTRATION

No person may offer a small group plan unless such person is a registered small group carrier as defined by 8 V.S.A. Section 4080a(a)(4). Pursuant to 8 V.S.A. 4080a(c) the following are the minimum requirements for registration as a small group carrier:

1. The carrier must apply to the Commissioner to be a registered small group carrier.

2. The carrier must be licensed or authorized to provide health insurance in Vermont.

3. The carrier shall have all small group rates, common health care plans and forms approved by the Department of Banking, Insurance and Securities ("Department") prior to their use in Vermont.

4. The carrier must have licensed or employee sales representatives in Vermont.

5. The carrier must designate, in writing, the name and address of a representative responsible for answering questions and responding to complaints about underwriting and claims.

6. The carrier must provide insureds with a toll free number for claims handling and customer service.

7. All advertising material about small group insurance must clearly identify the product advertised as a "Small Group Health Insurance Plan." All advertising material must be filed with the Department of Banking, Insurance and Securities prior to use.

8. The carrier must provide access to prior group experience, including gross premium (gross premium means written direct premium) earned premium and incurred claims, if collected, upon written request from any group policyholder.

9. The carrier must file annually the following information with the Department for the preceding calendar year no later than April 1:

a. the number of employers covered under each small group plan;

b. the number of employees and an estimate of the number of lives covered under each small group plan;

c. the gross premium for each small group plan;

d. the earned premium for each small group plan;

e. the incurred claims for each small group plan;

f. the number of employers with rates deviating above and below the community rate for each small group plan;

g. the amount of gross premium above, below and at the community rate for each small group plan; and

h. the same information required in lines a-g must be provided for any business underwritten with or through an association or trust, to include the name and address of each association or trust.

A carrier who intends to withdraw from the small group market must notify the Commissioner in writing at least six (6) months prior to canceling or nonrenewing any coverage. This notice must include the following information:

a. a description of the plans offered by the carrier;

b. the number of employers and the total number of lives insured under each contract; and

c. the planned termination date(s).

11. A registered carrier who qualifies under the provisions of Section 6(c), 1991, Act 52 must certify in writing by April 1 of each year that it continues to qualify and that in the preceding calendar year it has not written more than $ 100,000.00 in annual gross premium for small group business covering individuals residing in this state.

Section 4 INDIVIDUAL INSURANCE

This section sets forth the standards and process for the sale of individual insurance as required by 8 V.S.A. 4080a(m).

1. No person may sell, offer or provide a health care benefit plan or insurance policy to individual employees or members of a small group as a means of circumventing the requirements of 8 V.S.A. 4080a.

2. No person may replace, offer or solicit the replacement of an existing group contract offered by an employer by selling or offering to sell or provide individual policies to employees of that employer.

3. Any person offering to sell or provide individual insurance must satisfy the following requirements:

a. Obtain a written statement from each individual that the purchase of individual health insurance coverage was not initiated, sponsored or subsidized by the individual's employer or any affiliate or agent of the employer.

b. Obtain a written statement from each agent or broker selling an individual policy that the sale was not made as a means of circumventing small group health insurance and that the purchase was not initiated, sponsored or subsidized by the individual's employer or any affiliate or agent of the employer.

c. Retain, and make available for the Department's inspection, all documentation required in sub sections 3(a) and (b) for at least three (3) years.

d. Provide to the Department no later than April 1, of each year the following information for the preceding calendar year:

i. the number of individuals covered under all policies;

ii. the total gross premium for all policies;

iii. the total earned premium;

iv. the total incurred claims;

v. the percentage increase or decrease in new policies issued and existing policies renewed; and

vi. the total number of policies issued.

Section 5 Common Health Care Plans

This section sets forth the standards and process for approval of common health care plans as required by 8 V.S.A. 4080a(e).

1. Standards and Criteria.

The following standards and criteria shall be considered by the Commissioner in approving common health care plans. The standards and criteria are to be used as guidelines. They are not intended to establish minimum benefit levels or outlines of policy coverage that must be included in a common health care plan.

a. Comparable - a common health care plan shall permit comparison of the costs and relative benefits of all plans available to consumers.

b. Affordable - a common health care plan shall balance specific benefits and benefit levels with their impact on the plan cost. Cost containment features such as deductibles, co-insurance, and managed care should be considered.

c. Style and terms of policy - a common health care plan shall be easy for a consumer to read and understand. It shall contain a clear description of benefits, exclusions and conditions. A carrier may use its own format and style of type, subject to the Department's approval.

d. Exceptions and reductions- any exceptions or reductions of coverage shall be clearly labeled as such in a separate section of the plan. Each specific exclusion shall be listed and identified by number. Appropriate notice and explanation for each reduction or exclusion shall be provided to certificate holders.

e. Managed benefits - the suitability of requiring managed benefits shall be considered for each plan. Managed benefits may include but are not limited to pre-admission certification, admission certification of emergency admissions, concurrent review and individual case management.

f. Preventative care - each plan shall consider the use of preventative care benefits to promote the general health of certificate holders.

g. Benefit component- each benefit plan shall weigh the needs of Vermonters for the broadest benefit package possible, considering the constraints imposed by the cost of each benefit on the overall plan.

h. Feasibility - each plan will be considered in light of the technical and logistical requirements imposed on registered small group carriers.

2. Required Policy Provisions

Each common health care plan must satisfy the following minimum policy provisions:

a. Cancellation and Nonrenewal.

(a) A carrier who cancels or nonrenews a group health insurance policy or subscriber contract shall:

(1) notify the group policyholder or other entity involved, and each of its employees or members covered under the policy or subscriber contract of the date of termination of the policy or contract. The notice shall advise the employees or members that, unless otherwise provided for in the policy or contract, the carrier shall not be liable for claims for losses incurred after the termination date and shall direct employees or members to refer to their certificates or contracts in order to determine their rights. The obligation to notify employees or members shall not apply to associations, trusts, and groups other than employer groups if the addresses of the employees and members are not reasonably available to the carrier. A carrier is not obligated to provide notice to employees and members if the termination of the policy or contract is due to replacement coverage subject to the provisions of this subchapter.

(2) advise, in any instance in which the plan involves employee contributions, that if the policyholder or other entity continues to collect contributions for coverage beyond the date of termination, the policyholder or other entity may be held solely liable for the benefits with respect to which the contributions have been collected.

(b) Except for cases pursuant to subsection (a) of this section, whenever the carrier is obligated to give any notice to employees and members directly, the carrier shall prepare and furnish to the policyholder or other entity a supply of notice forms to be distributed to covered employees or members. The forms shall state the fact of termination and the effective date of termination. The forms shall contain a statement directing employees or members to refer to their certificates or contracts in order to determine their rights. The notice forms shall be provided at the time the carrier gives its notice of termination to the policyholder or other entity.

b. Pre-existing Conditions.

For a 12-month period from the effective date of coverage a registered small group carrier may limit coverage for pre-existing conditions which existed during the 12-month period preceding the effective date of coverage except that a registered small group carrier shall waive any pre-existing conditions for all new employees or members of a small group, and their dependents, who produce evidence of continuous health benefit coverage (whether group or non-group) during the previous nine months which is substantially equivalent to the common health care plan of the carrier approved by the Commissioner.

c. Continuation and Conversion.

Any employee or member whose insurance under a group policy would terminate because of the termination of employment or the death of a covered employee shall be entitled to continue coverage under the policy as provided in Chapter 107, Sub Chapter 2 of Title 8. In addition, such person shall be entitled to have a converted policy as provided in Chapter 107, Subchapter 2 of Title 8. The converted policy shall cover any person who was covered by the continued group policy. At the option of the insurer, a separate, converted policy may be issued to cover any dependant. Premiums charged shall not exceed 102 percent (102%) of the group rate.

d. Termination and Replacement.

Carriers must comply with Title 8 V.S.A., Chapter 107, Subchapter 3 for the termination and replacement of coverage.

e. Mandated Benefits.

Except as stated in the model plan, no policy can be issued or delivered or advertised unless the following minimum benefits are available:

i. Mental health care, with the minimums stated in 8 V.S.A., Section 4089 must be offered as an option.

ii. Dependent children coverage must be provided where coverage would otherwise end for a child at a limiting age. There shall be no limit or coverage restriction for a child who is incapable of employment and dependent on the employee or member for support and maintenance. See 8 V.S.A., Section 4090.

iii. Newborn coverage must be provided without notice or additional premiums for 31 days after birth. Coverage shall include well baby care, injury, sickness, necessary care and treatment of medically diagnosed congenital defects and birth abnormalities as provided at 8 V.S.A., Section 4092.

iv. Home health care coverage with the minimums provided in 8 V.S.A., Section 4095 and 4096, must be offered as an option.

v. Alcoholism treatment must be provided for the necessary care and treatment of alcohol dependency as required by 8 V.S.A., Section 4098.

vi. Coverage for screening by low-dose mammography must be provided according to 8 V.S.A., Section 4100a.

vii. Maternity coverage must be provided and shall be treated as any other sickness for all insureds covered by the policy as required under Regulation 89-1.

f. Process for Approval of Common Health Care Plans.

i. Advisory Committee.

(a) The Commissioner shall appoint at least seven members to a small group health plan advisory committee. The committee shall include individuals representing business, the general public, the insurance industry, and the medical community. To the greatest extent possible, committee members will have technical expertise in health care insurance or regulation.

(b) The Commissioner shall consult with the small group advisory committee in the development of small group benefit plans, revision of existing plans and review of plan suitability.

(c) The Committee will review all proposed plans for compliance with the standards set forth in Section 1.

ii. Review of suitability.

The Commissioner, in consultation with the advisory committee, will annually review the suitability of all approved common health care plans. This review will consider the number of polices sold during the prior year, the cost of the plan(s) and the need for any amendments to the plan(s). Any plan deemed unsuitable will be withdrawn, as required by the Commissioner.

iii. Process of approval.

(a) Upon approval of a common health care plan, the Commissioner shall:

(1) notify all registered small group carriers and supply a copy of the common health care plan;

(2) prepare a consumer guide to the benefit plan within six months of approval; and

(3) publish semi-annually the rates charged by carriers for each common health care plan.

(b) A registered small group carrier shall offer all approved common health care plan within six months of approval of the plan by the Commissioner.

History

• Effective Date: November 1, 1992 (SOS Rule Log # 92-52)

Chapter 030 REGULATION 93-3, INVESTMENTS IN MEDIUM GRADE AND LOWER GRADE OBLIGATIONS

21-030 Code Vt. R. 21-020-030-X REGULATION 93-3, INVESTMENTS IN MEDIUM GRADE AND LOWER GRADE OBLIGATIONS

Section 1 Authority

This regulation is promulgated pursuant to the authority granted in 8 V.S.A. § 75.

Section 2 Purposes

The purposes of this regulation are:

A. To protect the interests of the insurance-buying public by establishing limitations on the concentration of medium grade and lower grade obligations in which a domestic insurer can invest; and

B. To implement 8 V.S.A. § 3463 by regulating the acts and practices of domestic insurers with respect to the concentration of investments in medium grade and lower grade obligations.

Section 3 Preamble

A. The Department of Banking, Insurance and Securities is concerned that changes in economic conditions and other market variables could adversely affect domestic insurers having a high concentration of these investments. Accordingly, the Department has concluded that a limitation on the percentage of total admitted assets that a domestic insurer may prudently invest in such obligations is reasonable, necessary and required in order to carry out the Department's responsibilities under relevant statutory law.

B. The Department understands that medium grade and lower grade obligations can have a place in a well-diversified portfolio. However, it is also understood that the special risks associated with these investments require a high degree of management even when they are held within an aggregate limit. While this regulation will leave all domestic insurers with authority to invest a substantial portion of their assets in medium grade and lower grade obligations, the prudent management of the attendant risks will remain an essential element of such investing.

Section 4 Definitions

As used in this regulation:

A. "Medium grade obligations" means obligations which are rated three by the Securities Valuation Office of the National Association of Insurance Commissioners.

B. "Lower grade obligations" means obligations which are rated four, five or six by the Securities Valuation Office of the National Association of Insurance Commissioners.

C. "Admitted assets" means the amount thereof as of the last day of the most recently concluded annual statement year, computed in the same manner as "admitted assets" in 8 V.S.A. chapter 101, subchapter 4.

D. "Aggregate amount" of medium grade and lower grade obligations means the aggregate statutory statement value thereof.

E. "Institution" means a corporation, a joint-stock company, an association, a trust, a business partnership, a business joint venture or similar entity.

Section 5 Provisions

A. No domestic insurer shall acquire, directly or indirectly, any medium grade or lower grade obligation of any institution if, after giving effect to any such acquisition, the aggregate amount of all medium grade and lower grade obligations then held by the domestic insurer would exceed twenty percent (20%) of its admitted assets provided that: no more than ten percent (10%) of its admitted assets consists of obligations rated four, five or six by the Securities Valuation Office; and no more than three percent (3%) of its admitted assets consists of obligations rated five or six by the Securities Valuation Office, and no more than one percent (1%) of its admitted assets consists of obligations rated six by the Securities Valuation Office. Attaining or exceeding the limit of any one category shall not preclude an insurer from acquiring obligations in other categories subject to the specific and multi-category limits.

B. No domestic insurer may invest more than an aggregate of one percent (1%) of its admitted assets in medium grade obligations issued, guaranteed or insured by any one institution nor may it invest more than one half of one percent (.5%) of its admitted assets in lower grade obligations issued, guaranteed or insured by any one institution. In no event, however, may a domestic insurer invest more than one percent (1%) of its admitted assets in any medium or lower grade obligations issued, guaranteed or insured by any one institution.

C. Nothing contained in this regulation shall prohibit a domestic insurer from acquiring any obligations which it has committed to acquire if the insurer would have been permitted to acquire that obligation pursuant to this regulation on the date on which such insurer committed to purchase that obligation.

D. Notwithstanding the foregoing, a domestic insurer may acquire an obligation of an institution in which the insurer already has one or more obligations, if the obligation is acquired in order to protect an investment previously made in the obligations of the institution; provided that all such acquired obligations shall not exceed one-half of one percent (.5%) of the insurer's admitted assets.

E. Nothing contained in this regulation shall prohibit a domestic insurer from acquiring an obligation as a result of a restructuring of a medium or lower grade obligation already held.

F. Nothing contained in this regulation shall require a domestic insurer to sell or otherwise dispose of any obligation legally acquired prior to the effective date of this regulation.

G. The Board of Directors of any insurance company which acquires or invests, directly or indirectly, more than two percent (2%) of its admitted assets in medium grade and lower grade obligations of any institution, shall adopt a written plan for the making of such investments. The plan, in addition to guidelines with respect to the quality of the issues invested in, shall contain diversification standards including, but not limited to, standards for issuer, industry, duration, liquidity and geographic location.

Section 6 Effective Date

This regulation shall take effect on June 3, 1993.

History

• Effective Date: June 3, 1993 (SOS Rule Log # 93-34)
• Statutory Authority: 8 V.S.A. § 75

Chapter 031 DEFINING STANDARDS AND COMMISSIONER'S AUTHORITY FOR COMPANIES DEEMED TO BE IN HAZARDOUS FINANCIAL CONDITION

21-031 Code Vt. R. 21-020-031-X DEFINING STANDARDS AND COMMISSIONER'S AUTHORITY FOR COMPANIES DEEMED TO BE IN HAZARDOUS FINANCIAL CONDITION

Section 1 Authority

This regulation is promulgated pursuant to the authority granted by 8 VSA § 15 and Chapters 101, 123, 125, 139, 141, 142, 145 and 151

Section 2 Purpose

The purpose of this regulation is to set forth the standards which the Commissioner may use for identifying, and the powers and authority of the Commissioner with respect to, insurers or other risk bearing entities found to be in such condition as to render the continuance of their business hazardous to the public or to holders of their policies or certificates of insurance.

This regulation shall not be interpreted to limit the powers granted to the Commissioner by any laws or parts of laws of this state, nor shall this regulation be interpreted to supersede any laws or parts of laws of this state.

Section 3 Standards

The following standards, either singly or a combination of two or more, may be considered by the Commissioner to determine whether the continued operation of any insurer transacting an insurance business in this state might be deemed to be hazardous to the policyholders, creditors or the general public The Commissioner may consider

A. Adverse findings reported in financial condition and market conduct examination reports, audit reports, and actuarial opinions, reports or summaries;

B. The National Association of Insurance Commissioners Insurance Regulatory Information System and its other financial analysis solvency tools and reports;

C. The ratios of commission expense, general insurance expense, policy benefits and reserve increases as to annual premium and net investment income which could lead to an impairment of capital and surplus;

D. Whether the insurer's asset portfolio when viewed in light of current economic conditions is not of sufficient value, liquidity, or diversity to assure the company's ability to meet its outstanding obligations as they mature;

E. Whether the insurer has made adequate provision, according to presently accepted actuarial standards of practice, for the anticipated cash flows required by the contractual obligations and related expenses of the insurer, when considered in light of the assets held by the insurer with respect to such reserves and related actuarial items including, but not limited to, the investment earnings on such assets, and the considerations anticipated to be received and retained under such policies and contracts;

F. The ability of an assuming reinsurer to perform and whether the insurer's reinsurance program provides sufficient protection for the company's remaining surplus after taking into account the insurer's cash flow and the classes of business written as well as the financial condition of the assuming reinsurer;

G. Whether the insurer's operating loss in the last 12-month period or any shorter period of time including, but not limited to, net capital gain or loss, change in non-admitted assets, and cash dividends paid to shareholders, is greater than 50% of the insurer's remaining surplus as regards policyholders that is in excess of the minimum required;

H. Whether the insurer's operating loss in the last 12-month period or any shorter period of time, excluding net capital gains, is greater than 20% of the insurer's remaining surplus as regards policyholders in excess of the minimum required;

I. Whether a reinsurer, obligor or any entity within the insurer's insurance holding company system, is insolvent, threatened with insolvency or delinquent in payment of its monetary or other obligations, and which in the opinion of the Commissioner may affect the solvency of the insurer including, but not limited to, whether transactions among affiliates, subsidiaries or controlling persons for which the insurer receives assets or capital gains, or both, do not provide sufficient value, liquidity or diversity to assure the insurer's ability to meet its outstanding obligations as they mature;

J. Contingent liabilities, pledges or guarantees which either individually or collectively involve a total amount which in the opinion of the Commissioner may affect the solvency of the insurer;

K. Whether any "controlling person" of an insurer is delinquent in the transmitting to, or payment of, net premiums to such insurer;

L. Whether the age and collectability of receivables involve a total amount which the Commissioner determines adversely affects the solvency of the insurer;

M. Whether the management of an insurer, including officers, directors, or any other person who directly or indirectly controls the operation of such insurer, fails to possess and demonstrate the competence, fitness and reputation deemed necessary to serve the insurer in such position;

N. Whether management of an insurer has failed to respond to inquiries relative to the condition of the insurer or has furnished false and misleading information concerning an inquiry including, but not limited to, whether the insurer has failed to meet financial and holding company filing requirements in the absence of a reason satisfactory to the Commissioner;

O. Whether management of an insurer either has filed any false or misleading sworn financial statement, or has released false or misleading financial statement to lending institutions or to the general public, or has made a false or misleading entry, or has omitted an entry of material amount in the books of the insurer;

P. Whether the insurer has grown so rapidly and to such an extent that it lacks adequate financial and administrative capacity to meet its obligations in a timely manner;

Q. Whether the company has experienced or will experience in the foreseeable future cash flow and/or liquidity problems including, but not limited to, whether management has established reserves that do not comply with minimum standards established by state insurance laws, regulations, statutory accounting standards, sound actuarial principles and standards of practice or whether management persistently engages in material under reserving that results in adverse development;

R. Any other finding determined by the Commissioner to be hazardous to the insurer's policyholders, creditors or general public.

Section 4 Commissioner's Authority

A. For the purposes of making a determination of an insurer's financial condition under this regulation, the Commissioner may

(1) Disregard any credit or amount receivable resulting from transactions with a reinsurer which is insolvent, impaired or otherwise subject to a delinquency proceeding;

(2) Make appropriate adjustments including disallowance to asset values attributable to investments in or transactions with parents, subsidiaries, or affiliates consistent with the NAIC Accounting Practices and Procedures Manual, state laws and regulations;

(3) Refuse to recognize the stated value of accounts receivable if the ability to collect receivables is highly speculative in view of the age of the account or the financial condition of the debtor;

(4) Increase the insurer's liability in an amount equal to any contingent liability, pledge or guarantee not otherwise included if there is a substantial risk that the insurer will be called upon to meet the obligation undertaken within the next 12-month period.

B. If the Commissioner determines that the continued operation of the insurer licensed to transact business in this state may be hazardous to the policyholders, creditors or the general public, then the Commissioner may, upon his or her determination, issue an order requiring the insurer to:

(1) Reduce the total amount of present and potential liability for policy benefits by reinsurance;

(2) Reduce, suspend or limit the volume of business being accepted or renewed;

(3) Reduce general insurance and commission expenses by specified methods;

(4) Increase the insurer's capital and surplus;

(5) Suspend or limit the declaration and payment of dividend by an insurer to its stockholders or to its policyholders;

(6) File reports in a form acceptable to the Commissioner concerning the market value of an insurer's assets;

(7) Limit or withdraw from certain investments or discontinue certain investment practices to the extent the Commissioner deems necessary;

(8) Document the adequacy of premium rates in relation to the risks insured;

(9) File, in addition to regular annual statements, interim financial reports on the form adopted by the National Association of Insurance Commissioners or on such format as promulgated by the Commissioner;

(10) Correct corporate governance practice deficiencies, and adopt and utilize governance practices acceptable to the Commissioner;

(11) Provide a business plan to the Commissioner in order to continue to transact business in the state;

(12) Adjust rates for any non-life insurance product written by the insurer that the Commissioner considers necessary to improve the financial condition of the insurer.

If the insurer is a foreign insurer, the Commissioner's order may be limited to the extent provided by statute.

C. Any insurer subject to an order under Subsection B may request a hearing to review that order. The notice of hearing shall be served upon the insurer pursuant to 3 V.S.A. Chapter 25 and such hearing shall be subject to the requirements set forth in 8 V.S.A. § 7041, including, but not limited to, the provision for private hearing, unless insurer requests a public hearing.

Section 5 Judicial Review

Any order or decision of the Commissioner shall be subject to review in accordance with 8 VSA § 16 at the instance of any party to the proceedings whose interests are substantially affected

Section 6 Separability

If any provisions of this regulation be held invalid, the remainder shall not be affected

Section 7 Effective Date

This regulation shall become effective October 16, 2014

History

• STATUTORY AUTHORITY: 8 V.S.A. § 15; C. 101, 123, 125, 139, 141, 142, 145, 151
• EFFECTIVE DATE: June 3, 1993 Secretary of State Rule Log #93-35 [as Regulation 93-2]
• AMENDED: October 16, 2014 Secretary of State Rule Log #14-034 [as Regulation 93-2 (Revised)]

Chapter 032 LIFE & HEALTH INSURANCE AGREEMENTS

21-032 Code Vt. R. 21-020-032-X LIFE & HEALTH INSURANCE AGREEMENTS

Section 1 Authority

This Regulation is promulgated pursuant to the authority granted by 8 V.S.A. §§ 75 and 3634a.

Section 2 Preamble

A. The Vermont Department of Banking, Insurance and Securities recognizes that licensed insurers routinely enter into reinsurance agreements that yield legitimate relief to the ceding insurer from strain to surplus.

B. However, it is improper for a licensed insurer, in the capacity of ceding insurer, to enter into reinsurance agreements for the principal purpose of producing significant surplus aid for the ceding insurer, typically on a temporary basis, while not transferring all of the significant risks inherent in the business being reinsured. In substance or effect, the expected potential liability to the ceding insurer remains basically unchanged by the reinsurance transaction, notwithstanding certain risk elements in the reinsurance agreement, such as catastrophic mortality or extraordinary survival. The terms of such agreements referred to herein and described in Section 4 would violate or otherwise require action by the Commissioner pursuant to:

(1) Section 3561 of Title 8, Vermont Statutes Annotated, relating to financial statements which do not properly reflect the financial condition of the ceding insurer;

(2) Section 3634a of Title 8, Vermont Statutes Annotated, relating to reinsurance reserve credits, thus resulting in a ceding insurer improperly reducing liabilities or establishing assets for reinsurance ceded; and

(3) Chapter 145 of Title 8, Vermont Statutes Annotated, relating to creating a situation that may be hazardous to policyholders and the people of this State.

Section 3 Scope

This Regulation shall apply to all domestic life and accident and health insurers and to all other licensed life and accident and health insurers who are not subject to a substantially similar regulation in their domiciliary state. This Regulation shall also similarly apply to licensed property and casualty insurers with respect to their accident and health business. This regulation shall not apply to assumption reinsurance, yearly renewable term reinsurance or certain nonproportional reinsurance such as stop loss or catastrophe reinsurance.

Section 4 Accounting Requirements

A. No insurer subject to this Regulation shall, for reinsurance ceded, reduce any liability or establish any asset in any financial statement filed with the Department if, by the terms of the reinsurance agreement, in substance or effect, any of the following conditions exist:

(1) Renewal expense allowances provided or to be provided to the ceding insurer by the reinsurer in any accounting period, are not sufficient to cover anticipated allocable renewal expenses of the ceding insurer on the portion of the business reinsured, unless a liability is established for the present value of the shortfall (using assumptions equal to the applicable statutory reserve basis on the business reinsured). Those expenses include commissions, premium taxes and direct expenses including, but not limited to, billing, valuation, claims and maintenance expected by the company at the time the business is reinsured;

(2) The ceding insurer can be deprived of surplus or assets at the reinsurer's option or automatically upon the occurrence of some event, such as the insolvency of the ceding insurer, except that termination of the reinsurance agreement by the reinsurer for nonpayment of reinsurance premiums or other amounts due, such as modified coinsurance reserve adjustments, interest and adjustments on funds withheld, and tax reimbursements, shall not be considered to be such a deprivation of surplus or assets;

(3) The ceding insurer is required to reimburse the reinsurer for negative experience under the reinsurance agreement, except that neither offsetting experience refunds against current and prior years' losses under the agreement nor payment by the ceding insurer of an amount equal to the current and prior years' losses under the agreement upon voluntary termination of in force reinsurance by the ceding insurer shall be considered such a reimbursement to the reinsurer for negative experience. Voluntary termination does not include situations where termination occurs because of unreasonable provisions which allow the reinsurer to reduce its risk under the agreement. An example of such a provision is the right of the reinsurer to increase reinsurance premiums or risk and expense charges to excessive levels forcing the ceding company to prematurely terminate the reinsurance treaty;

(4) The ceding insurer must, at specific points in time scheduled in the agreement, terminate or automatically recapture all or part of the reinsurance ceded;

(5) The reinsurance agreement involves the possible payment by the ceding insurer to the reinsurer of amounts other than from income realized from the reinsured policies. For example, it is improper for a ceding company to pay reinsurance premiums, or other fees or charges to a reinsurer which are greater than the direct premiums collected by the ceding company;

(6) The treaty does not transfer all of the significant risk inherent in the business being reinsured. The following table identifies for a representative sampling of products or type of business, the risks which are considered to be significant. For products not specifically included, the risks determined to be significant shall be consistent with this table.

Risk categories:

(a) Morbidity

(b) Mortality

(c) Lapse

This is the risk that a policy will voluntarily terminate prior to the recoupment of a statutory surplus strain experienced at issue of the policy.

(d) Credit Quality (C1)

This is the risk that invested assets supporting the reinsured business will decrease in value. The main hazards are that assets will default or that there will be a decrease in earning power. It excludes market value declines due to changes in interest rate.

(e) Reinvestment (C3)

This is the risk that interest rates will fall and funds reinvested (coupon payments or monies received upon asset maturity or call) will therefore earn less than expected. If asset durations are less than liability durations, the mismatch will increase.

(f) Disintermediation (C3)

This is the risk that interest rates rise and policy loans and surrenders increase or maturing contracts do not renew at anticipated rates of renewal. If asset durations are greater than the liability durations, the mismatch will increase. Policyholders will move their funds into new products offering higher rates. The company may have to sell assets at a loss to provide for these withdrawals.

• • Significant 0 - Insignificant

| RISK CATEGORY | | | --- | --- | | | a b c d e f | | Health Insurance - other than LTC/LTD * | + 0 + 0 0 0 | | Health Insurance - LTC/LTD * | + 0 + + + 0 | | Immediate Annuities | 0 + 0 + + 0 | | Single Premium Deferred Annuities | 0 0 + + + + | | Flexible Premium Deferred Annuities | 0 0 + + + + | | Guaranteed Interest Contracts | 0 0 0 + + + | | Other Annuity Deposit Business | 0 0 + + + + | | Single Premium Whole Life | 0 + + + + + | | Traditional Non-Par Permanent | 0 + + + + + | | Traditional Non-Par Term | 0 + + 0 0 0 | | Traditional Par Permanent | 0 + + + + + | | Traditional Par Term | 0 + + 0 0 0 | | Adjustable Premium Permanent | 0 + + + + + | | Indeterminate Premium Permanent | 0 + + + + + | | Universal Life Flexible Premium | 0 + + + + + | | Universal Life Fixed Premium | 0 + + + + + | | Universal Life Fixed Premium | 0 + + + + + | | dump-in premiums allowed | | | * LTC=Long Term Care Insurance | | | LTD=Long Term Disability Insurance | |

(7)

(a) The credit quality, reinvestment, or disintermediation risk is significant for the business reinsured and the ceding company does not (other than for the classes of business excepted in Paragraph (7)(b)) either transfer the underlying assets to the reinsurer or legally segregate such assets in a trust or escrow account or otherwise establish a mechanism satisfactory to the commissioner which legally segregates, by contract or contract provision, the underlying assets.

(b) Notwithstanding the requirements of Paragraph (7)(a), the assets supporting the reserves for the following classes of business and any classes of business which do not have a significant credit quality, reinvestment or disintermediation risk may be held by the ceding company without segregation of such assets:

• Health Insurance - LTC/LTD

• Traditional Non-Par Permanent

• Traditional Par Permanent

• Adjustable Premium Permanent

• Indeterminate Premium Permanent

• Universal Life Fixed Premium (no dump-in premiums allowed)

The associated formula for determining the reserve interest rate adjustment must use a formula which reflects the ceding company's investment earnings and incorporates all realized and unrealized gains and losses reflected in the statutory statement. The following is an acceptable formula:

Rate = 2 (I + CG)

X + Y - I - CG

| Where: | I is the net investment income | | --- | --- | | | CG is capital gains less capital losses | | | X is the current year cash and invested | | | assets plus investment income due and | | | accrued less borrowed money | | | Y is the same as X but for the prior year |

(8) Settlements are made less frequently than quarterly or payments due from the reinsurer are not made in cash within ninety (90) days of the settlement date.

(9) The ceding insurer is required to make representations or warranties not reasonably related to the business being reinsured.

(10) The ceding insurer is required to make representations or warranties about future performance of the business being reinsured.

(11) The reinsurance agreement is entered into for the principal purpose of producing significant surplus aid for the ceding insurer, typically on a temporary basis, while not transferring all of the significant risks inherent in the business reinsured and, in substance or effect, the expected potential liability to the ceding insurer remains basically unchanged.

B. Notwithstanding Subsection A of this section, an insurer subject to this Regulation may, with the prior approval of the Commissioner of Banking, Insurance and Securities take such reserve credit or establish such asset as the Commissioner may deem consistent with the insurance law of Vermont, including actuarial interpretations or standards adopted by the Commissioner.

C.

(1) Agreements entered into after the effective date of this regulation which involve the reinsurance of business issued prior to the effective date of the agreements, along with any subsequent amendments thereto, shall be filed by the ceding company with the commissioner within thirty (30) days from its date of execution. Each filing shall include data detailing the financial impact of the transaction. The ceding insurer's actuary who signs the financial statement actuarial opinion with respect to valuation of reserves shall consider this regulation and any applicable actuarial standards of practice when determining the proper credit in financial statements filed with this department. The actuary should maintain adequate documentation and be prepared upon request to describe the actuarial work performed for inclusion in the financial statements and to demonstrate that such work conforms to this regulation.

(2) Any increase in surplus net of federal income tax resulting from arrangements described in Subsection C(1) shall be identified separately on the insurer's statutory financial statement as a surplus item (aggregate write-ins for gains and losses in surplus in the Capital and Surplus Account, page 4 of the Annual Statement) and recognition of the surplus increase as income shall be reflected on a net of tax basis in the "Reinsurance ceded" line, page 4 of the Annual Statement as earnings emerge from the business reinsured.

[For example, on the last day of calendar year N, company XYZ pays a $ 20 million initial commission and expense allowance to company ABC for reinsuring an existing block of business. Assuming a 34% tax rate, the net increase in surplus at inception is $ 13.2 million ( $ 20 million - $ 6.8 million) which is reported on the "Aggregate write-ins for gains and losses in surplus" line in the Capital and Surplus account. $ 6.8 million (34% of $ 20 million) is reported as income on the "Commissions and expense allowances on reinsurance ceded" line of the Summary of Operations.

At the end of year N+1 the business has earned $ 4 million. ABC has paid $ .5 million in profit and risk charges in arrears for the year and has received a $ 1 million experience refund. Company ABC's annual statement would report $ 1.65 million (66% of ( $ 4 million - $ 1 million - $ .5 million) up to a maximum of $ 13.2 million) on the "Commissions and expense allowance on reinsurance ceded" line of the Summary of Operations, and - $ 1.65 million on the "Aggregate write-ins for gains and losses in surplus" line of the Capital and Surplus account. The experience refund would be reported separately as a miscellaneous income item in the Summary of Operations.]

Section 5 Written Agreements

A. No reinsurance agreement or amendment to any agreement may be used to reduce any liability or to establish any asset in any financial statement filed with the Department, unless the agreement, amendment or a binding letter of intent has been duly executed by both parties no later than the "as of date" of the financial statement.

B. In the case of a letter of intent, a reinsurance agreement or an amendment to a reinsurance agreement must be executed within a reasonable period of time, not exceeding ninety (90) days from the execution date of the letter of intent, in order for credit to be granted for the reinsurance ceded.

C. The reinsurance agreement shall contain provisions which provide that:

(1) The agreement shall constitute the entire agreement between the parties with respect to the business being reinsured thereunder and that there are no understandings between the parties other than as expressed in the agreement; and

(2) Any change or modification to the agreement shall be null and void unless made by amendment to the agreement and signed by both parties.

Section 6 Existing Agreements

Insurers subject to this Regulation shall reduce to zero by December 31, 1995 any reserve credits or assets established with respect to reinsurance agreements entered into prior to the effective date of this regulation which, under the provisions of this regulation would not be entitled to recognition of the reserve credits or assets; provided, however, that the reinsurance agreements shall have been in compliance with laws or regulations in existence immediately preceding the effective date of this regulation.

History

• AMENDED: June 3, 1993 by Secretary of State Log # 93-36
• August 1, 1994 by Secretary of State Log # 94-41

Chapter 033 RULE 93-4; UNIFORM CLAIM FORMS AND UNIFORM STANDARDS AND PROCEDURES FOR PROCESSING

21-033 Code Vt. R. 21-020-033-X RULE 93-4; UNIFORM CLAIM FORMS AND UNIFORM STANDARDS AND PROCEDURES FOR PROCESSING

Section 1 Purpose

The purpose of this regulation is to promote efficiency and cost savings in the payment of health insurance claims by the use of common claim forms and procedures and to improve the availability and consistency of health services information.

Section 2 Authority

This regulation is issued pursuant to the authority vested in the Commissioner of Banking, Insurance and Securities (Commissioner) under Title 18 V.S.A. 9408.

Section 3 Applicability and Scope

Except as otherwise specifically provided, the requirements of this regulation apply to all issuers of policies or contracts of insurance, administrators of self-funded employee benefit plans, and other forms of insurance involved in the reimbursement of health care expenses, and all providers of health care licensed or certificated by this state.

Section 4 Definitions

(a) "ADA claim form" means the uniform dental claim form approved by the American Dental Association for use by dentists.

(b) "CDT codes" means the current dental terminology published by the American Dental Association.

(c) "CPT-4 codes" means the current procedural terminology used by the American Medical Association.

(d) "DSM-III-R codes" means the American Psychiatric Association's codes for mental disorders.

(e) "Durable Medical Equipment" means equipment which (a) can withstand repeated use; (b) is primarily and customarily used to serve a medical purpose; (c) generally is not useful to a person in the absence of an illness or injury; and (d) is appropriate for use in the home. All requirements of the definition must be met before an item can be considered to be durable medical equipment.

(f) "HCFA" means the federal Health Care Financing Administration of the United States Department of Health and Human Services.

(g) "HCFA-1450" (UB-82 or UB-92) means the health insurance claims form published by HCFA for use by institutional providers.

(h) "HCFA-1500" means the health insurance claims form published by HCFA for use by health care professionals.

(i) "HCPCS codes" means HCFA's common procedure coding system which includes both of the following:

(1) Level 1 codes, which are CPT codes; and

(2) Level 2 codes, which are procedure codes for which there are no CPT codes.

(j) "Health care facility" means all facilities and institutions, as defined in Title 18 V.S.A. § 9402.

(k) "Health care provider" means a person, partnership or corporation, other than a facility, as defined in Title 18 V.S.A. § 9402.

(l) "Health insurer" means any health insurance company, nonprofit hospital and medical services corporation, health maintenance organization, and, to the extent permitted under federal law, any administrator of an insured, partially insured, self-insured or publicly funded health care benefit plan offered by public or private entities.

(m) "ICD-9-CM codes" means the disease codes in the international classification of diseases, 9th revision, clinical modification published by the United States Department of Health and Human Services.

(n) "Local codes" means those codes approved for use by the State Uniform Claim Form Committee.

(o) "Medicare" means Title XVIII of the federal Social Security Act.

(p) "Pharmacy Products" means prescription drugs, durable medical equipment, surgical supplies and over-the-counter products when dispensed by a registered pharmacy.

(q) "State Uniform Claim Form Committee" means the committee described in Section 10 of this regulation.

Section 5 HCFA-1500 instructions

(a) Required users - All health care providers, other than dentists or pharmacists, whether they bill patients directly or file claims with insurers for services, must use the HCFA 1500 form.

(b) Coding requirements - In addition to HCFA's coding instructions, the following restrictions and conditions apply to the use of the HCFA-1500 form:

(1) An insurer may not require a health care provider to use any coding system other than the following:

a. HCPCS codes;

b. ICD-9-CM codes;

c. DSM-III-R codes (if an appropriate ICD-9-CM code does not exist);

d. local codes; and

e. any codes authorized by the State Uniform Claim Form Committee under Section 9(a)(2) of this regulation for use in unlabeled fields.

Section 6 HCFA-1450 Instructions

(a) All health care facilities shall use the HCFA-1450 form and conform to the National Uniform Billing Committee billing instruction manual for its use.

(b) Coding requirements - An insurer may not require a health care provider to use any code other than the following:

(1) ICD-9-CM;

(2) revenue codes;

(3) if charges for professional health care provider services are included, HCPCS codes;

(4) local codes; and

(5) a health care provider shall identify a patient using the unique patient identifier number designated in Section 9 of this regulation.

(c) A hospital must use a HCFA-1500 form to supplement a HCFA-1450 form to bill patients or file claims for professional services.

Section 7 ADA Claim Form Instructions

(a) In order to bill patients directly and file claims with insurers for professional services as described in the CDT, a dentist or a corporation or partnership of dentists shall use the ADA claim form and follow the instructions for its use provided in the American Dental Association CDT user's manual.

(b) An insurer may not require a dentist to use any code other than CDT codes.

(c) A dentist shall identify a patient by using the unique patient identifier number designated in Section 9 of this regulation.

Section 8 Pharmacy Claim Instructions

All pharmaceutical providers filing claims for pharmacy products shall use one or more of the following:

(a) the electronic claims procedures endorsed by the National Council for Prescription Drug Programs; and/or

(b) the universal claim forms endorsed by the National Council for Prescription Drug Programs.

Section 9 Use of Unique Identifiers

(a) Health care providers

(1) To complete any of the forms adopted under this regulation, health care providers shall use the unique identifier number or surrogate unique number assigned them by HCFA.

(2) If the claim involves a billing organization, both the billing organization and the health care provider shall be identified. An organization shall be identified by its Federal Tax ID or a unique identifier assigned by an insurer.

(3) If a health care provider does not have a unique identifier number assigned by HCFA, the provider shall use his or her Vermont license or certification number, or other system recommended by the State Uniform Claim Form Committee and approved by the Commissioner.

(4) If a provider does not have an identifier as described in paragraph (c) (2) of this section and does not have a unique HCFA identifier, he or she shall use the generic identification number issued by an insurer.

(b) Health care facilities.

(1) To complete any of the forms adopted under this regulation, health care facilities shall use the facility identification number provided by HCFA or if no HCFA number exists, the unique identifier assigned by an insurer.

(2) Any attending health care provider shall be identified as described in subsection (a) of this section.

(c) Patient numbers.

(1) Patients shall be identified by their Social Security numbers or such other number designated by the Health Care Authority and approved for use by the Commissioner.

Section 10 State Uniform Claim Form Committee

(a) There is hereby established a State Uniform Claim Form Committee. The purpose of the Committee shall be:

(1) the development of codes and regulation of their use;

(2) the regulation of unlabeled fields in the HCFA 1500, HCFA 1450 and ADA claim forms;

(3) to monitor the development of changes in national standards with respect to claim forms, electronic claim form formats, and procedures for the submission of both paper and electronic claim forms;

(4) to study and produce an annual report concerning the implementation of Electronic Data Interchange (EDI) in Vermont. In addition, the Committee shall review the efforts of the Workgroup for Electronic Data Interchange (WEDI) and shall report to the Commissioner and the Health Care Authority Board regarding the adoption of WEDI standards for EDI in Vermont; and

(5) to study issues and develop methods to otherwise improve the availability and consistency of health services information.

(b) The initial Committee shall consist of the Commissioner, who shall act as chair of the Committee and one member of the Vermont Health Care Authority, who shall act as vice-chair of the Committee. In addition, the committee shall include one representative each from the hospital billing community, the non-hospital billing community, the dental billing community, the state Medicare intermediaries, a chain pharmacy store, the state Medicaid program and two representatives of health insurers, each of which shall serve two-year terms ending January 1.

(c) The Committee shall make recommendations to the Commissioner regarding local codes and unlabeled fields that, upon approval of the Commissioner, shall be used by all health insurers and health care providers.

Section 11 General provisions

(a) A health care provider or institutional care provider shall file a claim in a manner consistent with the requirements of this regulation using either:

(1) a paper form printed on 8.5-inch paper; or

(2) an electronically-transmitted claim that is consistent with the procedure for submission of such claims as established by the State Uniform Claim Form Committee in conjunction with ANSI standards.

(b) An issuer shall accept a form that is submitted in compliance with this regulation for the processing of an insured's claims.

(c) Nothing in this regulation shall prevent an issuer from requesting additional information which is not contained on the forms required under this regulation to determine eligibility of the claim for payment.

(d) All health care providers and institutional care providers shall:

(1) use the most current editions of the HCFA Form 1500, HCFA form 1450, or ADA claim form and most current instructions for these forms in the billing of patients or their representatives and filing claims with issuers; and

(2) modify their billing practices to encompass the coding changes for all billing and claim filing by the effective date of the changes set forth by the developers of the forms, codes and procedures required under this regulation.

(e) To the extent that HCFA issues forms designed to replace HCFA-1450 or HCFA-1500, this regulation shall be deemed to have adopted any such replacement form or forms as of their issuance date and such forms shall be used by health care facilities and health care providers in compliance with all other provisions of this regulation.

(f) To the extent that coding manuals are updated or revised, this regulation shall be deemed to have adopted such update or revision.

History

• Effective Date: August 1, 1993 (SOS Rule Log # 94-47)

Chapter 034 REGULATION 93-5; MINIMUM REQUIREMENTS FOR COMPLIANCE WITH TITLE 8 V.S.A.,section 4080b

21-034 Code Vt. R. 21-020-034-X REGULATION 93-5; MINIMUM REQUIREMENTS FOR COMPLIANCE WITH TITLE 8 V.S.A.,section 4080b

Section 1 Purpose

The purpose of this regulation is to set forth rules for the enrollment of registered non-group carriers, requirements for the sale of individual insurance, requirements for the filing of rates, and standards and the process for approval of common health care plans.

Section 2 Authority

This regulation is issued pursuant to the authority vested in the Commissioner of Banking, Insurance and Securities ("Commissioner") by Title 8 V.S.A., Sections 75, 4071, and 4080b(c).

Section 3 Applicability and Scope

This regulation applies to any person who issues a non-group plan. A non-group plan includes a health insurance policy, a nonprofit hospital or medical service contract or a health maintenance organization health benefit plan offered or issued to an individual. The term does not include disability insurance policies, long-term care insurance policies, Medicare supplement insurance policies, civilian health and medical program of the uniformed services supplement policies, accident indemnity or expense policies, student or athletic expense or indemnity policies or dental policies. The term also does not include hospital indemnity policies or specified disease policies, provided such policies are sold only as supplemental coverage when a common health care plan or other comprehensive health care policy is in effect.

This regulation applies to any contract issued to or renewed by a Vermont resident.

Section 4 Definitions

A. "Community rating" means a rating process that produces average rates for a defined community of insureds in the state of Vermont for the given policy period. The averaging process includes various geographic rating areas, if any, within Vermont, ages and genders of the Vermont insureds, industrial classifications within Vermont, if any, Vermont claims experience and duration of coverage. Different community rates are appropriate for the different insurance models which may be represented by indemnity coverage, indemnity coverage with managed care, preferred provider organizations and any other health insurance models approved by the Commissioner.

B. "Credibility" means a measure of the degree of statistical significance that can be assigned to the claims experience of a plan when it is used as a basis for projecting a future rate.

C. "Demographic rating" means a rating process that adjusts the community rate for a specific plan, based on that plan's deviation from the average age and gender in the community rate.

D. "Department" means the Department of Banking, Insurance and Securities.

E. "Deviation plan" means a plan, subject to the Commissioner's approval, which describes how the premium shall deviate from a filed community rate as provided in Title 8 V.S.A. § 4080b(h)(2).

F. "Durational rating" means a rating process that adjusts the community rate for a specific non-group, based on the individual's deviation from the average claims experience assumed in the community rate due to the period of time the policy has been in force.

G. "Experience rating" means a rating process that adjusts the community rate for a specific plan issued to an individual or group of individuals. The experience rating plan changes the individual's premium or rates based upon a deviation of the individual's or group of individuals' claims experience from an average claims experience.

H. "Geographic area rating" means a rating process that adjusts the community rate for a specific plan based on the deviation of the claims experience in the area where the insured person lives from the average claims experience in the community rate.

I. "Health insurance trend factor" means a projection factor that is an estimate of the unit cost increases and utilization increases that are expected to be incurred in a health benefits plan. The estimate of unit cost increases and utilization increases may include consideration of erosion of deductibles, medical technology, general inflation and cost shifting.

J. "Industry rating" means a rating process that adjusts the community rate for a specific plan, based upon the deviation of the experience of the industrial classification of the insured from the average experience in the community rate.

K. "Non-group plan" or "plan" has the same meaning as found in Title 8 V.S.A., Section 4080b(a)(2). The term "non-group plan" also includes any exempt plans listed in Section 4080b(a)(2), if coverage enhancements to those exempt plans make them substantially similar to any approved non-group plan.

L. "Pre-existing condition" means the existence of symptoms which would cause an ordinary, prudent person to seek diagnosis, care or treatment or those conditions for which medical advice or treatment was recommended by or received from a physician or other medical professional during the 12-month period preceding the effective date of coverage.

M. "Tier rating" means a rating process that assigns rates of a set of plans to one of a series of rating tiers, based upon claims experience of the set of plans, or based upon one or a combination of demographic, industry, and geographic rating factors.

N. "Rating manual rule" includes, but is not limited to, any procedures, manuals, rules, or rating plans used to develop a premium from a filed community rate.

O. "Registered non-group carrier" ("carrier") means any person, except an insurance agent, broker, appraiser, or adjuster, who issues a non-group plan and who is registered and approved as such by the Commissioner.

P. "Resident" means a person as defined in Title 18 V.S.A., Section 9402(8). A resident also includes a dependent as defined in Title 8 V.S.A., Section 4090 and a dependent child attending school outside Vermont.

Section 5 Registration

No carrier may offer a non-group plan as defined in Section 3(B) of this regulation unless such carrier registers as a non-group carrier as required by Title 8 V.S.A., Section 4080b(c) and is approved by the Commissioner. The following are the minimum requirements for registration as a non-group carrier:

A. The carrier must apply in writing to the Commissioner to be a registered non-group carrier.

B. The carrier must either be licensed or authorized to provide health insurance in Vermont, be a nonprofit hospital service corporation, nonprofit medical service corporation or be a health maintenance organization.

C. The carrier shall have all non-group rates, health care plans and forms approved by the Department prior to using them in Vermont.

D. The carrier must have licensed representatives in Vermont. The carrier must identify the representatives in the written application. If the carrier is a health maintenance organization, it shall have a sales representative in each of its' service areas. The service areas shall be designated in the initial application.

E. The carrier must designate, in writing, the name and address of a representative responsible for answering questions and responding to complaints about underwriting and claims.

F. The carrier must provide insureds with a toll-free number for claims handling and customer service and supply this number to the Department in its application.

G. All advertising material about non-group insurance must clearly identify the product advertised as a "Non-group Health Insurance Plan." In addition, all registered non-group insurers shall identify the common plan(s) by name (i.e., plan "A" etc). All advertising material must be filed with the Department prior to use. The carrier may use the advertising material after receipt by the Department.

H. A registered non-group carrier who qualifies under the provisions of Title 8 V.S.A., Section 4080b, and this regulation must certify in writing by April 1 of each year that it continues to qualify. The certification shall be signed by a member of the American Academy of Actuaries.

Section 6 Withdrawal

A carrier who intends to withdraw from the non-group market must notify the Commissioner in writing at least six (6) months prior to canceling or nonrenewing any policies. This notice must include the following information:

A. a description of the plans offered by the carrier;

B. the number of policies and the total number of lives insured under each plan; and

C. the planned termination date(s).

Section 7 Common Health Care Plans

This Section sets forth the standards and process for approval of common health care plans as required by Title 8 V.S.A., 4080b(e).

A. The standards and criteria outlined in Regulation 91-4b, Section 5(1)(a) through (h) shall be the standards adopted by this regulation. Any changes to the standards and criteria in Regulation 91-4b shall also apply to this regulation. Where Regulation 91-4b refers to certificate holder, the reader should substitute "policy holder."

B. Each common health care plan must satisfy the following minimum policy provisions:

1. A policy offered for sale after the effective date of this regulation shall not be canceled except for nonpayment of premium and eligibility for Medicare coverage due to age.

2. The policy may be nonrenewed only for the following reasons: the insured is no longer a resident of Vermont or will not be a resident on or after the renewal date, the carrier has withdrawn from the non-group market after notification as required by this regulation, the carrier has withdrawn an approved plan and/or the insured is eligible for Medicare coverage due to age.

3. The notice of cancellation for nonpayment of premium shall provide for at least 15 days notice from the date of mailing.

4. The notice of nonrenewal shall provide for at least 90 days notice from the date of mailing. If the carrier has withdrawn an approved plan, it shall provide the reasons for nonrenewal in the notice and offer to replace the plan with an approved plan.

5. A policy providing coverage for a spouse or members of a family shall not terminate because of the death of the insured. The insurer may issue a replacement policy providing substantially the same benefits to cover the surviving spouse or other dependents.

6. Termination or nonrenewal of the policy for any reason other than non-payment of premium shall provide for the payment of covered expenses from a continuous loss which started while the policy was in force, not to exceed 12 months from the date of termination or nonrenewal. The payment of benefits under the policy may be conditioned upon total disability of the covered person and the coverage limits of the policy. Policies providing pregnancy benefits shall provide for an extension of benefits as to pregnancy commencing while the policy is in force and for which benefits would have been payable had the policy remained in force.

C. For a 12-month period from the effective date of coverage a registered non-group carrier may limit coverage for pre-existing conditions. A registered non-group carrier shall waive any pre-existing conditions for all new policy holders and their dependents, who produce evidence of continuous health benefit coverage (whether group or non-group) during the previous nine months. This waiver may be conditioned upon the prior policy having provided substantially equivalent coverage to the coverage provided by the new policy.

D. No policy which is the subject of this regulation, can be issued, delivered, renewed or advertised unless the following minimum benefits are available:

Dependent children coverage must be provided where coverage would otherwise end for a child at a limiting age as required by Title 8 V.S.A., Section 4090.

2. Newborn coverage for routine and other care must be provided without notice or additional premiums for 31 days after birth. Coverage shall include well baby care, injury, sickness, necessary care and treatment of medically diagnosed congenital defects and birth abnormalities as provided by Title 8 V.S.A., Section

4. Home health care coverage with the minimum coverage described in Title 8 V.S.A., Section 4095 and 4096 must be offered as an option.

Alcoholism treatment must be provided for the necessary care and treatment of alcohol dependency as required by Title 8 V.S.A., Section 4098.

5. Coverage for screening by low-dose mammography must be provided as required by Title 8 V.S.A., Section 4100a.

6. Maternity coverage must be provided and shall be treated as any other sickness for all insureds covered by the policy as required under Regulation 89-1.

Section 8 Other Non-Group Plans

All non-group plans must satisfy the minimum policy provisions provided in Section 7(B)(C) and (D) of this regulation.

Section 9 Health Plan Advisory Committee

A. The process for the approval of the Common Health Care Plan shall be as outlined in Regulation 91-4b, Section 5(2)(f). Any changes to Section 5(2)(f) shall be incorporated into this regulation. Language in Section 5(2)(f) referring to group carrier shall be interpreted to mean non-group carrier when applying it to this regulation.

Section 10 Solicitation

A registered non-group carrier shall make available to each resident of Vermont all non-group plans approved by the Commissioner. A registered non-group carrier shall not take any action that would prevent or discourage a resident from purchasing any plan offered by the carrier. The carrier must list all plans that it is offering for sale in Vermont in any rate filing covered by this regulation to the Commissioner.

A registered non-group carrier which is also a health maintenance organization may limit applications for approved plans to residents in its service area. The health maintenance organization must state in its rate filing the service area for the plans approved by the Commissioner and how the sale may be limited.

Section 11 Community Rating Methodology

A. To be considered acceptable by the Commissioner, the community rates submitted by a registered non-group carrier must be effective for at least a twelve-month policy period.

B. Premiums shall be submitted for "single," "two person," (two adults or one adult and one child) and "family" membership classifications. Other or different classifications may be filed and used, provided they are approved by the Commissioner.

C. Community rates shall be calculated in such a manner that appropriate and separate rates are available for each insurance model for each month in which accounts renew or new accounts are written. Compliance with this requirement can be accomplished in many ways, some of which are listed here:

1. A set of community rates are calculated for a twelve-month period. The rates are to be effective for at least twelve months for accounts renewing in that month. Monthly trend factors may be applied to community rates for the remaining eleven months of renewals, all of which are to be effective for twelve months. Filings should be made no more frequently than twice a year.

2. Other methodologies that are submitted to and approved by the Commissioner, but filings should be made no more frequently than quarterly.

D. Medical underwriting and screening to exclude or individually rate non-group insureds is not allowed. Therefore, the community rating plan for a registered non-group carrier may not contain any provisions for adjustments that are based upon medical underwriting and/or medical screening.

E. Proposed community rates should be based upon reasonable projections of Vermont non-group experience that has been incurred by the registered non-group carrier. To the extent that the carrier's Vermont claims experience is not deemed to be fully credible, it can be combined with the carrier's non-group experience from other states, if that experience is adjusted to reflect Vermont benefit differences, demographic differences, geographic differences, etc., that, if not otherwise made, would render the out-of-state experience invalid for Vermont insureds. Carriers may be required to provide such Vermont-based data as the Commissioner deems necessary.

Projections of the base claims experience forward to the period for which the proposed community rates are designed to be effective should be accomplished with the use of an appropriate health insurance trend factor.

F. In addition to the expected claims cost, the carrier's community rates may contain appropriate allowances for administrative expenses, taxes, profit and the cost for reinsurance, if any, and other elements used by the carrier.

G. The approved community rates for a given benefit package may be adjusted for the following rating classifications upon approval of a deviation plan by the Commissioner:

1. demographics;

2. geographic area;

3. industrial class;

4. experience;

5. tier rating;

6. durational rating; and

7. other classifications approved by the Commissioner.

After July 1, 1993, the premium charged shall not deviate above or below the community rate filed by the carrier by more than 40 percent (40%) for two years and thereafter, 20 percent (20%).

H. The registered carrier must file and request approval from the Commissioner of all rating manual rules.

Section 12 Restrictions Relating to Premium Increases

A. The percentage of increase in the premium charged to an individual account for the same coverage for a new rating period may not exceed twenty percent (20%).

B. Notwithstanding Section A of this paragraph, a carrier may seek relief from the premium increase limitation by requesting a determination from the Commissioner that such a limitation will have a substantial adverse effect on the financial soundness and safety of the carrier.

Section 13 Approval of Community Rates, Deviation Plans and Methodology

A. Each registered carrier shall file its community rates and the method used to derive them at least sixty days prior to their first intended use. The rates filed may not be used until approved by the Commissioner.

B. The filing should contain, at a minimum, the following information:

1. a description of the base claims experience data;

2. actuarial support for the health insurance trend factor used to project the base claims experience data forward to the rating period and a copy of the data used to calculate the trend factors;

3. a description of each element of retention;

4. a description of all other adjustments or elements included in or used to calculate the rates;

5. an identification of the effective date that the rates were designed for and the effective period of the rates. One way to appropriately make this identification would be to include a statement in the filing similar to the following:

"These rates have been designed to apply to (identify the plans), renewing on or after XX/XX/XX and will remain in effect for twelve months for each renewal."; and

6. a description of the rating classifications and rating rules that make up the deviation plan, including a demonstration of how the requirement that the premium for any given insured shall not deviate by more than 40% from the carrier's approved community rate. After July 1, 1995, the above information shall be submitted based on a deviation of not more than 20 percent.

C. The following statements by a qualified actuary who is a member of the American Academy of Actuaries must be included with each filing:

1. that the rates and proposed rating methodology meet all the requirements of this regulation;

2. that the rates are reasonable in relation to the benefits provided, and that they are neither excessive, deficient, nor unfairly discriminatory; and

3. that the proposed rates anticipate at least a 70% loss ratio for the period of time the rates will remain in effect.

D. Filings made after the initially-approved filing should also identify what changes, if any, are made in the use of rating classification factors as compared to the last filing. Similarly, if no changes are proposed in the use of rating classification factors as compared to the last filing, this should also be noted. The rating factors shall be applied in their entirety without exception or adjustment.

E. Once a rating plan with rating classifications has been approved, a carrier must apply the rating factors or rating manual rules in a uniform manner to all accounts.

F. The filing form shown in Attachment 1 shall be used for each rate submission to the Commissioner.

Section 14 Underwriting Standards for Registered Non-Group Carriers

A. A registered non-group carrier shall guarantee acceptance of all applicants who are residents of Vermont for any approved plan offered by the carrier. A registered non-group carrier shall, upon application by a resident of Vermont who is currently insured by another carrier, accept the application and provide a policy of insurance under an approved plan without imposing any additional restrictions for pre-existing conditions or waiting periods. The carrier may restrict coverage only to the extent provided in Title 8 V.S.A., Section 4080b(g). A registered non-group carrier shall also guarantee acceptance for each spouse of an applicant and dependent children including disabled children.

B. Insurers may gather medical information from insured persons in order to make informed decisions concerning reinsurance or for other non-underwriting purposes.

C. Medical underwriting or screening to exclude or limit coverage is not allowed. The community rating plan for a registered non-group carrier may not contain any provisions for adjustments that are based on medical underwriting and/or medical screening.

D. Registered non-group carriers must accept all applications for non-group coverage from residents of Vermont. The carrier may require proof of current Vermont residency. In addition, the carrier may require appropriate records which demonstrate bona fide residency in Vermont. (The intention is to protect the financial integrity of registered non-group carriers from adverse selection.)

E. Registered non-group carriers are required to renew each plan as the policy anniversary date comes due. In addition, all dependents must be renewed, unless the insured or dependent is no longer a resident of Vermont or ceases to be a qualified dependent pursuant to Title 8 V.S.A., Section 4090. If the registered non-group carrier has the necessary information, it shall confirm in writing, at least 30 days prior to renewal, the premium at which the policy is to be renewed.

Section 15 Agent/Broker Reimbursement

Agent/broker reimbursement may not be based on or related to the case characteristics or experience of an account. Commission levels of a carrier must be uniform for all accounts.

Section 16 Separability

Should a court hold any provision of this regulation invalid in any circumstances, the invalidity shall not affect any other provisions or circumstances.

Section 17 Effective Date

This regulation initially became effective April 1, 1994 and these amendments will become effective January 1, 1998.

Attachment 1

WORKSHEET

The purpose of this worksheet is to provide the Commissioner with appropriate information to judge the reasonableness of premium rates submitted by registered non group carriers. While it can be used by the carrier to actually determine its premium rates, it need not be. The carrier is free to use its own techniques. However, the carrier is required to then provide the base claims cost information requested, as well as the expected claims cost for the period of the proposed rates. The resulting trend factor will be reviewed by the Commissioner for reasonableness.

The carrier is required to file for approval each time any rate for non group coverage is proposed to change.

The worksheet should be filled out with information for the coverage offered by the registered non group carrier. If other coverage produce health care trend factors different than the trend factor shown in Item 6, the coverage and associated trend factors should be identified on a separate sheet of paper, and attached to the worksheet. Space is provided in Item 10 for different trend factors for the same coverage with different deductibles and/or coinsurance.

In Item 1, please insert the incurred claims for a recent 12 month period for this coverage. Ideally, the 12 month incurred claims would have 3 months of runout and would then be completed to the fully incurred level with an estimate of unpaid claims.

In Item 2, the amount of claims in excess of any medical stop loss attachment point are posted.

Item 3 is the difference between Item 1 and Item 2.

The earned contract months exposed to risk for the coverage during the 12 month incurred period should be entered at Item 4.

The incurred claims cost per contract month (monthly pure premium) in Item 5 is calculated by dividing Item 3 by the "Total" contract months in Item 4.

Carriers who use this form to actually calculate their rates will enter their average annual trend factor at Item 6, and compound it for the appropriate number of months in the projection span in Item 7. The compounded trend factor is applied to the base claims cost in Item 5, and the resulting expected claims cost is entered at Item 8.

Carriers who develop their expected claims cost using some other method should fill in Item 8, and then develop the trends that result from their process, and fill them in at Items 6 and 7.

The carrier's allocation of the total claims cost in Item 8 into single, two person, and family components is shown in Item 9.

If, for example, the primary product is a $ 100 deductible comprehensive major medical coverage, other deductible coverage claims costs are filled in at Item 10, along with average annual trend factors comparable to the one reported in Item 6.

Retention elements are reported in Item 11 b through g, both on a dollar basis and a percent of premium basis.

The total premium rates are filled in at Item 12. The claims cost in Item 9 and the retention in Item 11 are combined to produce these premium rates.

Premium rates for the same period for the same coverage one year earlier are inserted at Item 13, and the annual rate increase is entered at Item 14.

Registered Carrier ___

Coverage ___

Effective Date ___

1. Base incurred claims * for the 12 month ___ period ___.

2. Incurred claims in excess of reinsurance ___ attachment point, if applicable **

3. Incurred claims adjusted for the removal ___ of claims in excess of reinsurance attachment point (1) - (2)

4. Earned contract months exposed to risk during the same 12 month experience period.

a) Single ___

b) 2 Person ___

c) Family ___

d) Total ___

5. Incurred claims cost per contract month ___ (pure premium) for the 12 month period, excluding claims in excess of the reinsurance attachment point. (3) / (4d)

• State this on a fully incurred basis. This is a combined statistic for single, two person, family, and other types of membership classifications.

** This refers to the reinsurance attachment point for the period of the rates discounted at the health insurance trend factor to the base experience period.

6. Health insurance trend factor *** ___ stated on an average annual basis.

7. Health insurance trend factor compounded ___ as necessary for the projection span from the base experience period to the period of the proposed rates.

a) State the period of the proposed rates.

. First effective date ___

. Last effective date ___

. Length of rate guarantee ___

b) State the projection span from the base experience period to the period of the rates in terms of numbers of months.

---

8. Expected claims cost per contract (pure premium) ___ for the period of the proposed rates, excluding claims in excess of the reinsurance attachment point. (5 x

9. Allocation of the expected claims cost into single, two person and family classifications:

| Single | ___ | | --- | --- | | Two Person | ___ | | Family | ___ |

*** The trend factor should include the effects of the fixed deductibles under a comprehensive major medical product, and the fixed reinsurance attachment point under all coverage.

10. Expected claims costs trends for other deductible and coinsurance combinations.

| Average Annual | | | | | | --- | --- | --- | --- | --- | | Health Insurance | | | | | | Coverage | Single | Two Person | Family | Trend Factor | | ___ | ___ | ___ | ___ | ___ | | ___ | ___ | ___ | ___ | ___ | | ___ | ___ | ___ | ___ | ___ | | ___ | ___ | ___ | ___ | ___ | | ___ | ___ | ___ | ___ | ___ | | ___ | ___ | ___ | ___ | ___ |

Elements of the proposed composite rate expressed as a percent of total rate and as a dollar amount.

| | | Amount | % | | --- | --- | --- | --- | | a. | Expected claims cost (Item 8) | ___ | ___ | | b. | Administrative expense | ___ | ___ | | c. | Commissions | ___ | ___ | | d. | Taxes | ___ | ___ | | e. | Profit or contribution to reserves/surplus | ___ | ___ | | f. | Reinsurance expense | ___ | ___ | | g. | Other | ___ | ___ | | | Total | ___ | 100% |

Premium rates (Item 9 loaded with Item 11, b through g)

| Single | ___ | | --- | --- | | Two Person | ___ | | Family | ___ |

Premium rates for the same period one year earlier.

| Single | ___ | | --- | --- | | Two Person | ___ | | Family | ___ |

Annual rate increase

| Single | ___ | | --- | --- | | Two Person | ___ | | Family | ___ |

Please list all plans being offered for sale in Vermont. Please list the form number and the product name. Use other sheets of paper, if you need more room.

---

Attachment 2

Work Sheet

The purpose of this work sheet is to provide the Commissioner with the information required in Section 11, G, H and Sections 13, B.4 about adjustments to the Community Rates. Adjustments based on medical underwriting and health status are not allowed. However, adjustments for demographics, geographic area, industry, claims experience, experience of the tier to which the individual is assigned, the duration of the individual's policy and other adjustments that may be approved by the Commissioner are allowed, as long as the total adjustment falls within the limiting bands.

1. Please identify the specific types or adjustments that will be used by your company by placing a check next to the appropriate adjustment.

| AGE/GENDER | ___ | | --- | --- | | AREA | ___ | | INDUSTRY | ___ | | EXPERIENCE | ___ | | TIER | ___ | | DURATION | ___ | | OTHER | ___ |

2. If "OTHER" has been checked, please describe the adjustment in full.

3. For each adjustment that is checked, please demonstrate how the factor was determined and what sources were used.

4. For each adjustment that is checked, please show what adjustment factors will be used and demonstrate how they will be applied. Please provide tables of adjustment factors for each type of adjustment.

5. Please demonstrate how the use of the adjustment factors will be controlled to produce no more than a 40% variation in the community rate for two years.

History

• Effective Date: April 1, 1994 (Secretary of State Rule Log #94-11)
• AMENDED: March 16, 1998 (Secretary of State Rule Log #98-14)
• Statutory Authority: 8 V.S.A. §§ 75, 4071, 4080b

Chapter 035 MANAGING GENERAL AGENTS, REINSURANCE INTERMEDIARIES, AND PRODUCER CONTROLLED INSURERS

21-035 Code Vt. R. 21-020-035-X MANAGING GENERAL AGENTS, REINSURANCE INTERMEDIARIES, AND PRODUCER CONTROLLED INSURERS

Section 1 CONTRACTS REQUIRED: MANAGING GENERAL AGENTS

Any contract between an insurer and a managing general agent required by 8 V.S.A. § 4818 shall, in addition to the specifics set forth in § 4818:

A. Set forth appropriate underwriting guidelines including:

1. The maximum annual premium volume;

2. The basis of the rates to be charged;

3. The types of risks which may be written;

Maximum limits of liability;

Applicable exclusions;

6. Policy cancellation provisions; and

7. The maximum policy period.

B. If the contract permits the managing general agent to settle claims on behalf of the insurer, the contract shall require that:

1. All claims be reported to the company in a timely manner;

2. A copy of the claim file be sent to the insurer at its request or as soon as it becomes known that the claim:

a. has the potential to exceed an amount determined by the commissioner or exceeds the limit set by the company, whichever is less;

b. involves a coverage dispute;

c. may exceed the managing general agent's claims settlement authority;

d. is open for more than six months; or

e. is closed by payment of an amount set by the commissioner or an amount set by the company, whichever is less.

C. Provide that the parties shall comply with the requirements set forth in 8 V.S.A. § 4821(a).

Section 2 REINSURANCE INTERMEDIARIES

A. Contracts Required: Reinsurance Intermediary Managers

Any contract between a reinsurer and a reinsurance intermediary manager required by 8 V.S.A. § 4818 shall, in addition to the specifics set forth in § 4818:

1. Require that accounts rendered to the reinsurer by the reinsurance intermediary manager include information necessary to support all commissions, charges and other fees received by, or owing to the reinsurance intermediary manager, and that the reinsurance intermediary manager shall remit all funds due under the contract to the reinsurer on not less than a monthly basis.

2. Require that the reinsurance intermediary manager may retain no more than three months estimated claims payments and allocated loss adjustment expenses, and that the reinsurance intermediary manager shall maintain a separate bank account for each reinsurer that it represents.

3. Provide that the parties shall:

a. Comply with the requirements set forth in 8 V.S.A. § 4819(c)(7);

b. Comply with the requirements set forth in 8 V.S.A. § 4821(a) and (c);

c. If the contract provides for sharing of interim profits by the reinsurance intermediary manager, comply with the requirements set forth in 8 V.S.A. § 4823(a)(8); and

d. Comply with the requirements of 8 V.S.A. § 4823(b) on an annual basis, and comply with the provisions of § 4823(c).

4. Set forth rates, terms and purposes of commissions, charges and other fees which the reinsurance intermediary manager may levy against the reinsurer.

5. Provide that, if the contract permits the reinsurance intermediary manager to settle claims on behalf of the reinsurer:

a. All claims shall be reported to the reinsurer in a timely manner;

b. A copy of the claim file will be sent to the reinsurer at its request or as soon as it becomes known that the claim:

(i) has the potential to exceed the lesser of an amount determined by the Commissioner or the limit set by the reinsurer;

(ii) Involves a coverage dispute;

(iii) May exceed the reinsurance intermediary manager's claims settlement authority;

(iv) Is open for more than six months; or

(v) Is closed by payment of the less of an amount set by the commissioner or an amount set by the reinsurer.

B. Contracts required: Reinsurance Intermediary Brokers

Reinsurance intermediary brokers and insurers shall not transact business unless there is a written contract in force, and shall comply with the requirements set forth in 8 V.S.A. § 4818. Such contract, in addition to the specifics set forth in § 4818:

shall require that the parties comply with 8 V.S.A. § 4821(c), and

2. shall require the reinsurance intermediary broker to render accounts to the insurer accurately detailing all material transactions, including information necessary to support all commissions, charges and other fees received by, or owing to, the reinsurance intermediary broker, and remit all funds due to the insurer within thirty days of receipt.

Section 3 BUSINESS TRANSACTED WITH PRODUCER CONTROLLED PROPERTY/CASUALTY INSURER

A. Any contract between a controlled insurer and a controlling producer required by 8 V.S.A. § 4818 shall, in addition to the specifics set forth in § 4818:

1. Require that the controlling producer render accounts to the controlled insurer detailing all material transactions, including information necessary to support all commissions, charges and other fees received by, or owing to, the controlling producer; and

2. Provide that the parties shall comply with the requirements set forth in 8 V.S.A. § 4824(b).

Section 4 EFFECTIVE DATE

This regulation shall become effective August 1, 1994.

Chapter 036 REGULATION 95-1, TRUST ACCOUNTS

21-036 Code Vt. R. 21-020-036-X REGULATION 95-1, TRUST ACCOUNTS

Section 1 Purpose

The purpose of this regulation is to ensure the sufficiency of funds held by third parties when the intended beneficiaries of the funds are insured, insurance policy applicants or insurers.

Section 2 Authority

This regulation is issued pursuant to the authority vested in the Commissioner of Banking, Insurance and Securities by 8 V.S.A § 75 and § 4812.

Section 3 Applicability

This regulation applies to any third party which accepts receipt of funds intended to offset insurance policy obligations from any insured, insurance policy applicant or insurer.

Section 4 Definitions

For the purposes of this regulation, the following definitions apply:

A. "Financial Account" is an account held by a federally insured financial institution or a registered investment company that is short-term, highly liquid, and without risk to principal.

B. "Third Party Recipient" includes insurance agents, insurance brokers, independent adjusters, managing general agents, consultants or any other person or business entity that receives funds intended to offset insurance policy obligations of the remitter.

"Third Party Recipient" does not include a federally insured depository institution or its subsidiaries, affiliates or parent corporation, or a lender licensed under Chapter 73, 8 V.S.A., except in such instance as the federally insured depository institution, its subsidiaries, affiliates or parent corporation or licensed lender is engaged in a transaction for which it is required to be licensed under 8 V.S.A. Chapter 131.

C. "Trust Account" is a financial account established by a third party recipient which is separate and distinct from the operating and/or personal accounts of the third party recipient. A trust account is comprised of funds, remitted from insureds, policy applicants or insurers to third party recipients, that are intended to offset insurance policy obligations of the remitter.

D. "Voluntary Deposits" are deposits made to trust accounts by third party recipients from sources other than funds remitted from insureds, policy applicants or insurers. Third party recipients may make voluntary deposits into a trust account in order to maintain a minimum balance, to guarantee the adequacy of the account, or to cover funds due but uncollected.

Section 5 Fiduciary Responsibility of Third Party Recipients

A. Every third party recipient which accepts funds intended to offset insurance policy obligations of the remitter is a fiduciary for those funds. Every third party recipient which does not immediately remit the funds to the insured or insurer for whom the funds are intended shall deposit the funds in a trust account Funds which are received from the remitter and which are, in turn, remitted to the insured or insurer within the course of the same business day, or no later than the end of the following business day, will be considered to have been immediately remitted. However, the third party remitter must show no intent to inappropriately use or commingle remitter's funds with the third party recipient's operating accounts, nor may the actions of the third party recipient have the effect of inappropriately using or commingling the remitter's funds.

B. No funds may be withdrawn or transferred from a trust account except as hereinafter specified:

1. Withdrawals from trust accounts shall be made to meet payment of premiums to insurers and payment of return premiums or other credits to insureds

2. A third party recipient may transfer to its operating account or accounts: interest earned on trust accounts; commissions on insurance policies; or, monies paid into the account in the form of voluntary deposits so long as the balance remaining in the trust account is greater than or equal to the aggregate of all fiduciary funds received but not remitted.

Section 6 Accounting Requirements

Every third party recipient shall maintain a ledger or system showing all receipts and disbursements for each trust account established by the third party recipient Entries into the ledger or system shall identify at a minimum:

1. the source of all deposits,

2. the nature of all disbursements,

3. the date and amount of each transaction, and

the name of the insured, policy applicant, or insurer for whom the transaction was made.

Section 7 Severability

Should a court hold any provision of this regulation invalid in any circumstances, the invalidity shall not affect any other provisions or circumstances.

Section 8 Effective Date

This regulation shall become effective October 1, 1996.

History

• EFFECTIVE DATE: October 1, 1996 (Secretary of State Rule Log# 96-32)
• STATUTORY AUTHORITY: 8 V.S.A. §§ 75 and 4812

Chapter 037 RULES PROVIDING FOR OVERSIGHT OF FEES CHARGED BY THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS AND RETALIATORY ACTION BY THE STATE OF VERMONT

21-037 Code Vt. R. 21-020-037-X RULES PROVIDING FOR OVERSIGHT OF FEES CHARGED BY THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS AND RETALIATORY ACTION BY THE STATE OF VERMONT

Section 1 Purpose and Authority

Department of Banking, Insurance, Securities and Health Care Administration Regulation 97-1-I

RULES PROVIDING FOR OVERSIGHT OF FEES CHARGED BY THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS AND RETALIATORY ACTION BY THE STATE OF VERMONT

This regulation is promulgated pursuant to Title 8 Sections 3367 and 3552, and in accordance with the findings and purpose of the General Assembly as set forth in Act No. 83 of the 1995 Adjourned Session.

Section 2 Authorized Fees

The fees, assessments or charges imposed by the National Association of Insurance Commissioners (NAIC) on Vermont domestic insurance companies for database filings and for valuation of securities, as set forth in the NAIC Database Participation Packet list of "Filing Fees" and the December 31, 1996 Purposes and Procedures of the Securities Valuation Office of the National Association of Insurance Commissioners "List of Fees for Services and Publications," attached hereto as Appendix to the Regulation, are hereby established and authorized by the Commissioner.

Section 3 Annual Review

The Commissioner shall annually review the fees, assessments or charges imposed by the NAIC on Vermont domestic insurance companies for database filings and for valuation of securities to determine if:

(A) Such fees, assessments or charges have increased, and

(B) If such fees, assessments or charges have increased by a rate which is higher than the then-current Consumer Price Index, whether the increase is likely to result in excessive revenues to the NAIC.

(C) If such fees, assessments or charges have increased by a rate which is higher than the then-current Consumer Price Index, the Commissioner shall issue an order, after public notice and opportunity to comment, stating the Commissioner's determination as to whether an increase results in excessive revenues to the office charging the fees, assessments or charges or to the NAIC as a whole, and the bases for the determination. If the Commissioner determines that the increase is excessive, the order shall provide that no Vermont domestic insurer shall be required to pay such fee, assessment or charge, or any portion thereof determined to be excessive.

(D) The Commissioner shall consider, along with such other factors deemed appropriate by the Commissioner, whether the increase and the resulting revenues are reasonable and necessary to achieve the purposes of the NAIC, and whether the choice of revenue source is reasonable.

Section 4 Standards and Procedures for Retaliatory Actions

(A) After determination by the Commissioner that an insurance department or other similar regulatory entity of any other state or territory of the United States has imposed any sanctions, fines, penalties, financial or deposit requirements, prohibitions, restrictions, regulatory requirements, or other obligations of any kind on domestic insurance companies authorized to transact insurance in this state and licensed to transact business in such other state or territory:

(1) because the insurance department of this state is not accredited or otherwise approved by the NAIC, or by any agent or representative of the association; or

(2) because the insurance department of this state has not complied with any directive, financial annual statement requirement, model act or regulation, market conduct or financial examination report or requirement, or any report or requirement of any kind imposed directly, or indirectly through the laws or regulations of another state, by the NAIC, or by any agent or representative of the association; or

(3) because a domestic insurance company has refused to comply with, file or pay any requirement, report, fee, assessment, or charge determined by the commissioner to be unreasonable and imposed directly, or indirectly through the laws or regulations of another state, by the NAIC, or by any agent or representative of the association;

the commissioner shall impose similar sanctions, fines, penalties, financial or deposit requirements, prohibitions, restrictions, regulatory requirements, or other obligations of any kind on the domestic insurance companies of such other state or territory.

(B) Any Vermont domestic insurance company upon whom any sanctions, fines, penalties, financial or deposit requirements, prohibitions, restrictions, regulatory requirements, or other obligations of any kind are imposed as set forth in subsection (A) of this Section may request similar imposition by the Commissioner upon the domestic insurance companies of such other state which are licensed to do business in Vermont by demonstrating to the Commissioner that the circumstances of the imposition meet the standard set forth in subsection A(1), (2) or (3) of this Section.

(C) If any other state requires a Vermont domestic insurance company licensed to transact insurance in such state to pay, directly or indirectly, a fee, assessment, or charge of any kind to the NAIC in excess of the fees, assessments, or charges approved under Section 2 of this Regulation, such fees, assessments, or charges shall be considered excessive and shall be imposed by the Commissioner in similar manner upon the domestic insurers of such other state doing business in this state.

(D) Any Vermont domestic insurance company upon whom any sanctions, fines, penalties, financial or deposit requirements, prohibitions, restrictions, regulatory requirements, or other obligations of any kind are imposed as set forth in Subsection ( C) of this Section, may request similar imposition by the Commissioner upon the domestic insurance companies of such other state which are licensed to do business in Vermont by demonstrating to the Commissioner that the circumstances of the imposition meet the standard set forth in subsection ( C) of this Section.

Section 5 Effective Date

This Regulation shall be effective on May 10, 1997.

APPENIDX

(Incorporated by Reference Only)

Filing Fees

From: NAIC Database Participation Packet

From: Purposes and Procedures of the Securities Valuation Office of the National Association of Insurance Commissioners, December 31, 1996.

History

• Effective Date: May 10, 1997 (Secretary of State Rule Log #97-16)
• Statutory Authority: 8 VSA, § 3367, 3552

Chapter 038 REGULATION 97-3: CREDIT FOR REINSURANCE

21-038 Code Vt. R. 21-020-038-X REGULATION 97-3: CREDIT FOR REINSURANCE

Section 1 Authority

This regulation is promulgated pursuant to the authority granted by 8 V.S.A. § 15 and § 3634a(f).

Section 2 Purpose

The purpose of this regulation is to set forth rules and procedural requirements which the Commissioner deems necessary to carry out the provisions of B V.S.A. § 3634a. The actions and information required by this regulation are hereby declared to be necessary and appropriate in the public interest and for the protection of the ceding insurers in this state.

Section 3 Severability

If any provision of this regulation, or the application of the provision to any person or circumstance, is held invalid, the remainder of the regulation, and the application of the provision to persons or circumstances other than those to which it is held invalid, shall not be affected.

Section 4 Credit for Reinsurance - Reinsurer Licensed in this State

Pursuant to 8 V.S.A. § 3634a(b)(1), the Commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurers that was licensed in this state as of any date on which statutory financial statement credit for reinsurance is claimed.

Section 5 Credit for Reinsurance - Accredited Reinsurers

A. Pursuant to 8 V.S.A. § 3634a(b)(2), the Commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that is accredited as a reinsurer in this state as of the date on which statutory financial statement credit for reinsurance is claimed. An accredited reinsurer must:

(1) File a properly executed Form AR-1 as evidence of its submission to this state's jurisdiction and to this state's authority to examine its books and records;

(2) File with the Commissioner a certified copy of a certificate of authority or other acceptable evidence that it is licensed to transact insurance or reinsurance in at least one state, or, in the case of a U.S. branch of an alien assuming insurer, is entered through and licensed to transact insurance or reinsurance in at least one state;

(3) File annually with the Commissioner a copy of its annual statement filed with the insurance department of its state of domicile or, in the case of an alien assuming insurer, with the state through which it is entered and in which it is licensed to transact insurance or reinsurance, and a copy of its most recent audited financial statement; and

(4) Maintain a surplus as regards policyholders in an amount not less than $ 20,000,000, or obtain the affirmative approval of the Commissioner upon a finding that it has adequate financial capacity to meet its reinsurance obligations and is otherwise qualified to assume reinsurance from domestic insurers.

B. If the Commissioner determines that the assuming insurer has failed to meet or maintain any of these qualifications, the Commissioner may upon written notice and opportunity for hearing, suspend or revoke the accreditation. Credit shall not be allowed a domestic ceding insurer under this section if the assuming insurer's accreditation has been revoked by the Commissioner, or if the reinsurance was ceded while the assuming insurer's accreditation was under suspension by the Commissioner.

Section 6 Credit for Reinsurance - Reinsurer Domiciled and Licensed in Another State

A. Pursuant to 8 V.S.A. § 3634a(3)(A), the Commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that as of any date on which statutory financial statement credit for reinsurance is claimed:

(1) Is domiciled (or, in the case of a U.S. branch of an alien assuming insurer, is entered through and licensed in) a state that employs standards regarding credit for reinsurance substantially similar to those applicable under the law and this regulation;

(2) Maintains a surplus as regards policyholders in an amount not less than $ 20,000,000; and

(3) Files a properly executed Form AR-l with the Commissioner as evidence of its submission to this state's authority to examine its books and records.

B. The provisions of this section relating to surplus as regards policyholders shall not apply to reinsurance ceded and assumed pursuant to pooling arrangements among insurers in the same holding company system. As used in this section, "substantially similar" standards means credit for reinsurance standards that the Commissioner determines equal or exceed the standards of the law and this regulation.

Section 7 Credit for Reinsurance - Reinsurers Maintaining Trust Funds

A. Pursuant to 8 V.S.A. § 3634a(4)(A), tine Commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer which, as of the date on which statutory financial statement credit is claimed, and thereafter for so long as credit for reinsurance is claimed, maintains a trust fund in an amount prescribed below in a qualified U.S. financial institution as defined in 8 /.S.A. § 3634a(d)(2), for the payment of the valid claims of its U.S. domiciled ceding insurers, their assigns and successors in interest. The assuming insurer shall report annually to the Commissioner substantially the same information as that required to be reported on the National Association of Insurance Commissioners (IMAIC) annual statement form by licensed insurers, to enable the Commissioner to determine the sufficiency of the trust fund.

B. The following requirements apply to the following categories of assuming insurer;

(1) The trust fund for a single assuming insurer shall consist of funds in trust in an amount not less than the assuming insurer's liabilities attributable to reinsurance ceded by U.S. domiciled insurers, and in addition, the assuming insurer shall maintain a trusteed surplus of not less than $ 20,000,000, except as provided in paragraph (2) of this subsection.

(2) At any time after the assuming insurer has permanently discontinued underwriting new business secured by the trust for at least three full years, the Commissioner with principal regulatory oversight of the trust may authorize a reduction in the required trusteed surplus, but only after a finding, based on an assessment of the risk, that the new required surplus level is adequate for the protection of U.S. ceding insurers, policyholders, and claimants in light of reasonably foreseeable adverse loss development. The risk assessment may involve an actuarial review, including an independent analysis of reserves and cash flows, and shall consider all material risk factors, including when applicable lines of business involved, the stability of the incurred loss estimates and the effect of the surplus requirements on the assuming insurer's liquidity or solvency. The minimum required trusteed surplus may not be reduced to an amount less than thirty percent (30%) of the assuming insurer's liabilities attributable to reinsurance ceded by U.S. ceding insurers covered by the trust.

(3)

(a) The trust fund for a group including incorporated and individual unincorporated underwriters shall consist of:

(i) For reinsurance ceded under reinsurance agreements with an inception, amendment or renewal date on or after January l, 1993, funds in trust in an amount not less than the respective underwriters' several liabilities attributable to business ceded by U.S. domiciled ceding insurers to any underwriter of the group;

(ii) For reinsurance ceded under reinsurance agreements with an inception date on or before December 31, 1992, and not amended or renewed after that date, notwithstanding the other provisions of this regulation, funds in trust in an amount not less than the respective underwriters' several insurance and reinsurance liabilities attributable to business written in the United States; and

(iii) In addition to these trusts, the group shall maintain a trusteed surplus of which $ 10,000,000,000 shall be held jointly for the benefit of U.S. domiciled ceding insurers of any member of the group for all the years of account.

(b) The incorporated members of the group shall not be engaged in any business other than underwriting as a member of the group and shall be subject to the same level of regulation and solvency control by the group's domiciliary regulator as the unincorporated members. The group shall/ within ninety (90) days after its financial statements are due to be filed with the group's domiciliary regulator, provide to the Commissioner:

(i) An annual certification by the group's domiciliary regulator of the solvency of each underwriter member of the group; or

(ii) If a certification is unavailable, a financial statement, prepared by independent public accountants, of each underwriter member of the group.

(4)

(a) The trust fund for a group of incorporated insurers under common administration, whose members possess aggregate policyholders surplus of $ 10,000,000,000 (calculated and reported in substantially the same manner as prescribed by the annual statement instructions and Accounting Practices and Procedures Manual of the NAIC) and which has continuously transacted in an insurance business outside the United States for at least three (3) years immediately prior to making application for accreditations, shall:

(i) Consist of funds in trust in an amount not less that the assuming insurers' several liabilities attributable to business ceded by U.S. domiciled ceding insurers to any members of the group pursuant to reinsurance contracts issued in the name of such group;

(ii) Maintain a joint trusteed surplus of which $ 100,000,000 shall be held jointly for the benefit of U.S. domiciled ceding insurers of any member of the group; and

(iii) File a properly executed Form AR-1 as evidence of the submission to this state's authority to examine the books and records of any of its members and shall certify that any member examined will bear the expense of any such examination.

(b) Within ninety (90) days after the statements are due to be filed with the group's domiciliary regulator, the group shall file with the Commissioner an annual certification of each underwriter member's solvency by the member's domiciliary regulators, and financial statements, prepared by independent public accountants, of each underwriter member of the group.

C.

(1) Credit for reinsurance sin all not be granted unless the form of the trust and any amendments to the trust have been approved by either the commissioner of the state where the trust is domiciled or the commissioner of another state who, pursuant to the terms of the trust instrument, has accepted responsibility for regulatory oversight of the trust. The form of the trust and any trust amendments also shall be filed with the commissioner of every state in which the ceding insurer beneficiaries of the trust are domiciled. The trust instrument shall provide that:

(a) Contested clalms shall be valid and enforceable out of funds in trust to the extent remaining unsatisfied thirty (30) days after entry of the final order of any court of competent jurisdiction in the United States;

(b) Legal title to the assets of the trust shall be vested In the trustee for the benefit of the grantor's U.S. ceding insurers, their assigns and successors in interest;

(c) The trust shall be subject to examination as determined by the Commissioner.

(d) The trust shall remain in effect for as long as the assuming insurer, or any member or former member of a group of insurers, shall have outstanding obligations under reinsurance agreements subject to the trust; and

(e) No later than February 28 of each year the trustee of the trust shall report to the Commissioner in writing setting forth the balance in the trust and listing the trust's investments at the preceding yea rend, and shall certify the date of termination of the trust, if so planned, or certify that the trust shall not expire prior to the following December 31.

(2)

(a) Notwithstanding any other provisions in the trust instrument, if the trust fund is inadequate because it contains an amount less than the amount required by this subsection or if the grantor of the trust has been declared insolvent or placed into receivership, rehabilitation, liquidation or similar proceedings under the laws of its state or country of domicile, the trustee shall comply with an order of the commissioner with regulatory oversight over the trust or with an order of a court of competent jurisdiction directing the trustee to transfer to the commissioner with regulatory oversight over the trust or other designated receiver all of the assets of the trust fund.

(b) The assets shall be distributed by and claims shall be filed with and valued by the commissioner with regulatory oversight over the trust in accordance with the laws of the state in which the trust is domiciled applicable to the liquidation of domestic insurance companies.

(c) If the comnnissioner with regulatory oversight over the trust determines that the assets of the trust fund or any part thereof are not necessary to satisfy the claims of the U.S. beneficiaries of the trust, the commissioner with regulatory oversight over the trust shall return the assets, or any part thereof, to the trustee for distribution in accordance with the trust instrument.

(d) The grantor shall waive any right otherwise available to it under U.S. law that is inconsistent with this provision.

D. For purposes of this section, the term "liabilities" shall mean the assuming insurer's gross liabilities attributable to reinsurance ceded by U.S. domiciled insurers excluding liabilities that are otherwise secured by acceptable means, and, shall include:

(1) For business ceded by domestic insurers authorized to write accident and health, and property and casualty insurance:

(a) Losses and allocated loss expenses paid by the ceding insurer, recoverable from the assuming insurer;

(b) Reserves for losses reported and outstanding;

(c) Reserves for losses incurred but not reported;

(d) Reserves for allocated loss expenses; and

(e) Unearned premiums.

(2) For business ceded by domestic insurers authorized to write life, health and annuity insurance:

(a) Aggregate reserves for life policies and contracts net of policy loans and net due and deferred premiums;

(b) Aggregate reserves for accident and health policies;

(c) Deposit funds and other liabilities without life or disability contingencies; and

(d) Liabilities for policy and contract claims.

E. Assets deposited in trusts established pursuant to 8 V.S.A. § 3634a(b) and this section shall be valued according to their current fair market value and shall consist only of cash in U.S. dollars, certificates of deposit issued by a U.S. financial institution as defined in 8 V.S.A. § 3634a(d)(1), clean, irrevocable, unconditional and "evergreen" letters of credit issued or confirmed by a qualified U.S. financial institution, as defined in 8 V.S.A. § 3634a(d)(1), and investments of the type specified in this subsection, but investments in or issued by an entity controlling, controlled by or under common control with either the grantor or beneficiary of the trust shall not exceed five percent (5%) of total investments. No more than twenty percent (20%) of the total of the Investments in the trust may be foreign investments authorized under Paragraphs (1)(e), (3), (6)(b) or (7) of this subsection, and no more than ten percent (10%) of the total of the investments in the trust may be securities denominated in foreign currencies. For purposes of applying the preceding sentence, a depository receipt denominated in U.S. dollars and representing rights conferred by a foreign security shall be classified as a foreign Investment denominated in a foreign curnency. The assets of a trust established to satisfy the requirements of 8 V.S.A. § 3634a(b) shall be invested only as follows;

(1) Government obligations that are not in default as to principal or interest, that are valid and legally authorized and that are issued, assumed or guaranteed by:

(a) The United States or by any agency or instrumentality of the United States;

(b) A state of the United States;

(c) A territory, possession or other governmental u nil; of the United States;

(d) An agency or instrumentality of a governmental unit referred to in Subparagraphs (b) and (c)of this paragraph if the obligations shall be bylaw (statutory or otherwise) payable, as to both principal and interest, from taxes levied or by law required to be provided for making these payments, but shall not be obligations eligible for investment under this paragraph if payable solely out of special assessments on properties benefited by local improvements; or

(e) The government of any other country that is a member of the Organization for Economic Cooperation and Development and whose government obligations are rated A or higher, or the equivalent, by a rating agency recognized by the Securities Valuation Office of the NAIC;

(2) Obligations that are issued in the United States, or that are dollar denominated and issued in a non-U.S. market, by a solvent U.S. institution (other than an insurance company) or that are assumed or guaranteed by a solvent U.S. institution (other than an insurance company) and that are not in default as to principal or interest if the obligations:

(a) Are rated A or higher (or the equivalent) by a securities rating agency recognized by the Securities Valuation Office of the NAIC, or if not so rated, are similar in structure and other material respects to other obligations of the same institution that are so rated;

(b) Are insured by at least one authorized insurer (other than the harvesting insurer or a parent, subsidiary or affiliate of the investing insurer) licensed to insure obligations in this state and, after considering the insurance, are rated AAA (or the equivalent) by a securities rating agency recognized by the Securities Valuation Office of the NAIC; or

(c) Have been designated as Class One or Class Two by the Securities Valuation Office of the NAIC;

(3) Obligations issued, assumed or guaranteed by a solvent non-U.S. institution chartered in a country that is a member of the Organization for Economic Cooperation and Development or obligations of U.S. corporations issued in a non-U.S. currency, provided that in either case the obligations are rated A or higher, or the equivalent, by a rating agency recognized by the Securities Valuation Office of the NAIC;

(4) An investment made pursuant to the provisions of Paragraph (1), (2) or (3) of this subsection shall be subject to the following additional limitations:

(a) An investment in or loan upon the obligations of an institution other than an institution that issues mortgage-related securities shall not exceed five percent (5%) of the assets of the trust;

(b) An investment in any one mortgage-related security shall not exceed five percent (5%) of the assets of the trust;

(c) The aggregate total investment in mortgage-related securities shall not exceed twenty-five percent (25%) of the assets of the trust; and

(d) Preferred or guaranteed shares issued or guaranteed by a solvent U.S. institution are permissible investments if all of the institution's obligations are eligible as investments under Paragraphs (2)(a) and (2)(c) of this subsection, but shall not exceed two percent (2%) of the assets of the trust.

(5) As used in this regulation:

(a) "Mortgage-related security" means an obligation that is rated AA or higher (or the equivalent) by a securities rating agency recognized by the Securities Valuation Office of the NAIC and that either;

(i) Represents ownership of one or more promissory notes or certificates of interest or participation In the notes [including any rights designed to assure servicing of, or the receipt or timeliness of receipt by the holders of the notes, certificates, or participation of amounts payable under, the notes, certificates or participation), that:

(I) Are directly secured by a first lien on a single parcel of real estate, Including stock allocated to a dwelling unit in a residential cooperative housing corporation, upon which is located a dwelling or mixed residential and commercial structure, or on a residential manufactured home as defined in 42 U.S.C.A. § 5402(6), whether the manufactured home is considered real or personal property under tine laws of the state in which it is located; and

(II) Were originated by a savings and loan association, savings bank, commercial bank, credit union, Insurance company, or similar institution that is supervised and examined by a federal or state housing authority, or by a mortgagee approved by the Secretary of Housing and Urban Development pursuant to 12 U.S.C.A. §§ 1709 and 1715 -b, or, where the notes involve a lien on the manufactured home, by an institution or by a financial institution approved for insurance by the Secretary of Housing and Urban Development pursuant to 12 U.S.C.A. § 1703; or

(ii) Is secured by one or more promissory notes or certificates of deposit or participations in the notes (with or without recourse to the insurer of the notes) and, by its terms, provides for payments of principal in relation to payments, or reasonable projections of payments, or notes meeting the requirements of Items (i)(I) and (i)(II) of this subsection;

(b) "Promissory note," when used in connection with a manufactured home, shall also include a loan, advance or credit sale as evidenced by a retail installment sales contract or other instrument.

(6) Equity interests

(a) Investments in common shares or partnership interests of a solvent U.S. institution are permissible if:

(i) Its obligations and preferred shares, if any, are eligible as investments under this subsection; and

(ii) The equity interests of the institution (except an insurance company) are registered on a national securities exchange as provided in the Securities Exchange Act of 1934, 15 U.S.C. §§ 78a to 78kk or otherwise registered pursuant to that Act, and if otherwise registered, price quotations for them are furnished through a nationwide automated quotations system approved by the Financial Industry Regulatory Authority, or successor organization. A trust shall not invest in equity interests under this paragraph an amount exceeding one percent (1%) of the assets of the trust even though the equity interests are not so registered and are not issued by an insurance company;

(b) Investments in common shares of a solvent institution organized under the laws of a country that is a member of the Organization for Economic Cooperation and Development, if:

(i) All its obligations are rated A or higher, or the equivalent, by a rating agency recognized by the Securities Valuation Office of the NAIC; and

(ii) The equity interests of the institution are registered on a securities exchange regulated by the government of a country that is a member of the Organization for Economic Cooperation and Development;

(c) An investment in or loan upon any one institution's outstanding equity interests shall not exceed one percent (1%) of the assets of the trust. The cost of an investment in equity interests made pursuant to this paragraph, when added to the aggregate cost of other investments in equity interests then held pursuant to this paragraph, shall not exceed ten percent (10%) of the assets in the trust;

(7) Obligations issued, assumed or guaranteed by a multinational development banic, provided the obligations are rated A or higher, or the equivalent, by a rating agency recognized by the Securities Valuation Office of the NAIC.

(8) Investment companies

(a) Securities of an investment company registered pursuant to the Investment Company Act of 1940, 15 U.S.C. § 80a, are permissible investments if the investment company:

(i) Invests at least ninety percent (90%) of Its assets in the types of securities that qualify as an investment under Paragraph (1), (2) or (3) of this subsection or invests in securities that are determined by the Commissioner to be substantively similar to the types of securities set forth in Paragraph (1), (2) or (3) of this subsection; or

(ii) Invests at least ninety percent (90%) of its assets in the types of equity interests that qualify as an investment under Paragraph (6)(a) of this subsection;

(b) Investments made by a trust in investment companies under this paragraph shall not exceed the following limitations:

(i) An investment in an investment company qualifying under Subparagraph (a)(i) of this paragraph shall not exceed ten percent (10%) of the assets in the trust and the aggregate amount of investment in qualifying investment companies shall not exceed twenty-five percent (25%) of the assets in the trust; and

(ii) Investments in an investment company qualifying under Subparagraph (a)(ii) of this paragraph shall not exceed five percent (5%) of the assets in the trust and the aggregate amount of investment in qualifying investment companies shall be included when calculating the permissible aggregate value of equity interests pursuant to Paragraph (6)(a) of this subsection.

(9) Letters of Credit

(a) In order for a letter of credit to qualify as an asset of the trust, the trustee shall have the right and obligation pursuant to the deed of trust or some other binding agreement (as duly authorized by the Commissioner), to immediately draw down the full amount of the letter of credit and hold the proceeds in trust for the beneficiaries of the trust if the letter of credit will otherwise expire without being renewed or replaced.

(b) The trust agreement shall provide that the trustee shall be liable for its negligence, willful misconduct or lack of good faith. The failure of the trustee to draw against the letter of credit in circumstances where such draw would be required shall be deemed to be negligence and/or willful misconduct.

F. A specific security provided to a ceding insurer by an assuming insurer pursuant to Section 9 of this regulation shall be applied, until exhausted, to the payment of liabilities of the assuming insurer to the ceding insurer holding the specific security prior to, and as a condition precedent for, presentation of a claim by the ceding insurer for payment by a trustee of a trust established by the assuming insurer pursuant to this section.

Section 8 Credit for Reinsurance - Certified Reinsurers

A. Pursuant to 8 V.S.A. § 3634a(b)(5), the Commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that has been certified as a reinsurer in this state at all times for which statutory financial statement credit for reinsurance is claimed under this section. The credit allowed shall be based upon the security held by or on behalf of the ceding insurer in accordance with a rating assigned to the certified reinsurer by the Commissioner. The security shall be in a form consistent with the provisions of 8 V.S.A. § 3634a(b)(5) and § 3634a(c) and Sections 12, 13 or 14 of this Regulation. The amount of security required in order for fill credit to be allowed shall correspond with the following requirements:

(1)

| Ratings | Security Required | | --- | --- | | Secure - 1 | 0% | | Secure - 2 | 10% | | Secure - 3 | 20% | | Secure - 4 | 50% | | Secure - 5 | 75% | | Vulnerable - 6 | 100% |

(2) Affiliated reinsurance transactions shall receive the same opportunity for reduced security requirements as all other reinsurance transactions.

(3) The Commissioner shall require the certified reinsurer to post one hundred percent (100%), for the benefit of the ceding insurer or its estate, security upon the entry of an order of rehabilitation, liquidation or consen/ation against the ceding insurer.

(4) In order to facilitate the prompt payment of claims, a certified reinsurer shall not be required to post security for catastrophe recoverables for a period of one year from the date of the first instance of a liability reserve entry by the ceding company as a result of loss from a catastrophic occurrence as recognized by the Commissioner. The one-year deferral period is contingent upon the certified reinsurer continuing to pay claims in a timely manner. Reinsurance recoverables for only the following lines of business as reported on the NAIC annual financial statement related specifically to the catastrophic occurrence will be included in the deferral:

(a) Line 1: Fire

(b) Line 2: Allied Lines

(c) Line 3: Farmowners multiple peril

(d) Line 4: Homeowners multiple peril

(e) Line 5: Commercial multiple peril

(f) Line 9: Inland Marine

(g) Line 12; Earthquake

(h) Line 21: Auto physical damage

(5) Credit for reinsurance under this section shall apply only to reinsurance contracts entered into or renewed on or after the effective date of the certification of the assuming insurer. Any reinsurance contract entered into prior to the effective date of the certification of the assuming insurer that is subsequently amended after the effective date of the certification of the assuming insurer, or a new reinsurance contract, covering any risk for which collateral was provided previously, shall only be subject to this section with respect to losses incurred and reserves reported from and after the effective date of the amendment or new contract.

(6) Nothing in this section shall prohibit the parties to a reinsurance agreement from agreeing to provisions establishing security requirements that exceed the minimum security requirements established for certified reinsurers under this section.

B. Certification Procedure.

(1) The Commissioner shall post notice on the Department's website promptly upon receipt of any application for certification, including instructions on how members of the public may respond to the application. The Commissioner may not take final action on the application until at least thirty (30) days after posting the notice required by this paragraph.

(2) The Commissioner shall issue written notice to an assuming insurer that has made application and been approved as a certified reinsurer. Included in such notice shall be the rating assigned the certified reinsurer in accordance with Subsection A of this section. The Commissioner shall publish a list of all certified reinsurers and their ratings.

(3) In order to be eligible for certification, the assuming insurer shall meet the following requirements;

(a) The assuming insurer must be domiciled and licensed to transact insurance or reinsurance in a Qualified Jurisdiction, as determined by the Commissioner pursuant to Subsection C of this section.

(b) The assuming insurer must maintain capital and surplus, or its equivalent, of no less than $ 250,000,000 calculated in accordance with Subparagraph (4)(h) of this subsection. This requirement may also be satisfied by an association having incorporated and individual unincorporated underwriters having minimum capital and surplus equivalents (net of liabilities) of at least $ 250,000,000 and a central fund containing a balance of at least $ 250,000,000.

(c) The assuming insurer must maintain financial strength ratings from two or more rating agencies deemed acceptable by the Commissioner. These ratings shall be based on interactive communication between the rating agency and the assuming insurer and shall not be based solely on publicly available information. These financial strength ratings will be one factor used by the Commissioner in determining the rating that is assigned to the assuming insurer. Acceptable rating agencies include the following:

(i) Standard & Poor's;

(ii) Moody's Investors Service;

(iii) Fitch Ratings;

(iv) A.M. Best Company; or

(v) Any other Nationally Recognized Statistical Rating Organization.

(d) The certified reinsurer must comply with any other requirements reasonably imposed by the Commissioner.

(4) Each certified reinsurer shall be rated on a legal entity basis, with due consideration being given to the group rating where appropriate, except that an association including incorporated and individual unincorporated underwriters that has been approved to do business as a single certified reinsurer may be evaluated on the basis of its group rating. Factors that maybe considered as part of the evaluation process include, but are not limited to, the following:

(a) The certified reinsurer's financial strength rating from an acceptable rating agency. The maximum rating that a certified reinsurer may be assigned will correspond to its financial strength rating as outlined in the table below. The Commissioner shall use the lowest financial strength rating received from an approved rating agency in establishing the maximum rating of a certified reinsurer. A failure to obtain or maintain at least two financial strength ratings from acceptable rating agencies will result in a loss of eligibility for certification;

| Ratings | Best | S&P | Moody's | Fitch | | --- | --- | --- | --- | --- | | Secure - 1 | A++ | AAA | Aaa | AAA | | Secure - 2 | A+ | AA+, AA, AA- | Aa1, Aa2, Aa3 | AA+, AA, AA- | | Secure - 3 | A | A+, A | A1, A2 | A+, A | | Secure - 4 | A- | A- | A3 | A- | | Secure - 5 | B++, B+ | BBB+, BBB, BBB- | Baa1, Baa2, Baa3 | BBB+, BBB, BBB- | | Vulnerable - 6 | B, B-C++, C+, C, C-, D, E, F | BB+, BB, BB-, B+, B, B-, CCC, CC, C, D, R | Ba1, Ba2, Ba3, B1, B2, B3, Caa, Ca, C | BB+, BB, BB-, B+, B, B-, CCC+, CC, CCC-, DD |

(b) The business practices of the certified reinsurer in dealing with its ceding insurers, including its record of compliance with reinsurance contractual terms and obligations;

(c) For certified reinsurers domiciled in the United States, a review of the most recent applicable NAIC Annual Statement Blanic, either Schedule F (for property/casualty reinsurers) or Schedule S (for life and health reinsurers);

(d) For certified reinsurers not domiciled in the United States, a review annually of Form CR-F (for property/casualty reinsurers) or Form CR-S (for life and health reinsurers);

(e) The reputation of the certified reinsurer for prompt payment of claims under reinsurance agreements, based on an analysis of ceding insurers' Schedule F reporting of overdue reinsurance necoverables, including the proportion of obligations that are more than ninety (90) days past due or are in dispute, with specific attention given to obligations payable to companies that are In administrative supervision or receivership;

(f) Regulator/actions against the certified reinsurer;

(g) The report of the independent auditor on the financial statements of the insurance enterprise, on the basis described in paragraph (h) below.

(h) For certified reinsurers not domiciled in the United States, audited financial statements, regulatory filings, and actuarial opinion (as filed with the non-U.S. jurisdiction supervisor, with a translation in English). Upon the Initial application for certification, the Commissioner will consider audited financial statements for the last two (2) years filed with its non-U.S. jurisdiction supervisor;

(i) The liquidation priority of obligations to a ceding insurer in the certified reinsurer's domiciliary jurisdiction in the context of an insolvency proceeding;

(j) A certified reinsurer's participation in any solvent scheme of arrangement, or similar procedure, which involves U.S. ceding insurers. The Commissioner shall receive prior notice from a certified reinsurer that proposes participation by the certified reinsurer in a solvent scheme of arrangement; and

(k) Any other information deemed relevant by the Commissioner.

(5) Based on the analysis conducted under Subparagraph 4(e) of a certified reinsurer's reputation for prompt payment of claims, the Commissioner may make appropriate adjustments in the security the certified reinsurer is required to post to protect its liabilities to U.S. ceding insurers, provided that the Commissioner shall, at a minimum, increase the security the certified reinsurer is required to post by one rating level under Subparagraph (4) (a) if the Commissioner finds that:

(a) more than fifteen percent (15%) of the certified reinsurer's ceding insurance clients have overdue reinsurance recoverables on paid losses of ninety (90) days or more which are not in dispute and which exceed $ 100,000 for each cedant; or

(b) the aggregate amount of insurance recoverables on paid losses which are not in dispute that are overdue by ninety (90) days or more exceeds $ 50,000,000.

(6) The assuming insurer must submit a properly executed Form CR-1 as evidence of its submission to the jurisdiction of this state, appointment of the Commissioner as an agent for service of process in this state, and agreement to provide security for one hundred percent (100%) of the assuming insurer's liabilities attributable to reinsurance ceded by U.S. ceding insurers if it resists enforcement of a final U.S. judgment. The Commissioner shall not certify any assuming insurer that is domiciled in a jurisdiction that the Commissioner has determined does not adequately and promptly enforce final U.S. judgments or arbitration awards.

(7) The certified reinsurer must agree to meet applicable filing requirements as determined by the Commissioner, both with respect to an initial application and on an ongoing basis. All information submitted by certified reinsurers which are not otherwise public information subject to disclosure shall be exempted from disclosure under 1 V.S.A. § 317(c) and shall be withheld from public disclosure. The applicable information filing requirements are as follows:

(a) Notification within ten (10) days of any regulatory actions taken against the certified reinsurer, any change in the provisions of its domiciliary license or any change in rating by an approved agency, including a statement describing such changes and the reasons therefore;

(b) Annually, Form CR-F or CR-S, as applicable;

(c) Annually, the report of the independent auditor on the financial statements of the insurance enterprise, on the basis described in Subsection (d) below;

(d) Annually, the most recent audited financial statements, regulatory filings, and actuarial opinion (as filed with the non-U.S. jurisdiction supervisor, with a translation in English). Upon the initial application for certification, audited financial statements for the last two (2) years filed with the certified reinsurer's supervisor;

(e) At least annually, an updated list of all disputed and overdue reinsurance claims regarding reinsurance assumed from U.S. domestic ceding insurers;

(f) A certification from the certified reinsurer's domestic regulator that the certified reinsurer is in good standing and maintains capital in excess of the jurisdiction's highest regulatory action level; and

(g) Any other information that the Commissioner may reasonably require.

(8) Change in Rating or Revocation of Certification.

(a) In the case of a downgrade by a rating agency or other disqualifying circumstance, the Commissioner shall upon written notice assign a new rating to the certified reinsurer in accordance with the requirements of Subparagraph (4)(a).

(b) The Commissioner shall have authority to suspend, revoice, or otherwise modify a certified reinsurer's certification at any time if the certified reinsurer fails to meet its obligations or security requirements under this section, or if other financial or operating results of the certified reinsurer, or documented significant delays in payment by the certified reinsurer, lead the Commissioner to re consider the certified reinsurer's ability or willingness to meet its contractual obligations.

(c) If the rating of a certified reinsurer is upgraded by the Commissioner, the certified reinsurer may meet the security requirements applicable to its new rating on a prospective basis, but the Commissioner shall require the certified reinsurer to post security under the previously applicable security requirements as to all contra as in force on or before the effective date of the upgraded rating. If the rating of a certified reinsurer is downgraded by the Commissioner, the Commissioner shall require the certified reinsurer to meet the security requirements applicable to its new rating for all business it has assumed as a certified reinsurer.

(d) Upon revocation of the certification of a certified reinsurer by the Commissioner, the assuming insurer shall be required to post security In accordance with Section 10 in order for the ceding insurer to continue to take credit for reinsurance ceded to the assuming insurer. If funds continue to be held in trust in accordance with Section 7, the Commissioner may allow additional credit equal to the ceding insurer's pro rata share of such funds, discounted to reflect the risk of uncollectibility and anticipated expenses of trust administration. Notwithstanding the change of a certified reinsurer's rating or revocation of its certification, a domestic insurer that has ceded reinsurance to that certified reinsurer may not be denied credit for reinsurance for a period of three (3) months for all reinsurance ceded to that certified reinsuner, unless tine reinsurance is found by tine Commissioner to be at high risk of uncollectibility.

C. Qua lined Jurisdictions.

(1) If, upon conducting an evaluation under tills section within respect to the reinsurance supervisory system of any non-U.S. assuming insurer, the Commissioner determines that the jurisdiction qualifies to be recognized as a qualified jurisdiction, the Commissioner shall publish notice and evidence of such recognition in an appropriate manner. The Commissioner may establish a procedure to withdraw recognition of those jurisdictions that are no longer qualified.

(2) In order to determine whether the domiciliary jurisdiction of a non-U.S. assuming insurer Is eligible to be recognized as a qualified jurisdiction, the Commissioner shall evaluate the reinsurance supervisory system of the non-U.S. jurisdiction, both initially and on an ongoing basis, and consider the rights, benefit and the extent of reciprocal recognition afforded by the non-U.S. jurisdiction to reinsurers licensed and domiciled In the United States. The Commissioner shall determine the appropriate approach for evaluating the qualifications of such jurisdictions, and create and publish a list of jurisdictions whose reinsurers may be approved by the Commissioner as eligible for certification. A qualified jurisdiction must agree to share information and cooperate with the Commissioner with respect to all certified reinsurers domiciled within that jurisdiction. Additional factors to be considered in determining whether to recognize a qualified jurisdiction. In the discretion of the Commissioner, include but are not limited to the following:

(a) The framework under which the assuming Insurer is regulated.

(b) The structure and authority of the domiciliary regulator with regard to solvency regulation requirements and financial surveillance.

(c) The substance of financial and operating standards for assuming insurers in the domiciliary jurisdiction.

(d) The form and substance of financial reports required to be filed or made publicly available by reinsurers in the domiciliary jurisdiction and the accounting principles used.

(e) The domiciliary regulator's willingness to cooperate with U.S. regulators in general and the Commissioner in particular.

(f) The history of performance by assuming Insurers in the domiciliary jurisdiction.

(g) Any documented evidence of substantial problems with the enforcement of final U.S. judgments in the domiciliary jurisdiction. A jurisdiction will not be considered to be a qualified jurisdiction if the Commissioner has determined that it does not adequately and promptly enforce final U.S. judgments or arbitration awards.

(h) Any relevant international standards or guidance with respect to mutual recognition of reinsurance supervision adopted by tine International Association of Insurance Supervisors or successor organization.

(i) Any other matters deemed relevant by the Commissioner.

(3) A list of qualified jurisdictions shall be published through the NAIC Committee Process. The Commissioner shall consider this list in determining qualified jurisdictions. If the Commissioner approves a jurisdiction as qualified that does not appear on the list of qualified jurisdictions, the Commissioner shall provide thoroughly documented justification with respect to the criteria provided under Sub sections 8 C(2)(a) to (i).

(4) U.S. jurisdictions that meet the requirements for accreditation under the NAIC financial standards and accreditation program shall be recognized as qualified jurisdictions.

D. Recognition of Certification Issued by a NAIC Accredited Jurisdiction.

(1) If an applicant for certification ti as been certified as a reinsurer in a NAIC accredited jurisdiction, the Commissioner has the discretion to defer to that jurisdiction's certification, and to defer to the rating assigned by that jurisdiction, if the assuming insurer submits a properly executed Form CR-l and such additional information as the Commissioner requires. The assuming insurer shall be considered to be a certified reinsurer in this State.

(2) Any change in the certified reinsurer's status or rating in the other jurisdiction shall apply automatically in this State as of the date it takes effect in the other jurisdiction. The certified reinsurer shall notify the Commissioner of any change in its status or rating within 10 days after receiving notice of the change.

(3) The Commissioner may withdraw recognition of the other jurisdiction's rating at any time and assign a new rating in accordance with Subsection B(8) of this section.

(4) The Commissioner may withdraw recognition of the other jurisdiction's certification at any time, with written notice to the certified reinsurer. Unless the Commissioner suspends or revokes the certified reinsurer's certification in accordance with Subsection B(8) of this section, the certified reinsurer's certification shall remain in good standing in this State for a period of three (3) months, which shall be extended if additional time is necessary to consider the assuming insurer's application for certification in this State.

(5) Mandatory Funding Clause. In addition to the clauses required under Section 14, reinsurance contracts entered into or renewed under this section shall include a proper funding clause, which requires the certified reinsurer to provide and maintain security in an amount sufficient to avoid the imposition of any financial statement penalty of the ceding insurer under this section for reinsurance ceded to the certified reinsurer.

E. The Commissioner shall comply with all reporting and notification requirements that may be established by the NAIC with respect to certified reinsurers and qualified jurisdictions.

Section 9 Credit for Reinsurance-Reciprocal Jurisdictions

A. Pursuant to 8 V.S.A. § 3634a(b)(6)(A), the Commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that is licensed to write reinsurance by, and has its head office or is domiciled in, a Reciprocal Jurisdiction, and which meets the other requirements of this regulation.

B. A "Reciprocal Jurisdiction" is a jurisdiction, as designated by the Commissioner pursuant to Subsection D, that meets one of the following:

(1) A non-U.S. jurisdiction that is subject to an in-force covered agreement with the United States, each within its legal authority, or, in the case of a covered agreement between the United States and the European Union, is a member state of the European Union. For purposes of this subsection, a "covered agreement" is an agreement entered into pursuant to the Dodd-Frank. Wall Street Reform and Consumer Protection Act, 31 U.S.C. §§ 313 and 314, that is currently in effector in a period of provisional application and addresses the elimination, under specified conditions, of collateral requirements as a condition for entering into any reinsurance agreement with a ceding insurer domiciled in this state or for allowing the ceding insurer to recognize credit for reinsurance;

(2) A U.S. jurisdiction that meets the requirements for accreditation under the NAIC financial standards and accreditation program; or

(3) A qualified jurisdiction, as determined by the Commissioner pursuant to 8 V.S.A. § 3634a(b)(5)(C) and Section 8C of this Regulation, which is not otherwise described in Paragraph (1) or (2) above and which the Commissioner determines meets all of the following additional requirements:

(a) Provides that an insurer which has lts head office or is domiciled in such qualified jurisdiction shall receive credit for reinsurance ceded to a U.S. - domiciled assuming insurer in the same manner as credit for reinsurance is received for reinsurance assumed by insurers domiciled in such qualified jurisdiction;

(b) Does not require a U.S. - domiciled assuming insurer to establish or maintain a local presence as a condition for entering into a reinsurance agreement with any ceding insurer subject to regulation by the non-U.S. jurisdiction or as a condition to allow the ceding insurer to recognize credit for such reinsurance;

(c) Recognizes the U.S. state regulatory approach to group supervision and group capital, by providing written confirmation by a competent regulatory authority, in such qualified jurisdiction, that insurers and insurance groups that are domiciled or maintain their headquarters in this state or another jurisdiction accredited by the NAIC shall be subject only to worldwide prudential insurance group supervision including wordwide group governance, solvency and capital, and reporting, as applicable, by the Commissioner or the Commissioner of the domiciliary state and will not be subject to group supervision at the level of the worldwide parent undertaking of the insurance or reinsurance group by the qualified jurisdiction; and

(d) Provides written confirmation by a competent regulatory authority in such qualified jurisdiction that information regarding insurers and their parent, subsidiary, or affiliated entities, if applicable, shall be provided to the Commissioner in accordance with a memorandum of understanding or similar document between the Commissioner and such qualified jurisdiction, including but not limited to the International Association of Insurance Supervisors Multilateral Memorandum of Understanding or other multilateral memoranda of understanding coordinated by the NAIC.

C. Credit shall be allowed when the reinsurance is ceded from an insurer domiciled in this state to an assuming insurer meeting each of the conditions set forth below.

(1) The assuming insurer must be licensed to transact reinsurance by, and have its head office or be domiciled in, a Reciprocal Jurisdiction.

(2) The assuming insurer must have and maintain on an ongoing basis minimum capital and surplus, or its equivalent, calculated on at least an annual basis as of the preceding December 31 or at the annual date otherwise statutorily reported to the Reciprocal Jurisdiction, and confirmed as set forth in Subsection CC7) according to the methodology of its domiciliary jurisdiction, in the following amounts:

(a) No less than $ 250,000,000; or

(b) If the assuming insurer is an association, including incorporated and individual unincorporated underwriters:

(i) Miinimum capital and surplus equivalents (net of liabilities) or own funds of the equivalent of at least $ 250,000,000; and

(ii) A central fund containing a balance of the equivalent of at least $ 250,000,000.

(3) The assuming insurer must have and maintain on an ongoing basis a minimum solvency or capital ratio, as applicable, as follows:

(a) If the assuming insurer has its head office or is domiciled in a Reciprocal Jurisdiction as defined in Section 9B(1), the ratio specified in the applicable covered agreement;

(b) If the assuming insurer is domiciled in a Reciprocal Jurisdiction as defined in Section 9B(2), a risk-based capital (RBC) ratio of three hundred percent (300%) of the authorized control level, calculated in accordance with the formula developed by the NAIC; or

(c) If the assuming insurer is domiciled in a Reciprocal Jurisdiction as defined in Section 9B(3), after consultation with the Reciprocal Jurisdiction and considering any recommendations published through the NAIC Committee Process, such solvency or capital ratio as the Commissioner determines to be an effective measure of solvency.

(4) The assuming insurer must agree to and provide adequate assurance, in the form of a properly executed Form Rj-1, of its agreement to the following:

(a) The assuming insurer must agree to provide prompt written notice and explanation to the Commissioner if it falls below the minimum requirements set forth in Paragraphs (2) or (3) of this subsection, or if any regulatory action is taken against it for serious noncompliance with applicable law.

(b) The assuming insurer must consent in writing to the jurisdiction of the courts of this state and to the appointment of the Commissioner as agent for service of process.

(i) The Commissioner may also require that such consent be provided and included in each reinsurance agreement under the Commissioner's jurisdiction.

(ii) Nothing in this provision shall limit or in any way alter the capacity of parties to a reinsurance agreement to agree to alternative dispute resolution mechanisms, except to the extent such agreements are unenforceable under applicable insolvency or delinquency laws.

(c) The assuming insurer must consent in writing to pay all final judgments, wherever enforcement is sought, obtained by a ceding insurer, that have been declared enforceable in the territory where the judgment was obtained.

(d) Each reinsurance agreement must include a provision requiring the assuming insurer to provide security in an amount equal to one hundred percent (100%) of the assuming insurer's liabilities attributable to reinsurance ceded pursuant to that agreement if the assuming insurer resists enforcement of a final judgment that is enforceable under the law of the jurisdiction in which it was obtained or a properly enforceable arbitration award, whether obtained by the ceding insurer or by its legal successor on behalf of its estate, if applicable.

(e) The assuming insurer must confirm that it is not presently participating in any solvent scheme of arrangement, which involves this state's ceding insurers, and agrees to notify the ceding insurer and the Commissioner and to provide one hundred percent (100%) security to the ceding insurer consistent with the terms of the scheme, should the assuming insurer enter into such a solvent scheme of arrangement. Such security shall be in a form consistent with the provisions of 8 V.S.A. § 3634a(b)(5) and § 3634a(c) and Section 12, 13 or 14 of this Regulation. For purposes of this Regulation, the term "solvent scheme of arrangement" means a foreign or alien statutory or regulatory compromise procedure subject to requisite majority creditor approval and judicial sanction in the assuming insurer's home jurisdiction either to finally commute liabilities of duly noticed classed members or creditors of a solvent debtor, or to reorganize or restructure the debts and obligations of a solvent debtor on a final basis, and which may be subject to judicial recognition and enforcement of the arrangement by a governing authority outside the ceding insurer's home jurisdiction.

(f) The assuming insurer must agree in writing to meet the applicable Information filing requirements as set forth in Paragraph (5) of this subsection.

(5) The assuming insurer or its legal successor must provide, if requested by the Commissioner, on behalf of itself and any legal predecessors, the following documentation to the Commissioner:

(a) For the two years preceding entry into the reinsurance agreement and on an annual basis thereafter, the assuming insurer's annual audited financial statements, in accordance with the applicable law of the jurisdiction of its head office or domiciliary jurisdiction, as applicable, including the external audit report;

(b) For the two years preceding entry into the reinsurance agreement, the solvency and financial condition report or actuarial opinion, if filed with the assuming insurer's supervisor;

(c) Prior to entry into the reinsurance agreement and not more than semiannually thereafter, an updated list of all disputed and overdue reinsurance claims outstanding for 90 days or more, regarding reinsurance assumed from ceding insurers domiciled in the United States; and

(d) Prior to entry into the reinsurance agreement and not more than semiannually thereafter, information regarding the assuming insurer's assumed reinsurance by ceding insurer, ceded reinsurance by the assuming insurer, and reinsurance recoverable on paid and unpaid losses by the assuming Insurer to allow for the evaluation of the criteria set forth in Paragraph C(6) of this subsection.

(6) The assuming Insurer must maintain a practice of prompt payment of claims under reinsurance agreements. The lack of prompt payment will be evidenced if any of the fallowing criteria is met:

(a) More than fifteen percent (15%) of the reinsurance recoverables from the assuming insurer are overdue and in dispute as reported to the Commissioner;

(b) More than fifteen percent (15%) of the assuming insurer's ceding Insurers or reinsurers have overdue reinsurance recoverable on paid losses of 90 days or more which are not In dispute and which exceed for each ceding insurer $ 100,000, or as otherwise specified in a covered agreement; or

(c) The aggregate amount of reinsurance recoverable on paid lasses which are not In dispute, but are overdue by 90 days or more, exceeds $ 50,000,000, or as otherwise specified In a covered agreement.

(7) The assuming Insurer's supervisory authority must confirm to the Commissioner on an annual basis that the assuming insurer complies with the requirements set forth in Paragraphs (2) and (3) of this subsection.

(8) Nothing in this provision precludes an assuming insurer from providing the Commissioner with information on a voluntary basis.

D. The Commissioner shall timely create and publish a list of Reciprocal Jurisdictions.

(1) A list of Reciprocal Jurisdictions is published through the NAIC Committee Process. The Commissioner's list shall include any Reciprocal Jurisdiction as defined under Section 9B(1) and (2), and shall consider any other Reciprocal Jurisdiction included on the NAIC list. The Commissioner may approve a jurisdiction that does not appear on the NAIC list of Reciprocal Jurisdictions as provided by applicable law, regulation, or in accordance with criteria published through the NAIC Committee Process.

(2) The Commissioner may remove a jurisdiction from the list of Reciprocal Jurisdictions upon a determination that the jurisdiction no longer meets one or more of the requirements of a Reciprocal Jurisdiction, as provided by applicable law, regulation, or in accordance with a process published through the NAIC Committee Process, except that the Commissioner shall not remove from the list a Reciprocal Jurisdiction as defined under Section 9B(1) and (2). Upon removal of a Reciprocal Jurisdiction from this list credit for reinsurance ceded to an assuming insurer domiciled in that jurisdiction shall be allowed, if otherwise allowed pursuant to 8 V.S.A § 3634a.

E. The Commissioner shall timely create and publish a list of assuming insurers that have satisfied the conditions set forth in this section and to which cessions shall be granted credit in accordance with this section.

(1) If an NAIC accredited jurisdiction has determined that the conditions set forth in Subsection C have been met, the Commissioner has the discretion to defer to that jurisdiction's determination, and add such assuming insurer to the list of assuming insurers to which cessions shall be granted credit in accordance with this subsection. The Commissioner may accept financial documentation filed with another NAIC accredited jurisdiction or with the NAIC in satisfaction of the requirements of Subsection C.

(2) When requesting that the Commissioner defer to another NAIC accredited jurisdiction's determination, an assuming insurer must submit a properly executed Form RJ-1 and additional information as the Commissioner may require. A state that has received such a request will notify other states through the NAIC Committee Process and provide relevant information with respect to the determination of eligibility.

F. If the Commissioner determines that an assuming insurer no longer meets one or more of the requirements under this section, the Commissioner may revoke or suspend the eligibility of the assuming insurer for recognition under this section.

(1) While an assuming insurer's eligibility is suspended, no reinsurance agreement issued, amended or renewed after the effective date of the suspension qualifies for credit except to the extent that the assuming insurer's obligations under the contract are secured in accordance with Section 11.

(2) If an assuming insurer's eligibility is revoked, no credit for reinsurance may be granted after the effective date of the revocation with respect to any reinsurance agreements entered into by the assuming insurer, including reinsurance agreements entered into prior to the date of revocation, except to the extent that the assuming insurer's obligations under the contract are secured in a form acceptable to the Commissioner and consistent with the provisions of Section 11.

G. Before denying statement credit or imposing a requirement to post security with respect to Section 9F of this regulation or adopting any similar requirement that will have substantially the same regulatory impact as security, the Commissioner shall:

(1) Communicate with the ceding insurer, the assuming insurer, and the assuming insurer's supervisory authority t at the assuming insurer no longer satisfies one of the conditions listed in Subsection C of this section;

(2) Provide the assuming insurer with 30 days from the initial communication to submit a plan to remedy the defect, and 90 days from the initial communication to remedy the defect, except in exceptional circumstances in which a shorter period is necessary for policyholder and other consumer protection;

(3) After the expiration of 90 days or less, as set out in Paragraph (2), if the Commissioner determines that no or insufficient action was taken by the assuming insurer, the Commissioner may impose any of the requirements as set out in this Subsection; and

(4) Provide a written explanation to the assuming insurer of any of the requirements set out in this Subsection.

H. If subject to a legal process of rehabilitation, liquidation or conservation, as applicable, the ceding insurer, or its representative, may seek and, if determined appropriate by the court in which the proceedings are pending, may obtain an order requiring that the assuming insurer post security for all outstanding liabilities.

Section 10 Credit for Reinsurance Required by Law

Pursuant to 8 V.S.A. § 3634a(b)(7), the Commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of 8 V.S.A. § 3634a(b)(1)-(6), but only as to the insurance of risks located in jurisdictions where the reinsurance is required by the applicable law or regulation of that jurisdiction. As used in this section, "jurisdiction" means any state, district or territory of the United States and any lawful national government.

Section 11 Asset or Reduction from Liability for Reinsurance Ceded to an Unauthorized Assuming Insurer not Meeting the Requirements of Sections 4 through 10

A. Pursuant to 8 V.S.A. § 3634a(c), the Commissioner shall allow a reduction from liability for reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of 8 V.S.A. § 3634a(b) in an amount not exceeding the liabilities carried by the ceding insurer. The reduction shall be in the amount of funds held by or on behalf of the ceding insurer, including funds held in trust for the exclusive benefit of the ceding insurer, under a reinsurance contract with such assuming insurer as security for the payment of obligations under the reinsurance contract. The security shall be held in the United States subject to withdrawal solely by, and under the exclusive control of, the ceding insurer or, in the case of a trust, held in a qualified U.S. financial institution as defined in 8 V.S.A. § 3634a(d)(2). This security may be in the form of any of the following:

(1) Cash;

(2) Securities listed by the Securities Valuation Office of the NAIC, including those deemed exempt from filing as defined by the Purposes and Procedures Manual of the Securities Valuation Office, and qualifying as admitted assets;

(3) Clean, irrevocable, unconditional and "evergreen" letters of credit issued or confirmed by a qualified U.S. institution, as defined in 8 V.S.A. § 3634a(d)(2), effective no later than December 31 of the year for which filing is being made, and in the possession of, or in trust for, the ceding insurer on or before the filing date of its annual statement. Letters of credit meeting applicable standards of issuer acceptability as of the dates of their issuance (or confirmation) shall, notwithstanding the issuing (or confirming) institution's subsequent failure to meet applicable standards of issuer acceptability, continue to be acceptable as security until their expiration, extension, renewal, modification or amendment, whichever first occurs; or

(4) Any other form of security acceptable to the Commissioner.

B. An admitted asset or a reduction from liability for reinsurance ceded to an unauthorized assuming insurer pursuant to this section shall be allowed only when the requirements of Section 15 and the applicable portions of Sections 12, 13, or 14 of this regulation have been satisfied.

Section 12 Trust Agreements Qualified under Section 11

A. AS used in this section:

(1) "Beneficiary" means the entity for whose sole benefit the trust has been established and any successor of the beneficiary by operation of law. If a court of law appoints a successor in interest to the named beneficiary, then the named beneficiary includes and is limited to the court appointed domiciliary receiver (including conservator, rehabilitator or liquidator).

(2) "Grantor" means the entity that has established a trust for the sole benefit of the beneficiary. When established in conjunction with a reinsurance agreement, the grantor is the unlicensed, unaccredited assuming insurer.

(3) "Obligations," as used in Subsection B(11) of this section means:

(a) Reinsured losses and allocated loss expenses paid by the ceding company, but not recovered from the assuming insurer;

(b) [Reserves for reinsured losses reported and outstanding;

(c) Reserves for reinsured losses incurred but not reported; and

(d) Reserves for allocated reinsured loss expenses and unearned premiums.

B. Required conditions.

(1) The trust agreement shall be entered into between the beneficiary, the grantor and a trustee, which shall be a qualified U.S. financial institution as defined in 8 V.S.A. § 3634a(d)(2).

(2) The trust agreement shall create a trust account into which assets shall be deposited.

(3) All assets in the trust account shall be held by the trustee at the trustee's office in the United States.

(4) The trust agreement shall provide that:

(a) The beneficiary shall have the right to withdraw assets from the trust account at any time, without notice to the grantor, subject only to written notice from the beneficiary to the trustee;

(b) No other statement or document is required to be presented to withdraw assets, except that the beneficiary may be required to acknowledge receipt of withdrawn assets;

(c) It is not subject to any conditions or qualifications outside of the trust agreement; and

(d) It shall not contain references to any other agreements or documents except as provided for in Paragraphs (11) and (12) of this subsection.

(5) The trust agreement shall be established for the sole benefit of the beneficiary.

(6) The trust agreement shall require the trustee to;

(a) Receive assets and hold all assets in a safe place;

(b) Determine that all assets are in such form that the beneficiary, or the trustee upon direction by the beneficiary, may whenever necessary negotiate any such assets, without consent or signature from the grantor or any other person or entity;

(c) Furnish to the grantor and the beneficiary a statement of all assets in the trust account upon its inception and at intervals no less frequent than the end of each calendar quarter;

(d) Notify the grantor and the beneficiary within ten (ID) days, of any deposits to or withdrawals from the trust account;

(e) Upon written demand of the beneficiary, immediately take any and all steps necessary to transfer absolutely and unequivocally all right, title and interest in the assets held in the trust account to the beneficiary and deliver physical custody of the assets to the beneficiary; and

(f) Allow no substitutions or withdrawals of assets from the trust account, except on written instructions from the beneficiary, except that the trustee may, without the consent of but with notice to the beneficiary, upon call or maturity of any trust asset, withdraw such asset upon condition that the proceeds are paid into the trust account.

(7) The trust agreement shall provide that at least thirty (30) days, but not more than forty-five (45) days, prior to termination of the trust account, written notification of termination shall be delivered by the trustee to the beneficiary. The trust agreement shall be made subject to and governed by the laws of the state in which the trust is domiciled.

(8) The trust agreement shall prohibit invasion of the trust corpus for the purpose of paying commission to, or reimbursing tine expenses of, the trustee. In order for a letter of credit to qualify as an asset of the trust, the trustee shall have tine right and the obligation pursuant to the deed of trust or some other binding agreement (as duly approved by the Commissioner), to immediately draw down the full amount of the letter of credit and hold the proceeds in trust for the beneficiaries of the trust if the letter of credit will otherwise expire without being renewed or replaced.

(9) The trust agreement shall provide that the trustee shall be liable for its own negligence, willful misconduct or lack of good faith. The failure of the trustee to draw against the letter of credit in circumstances where such draw would be required shall be deemed to be negligence and/or willful misconduct.

(10) Notwithstanding other provisions of this regulation, when a trust agreement is established in conjunction with a reinsurance agreement covering risks other than life, annuities and accident and health, where it is customary practice to provide a trust agreement for a specific purpose, the trust agreement may provide that the ceding insurer shall undertake to use and apply amounts drawn upon the trust account, without diminution because of the insolvency of the ceding insurer or the assuming insurer, only for the following purposes:

(a) To pay or reimburse the ceding insurer far the assuming insurer's share under the specific reinsurance agreement regarding any losses and allocated loss expenses paid by the ceding insurer, but not recovered from the assuming insurer, or for unearned premiums due to the ceding insurer if not otherwise paid by the assuming insurer;

(b) To make payment to the assuming insurer of any amounts held in the trust account that exceed 102 percent of the actual amount required to fund the assuming insurer's obligations under the specific reinsurance agreement; or

(c) Where the ceding insurer has received notification of termination of the trust account and where the assuming insurer's entire obligations under the specific reinsurance agreement remain unliquidated and undischarged ten (10) days prior to the termination date, to withdraw amounts equal to the obligations and deposit those amounts in a separate account, in the name of the ceding insurer in any qualified U.S. financial institution as defined in 8 V.S.A. § 3634a(d)(2) apart from its general assets, in trust for such uses and purposes specified in Subparagraphs (a) and (b) above as may remain executory after such withdrawal and for any period after the termination date.

(11) Notwithstanding any other provisions in this Regulation, when a trust agreement is established to meet the requirements of Section 11 in conjunction with a reinsurance agreement covering life, annuities or accident and health risks, where it is customary to provide a trust agreement for a specific purpose, the trust agreement may provide that the ceding insurer shall undertake to use and apply amounts drawn upon the trust account, without diminution because of the insolvency of the ceding insurer or the assuming insurer, only for the following purposes:

(a) To pay or reimburse the ceding insurer far:

(i) The assuming insurer's share under the specific reinsurance agreement of premiums returned, but not yet recovered from the assuming insurer, to the owners of policies reinsured under the reinsurance agreement on account of cancellation of the policies; and

(ii) The assuming insurer's share under the specific reinsurance agreement of surrenders and benefits or losses paid by the ceding insurer, but not yet recovered from the assuming insurer, under the terms and provisions of the policies reinsured under the reinsurance agreement;

(b) To pay to the assuming insurer amounts held in the trust account in excess of the amount necessary to secure the credit or reduction from liability for reinsurance taken by the ceding insurer; or

(c) Where the ceding insurer has received notification of termination of the trust and where the assuming insurer's entire obligations under the specific reinsurance agreement remain unliquidated and undischarged ten (10) days prior to the termination date, to withdraw amounts equal to the assuming insurer's share of liabilities, to the extent that liabilities have not yet been funded by the assuming insurer, and deposit those amounts in a separate account, in the name of the ceding insurer in any qualified U.S. financial institution apart from its general assets, in trust for the uses and purposes specified in Subparagraphs (a) and (b) of this paragraph as may remain executory after withdrawal and for any period after the termination date.

(12) Either the reinsurance agreement of the trust agreement must stipulate that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash in U.S. dollars, certificates of deposit issued by a U.S. bank and payable in U.S. dollars, and investments permitted by the Insurance Code or any combination of the above, provided investments in or issued by an entity controlling, controlled by or under common control with either the grantor or the beneficiary of the trust shall not exceed five percent (5%) of total investments. The agreement may further specify the types of investments to be deposited. If the reinsurance agreement covers life, annuities or accident and health risks, then the provisions required by this paragraph must be included in the reinsurance agreement.

C. Permitted conditions.

(1) The trust agreement may provide that the trustee may resign upon delivery of a written notice of resignation, effective not less than ninety (90) days after the beneficiary and grantor receive tine notice and that tine trustee may be removed by the grantor by delivery to the trustee and tine beneficiary of a written notice of removal, effective not less than ninety (90) days after the trustee and the beneficiary receive the notice, provided that no such resignation or removal shall be effective until a successor trustee has been duly appointed and approved by the beneficiary and the grantor and all assets in the trust have been duly transferred to the new trustee.

(2) The grantor may have the full and unqualified right to vote any shares of stock in the trust account and to receive from time to time payments of any dividends or interest upon any shares of stock or obligations included in the trust account. Any interest or dividends shall be either forwarded promptly upon receipt to the grantor or deposited in a separate account established in the grantor's name.

(3) The trustee may be given authority to invest, and accept substitutions of, any funds in the account, provided that no investment or substitution shall be made without prior approval of the beneficiary, unless the trust agreement specifies categories of investments acceptable to the beneficiary and authorizes the trustee to invest funds and to accept substitutions that the trustee determines are at least equal in current fair market value to the assets withdrawn and that are consistent with the restrictions in Subsection D(1)(b) of this section.

(4) The trust agreement may provide that the beneficiary may at any time designate a party to which all or part of the trust assets are to be transferred. Such transfer may be conditioned upon the trustee receiving, prior to or simultaneously, other specified assets.

(5) The trust agreement may provide that, upon termination of the trust account, all assets not previously withdrawn by the beneficiary shall, with written approval by the beneficiary, be delivered over to the grantor.

D. Additional conditions applicable to reinsurance agreements.

(1) A reinsurance agreement may contain provisions that:

(a) Require the assuming insurer to enter into a trust agreement and to establish a trust account for the benefit of the ceding insurer, and specifying what the agreement is to cover;

(b) Require the assuming insurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may whenever necessary negotiate these assets without consent or signature from the assuming insurer or any other entity;

(c) Require that all settlements of account between the ceding insurer and the assuming insurer be made in cash or its equivalent; and

(d) Stipulate that the assuming insurer and the ceding insurer agree that the assets in the trust account, established pursuant to the provisions of the reinsurance agreement, may be withdrawn by the ceding insurer at any time, notwithstanding any other provisions in the reinsurance agreement, and shall be utilized and applied by the ceding insurer or its successors in interest by operation of law, including without limitation any liquidator, rehabilitator, receiver or conservator of such company, without diminution because of insolvency on the part of the ceding insurer or the assuming insurer, only for the following purposes:

(i) To payor reimburse the ceding insurer for:

(I) The assuming insurer's share under the specific reinsurance agreement of premiums returned, but not yet recovered from the assuming insurer, to the owners of policies reinsured under the reinsurance agreement because of cancellations of such policies;

(II) Tine assuming insurer's share of surrenders and benefits or losses paid by tine ceding insurer pursuant to the provisions of the policies reinsured under the reinsurance agreement; and

(III) Any other amounts necessary to secure tine credit or reduction from liability for reinsurance taken by the ceding insurer;

(ii) To make payment to the assuming insurer of amounts held in the trust account in excess of the amount necessary to secure the credit or reduction from liability for reinsurance taken by the ceding insurer.

(2) The reinsurance agreement may also contain provisions that:

(a) Give the assuming insurer the right to seek approval from the ceding insurer, which shall not be unreasonably or arbitrarily withheld, to withdraw from the trust account all or any part of the trust assets and transfer those assets to the assuming insurer, provided:

(i) The assuming insurer shall, at the time of withdrawal, replace the withdrawn assets with other qualified assets having a current fair market value equal to the market value of the assets withdrawn so as to maintain at all times the deposit in the required amount; or

(ii) After withdrawal and transfer, the current fair market value of the trust account is no less than 102 percent of the required amount.

(b) Provide for the return of any amount withdrawn in excess of the actual amounts required for Paragraph (1)(d) of this subsection and for interest payments at a rate not in excess of the prime rate of interest on such amounts;

(c) Permit the award by any arbitration panel or court of competent jurisdiction of:

(i) Interest at a rate different from that provided in Subparagraph (b) of this paragraph;

(ii) Court or arbitration costs;

(iii) Attorney's fees; and

(iv) Any other reasonable expenses.

E. Financial reporting. A trust agreement may be used to reduce any liability for reinsurance ceded to an unauthorized assuming insurer in financial statements required to be filed with this department in compliance with the provisions of this regulation when established on or before the date of filing of the financial statement of the ceding insurer. Further, the reduction for the existence of an acceptable trust account may be up to the current fair market value of acceptable assets available to be withdrawn from the trust account at that time, but such reduction shall be no greater than the specific obligations under the reinsurance agreement that the trust account was established to secure.

F. Existing agreements. All trust agreements or underlying reinsurance agreements must fully comply with this regulation for the trust agreement to be acceptable.

G. The failure of any trust agreement to specifically identify the beneficiary as defined in Subsection A of this section shall not be construed to affect any actions or rights that the Commissioner may take or possess pursuant to the provisions of the laws of this state.

Section 13 Letters of Credit Qualified under Section 11

A. The letter of credit must be clean, irrevocable, unconditional and issued or confirmed by a qualified U.S. financial institution as defined in 8 V.S.A. § 3634a(d)(2). The letter of credit shall contain an issue date and expiration date and shall stipulate that the beneficiary need only draw a sight draft under the letter of credit and present it to obtain funds and that no other document need be presented. The letter of credit shall also indicate that it is not subject to any condition or qualifications outside of the letter of credit. In addition, the letter of credit itself shall not contain reference to any other agreements, documents or entities, except as provided in Subsection H(1) of this Section. As used in this section, "beneficiary" means the domestic insurer for whose benefit the letter of credit has been established and any successor of the beneficiary by operation of law. If a court of law appoints a successor in interest to the named beneficiary, then the named beneficiary includes and is limited to the court appointed domiciliary receiver (including conservator, rehabilitator or liquidator).

B. The heading of the letter of credit may include a boxed section containing the name of the applicant and other appropriate notations to provide a reference for the letter of credit. The boxed section shall be clearly marked to indicate that such information is for internal identification purposes only.

C. The letter of credit shall contain a statement to the effect that the obligation of the qualified U.S. financial institution under the letter of credit is in no way contingent upon reimbursement with respect thereto.

D. The term of the letter of credit shall be for at least one year and shall certain an "evergreen clause" that prevents the expiration of the letter of credit without due notice from the issuer. The "evergreen clause" shall provide for a period of no less than thirty (30) days notice prior to the expiration date or nonrenewal.

E. The letter of credit shall state whether it is subject to and governed by the laws of this state or the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce Publication 600 (UCP 600) or International Standby Practices of the International Chamber of Commerce Publication 590 (ISP98), or any successor publication, and all drafts drawn thereunder shall be presentable at an office in the United States of a qualified U.S. financial institution.

F. If the letter of credit is made subject to the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce Publication 600 (UCP 600) or International Standby Practices of the International Chamber of Commerce Publication 590 (ISP98), or any successor publication, then the letter of credit shall specifically address and provide for an extension of time to draw against the letter of credit in the event that one or more of the occurrences specified in Article 36 of Publication 600 or any other successor publication, occur.

G. If the letter of credit is issued by a financial institution authorized to issue letters of credit, other than a qualified U.S. financial institution as described in Subsection A of this section, then the following additional requirements shall be met:

(1) The issuing financial institution shall formally designate the confirming qualified U.S. financial institution as its agent for the receipt and payment of the drafts; and

(2) The "evergreen clause" shall provide for thirty (30) days notice prior to the expiration date for nonrenewal.

H. Reinsurance agreement provisions.

(1) The reinsurance agreement in conjunction with which the letter of credit is obtained may contain provisions that;

(a) Require the assuming insurer to provide letters of credit to the ceding insurer and specify what they are to cover;

(b) Stipulate that the assuming insurer and ceding insurer agree that the letter of credit provided by the assuming insurer pursuant to the provisions of the reinsurance agreement may be drawn upon at any time, notwithstanding any other provisions in the agreement, and shall be utilized by the ceding insurer or its successors in interest only for one or more of the following reasons:

(i) To payor reimburse the ceding insurer for:

(I) The assuming insurer's share under the specific reinsurance agreement of premiums returned, but not yet recovered from the assuming insurers, to the owners of policies reinsured under the reinsurance agreement on account of cancellations of such policies;

(II) The assuming insurer's share, under the specific reinsurance agreement, of surrenders and benefits or losses paid by the ceding insurer, but not yet recovered from the assuming insurers, under the terms and provisions of the policies reinsured under the reinsurance agreement; and

(III) Any other amounts necessary to secure the credit or reduction from liability for reinsurance taken by the ceding insurer.

(ii) Where the letter of credit will expire without renewal or be reduced or replaced by a letter of credit for a reduced amount and where the assuming insurer's entire obligations under the reinsurance agreement remain unliquidated and undischarged ten (10) days prior to the termination date, to withdraw amounts equal to the assuming insurer's share of the liabilities, to the extent that the liabilities have not yet been funded by the assuming insurer and exceed the amount of any reduced or replacement letter of credit, and deposit those amounts in a separate account in the name of the ceding insurer in a qualified U.S. financial institution apart from its general assets, in trust for such uses and purposes specified in Subsection H(1)(b)(i) of this section as may remain after withdrawal and for any period after the termination date. All of the provisions of Paragraph (1) of this subsection shall be applied without diminution because of insolvency on the part of the ceding insurer or assuming insurer.

(2) Nothing contained in Paragraph (1) of this subsection shall preclude the ceding insurer and assuming insurer from providing for;

(a) An interest payment, at a rate not in excess of the prime rate of interest, on the amounts held pursuant to Subparagraph (l)(b) of this subsection; or

(b) The return of any amounts drawn down on the letters of credit in excess of the actual amounts required for the above or any amounts that are subsequently determined not to be due.

Section 14 Other Security

A ceding insurer may take credit for unencumbered funds withheld by the ceding insurer in the United States subject to withdrawal solely by the ceding insurer and under its exclusive control.

Section 15 Reinsurance Contract

Credit will not be granted, nor an asset or reduction from liability allowed, to seeding insurer for reinsurance effected with assuming insurers meeting the requirements of Sections 4, 5, 6, 7, 8, 9 or 11 of this regulation or otherwise in compliance with 8 V.S.A. § 3634a(b) after the adoption of this regulation unless the reinsurance agreement:

A. Includes a proper insolvency clause, which stipulates that reinsurance is payable directly to the liquidation or successor without diminution regardless of the status of the ceding company, pursuant to 8 V.S.A. § 3635;

B. Includes a provision pursuant to 8 V.S.A. § 3634a(b) whereby the assuming insurer, if an unauthorized assuming insurer, has submitted to the jurisdiction of an alternative dispute resolution panel or court of competent jurisdiction within the United States, has agreed to comply with all requirements necessary to give such court or panel jurisdiction, has designated an agent upon whom service of process may be effected, and has agreed to abide by the final decision of such panel or court; and

C. Includes a proper reinsurance intermediary clause, if applicable, which stipulates that the credit risk for the intermediary is carried by the assuming insurer.

Section 16 Contracts Affected

All new and renewal reinsurance transactions entered into after the effective date of this regulation shall conform to the requirements of 8 V.S.A. § 3634a and this regulation if credit is to be given to the ceding insurer for such reinsurance.

Section 17 Effective Date

This regulation shall take effect on January 1, 2021.

History

• EFFECTIVE DATE:
• August 16, 1997 Secretary of State Rule Log #97-036
• AMENDED:
• August 27, 2015 Secretary of State Rule Log #15-035
• January 1, 2021 Secretary of State Rule Log #20-040
• STATUTORY AUTHORITY: 8 V.S.A. §§ 15, 3634a

Chapter 039 REGULATION I-2010-02 LIFE AND HEALTH ACTUARIAL OPINION AND MEMORANDUM REGULATION

21-039 Code Vt. R. 21-020-039-X REGULATION I-2010-02 LIFE AND HEALTH ACTUARIAL OPINION AND MEMORANDUM REGULATION

Section 1 Purpose

The purposes of this regulation are to prescribe:

A. Requirements for statements of actuarial opinion which are to be submitted in accordance with 8 V.S.A. § 3561, § 3577, subchapter 4 of Chapter 103 and Chapter 121 and for memoranda in support thereof;

B. Rules applicable to the appointment of an appointed actuary; and

C. Guidance as to the meaning of "adequacy of reserves."

Section 2 Authority

This regulation is issued pursuant to the authority vested in the Commissioner of the Department of Banking, Insurance, Securities and Health Care Administration of the State of Vermont under 8 V.S.A § 15, § 3561, § 3577 and subchapter 4 of Chapter 103 (Standard Valuation Law).

Section 3 Scope

This regulation shall apply to all life insurance companies and fraternal benefit societies doing business in this State and to all life insurance companies and fraternal benefit societies which are authorized to reinsure life insurance, annuities or accident and health insurance business in this State.

This regulation shall be applied in a manner that allows the appointed actuary to utilize his or her professional judgment in performing the asset analysis and developing the actuarial opinion and supporting memoranda, consistent with relevant actuarial standards of practice. However, the commissioner shall have the authority to specify specific methods of actuarial analysis and actuarial assumptions when, in the commissioner's judgment, these specifications are necessary for an acceptable opinion to be rendered relative to the adequacy of reserves and related items.

This regulation shall be applicable to all annual statements filed with the office of the commissioner after the effective date of this regulation. A statement of opinion on the adequacy of the reserves and related actuarial items based on an asset adequacy analysis in accordance with Section 6 of this regulation, and a memorandum in support thereof in accordance with Section 7 of this regulation, shall be required each year.

Section 4 Definitions

A. "Actuarial Opinion" means the opinion of an appointed actuary regarding the adequacy of the reserves and related actuarial items based on an asset adequacy analysis in accordance with Section 6 of this regulation and with applicable Actuarial Standards of Practice;

B. "Actuarial Standards Board" means the board established by the American Academy of Actuaries to develop and promulgate standards of actuarial practice.

C. "Annual Statement" means that statement required by 8 V.S.A. 3561 or 8 V.S.A. 4494 to be filed by the company with the office of the commissioner annually.

D. "Appointed Actuary" means any individual who is appointed or retained in accordance with the requirements set forth in Section 5C of this regulation to provide the actuarial opinion and supporting memorandum as required by 8 V.S.A. § 3577.

E. "Asset Adequacy Analysis" means an analysis that meets the standards and other requirements referred to in Section 5D of this regulation.

F. "Commissioner" means the Commissioner of Banking, Insurance, Securities and Health Care Administration.

G. "Company" means a life insurance company, fraternal benefit society or reinsurer subject to the provisions of this regulation.

H. "Qualified Actuary" means any individual who meets the requirements set forth in Section 5B of this regulation.

Section 5 General Requirements

A. Submission of Statement of Actuarial Opinion

(1) There is to be included on or attached to Page 1 of the annual statement for each year beginning with the year in which this regulation becomes effective the statement of an appointed actuary, entitled Statement of Actuarial Opinion, setting forth an opinion relating to reserves and related actuarial items held in support of policies and contracts, in accordance with Section 6 of this regulation;

(2) Upon written request by the company, the commissioner may grant an extension of the date for submission of the statement of actuarial opinion.

B. Qualified Actuary. A "qualified actuary" is an individual who meets the requirements of 8 V.S.A. 3577(h) and has not been disqualified under 8 V.S.A. 3577(j).

C. Appointed Actuary. An "appointed actuary" is a qualified actuary who is appointed or retained to prepare the Statement of Actuarial Opinion required by this regulation; either directly by or by the authority of the board of directors through an executive officer of the company other than the qualified actuary. The company shall give the commissioner timely written notice of the name, title and, in the case of a consulting actuary, the name of the firm, and manner of appointment or retention of each person appointed or retained by the company as an appointed actuary and shall state in such notice that the person meets the requirements set forth in Subsection 5B. Once notice is furnished, no further notice is required with respect to this person, provided that the company shall give the commissioner timely written notice in the event the actuary ceases to be appointed or retained as an appointed actuary or to meet the requirements set forth in Subsection 5B. If any person appointed or retained as an appointed actuary replaces a previously appointed actuary, the notice shall so state and give the reasons for replacement.

D. Standards for Asset Adequacy Analysis. The asset adequacy analysis required by this regulation:

(1) Shall conform to the Standards of Practice as promulgated from time to time by the Actuarial Standards Board and on any additional standards under this regulation, which standards are to form the basis of the statement of actuarial opinion in accordance with this regulation; and

(2) Shall be based on methods of analysis as are deemed appropriate for such purposes by the Actuarial Standards Board.

E. Liabilities to be Covered

(1) Under authority of 8 V.S.A. Chapter 3, subchapter 4, Standard Valuation Law, and Chapter 121, on fraternal benefit societies, the statement of actuarial opinion shall apply to all in force business on the statement date, whether directly issued or assumed, regardless of when or where issued, e.g., reserves of Exhibits 8, 9 and 10, and claim liabilities in Exhibit 11, Part I in the annual statement required in 8 V.S.A. 3561 and equivalent items in the separate account statement or statements and successor exhibits to these exhibits.

(2) If the appointed actuary determines as the result of asset adequacy analysis that a reserve should be held in addition to the aggregate reserve held by the company and calculated in accordance with methods set forth in 8 V.S.A. Chapter 103, subchapter 4 and Chapter 121, the company shall establish such additional reserve.

(3) Additional reserves established under Subsection (E)(2) of this section and deemed not necessary in subsequent years may be released. Any amounts released shall be disclosed in the actuarial opinion for the applicable year. The release of such reserves would not be deemed an adoption of a lower standard of valuation.

Section 6 Statement of Actuarial Opinion Based on Asset Adequacy Analysis

A. General Description. The statement of actuarial opinion submitted in accordance with this section shall consist of:

(1) A paragraph identifying the appointed actuary and his or her qualifications (see Subsection 6B(1));

(2) A scope paragraph identifying the subjects on which an opinion is to be expressed and describing the scope of the appointed actuary's work, including a tabulation delineating the reserves and related actuarial items that have been analyzed for asset adequacy and the method of analysis, (see Subsection 6B(2)) and identifying the reserves and related actuarial items covered by the opinion which have not been so analyzed;

(3) A reliance paragraph describing those areas, if any, where the appointed actuary has deferred to other experts in developing data, procedures or assumptions, (e.g., anticipated cash flows from currently owned assets, including variation in cash flows according to economic scenarios (see Subsection 6B(3)), supported by a statement of each such expert in the form prescribed by Subsection 6E; and

(4) An opinion paragraph expressing the appointed actuary's opinion with respect to the adequacy of the supporting assets to mature the liabilities (see Subsection 6B(6)).

(5) One or more additional paragraphs will be needed in individual company cases as follows:

(a) If the appointed actuary considers it necessary to state a qualification of his or her opinion;

(b) If the appointed actuary must disclose an inconsistency in the method of analysis or basis of asset allocation used at the prior opinion date with that used for this opinion;

(c) If the appointed actuary must disclose whether additional reserves of the prior opinion date are released as of this opinion date, and the extent of the release;

(d) If the appointed actuary chooses to add a paragraph briefly describing the assumptions which form the basis for the actuarial opinion.

B. Recommended Language

The following paragraphs are to be included in the statement of actuarial opinion in accordance with this section. Language is that which in typical circumstances should be included in a statement of actuarial opinion. The language may be modified as needed to meet the circumstances of a particular case, but the appointed actuary should use language which clearly expresses his or her professional judgment. However, in any event the opinion shall retain all pertinent aspects of the language provided in this section.

(1) The opening paragraph should generally indicate the appointed actuary's relationship to the company and his or her qualifications to sign the opinion.

For a company actuary, the opening paragraph of the actuarial opinion should read as follows:

I, name , am title of insurance company name and a member of the American Academy of Actuaries. I was appointed by, or by the authority of, the Board of Directors of said insurer to render this opinion as stated in the letter to the Commissioner dated insert date . I meet the Academy qualification standards for rendering the opinion and am familiar with the valuation requirements applicable to life and health insurance companies.

For a consulting actuary, the opening paragraph should contain a sentence such as:

I, name , a member of the American Academy of Actuaries, am associated with the firm of name of consulting firm . I have been appointed by, or by the authority of, the Board of Directors of name of company to render this opinion as stated in the letter to the Commissioner dated insert date . I meet the Academy qualification standards for rendering the opinion and am familiar with the valuation requirements applicable to life and health insurance companies.

(2) The scope paragraph should include a statement such as the following: I have examined the actuarial assumptions and actuarial methods used in determining reserves and related actuarial items listed below, as shown in the annual statement of the company, as prepared for filing with state regulatory officials, as of December 31, 20 . Tabulated below are those reserves and related actuarial items which have been subjected to asset adequacy analysis.

| Asset Adequacy Tested Amounts-Reserves and Liabilities | | | | | | | --- | --- | --- | --- | --- | --- | | Statement Item | Formula Reserves (1) | Additional Actuarial Reserves (a)(2) | Analysis Method (b) | Other Amounts (3) | Total Amount (1)+(2)+(3) (4) | | Exhibit 5 | | | | | | | Life Insurance | | | | | | | Annuities | | | | | | | Supplementary Contracts with Life Contingencies | | | | | | | Accidental Death Benefit | | | | | | | Disability--Active Lives | | | | | | | Disability--Disabled Lives | | | | | | | Miscellaneous Reserves | | | | | | | Total-Line 9999999, Col. 2 (Statement of Liabilities, Surplus and Other Funds-Line 1) | | | | | | | Exhibit 6 | | | | | | | Active Life Reserve | | | | | | | Claim Reserve | | | | | | | Total-Line 16, Col. 1 (Statement of Liabilities, Surplus and Other Funds-Line 2) | | | | | | | Exhibit 7 | | | | | | | Premium and Other Deposit Funds-Line 14, Col. 6 | | | | | | | Dividend Accumulations or Refunds-Line 14, Col. 5 | | | | | | | Supplemental Contracts-Line 14, Col. 4 | | | | | | | Annuities Certain-Line 14, Col. 3 | | | | | | | Guaranteed Interest Contracts-Line 14, Col. 2 | | | | | | | Total-Line 14, Col. 1 (Statement of Liabilities, Surplus and Other Funds-Line 3) | | | | | | | Exhibit 8 Part 1 | | | | | | | Life-Line 4.4, Col. 1 less sum of Cols. 9, 10 and 11 (Statement of Liabilities, Surplus and Other Funds-Line 4.1) | | | | | | | Health-Line 4.4, Sum of Cols. 9, and 11 (Statement of Liabilities, Surplus and Other Funds-Line 4.2) | | | | | | | Separate Accounts (Separate Accounts Annual Statement, Page 3, Lines 1 and 2) | | | | | | | TOTAL RESERVES | | | | | | | IMR (Statement of Liabilities, Surplus and Other Funds, Line 9.4) | | | | | | | Separate Accounts IMR (Separate Accounts Annual Statement, Page 3, Line 3) | | | | | | | AVR (Statement of Liabilities, Surplus and Other Funds, Line 24.1) | (c) | | | | | | Net Deferred and Uncollected Premium (Statement of Assets, Lines 13.1 and 13.2) | | | | | | | Notes: (a) The additional actuarial reserves are the reserves established under Paragraphs (2) of Section 5E. (b) The appointed actuary should indicate the method of analysis, determined in accordance with the standards for asset adequacy analysis referred to in Section 5D of this regulation, by means of symbols which should be defined in footnotes to the table. (c) Allocated amount of Asset Valuation Reserve (AVR). | | | | | |

(3) If the appointed actuary has relied on other experts to develop certain portions of the analysis, the reliance paragraph should include a statement such as the following:

"I have relied on name , title for e.g., anticipated cash flows from currently owned assets, including variations in cash flows according to economic scenarios and, as certified in the attached statement. I have reviewed the information relied upon for reasonableness."

A statement of reliance on other experts should be accompanied by a statement by each of such experts of the form prescribed by Section 6E.

(4) If the appointed actuary has examined the underlying asset and liability records, the reliance paragraph should also include the following:

"My examination included such review of the actuarial assumptions and actuarial methods and of the underlying basic asset and liability records and such tests of the actuarial calculations as I considered necessary. I also reconciled the underlying basic asset and liability records to exhibits and schedules listed as applicable of the company's current annual statement."

(5) If the appointed actuary has not examined the underlying records, but has relied upon listings and summaries of policies in force and/or asset records prepared by the company or a third party, the reliance paragraph should include a sentence such as:

"In forming my opinion on specify types of reserves , I have relied upon listings and summaries of policies and contracts, of asset records prepared by name and title of company officer certifying in-force records as certified in the attached statement. I evaluated that data for reasonableness and consistency/ I also reconciled that data to exhibits and schedules to be listed as applicable of the company's current annual statement. In other respects, my examination included such review of the actuarial assumptions and actuarial methods and such tests of the actuarial calculations as I considered necessary."

Such a section must be accompanied by a statement by each person relied upon of the form prescribed by Section 8E.

(6) The opinion paragraph should include the following:

"In my opinion the reserves and related actuarial values concerning the statement items identified above:

(a) Are computed in accordance with presently accepted actuarial standards consistently applied and are fairly stated, in accordance with sound actuarial principles;

(b) Are based on actuarial assumptions which produce reserves at least as great as those called for in any contract provision as to reserve basis and method, and are in accordance with all other contract provisions;

(c) Meet the requirements of the insurance law and regulation of the state of Vermont and are at least as great as the minimum aggregate amounts required by the state in which this statement is filed.

(d) Are computed on the basis of assumptions consistent with those used in computing the corresponding items in the annual statement of the preceding year-end (with any exceptions noted below);

(e) Include provision for all actuarial reserves and related statement items which ought to be established.

The reserves and related items, when considered in light of the assets held by the company with respect to such reserves and related actuarial items including, but not limited to, the investment earnings on such assets, and the considerations anticipated to be received and retained under such policies and contracts, make adequate provision, according to presently accepted actuarial standards of practice, for the anticipated cash flows required by the contractual obligations and related expenses of the company. The actuarial methods, considerations and analyses used in forming my opinion conform to the appropriate Standards of Practice as promulgated by the Actuarial Standards Board, which standards form the basis of this statement of opinion.

This opinion is updated annually as required by statute. To the best of my knowledge, there have been no material changes from the applicable date of the annual statement to the date of the rendering of this opinion which should be considered in reviewing this opinion.

or

The following material change(s) which occurred between the date of the statement for which this opinion is applicable and the date of this opinion should be considered in reviewing this opinion: (Describe the change or changes.)

Note: Choose one of the above two paragraphs, whichever is applicable.

The impact of unanticipated events subsequent to the date of this opinion is beyond the scope of this opinion. The analysis of asset adequacy portion of this opinion should be viewed recognizing that the company's future experience may not follow all the assumptions used in the analysis.

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Signature of Appointed Actuary

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Address of Appointed Actuary

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Telephone Number of Appointed Actuary

C. Assumptions for New Issues

The adoption for new issues or new claims or other new liabilities of an actuarial assumption which differs from a corresponding assumption used for prior new issues or new claims or other new liabilities is not a change in actuarial assumptions within the meaning of this Section 6.

D. Adverse Opinions

If the appointed actuary is unable to form an opinion, then he or she shall refuse to issue a statement of actuarial opinion. If the appointed actuary's opinion is adverse or qualified, then he or she shall issue an adverse or qualified actuarial opinion explicitly stating the reason(s) for such opinion.

This statement should follow the scope paragraph and precede the opinion paragraph.

E. Reliance on Data Furnished by Other Persons

If the appointed actuary relies on the certification of others on matters concerning the accuracy and completeness of any data underlying the actuarial opinion, e.g. the listings and summaries of policies in force and/or asset oriented information, the actuarial opinion should so indicate the persons the actuary is relying upon and a precise identification of the items subject to reliance. In addition, there shall be attached to the opinion the statement of a company officer or accounting firm who prepared such underlying data similar to the following:

I name of officer , title , of name of company or accounting firm , hereby affirm that the listings and summaries of policies and contracts in force as of December 31, 19 , and other liabilities prepared for and submitted to name of appointed actuary were prepared under my direction and, to the best of my knowledge and belief, are substantially accurate and complete.

Signature of the Officer of the Company or Accounting Firm

Address of the Officer of the Company or Accounting Firm

Telephone Number of the Officer of the Company or Accounting Firm

and/or

I, name of officer , title of name of company, accounting firm, or security analyst , hereby affirm that the listings, summaries and analyses relating to data prepared for and submitted to name of appointed actuary in support of the asset-oriented aspects of the opinion were prepared under my direction and, to the best of my knowledge and belief, are substantially accurate and complete.

Signature of the Officer of the Company, Accounting Firm or the Security Analyst Address of the Officer of the Company, Accounting Firm or the Security Analyst Telephone Number of the Officer of the Company, Accounting Firm or the Security Analyst

F. Alternate Option

(1) The Standard Valuation Law gives the commissioner broad authority to accept the valuation of a foreign insurer when that valuation meets the requirements applicable to a company domiciled in this state in the aggregate. As an alternative to the requirements of Subsection B(6)(c), the commissioner may make one or more of the following additional approaches available to the opining actuary:

(a) A statement that the reserves "meet the requirements of the insurance laws and regulations of the State of state of domicile and the formal written standards and conditions of this state for filing an opinion based on the law of the state of domicile." If the commissioner chooses to allow this alternative, a formal written list of standards and conditions shall be made available. If a company chooses to use this alternative, the standards and conditions in effect on July 1 of a calendar year shall apply to statements for that calendar year, and they shall remain in effect until they are revised or revoked. If no list is available, this alternative is not available.

(b) A statement that the reserves "meet the requirements of the insurance laws and regulations of the State of state of domicile and I have verified that the company's request to file an opinion based on the law of the state of domicile has been approved and that any conditions required by the commissioner for approval of that request have been met." If the commissioner chooses to allow this alternative, formal written statement of such allowance shall be issued no later than March 31 of the year it is first effective. It shall remain valid until rescinded or modified by the commissioner. The rescission or modifications shall be issued no later than March 31 of the year they are first effective. Subsequent to that statement being issued, if a company chooses to use this alternative, the company shall file a request to do so, along with justification for its use, no later than April 30 of the year of the opinion to be filed. The request shall be deemed approved on October 1 of that year if the commissioner has not denied the request by that date.

(c) A statement that the reserves "meet the requirements of the insurance laws and regulations of the State of state of domicile and I have submitted the required comparison as specified by this state."

i. If the commissioner chooses to allow this alternative, a formal written list of products (to be added to the table in Item (ii) below) for which the required comparison shall be provided will be published. If a company chooses to use this alternative, the list in effect on July 1 of a calendar year shall apply to statements for that calendar year, and it shall remain in effect until it is revised or revoked. If no list is available, this alternative is not available.

ii. If a company desires to use this alternative, the appointed actuary shall provide a comparison of the gross nationwide reserves held to the gross nationwide reserves that would be held under NAIC codification standards. Gross nationwide reserves are the total reserves calculated for the total company in force business directly sold and assumed, indifferent to the state in which the risk resides, without reduction for reinsurance ceded. The information provided shall be at least:

| (1) Product Type | (2) Death Benefit or Account Value | (3) Reserve Held | (4) Codification Reserves | (5) Codification Standard | | --- | --- | --- | --- | --- |

iii. The information listed shall include all products identified by either the state of filing or any other states subscribing to this alternative.

iv. If there is no codification standard for the type of product or risk in force or if the codification standard does not directly address the type of product or risk in force, the appointed actuary shall provide detailed disclosure of the specific method and assumptions used in determining the reserves held.

v. The comparison provided by the company is to be kept confidential to the same extent and under the same conditions as the actuarial memorandum.

(2) Notwithstanding the above, the commissioner may reject an opinion based on the laws and regulations of the state of domicile and require an opinion based on the laws of this state. If a company is unable to provide the opinion within sixty (60) days of the request or such other period of time determined by the commissioner after consultation with the company, the commissioner may contract an independent actuary at the company's expense to prepare and file the opinion.

Section 7 Description of Actuarial Memorandum Including an Asset Adequacy Analysis and Regulatory Asset Adequacy Issues Summary

A. General

(1) In accordance with 8 V.S.A. § 3577 and § 4494 the appointed actuary shall prepare a memorandum to the company describing the analysis done in support of his or her opinion regarding the reserves. The memorandum shall be made available for examination by the commissioner upon his or her request but shall be returned to the company after such examination and shall not be considered a record of the insurance department or subject to automatic filing with the commissioner.

(2) In preparing the memorandum, the appointed actuary may rely on, and include as a part of his or her own memorandum, memoranda prepared and signed by other actuaries who are qualified within the meaning of Section 5B of this regulation, with respect to the areas covered in such memoranda, and so state in their memoranda.

(3) If the commissioner requests a memorandum and no such memorandum exists or if the commissioner finds that the analysis described in the memorandum fails to meet the standards of the Actuarial Standards Board or the standards and requirements of this regulation, the commissioner may designate a qualified actuary to review the opinion and prepare such supporting memorandum as is required for review. The reasonable and necessary expense of the independent review shall be paid by the company but shall be directed and controlled by the commissioner.

(4) The reviewing actuary shall have the same status as an examiner for purposes of obtaining data from the company and the work papers and documentation of the reviewing actuary shall be retained by the commissioner; provided, however, that any information provided by the company to the reviewing actuary and included in the work papers shall be considered as material provided by the company to the commissioner and shall be kept confidential to the same extent as is prescribed by law with respect to other material provided by the company to the commissioner pursuant to the statute governing this regulation.

The reviewing actuary shall not be an employee of a consulting firm involved with the preparation of any prior memorandum or opinion for the insurer pursuant to this regulation for any one of the current year or the preceding three (3) years.

(5) In accordance with 8 V.S.A. §§ 3577 and 4494, the appointed actuary shall prepare a regulatory asset adequacy issues summary, the contents of which are specified in Subsection C. Companies domiciled in Vermont shall submit the regulatory asset adequacy issues summary no later than March 15 of the year following the year for which a statement of actuarial opinion based on asset adequacy is required. Companies domiciled outside Vermont are not required to submit the regulatory asset adequacy issues summary annually, however, the summary shall be made available for examination by the Commissioner upon request. The regulatory asset adequacy issues summary is to be kept confidential to the same extent and under the same conditions as the actuarial memorandum.

B. Details of the Memorandum Section Documenting Asset Adequacy Analysis

When an actuarial analysis is provided, the memorandum shall demonstrate that the analysis has been done in accordance with the standards for asset adequacy referred to in Section 5D of this regulation and any additional standards under this regulation. It shall specify:

(1) For reserves:

(a) Product descriptions including market description, underwriting and other aspects of a risk profile and the specific risks the appointed actuary deems significant;

(b) Source of liability in force;

(c) Reserve method and basis;

(d) Investment reserves;

(e) Reinsurance arrangements;

(f) Identification of any explicit or implied guarantees made by the general account in support of benefits provided through a separate account or under a separate account policy or contract and the methods used by the appointed actuary to provide for the guarantees in the asset adequacy analysis;

(g) Documentation of assumptions to test reserves for the following:

(i) Lapse rates (both base and excess);

(ii) Interest crediting rate strategy;

(iii) Mortality;

(iv) Policyholder dividend strategy;

(v) Competitor or market interest rate;

(vi) Annuitization rates;

(vii) Commissions and expenses; and

(viii) Morbidity.

The documentation of the assumptions shall be such that an actuary reviewing the actuarial memorandum could form a conclusion as to the reasonableness of the assumptions.

(2) For assets:

(a) Portfolio descriptions, including a risk profile disclosing the quality, distribution and types of assets;

(b) Investment and disinvestment assumptions;

(c) Source of asset data;

(d) Asset valuation bases; and

(e) Documentation of assumptions made for:

(i) Default costs;

(ii) Bond call functions;

(iii) Mortgage prepayment function;

(iv) Determining market value for assets sold due to disinvestments strategy; and

(v) Determining yield on assets acquired through the investment strategy.

The documentation of the assumptions shall be such that an actuary reviewing the actuarial memorandum could form a conclusion as to the reasonableness of the assumptions.

(3) Analysis basis:

(a) Methodology;

(b) Rationale for inclusion or exclusion of different blocks of business and how pertinent risks were analyzed;

(c) Rationale for degree of rigor in analyzing different blocks of business and criteria for determining adequacy (include in the rationale the level of "materiality" that was used in determining how rigorously to analyze different blocks of business);

(d) Criteria for determining asset adequacy (include in the criteria the precise basis for determining if assets are adequate to cover reserves under "moderately adverse conditions" or other conditions as specified in relevant actuarial standards of practice); and

(e) Effect of federal income taxes, method of treating reinsurance, and other relevant factors.

(4) Summary of material changes in methods, procedures, or assumptions from prior year's asset adequacy analysis;

(5) Summary of Results; and

(6) Conclusion(s).

C. Details of the Regulatory Asset Adequacy Issues Summary

(1) The regulatory asset adequacy issues summary shall include:

(a) Descriptions of the scenarios tested (including whether those scenarios are stochastic or deterministic) and the sensitivity testing done relative to those scenarios. If negative ending surplus results under certain tests in the aggregate, the actuary should describe those tests and the amount of additional reserve as of the valuation date which, if held, would eliminate the negative aggregate surplus values. Ending surplus values shall be determined by either extending the projection period until the in force and associated assets and liabilities at the end of the projection period are immaterial or by adjusting the surplus amount at the end of the projection period by an amount that appropriately estimates the value that can reasonably be expected to arise from the assets and liabilities remaining in force.

(b) The extent to which the appointed actuary uses assumptions in the asset adequacy analysis that are materially different than the assumptions used in the previous asset adequacy analysis;

(c) The amount of reserves and the identity of the product lines that had been subjected to asset adequacy analysis in the prior opinion but were not subject to analysis for the current opinion;

(d) Comments on any interim results that may be of significant concern to the appointed actuary;

(e) The methods used by the actuary to recognize the impact of reinsurance on the company's cash flows, including both assets and liabilities, under each of the scenarios tested; and

(f) Whether the actuary has been satisfied that all options whether explicit or embedded, in any asset or liability (including but not limited to those affecting cash flows embedded in fixed income securities) and equity-like features in any investments have been appropriately considered in the asset adequacy analysis.

(2) The regulatory asset adequacy issues summary shall contain the name of the company for which the regulatory asset adequacy issues summary is being supplied and shall be signed and dated by the appointed actuary rendering the actuarial opinion.

D. Conformity to Standards of Practice

The memorandum shall include a statement:"Actuarial methods, considerations and analyses used in the preparation of this memorandum conform to the appropriate Standards of Practice as promulgated by the Actuarial Standards Board, which standards form the basis for this memorandum."

E. Use of Assets Supporting the Interest Maintenance Reserve and the Asset Valuation Reserve

An appropriate allocation of assets in the amount of the Interest Maintenance Reserve (IMR), whether positive or negative, must be used in any asset adequacy analysis. Analysis of risks regarding asset default may include an appropriate allocation of assets supporting the Asset Valuation Reserve (AVR); these AVR assets may not be applied for any other risks with respect to reserve adequacy.

Analysis of these and other risks may include assets supporting other mandatory or voluntary reserves available to the extent not used for risk analysis and reserve support. The amount of the assets used for the AVR must be disclosed in the Table of Reserves and Liabilities of the opinion and in the memorandum. The method used for selecting particular assets or allocated portions of assets must be disclosed in the memorandum.

F. Documentation

The appointed actuary shall retain on file, for at least seven (7) years, sufficient documentation so that it will be possible to determine the procedures followed, the analyses performed, the bases for assumptions and the results obtained.

History

• STATUTORY AUTHORITY: 8 V.S.A. §§ 15, 3561, 3577, C.103, Sub-C 4.
• EFFECTIVE DATE: August 16, 1997 Secretary of State Rule Log #97-37 (as Regulation 97-4)
• AMENDED: July 9, 2010 Secretary of State Rule Log #10-024

Chapter 040 REGULATION 97-2: RISK BASED CAPITAL (RBC) FOR PROPERTY AND CASUALTY INSURERS

21-040 Code Vt. R. 21-020-040-X REGULATION 97-2: RISK BASED CAPITAL (RBC) FOR PROPERTY AND CASUALTY INSURERS

Section 1 Purpose

The purposes of this regulation are to require and set forth the rules for the calculation and filing of Risk Based Capital (RBC) reports and establish related procedural requirements of RBC for certain property and casualty insurers. The related procedural requirements of the regulation do not apply to domestic risk retention groups. This treatment for domestic risk retention groups is not intended to alter the commissioner's authority with respect to domestic risk retention groups.

Section 2 Authority

This regulation is issued pursuant to the authority vested in the Commissioner of Banking, Insurance, Securities and Health Care Administration by Title 8 V.S.A. Sections 75, 3304, 3309, 3561, 3569 and Chapter 145.

Section 3 Definitions

As used in this regulation, these terms shall have the following meanings:

A. "Adjusted RBC Report" means an RBC report which has been adjusted by the commissioner in accordance with Section 4D.

B. "Commissioner" means the Commissioner of the Department of Banking, Insurance Securities and Health Care Administration.

C. "Corrective order" means an order issued by the commissioner specifying corrective actions which the commissioner has determined are required.

D. "Domestic insurer" means any property and casualty insurance company organized in this state under Subchapter 1 of Chapter 101 of 8 V.S.A., but shall not include life and/or health insurers, monoline mortgage guaranty insurers, financial guaranty insurers, and title insurers.

E. "Foreign insurer" means any insurance company which is licensed to do business in this State under 8 V.S.A. § 3361 and is not domiciled in this State.

F. "NAIC" means the National Association of Insurance Commissioners.

G. "RBC instructions" means the RBC Report including risk-based capital instructions adopted by the NAIC, as such RBC Instructions may be amended by the NAIC from time to time in accordance with the procedures adopted by the NAIC or as modified and approved by the commissioner.

H. "RBC Level" means an insurer's Company Action Level RBC, Regulatory Action Level RBC, Authorized Control Level RBC, or Mandatory Control Level RBC where:

(1) "Company Action Level RBC" means, with respect to any insurer, the product of 2.0 and its Authorized Control Level RBC;

(2) "Regulatory Action Level RBC" means the product of 1.5 and its Authorized Control Level RBC;

(3) "Authorized Control Level RBC" means the number determined under the risk-based capital formula in accordance with the RBC Instructions;

(4) "Mandatory Control Level RBC" means the product of .70 and the Authorized Control Level RBC.

I. "RBC Plan" means a comprehensive financial plan containing the elements specified in Sections 5B through 5F. If the commissioner rejects the RBC Plan, and it is revised by the insurer, with or without the commissioner's recommendation, the plan shall be called the "Revised RBC Plan."

J. "RBC Report" means the report required in Section 4.

K. "Total adjusted capital" means the sum of:

(1) An insurer's statutory capital and surplus reported in the insurer's annual statement under 8 V.S.A. § 3561; and

(2) Such other items, if any, as the RBC instructions may provide.

Section 4 RBC Reports

A. Every domestic insurer shall, on or prior to each March 15, prepare and submit to the commissioner a report of its RBC Levels as of the end of the calendar year just ended, in a form and containing such information as is required by the RBC Instructions. In addition, every domestic insurer shall file its RBC Report:

(1) With the NAIC in accordance with the RBC Instructions; and

(2) With the insurance commissioner in any state in which the insurer is authorized to do business, if the insurance commissioner of that state has notified the insurer of the commissioner's request in writing, in which case the insurer shall file its RBC Report not later than the later of:

(a) Fifteen (15) days from the receipt of notice to file its RBC Report with that state; or

(b) The filing date.

B. An insurer's RBC shall be determined in accordance with the formula set forth in the RBC instructions. The formula shall take the following into account (and may adjust for the covariance between).

(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 RBC instructions.

C. An excess of capital over the amount produced by the risk-based capital requirements contained in this regulation and the formulas, schedules and instructions referenced in this regulation is desirable in the business of insurance. Accordingly, insurers should seek to maintain capital above the RBC Levels required by this regulation. Additional capital is used and useful in the insurance business and helps to secure an insurer against various risks inherent in, or affecting, the business of insurance and not accounted for or only partially measured by the risk-based capital requirements contained in this regulation.

D. If a domestic insurer files an RBC Report which in the judgment of the commissioner is inaccurate, then the commissioner shall adjust the RBC 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. An RBC Report as so adjusted is referred to as an "Adjusted RBC Report."

Section 5 Company Action Level Event

A. "Company Action Level Event" means any of the following events:

(1) The filing of an RBC Report by an insurer which indicates that the insurer's total adjusted capital is greater than or equal to its regulatory action level RBC but less than its company action level RBC; or

(2) The notification by the commissioner to the insurer of an Adjusted RBC Report that indicates an event in subsection (1), provided the insurer does not challenge the Adjusted RBC Report under Section 9; or

(3) Notification by the commissioner to the insurer that the commissioner has rejected the insurer's challenge, pursuant to Section 9, of an Adjusted RBC Report that indicates the event in subsection (1) has occurred.

B. In the event of a Company Action Level Event, the insurer shall prepare and submit to the commissioner an RBC Plan which shall:

(1) Identify the conditions which contribute to the Company Action Level Event;

(2) Contain proposals of corrective actions which the insurer intends to take and would be expected to 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 (4) 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 might 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; and

(5) Identify the quality of, and problems associated with, the insurer's business, including but not limited to its assets, anticipated business growth and associated surplus strain, extraordinary exposure to risk, mix of business and use of reinsurance, if any, in each case.

C. The RBC Plan shall be submitted

(1) Within forty-five (45) days of the Company Action Level Event; or

(2) If the insurer challenges an Adjusted RBC Report pursuant to Section 9, within forty-five (45) days after notification to the insurer that the commissioner has rejected the insurer's challenge.

D. Within sixty (60) days after the submission by an insurer of an RBC Plan to the commissioner, the commissioner shall notify the insurer whether the RBC Plan shall be implemented or is, in the judgment of the commissioner, unsatisfactory. If the commissioner determines the RBC Plan is unsatisfactory, the notification to the insurer shall set forth the reasons for the determination, and may set forth proposed revisions which will render the RBC Plan satisfactory, in the judgment of the commissioner. Upon notification from the commissioner, the insurer shall prepare a Revised RBC Plan, which may incorporate by reference any revisions proposed by the commissioner, and shall submit the Revised RBC Plan to the commissioner:

(1) Within forty-five (45) days after the notification from the commissioner; or

(2) If the insurer challenges the notification from the commissioner under Section 9, within forty-five (45) days after a notification to the insurer that the commissioner has rejected the insurer's challenge.

E. In the event of a notification by the commissioner to an insurer that the insurer's RBC Plan or Revised RBC Plan is unsatisfactory, the commissioner may at the commissioner's discretion specify in the notification that the notification constitutes a Regulatory Action Level Event.

F. Every domestic insurer that files an RBC Plan or Revised RBC Plan with the commissioner shall file a copy of the RBC Plan or Revised RBC Plan with the insurance commissioner in any state in which the insurer is authorized to do business if:

(1) Such state has an RBC provision substantially similar to Section 10; and

(2) The insurance commissioner of that state has notified the insurer of its request for the filing in writing, in which case the insurer shall file a copy of the RBC Plan or Revised RBC Plan in that state no later than the later of:

(a) Fifteen (15) days after the receipt of notice to file a copy of its RBC Plan or Revised RBC Plan with the state; or

(b) The date on which the RBC Plan or Revised RBC Plan is filed under Section 5C and 5D.

Section 6 Regulatory Action Level Event

A. "Regulatory Action Level Event" means, with respect to any insurer, any of the following events:

(1) The filing of an RBC Report by the insurer which indicates that the insurer's Total Adjusted Capital is greater than or equal to its Authorized Control Level RBC but less than its Regulatory Action Level RBC;

(2) The notification by the commissioner to an insurer of an Adjusted RBC Report that indicates the event in subsection (1), provided the insurer does not challenge the Adjusted RBC Report under Section 9;

(3) Notification by the commissioner to the insurer that the commissioner has rejected the insurer's challenge, pursuant to Section 9, of an Adjusted RBC Report that indicates the event in subsection (1) has occurred;

(4) The failure of the insurer to file an RBC Report by the filing date, unless the insurer has provided an explanation for such failure which is satisfactory to the commissioner and has cured the failure within ten (10) days after the filing date;

(5) The failure of the insurer to submit an RBC Plan to the commissioner within the time period set forth in Section 5C;

(6) Notification by the commissioner to the insurer that:

(a) The RBC Plan or revised RBC Plan submitted by the insurer is, in the judgment of the commissioner, unsatisfactory; and

(b) Such notification constitutes a Regulatory Action Level Event with respect to the insurer, provided the insurer has not challenged the determination under Section 9;

(7) Notification by the commissioner to the insurer that the commissioner has rejected the insurer's challenge, pursuant to Section 9, of an Adjusted RBC Report that indicates the event in subsection (6) has occurred;

(8) Notification by the commissioner to the insurer that the insurer has failed to adhere to its RBC Plan or Revised RBC Plan, but only if such failure has a substantial adverse effect on the ability of the insurer to eliminate the Company Action Level Event in accordance with its RBC Plan or Revised RBC Plan and the commissioner has so stated in the notification, provided the insurer has not challenged the determination under Section 9; or

(9) If, pursuant to Section 9, the insurer challenges a determination by the commissioner under subsection (8), the notification by the commissioner to the insurer that the commissioner has, after a hearing, rejected the challenge.

B. In the event of a Regulatory Action Level Event the commissioner shall:

(1) Require the insurer to prepare and submit an RBC Plan or, if applicable, a Revised RBC Plan;

(2) Perform such examination or analysis as the commissioner deems necessary of the assets, liabilities and operations of the insurer including a review of its RBC Plan or Revised RBC Plan; and

(3) Subsequent to the examination or analysis, issue an order specifying such corrective actions as the commissioner shall determine are required (a "corrective order").

C. In determining corrective actions, the commissioner may take into account such factors as are deemed relevant with respect to the insurer based upon the commissioner's examination or analysis of the assets, liabilities and operations of the insurer, including, but not limited to, the results of any sensitivity tests undertaken pursuant to the RBC instructions. The RBC Plan or Revised RBC Plan shall be submitted:

(1) Within forty-five (45) days after the occurrence of the Regulatory Action Level Event;

(2) If the insurer challenges an Adjusted RBC Report pursuant to Section 9 and the challenge is not frivolous in the judgment of the commissioner within forty-five (45) days after the notification to the insurer that the commissioner has rejected the insurer's challenge; or

(3) If the insurer challenges a Revised RBC Plan pursuant to Section 9 and the challenge is not frivolous in the judgment of the commissioner, within forty-five (45) days after the notification to the insurer that the commissioner has rejected the insurer's challenge.

D. The commissioner may retain actuaries and investment experts and other consultants as may be necessary in the judgment of the commissioner to review the insurer's RBC Plan or Revised RBC 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.

Section 7 Authorized Control Level Event

A. "Authorized Control Level Event" means any of the following events:

(1) The filing of an RBC Report by the insurer which indicates that the insurer's total adjusted capital is greater than or equal to its Mandatory Control Level RBC but less than its Authorized Control Level RBC;

(2) The notification by the commissioner to the insurer of an Adjusted RBC Report that indicates the event in subsection (1), provided the insurer does not challenge the Adjusted RBC Report under Section 9;

(3) Notification by the commissioner to the insurer that the commissioner has rejected the insurer's challenge, pursuant to Section 9, of an Adjusted RBC Report that indicates the event in subsection (1) has occurred;

(4) The failure of the insurer to respond, in a manner satisfactory to the commissioner, to a corrective order (provided the insurer has not challenged the corrective order under Section 9); or

(5) If the insurer has challenged a corrective order under Section 9 and the commissioner has rejected the challenge or modified the corrective order, the failure of the insurer to respond, in a manner satisfactory to the commissioner, to the corrective order subsequent to rejection or modification by the commissioner.

B. In the event of an Authorized Control Level Event with respect to an insurer, the commissioner shall:

(1) Take such actions as are required under Section 6 regarding an insurer with respect to which an Regulatory Action Level Event has occurred; or

(2) If the commissioner deems it to be in the best interests of the policyholders and creditors of the insurer and of the public, take such actions as are necessary to cause the insurer to be placed under regulatory control under 8 V.S.A. Chapter 145. In the event the commissioner takes such actions, the Authorized Control Level Event shall be deemed sufficient grounds for the commissioner to take action under 8 V.S.A. Chapter 145, and the commissioner shall have the rights, powers and duties with respect to the insurer as are set forth in 8 V.S.A. Chapter 145. In the event the commissioner takes actions pursuant to an Adjusted RBC Report, the insurer shall be entitled to such protection as are afforded to insurers under the provisions of 8 V.S.A. Chapter 145 pertaining to summary proceedings.

Section 8 Mandatory Control Level Event

A. "Mandatory Control Level Event" means any of the following events:

(1) The filing of an RBC Report which indicates that the insurer's total adjusted capital is less than its Mandatory Control Level RBC;

(2) Notification by the commissioner to the insurer of an Adjusted RBC Report that indicates the event in subsection (1), provided the insurer does not challenge the Adjusted RBC Report under Section 9; or

(3) Notification by the commissioner to the insurer that the commissioner has rejected the insurer's challenge, pursuant to Section 9, of an Adjusted RBC Report that indicates the event in subsection (1) has occurred.

B. In the event of a Mandatory Control Level Event, the commissioner shall take such actions as are included in Section 7B(1) and may, unless the commissioner does not deem it to be in the best interest of the policyholders and creditors of the insured and of the public, take other such actions including those that are necessary to place the insurer under regulatory control under 8 V.S.A. Chapter 145 or, in the case of an insurer which is writing no business and which is running-off its existing business, may allow the insurer to continue its run-off under the supervision of the commissioner. In either event, the Mandatory Control Level Event shall be deemed sufficient grounds for the commissioner to take action under 8 V.S.A. Chapter 145 and the commissioner shall have the rights, powers, and duties with respect to the insurer as are set forth in 8 V.S.A. Chapter 145. If the commissioner takes actions pursuant to an Adjusted RBC Report, the insurer shall be entitled to the protections of 8 V.S.A. Chapter 145 pertaining to summary proceedings. Notwithstanding any of the foregoing, the commissioner may forego action for up to ninety (90) days after the Mandatory Control Level Event if the commissioner finds there is a reasonable expectation that the Mandatory Control Level Event may be eliminated with the ninety (90) day period.

Section 9 Hearings

A. The insurer shall have the right to a hearing before the commissioner in accordance with Title 3 Chapter 25 of 8 V.S.A. upon the occurrence of any of the following events.

1. Notification to an insurer by the commissioner of an Adjusted RBC Report; or

2. Notification to an insurer by the commissioner that

(a.) The insurer's RBC Plan or Revised RBC Plan is unsatisfactory; and

(b.) Such notification constitutes a Regulatory Action Level Event with respect to such insurer; or

3. Notification to any insurer by the commissioner that the insurer has failed to adhere to its RBC Plan or Revised RBC Plan and that such failure has a substantial adverse effect on the ability of the insurer to eliminate the Company Action Level Event with respect to the insurer in accordance with its RBC Plan or Revised RBC Plan; or

4. Notification to an insurer by the commissioner of a corrective order with respect to the insurer.

B. The insurer shall notify the commissioner of its request for a hearing within five (5) days after the notification by the commissioner under subsection 1, 2, 3 or 4 of section (A). Upon receipt of the insurer's request for a hearing, the commissioner shall set a date for the hearing, which date shall be no less than ten (10) nor more than thirty (30) days after the date of the insurer's request.

Section 10 Prohibition on Announcements, Prohibition on Use in Ratemaking

A. It is the judgment of the commissioner that the comparison of an insurer's total adjusted capital to any of its RBC Levels is a regulatory tool which may indicate the need for possible corrective action with respect to the insurer, and is not intended as a means to rank insurers generally. Therefore, except as otherwise required under the provisions of this regulation, the making, publishing, disseminating, circulating or placing before the public, or causing, directly or indirectly to be made, published, disseminated, circulated or placed before the public, in a newspaper, magazine or other publication, or in the form of a notice, circular, pamphlet, letter or poster, or over any radio or television station, or in any other way, an advertisement, announcement or statement containing an assertion, representation or statement with regard to the RBC 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 would be misleading and is therefore prohibited; provided, however, that if any materially false statement with respect to the comparison regarding an insurer's total adjusted capital to its RBC Levels (or any of them) or an inappropriate comparison of any other amount to the insurer's RBC Levels is published in any written publication and the insurer is able to demonstrate to the commissioner with substantial proof the falsity of such statement, or the inappropriateness, as the case may be, then the insurer may publish an announcement in a written publication if the sole purpose of the announcement is to rebut the materially false statement.

B. RBC instructions, RBC Reports, Adjusted RBC Reports, RBC Plans and Revised RBC Plans are intended solely for use by the commissioner in monitoring the solvency of insurers and the need for possible corrective action with respect to insurers and shall not be used by the commissioner for ratemaking nor considered or introduced as evidence in any rate proceeding nor used by the commissioner to calculate or derive any elements of an appropriate premium level or rate of return for any line of insurance which an insurer or any affiliate is authorized to write.

Section 11 Supplemental Provisions; Exemption

A. The provisions of this regulation are supplemental 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, but not limited to, 8 V.S.A. Chapter 145 and Regulation 93-2.

B. The commissioner may exempt from the application of this Regulation any domestic property and casualty insurer which;

(1) Writes direct business only in this state;

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

(3) Assumes no reinsurance in excess of five percent (5%) of direct premium written.

Section 12 Foreign Insurers

A. Any foreign insurer shall, upon the written request of the commissioner, submit to the commissioner an RBC Report as of the end of the calendar year just ended no later than the later of:

(1) The date an RBC Report would be required to be filed by a domestic insurer under this Regulation; or

(2) Fifteen (15) days after the request is received by the foreign insurer.

Any foreign insurer shall, at the written request of the commissioner, promptly submit to the commissioner a copy of any RBC Plan that is filed with the insurance commissioner of any other state.

B. In the event of a Company Action Level Event, Regulatory Action Level Event or Authorized Control Level Event with respect to any foreign insurer as determined under the RBC statute applicable in the state of domicile of the insurer (or, if no RBC statute is in force in that state, under the provisions of this Regulation), if the insurance commissioner of the state of domicile of the foreign insurer fails to require the foreign insurer to file an RBC Plan in the manner specified under that state's RBC statute (or, if no RBC statute is in force in that state, under Section 5 hereof), the commissioner may require the foreign insurer to file an RBC Plan with the commissioner. In such event, the failure of the foreign insurer to file an RBC Plan with the commissioner shall be grounds to order the insurer to cease and desist from writing new insurance business in this state.

C. In the event of a Mandatory Control Level Event with respect to any foreign insurer, if no domiciliary receiver has been appointed with respect to the foreign insurer under the rehabilitation and liquidation statute applicable in the state of domicile of the foreign insurer, the commissioner may make application to the appropriate state court permitted under 8 V.S.A. Chapter 145 with respect to the liquidation of property of foreign insurers found in this state, and the occurrence of the Mandatory Control Level Event shall be considered adequate grounds for the application.

Section 13 Severability Clause

If any provision of this Rule, or the application thereof to any person or circumstance, is held invalid, such determination shall not affect the provisions or applications of this Rule which can be given effect without the invalid provision or application, and to that end the provisions of this Regulation are severable.

Section 14 Notices

All notices by the commissioner to an insurer which may result in regulatory action hereunder shall be effective upon dispatch if transmitted by registered or certified mail, or in the case of any other transmission shall be effective upon the insurer's receipt of such notice.

Section 15 Effective Date

This regulation shall take effect upon approval. The reporting requirements of this rule shall apply to annual statements filed for years ending December 31, 1997 and thereafter.

Effective August 16, 1997

Final Proposal: Regulation 97-2, Risk Based Capital (RBC) for Property and Casualty Insurers

Attachment A

Changes to the Proposed Rule:

The rule details both company filing requirements with respect to risk based capital and related procedural requirements that are likely to be applied by the commissioner to a company with a risk based capital result at or below certain levels as reported in a company filing or as adjusted by the commissioner. Domestic risk retention groups are required to file on the NAIC annual statement form. The related procedural requirements of the regulation are not intended to apply to domestic risk retention groups. The amendment would clarify the application of the rule to domestic risk retention groups. The clarification has been added to Section 1 of the Regulation.

Written Public Comment and Evaluation:

The written public comment received is summarized below along with the department's response.

a. Two representatives of domestic risk retention groups requested clarification of the application of the regulation to domestic risk retention groups.

The regulation applies to domestic risk retention groups' financial filings because they are required to file annual statements in the form required by section 3561 of title 8 as set forth in 8 V.S.A. § 6007(b). The filing requirement specified in 8 V.S.A. §§ 3561 and 6007(b) for domestic risk retention groups is not intended to bring domestic risk retention groups within the scope of the procedural requirements set forth.

3. Oral Public Comment and Evaluation:

No oral public comment was received.

History

• EFFECTIVE DATE: August 16, 1997 (Secretary of State Rule Log #97-38)
• Statutory Authority: 8 V.S.A. §§ 75, 3304, 3309, 3561 and 3569; Ch. 145

Chapter 041 REGULATION 97-5 - MUTUAL INSURANCE HOLDING COMPANIES

21-041 Code Vt. R. 21-020-041-X REGULATION 97-5 - MUTUAL INSURANCE HOLDING COMPANIES

Section 1 Purpose

This regulation is intended to implement the provisions of Title 8, Chapter 101, subchapter 3A.

Section 2 Authority

This regulation is issued pursuant to the authority vested in the Commissioner of Banking, Insurance, Securities and Health Care Administration by Title 8, Section 75 and Chapter 101, subchapter 3A and subchapter 13.

Section 3 Definitions

(1) "Adoption date" means the first date any board of directors of a domestic or foreign mutual insurance company or a mutual insurance holding company initially adopts a plan of reorganization.

(2) "Affiliate" of, or person "affiliated" with, a specific person, means a person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.

(3) "Commissioner" means the Commissioner of Banking, Insurance, Securities and Health Care Administration.

(4) "Control" means the possession, direct or indirect, of the power to direct or cause the direction of management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or nonmanagement services, or otherwise, unless the power is the result of an official position with or corporate office held by the person. Control shall be presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, ten percent or more of the voting securities of any other person.

(5) "Division" means the Vermont Insurance Division.

(6) "Domestic mutual insurance company" means an insurance company organized on a mutual plan and incorporated under the laws of Vermont.

(7) "Effective date" means the date upon which the reorganization of a domestic or foreign mutual insurance company or mutual insurance holding company shall be effective subject to the rights of dissenting members or policyholders in accordance with this regulation.

(8)

(A) "Independent Director" means:

(i) A person who is not and has never been an officer or employee of a mutual insurance holding company or a member of the immediate family of such person;

(ii) A person who is not currently and has not been within the past five years an officer, employee or 5% shareholder of an affiliate of a reorganized insurer created by a plan of reorganization, a reorganized insurer or a member of the immediate family of such person; and

(B) A person who is or becomes, on or after the date of an initial stock offering, a director of an entity created under the plan of reorganization is not an independent director of any other entity created under the plan of reorganization.

(9) "Interested person" of another person means:

1. Any affiliated person of such company;

2. Any member of the immediate family of any natural person who is an affiliated person of such company. Immediate family includes parents, spouse of a parent, child, spouse of a child, spouse, or sibling, including step and adoptive relationships;

3. Any person or partner or employee of any person who at any time since the beginning of the last two completed fiscal years of such company has acted as legal counsel for such company; or

4. Any natural person whom the Commissioner by order shall have determined to be an interested person by reason of having had, at any time since the beginning of the last two completed fiscal years of such company, a business or professional relationship with such company or with the principal executive officer of such company.

(10) "Member" means a person who, by the records of the domestic or foreign mutual insurance company, is deemed to be a policyholder of a policy or annuity contract of such insurer. On or after the effective date of a plan of reorganization that creates a mutual insurance holding company, the term member means a member of the mutual insurance holding company as provided for by 8 V.S.A. § 3441(b).

(11) "Membership interests" means, with reference to an entity that is a domestic or foreign mutual insurance company or mutual insurance holding company, the rights of members arising under the articles of association, bylaws or charter of such entity or under this regulation or otherwise by law.

(12) "Mutual insurance holding company" means a holding company organized on a mutual plan and incorporated under the laws of Vermont, resulting from the reorganization of a domestic mutual insurance company pursuant to 8 V.S.A. § 3441 with at least one or more stock insurance holding company subsidiaries or stock insurance company subsidiaries.

(13) "Person" means an individual, partnership, firm, association, corporation, joint-stock company, limited liability company, trust, government or governmental agency, state or political subdivision thereof, public or private corporation, board, association, estate, trustee or fiduciary, or any similar entity.

(14) "Plan of reorganization" means a plan to reorganize a domestic mutual insurance company by forming a mutual insurance holding company, to merge a domestic or foreign mutual insurance company into a mutual insurance holding company pursuant to 8 V.S.A. § 3442 or to form a stock insurance holding company.

(15) "Policyholder" means the owner of an insurance policy or contract other than a reinsurance contract.

(16) "Reorganized insurer" or "reorganizing insurer" means the stock insurance company into which a domestic or foreign mutual insurance company has been or will be reorganized in accordance with Title 8, Chapter 101, subchapter 3A and this regulation. A reorganized insurer shall be deemed to have been organized as of the original date of organization of the predecessor mutual insurance company.

(17) "Stock insurance holding company" means a corporation at least a majority of the voting securities of which is owned, directly or through another stock insurance holding company, by a mutual insurance holding company and which holds, directly or indirectly, all the voting securities of the reorganized insurer.

(18) "Stock offering" means any proposed sale, exchange, transfer or other change of ownership of stock or of securities convertible into or exchangeable or exercisable for stock. The term shall not mean an offering of preferred stock which is not convertible or exchangeable into common stock and which has no ordinary voting rights.

(19) "Subsidiary" of a specified person means an affiliate controlled by such person directly, or indirectly through one or more subsidiaries.

(20) "Voting security" means a security which, in law or by contract, gives the holder thereof the right to vote in the election of directors and on any other matters submitted to a vote of shareholders. Voting security includes any security convertible into or evidencing a right to acquire a voting security.

Section 4 Mutual Insurance Holding Company Formation

A. Pursuant to 8 V.S.A. § 3441, a domestic mutual insurance company may form a mutual insurance holding company through the application process provided for by this regulation. The reorganizing insurer shall continue, without interruption, its corporate existence as a stock insurance company subsidiary of the mutual insurance holding company or as a stock insurance company subsidiary of an intermediate stock insurance holding company which is subsidiary to the mutual insurance holding company. All of the initial shares of the capital stock of the reorganized insurer shall be issued to the mutual insurance holding company. The mutual insurance holding company shall, directly or indirectly, own at all times a majority of the voting securities of the capital stock of the reorganized insurer. The membership interests of policyholders of the reorganized insurer shall become membership interests in the mutual insurance holding company. Policyholders of the reorganized insurer shall be members of the mutual insurance holding company in accordance with the charter, articles of association or bylaws of the mutual insurance holding company.

B. Pursuant to 8 V.S.A. § 3442, a domestic or foreign mutual insurance company may, in accordance with the application process and other provisions of this regulation, reorganize by merging its policyholders' membership interests into a mutual insurance holding company and continue the corporate existence of the reorganizing insurance company as a domestic stock insurance company subsidiary of the mutual insurance holding company or as a domestic stock insurance company subsidiary of an intermediate stock insurance holding company which is subsidiary to the mutual insurance holding company.

C. A non-profit domestic mutual insurance company may form a non-profit mutual insurance holding company in accordance with the application process and provisions of this regulation.

D. A stock insurance company subsidiary or intermediate stock insurance holding company subsidiary of a mutual insurance holding company created by a plan of reorganization pursuant to this section may not engage in a stock offering without the prior approval of the Commissioner.

E. Title 8 § 3422 and § 3423 are not applicable to a reorganization or merger pursuant to this regulation.

F. Title 8 § 3422 and § 3423 are applicable to the demutualization of a mutual insurance holding company formed pursuant to Title 8, Chapter 101, subchapter 3A and this regulation.

Section 5 Application contents

A. Following the adoption of a plan of reorganization by the board of directors of the applicant, an application for the formation of or merger into a mutual insurance holding company or for the formation of a stock insurance holding company shall be filed with the Division in triplicate and contain the following information:

1. The plan of reorganization adopted by the vote of not less than two-thirds of the board of directors of the domestic or foreign mutual insurance company and, in the case of the formation of an intermediate stock insurance holding company or reorganization of a mutual insurance company into an existing mutual insurance holding company that is not concurrent with the formation of the mutual insurance holding company, by the board of directors of the mutual insurance holding company and certified copies of the approval of its plan of reorganization by not less than two-thirds of the applicant's board of directors;

2. The proposed charter, articles of association and bylaws for the mutual insurance holding company specifying all membership rights;

3. The proposed charter, articles of association and bylaws for any insurance company subsidiary and for any intermediate stock insurance holding company subsidiary;

4. Information sufficient to demonstrate that the formation of a mutual insurance holding company or merger thereinto shall not involve practices that will cause financial impairment to the reorganizing insurer;

5. Information sufficient to demonstrate that the financial and management resources of the mutual insurance company are sufficient to accomplish the plan of reorganization successfully and that the financial condition of the applicant will not be diminished upon reorganization or merger;

6. Information sufficient to demonstrate that the reorganization or merger is not contrary to the financial interests of the policyholders;

7. Information sufficient to demonstrate that the reorganization or merger would not be unfair to policyholders;

8. A plan to obtain the approval of policyholders in accordance with the applicant's charter, articles of association or bylaws and this regulation;

9. The information required by Regulation 71-2, Form A, item 3 for all corporate officers and members of the initial board of directors of the mutual insurance holding company and of each of the subsidiaries to be created under the plan of reorganization;

10. Information sufficient to demonstrate compliance with the requirements of § 5.B.11 of this regulation;

11. Information sufficient to demonstrate that policyholders' interests are protected from unfair subordination to debt holders of the reorganized insurer or any affiliate;

12. The form of notice to be sent to policyholders informing them of their right to vote on and to dissent from the plan of reorganization at a regular or special meeting of the applicant;

13. The form of proxy to be sent to policyholders for voting on the plan of reorganization; and

14. Any other information the Commissioner may request at any time during the application review process.

B. The plan of reorganization shall include the following:

1. The information and provisions required by § 7.B. and C. of this regulation, if the plan of reorganization provides for a stock offering;

2. A plan to ensure immediate membership in the mutual insurance holding company of all those who are existing policyholders of the reorganizing insurer as of the adoption date and a description of the membership interest of such members. Such plan shall include a comparison of the current membership interests in the mutual insurance company and future membership interests in the proposed mutual insurance holding company;

3. A plan providing for membership interests of future policyholders;

4. A description of the nature and contents of any report and financial statement to be sent to each member annually;

5. A plan to establish a closed block for policyholder dividend purposes, if the reorganizing insurer is a mutual life insurance company, consisting of all the participating policies of the reorganizing insurer in force on the adoption date and for which the reorganizing insurer had an experience-based dividend scale payable in the year in which the plan of reorganization was adopted. On or before the effective date, the reorganizing insurer shall allocate assets in an amount that produces cash flows, together with anticipated revenues from the closed block business, expected to be sufficient to support the closed block business including provision for payment of claims and those expenses and taxes specified in the plan. The plan shall provide for continuation of dividend scales in effect on the adoption date if the experience underlying such scales continues. No policies entering into force after the adoption date will be included in the closed block. A plan to provide for participating policies of the reorganizing insurer in a manner other than the establishment of a closed block on the effective date of the plan of reorganization may be provided if such plan is acceptable to the Commissioner and is not unfair to or contrary to the financial interests of the policyholders;

6. A plan to provide for the periodic distribution of accumulated mutual insurance holding company earnings to members or for the reinvestment or other treatment of such earnings. Such plan shall provide that the distribution, reinvestment or other treatment of such earnings shall inure to the exclusive benefit of the members of the mutual insurance holding company. The plan shall also require the Commissioner's prior approval of any distribution of earnings or other payments on account of any membership interest. Any proposed changes to the plan for treatment of mutual insurance holding company earnings subsequent to the approval of the plan of reorganization as provided for by § 6 of this regulation require the prior approval of the Commissioner and the members of the mutual insurance holding company;

7. An undertaking that the mutual insurance holding company shall not dissolve or liquidate without the prior approval of the Commissioner unless required by judicial order;

8. The proposed effective date of the reorganization;

9. A description of any fee, commission or other valuable consideration whatsoever, other than their regular salaries and compensation, that a director, officer, agent or employee of the mutual insurance holding company, its subsidiaries or affiliates may be entitled to receive, for in any manner aiding, promoting, or assisting in a reorganization or the structuring or placement of a stock offering. The Commissioner may disallow any fee, commission or other valuable consideration deemed to be unreasonable. The payment of reasonable fees and compensation to attorneys at law, accountants, and actuaries for services performed in the independent practice of their professions, even though the providers of such services are also directors of the mutual insurance holding company, its subsidiaries or affiliates, shall be permitted;

10. A requirement that the mutual insurance holding company adopt articles of incorporation prohibiting any waiver of dividends from stock subsidiaries except under conditions specified in its articles of incorporation and after approval of the waiver by the board of directors and the Commissioner; and

11. A requirement that independent directors form a majority of the board of directors of the mutual insurance holding company and that the boards of directors of the reorganized insurer, each affiliate created by the plan of reorganization and any stock insurance holding company include at least three independent directors.

Section 6 Application Process

A. The Commissioner may require, as a condition of approval of the application, such modifications as the Commissioner deems necessary. The applicant shall accept such required modifications by filing appropriate amendments to the application within 30 days of the date of notice from the Commissioner requiring such modifications or such longer time as the Commissioner may allow. If the applicant does not accept such required modifications by failing to file the required amendments to the application within 30 days or such longer period as allowed by the Commissioner, the application shall be deemed denied.

B. The Commissioner may, in the Commissioner's sole discretion, hold a single public hearing as provided by 8 V.S.A. § 3305 to consider an application for the formation of a mutual insurance holding company, intermediate stock insurance holding company and stock insurance company. The public hearing may be adjourned from time to time until all persons with an interest in the application have had an opportunity to be heard. If a hearing is held, the Commissioner shall provide the applicant with reasonable notice of the hearing and the applicant shall provide its policyholders with at least 30 days notice of the hearing by regular mail. The Commissioner shall review additional available and appropriate methods for disseminating Commissioner-approved information to policyholders and require the applicant to utilize those methods designated by the Commissioner. The form of notice to policyholders shall contain such information as required by the Commissioner.

C. Upon receipt by the Division of a completed application including all amendments requested by the Commissioner, the board of directors of the applicant shall approve the final proposed plan of reorganization by vote of not less than two-thirds of the applicant's directors. The Commissioner shall, within 90 days, approve such application unless the Commissioner finds:

1. Disapproval is necessary to prevent practices that will cause financial impairment to the mutual insurance company;

2. The financial or management resources of the mutual insurance company warrant disapproval;

3. The mutual insurance company fails to furnish the information required by 8 V.S.A. § 3441 and this regulation;

4. The mutual insurance company fails to provide certified copies of its final approval of the plan of reorganization by no less than two-thirds of its board of directors;

5. The proposed reorganization would be unfair to policyholders;

6. The proposed reorganization is contrary to the financial interests of the policyholders; or

7. The proposed mutual insurance holding company will not promote the general good of the state.

D. Approval of an application shall expire if the reorganization is not accomplished within 180 days of the date of the Commissioner's approval, unless such period is extended by the Commissioner upon a showing of good cause.

E. After approval of the application by the Commissioner and after at least 45 days notice to policyholders, a special or regular meeting of the applicant shall be held to allow policyholders to vote, in person or by proxy, upon the proposed plan of reorganization.

1. Each eligible policyholder shall be entitled to one vote, regardless of the number of policies held, unless the charter, articles of association or bylaws of the applicant provide otherwise. The entity to which any group insurance policy is issued, and not any person covered under the group insurance policy, shall be considered the policyholder for purposes of voting. Policyholders eligible to vote shall be those with a policy in force as of the adoption date.

2. Notice of the pendency of the proposed reorganization and of the effect thereof shall be given by the applicant, in a manner satisfactory to the Commissioner, to all persons to whom the applicant delivers policies or contracts which are issued after the adoption date and prior to the effective date of the plan of reorganization. Except as otherwise provided in this section, such persons shall have the right, unless the laws of their state of domicile provide for other rights, to rescind such policies or contracts and to be refunded any amounts paid with respect thereto, by written notice to such applicant or its agent given within ten days of their receipt of the aforesaid notice given by such applicant. Neither the receipt of such policy or contract nor the right to receive such notice shall entitle such persons to vote on the plan of reorganization. Unless the law of the state of domicile of such persons provides otherwise, such persons shall not have the rights of rescission and refund if, prior to the issuance of a policy or contract, the applicant provides such persons with notice of the pendency of the proposed plan of reorganization and of the effect thereof, which notice has been approved for such purpose by the Commissioner.

3. The applicant shall give notice of the regular or special meeting by first-class mail to the last known address of each policyholder eligible to vote at such meeting. Notice shall include a copy of the plan of reorganization as approved by the Commissioner. Policyholders may not receive copies of the plan of reorganization prior to its approval by the Commissioner. The applicant may also provide policyholders with a summary of the approved plan, if such summary has the prior approval of the Commissioner. If the meeting of the policyholders to vote upon the plan of reorganization is held coincident with the applicant's annual meeting of the policyholders, only one combined notice of meeting is required.

4. If an applicant complies substantially and in good faith with the notice requirements of this section, the failure of any policyholder to receive any required notice does not impair the validity of any action taken under this section.

The applicant shall file with the Commissioner within 30 days of the policyholders' meeting the minutes of the meeting and a certificate setting forth the vote and certifying that the plan of reorganization was approved by not less than two-thirds of the policyholders voting in person or by proxy on the plan of reorganization.

Dissenting members or policyholders may petition the Commissioner in accordance with 8 V.S.A. § 3429, except the request for a hearing must be filed within 30 days after the regular or special meeting of the policyholders at which the plan of reorganization was approved.

F. At any time before the effective date, the applicant may, by resolution of not less than two-thirds of its board of directors, amend the plan of reorganization or withdraw the plan of reorganization. No material amendments to the plan of reorganization shall be allowed after its approval by the eligible policyholders unless such amended plan of reorganization is submitted to the eligible policyholders for reconsideration as provided by § 6.E. No amendment shall be permitted which changes the adoption date of the plan of reorganization.

G. Upon completion of all elements of a plan of reorganization, the applicant shall provide a notice of completion to the Commissioner. If satisfied that the plan, including all required amendments, has been fully completed, the Commissioner shall issue an amended certificate of authority in the name of the reorganized insurer. Duplicate originals of amended and restated charters of the mutual insurance holding company and the reorganized insurer shall be filed in the office of the secretary of state, and shall take effect as of the date of the filing of such originals in such office.

Section 7 Stock Offerings

A. A stock offering by an entity created by a plan of reorganization shall not occur without the prior approval of the Commissioner. Approval may only be obtained as provided for in this section.

B. An application for approval of a stock offering shall be filed with the Division and include the following information:

1. A description of the stock intended to be offered by the applicant, including a description of all shareholder rights;

2. The total number of shares authorized to be issued, the estimated number the applicant requests permission to offer and the intended date or range of dates for the offer;

3. A justification for a uniform planned offering price or a justification of the method by which the offering price will be determined;

4. The name or names of any underwriter or syndicate member or placement agent involved and, if known, the name or names of each entity, person or group of persons to whom the stock offering is to be made who will control 5 percent or more of the total outstanding class of shares and the manner in which the offer is to be tendered. If any such entity or person is a corporation or business organization, the name of each member of its board of directors or equivalent management team shall be provided along with the name of each member of the board of directors of the offeror. Copies of any filings with the Securities and Exchange Commission disclosing intended acquisition of the stock shall be included in the application;

5. A description of any stock subscription rights to be afforded members of the mutual insurance holding company in conjunction with the stock offering;

6. A detailed description of all expenses projected to be incurred in connection with the stock offering;

7. An explanation of how funds raised by the stock offering are to be used;

8. A description of any fee, commission or other valuable consideration whatsoever, other than their regular salaries and compensation, that a director, officer, agent or employee of the mutual insurance holding company, its subsidiaries or affiliates may be entitled to receive, for in any manner aiding, promoting, or assisting in the structuring or placement of a stock offering. The Commissioner may disallow any fee, commission or other valuable consideration deemed to be unreasonable. The payment of reasonable fees and compensation to attorneys at law, accountants, and actuaries for services performed in the independent practice of their professions, even though the providers of such services are also directors of the mutual insurance holding company, its subsidiaries or affiliates shall be permitted;

9. A demonstration that, after completion of the stock offering, the mutual insurance holding company shall retain ownership of a majority of the voting shares of the capital stock of the subsidiary stock insurance company as required by 8 V.S.A. § 3441(b);

10. A description of any employee stock option or other employee benefit plan of the mutual insurance holding company and any entity created under a plan of reorganization; and

11. Any other information requested by the Commissioner.

C. Any plan for a stock offering shall include the following provisions:

1. A restriction prohibiting officers, directors, employees and interested persons of the mutual insurance holding company and its subsidiaries and affiliates from purchase or ownership of shares of the stock offering or issuance of stock options to or for the benefit of such officers, directors, employees and interested persons, for a period of 6 months following the first date the offering was publicly and regularly traded. The underwriter of an initial public offering shall not reserve any stock for purchase by officers, directors, employees and interested persons of the mutual insurance holding company and its subsidiaries and affiliates at the initial offering price. These restrictions shall not limit the rights of such officers, directors, employees and interested persons from purchasing the stock on the open market consistent with state and federal securities laws or from exercising subscription rights generally accorded members of the mutual insurance holding company, except that pursuant to such subscription rights, the officers, directors, employees and interested persons of the mutual insurance holding company and its subsidiaries and affiliates may not purchase or own in the aggregate more than 5 percent of the stock offering for a period of 6 months following the first date the offering was publicly and regularly traded; and

2. A requirement that, within the board of directors of the corporation offering stock, a pricing committee consisting exclusively of independent directors will have the responsibility to evaluate and approve the price of any stock offering.

D. An entity created under a plan of reorganization may issue more than one class of stock provided, however, that at all times a majority of the voting securities of the capital stock of the reorganized insurer is held, directly or indirectly, by the mutual insurance holding company and, provided further, that no class of common stock may possess greater dividend or other rights than the class held, directly or indirectly, by the mutual insurance holding company.

E. The Commissioner may hold a single public hearing to consider an application for a stock offering. The public hearing may be adjourned from time to time until all interested persons have had an opportunity to be heard. If a hearing is held, the Commissioner shall make an order for the publication of the substance of the petition and the time and place of the hearing three weeks successively in at least one newspaper of general circulation and provide the applicant with reasonable notice of the hearing. The applicant shall provide its policyholders with at least 20 days notice of the hearing by regular mail which notice has the prior approval of the Commissioner.

F. The Commissioner shall approve the stock offering if:

1. The offering complies with this regulation and other provisions of law;

2. The method for establishing the price of a stock offering is consistent with generally accepted market or industry practices for establishing stock offering prices in similar transactions; and

3. The plan and offering will not be unfair to or contrary to the financial interests of the members of the mutual insurance holding company. In determining whether the plan and offering will not be unfair to or contrary to the financial interests of the members of the mutual insurance holding company, the Commissioner may consider the following factors:

a. Whether the offering will dilute current policyholders' interests;

b. Whether the plan provides a method either for accumulated earnings, cash or other non-operating assets held by the mutual insurance holding company to be distributed to policyholders or for such earnings, cash or assets to inure to the fair and equitable benefit of the policyholders;

c. Whether the offering will introduce shareholders who have interests opposed to those of the policyholders;

d. Whether the plan and offering require policyholders to pay additional funds to keep their membership interest; and

e. Whether the plan and offering create an opportunity for the officers or directors of the mutual insurance holding company, its subsidiaries and affiliates to enrich themselves at the expense of policyholders.

G. None of the foregoing shall be deemed to prohibit the filing of a registration statement with the Securities and Exchange Commission prior to or concurrently with the giving of notice to policyholders.

H. Notwithstanding the provisions of § 7.A. through F., stock offerings which are not an initial stock offering and which offer stock regularly traded on an exchange approved by the Commissioner pursuant to 9 V.S.A. § 4203a(6) may be made in accordance with the following procedure:

If an entity created by a plan of reorganization intends to make a stock offering that would be governed by the provisions of this regulation, that entity shall deliver to the Commissioner, not less than 30 days prior to the offering, a notice of the planned stock offering and information regarding:

a. The total number of shares intended to be offered;

b. The intended date of sale;

c. Evidence that the stock is regularly traded on one of the public exchanges defined under 9 V.S.A. § 4203a(6);

d. A record of the trading price and volume of the stock during the prior 52 weeks;

e. A demonstration that, after the completion of the stock offering, the mutual insurance holding company shall retain ownership of a majority of the voting shares of the capital stock of the subsidiary stock insurance company as required by 8 V.S.A. § 3441(b); and

f. Any other information the Commissioner may request.

2. The Commissioner shall be deemed to have approved the sale unless, within 30 days following receipt of such notice, the Commissioner issues an objection to the sale. If the Commissioner issues an objection to the sale, the procedures set forth in § 7.A through F. shall be followed to determine whether the Commissioner approves the proposed sale.

I. Approval of a stock offering granted under § 7 of this regulation shall expire 180 days following the date of the approval by the Commissioner if the offering has not commenced within that time, except as otherwise provided by order of the Commissioner.

Section 8 Regulation of mutual insurance holding companies and subsidiaries

A. In order to protect the interests of policyholders of the reorganized insurer as policyholders and as members of the mutual insurance holding company, the Commissioner may issue orders to the mutual insurance holding company, reorganized insurer or affiliate relating to Title 8, an approved plan of reorganization, an approved stock offering plan or this regulation. The Commissioner shall retain continuing jurisdiction over a mutual insurance holding company, stock insurance holding company, reorganized insurer or affiliate to the fullest extent permitted under Title 8 V.S.A. and 15 U.S.C. § 1011, et seq. for the protection of policyholders as policyholders and the interests of policyholders as members of the mutual insurance holding company as provided in Title 8, chapter 101, subchapter 3A and this regulation. Continuing jurisdiction in the Commissioner to the fullest extent permitted under law provides for the direct and indirect protection and regulation of the relationship between the reorganized insurer and policyholder. The relationships created by a mutual insurance holding company reorganization form an integral part of the policy relationship.

B. A mutual insurance holding company shall make an annual filing with the Division on March 15 which shall include a balance sheet, income statement, cash flow statement, complete information on the status of any provisions for policies in effect as of the adoption date pursuant to the plan of reorganization if applicable and investment plans and policies covering all assets.

C. The majority of the voting securities of the capital stock of the reorganized insurer, which is required by 8 V.S.A. § 3441(b) to be owned directly or indirectly at all times by a mutual insurance holding company, shall not be conveyed, transferred, assigned, pledged, subjected to a security interest or lien, encumbered or otherwise hypothecated or alienated by the mutual insurance holding company or intermediate stock holding company. Any conveyance, transfer, assignment, pledge, security interest, lien, encumbrance or hypothecation or alienation of, in or on the majority of the voting securities of the reorganized insurer, which is required by 8 V.S.A. § 3441(b) to be at all times owned directly or indirectly by a mutual insurance holding company, shall be void in inverse chronological order of the date of such conveyance, transfer, assignment, pledge, security interest, lien, encumbrance, hypothecation or alienation, as to the shares necessary to constitute a majority of such voting securities.

D. No person shall borrow funds from a mutual insurance holding company or its subsidiaries and affiliates to finance the purchase of any portion of a stock offering.

E. A mutual insurance holding company, its subsidiaries and affiliates shall file with the Division copies of Form 3, Form 4 and Schedule 13D, or any equivalent filings, within 15 days of filing under the Securities Exchange Act of 1934, as amended.

F. No officer, director, employee, employee benefit plan or interested person of a mutual insurance holding company, its subsidiaries and affiliates shall own greater than 10% of the voting securities of the reorganized insurer or any stock insurance holding company. For the purposes of this subdivision, interested person shall not include affiliated persons of the company.

G. All options for securities offered pursuant to a stock offering by an entity created by a plan of reorganization and issued to officers, directors, employees and interested persons of the mutual insurance holding company, its subsidiaries or affiliates shall be issued at the market price of the underlying security on the date of the granting of the option.

H. The Commissioner may retain, at the expense of the applicant, any consultant or expert as may be reasonably necessary to assist the Commissioner in reviewing any application submitted to the Division under the provisions of this regulation.

Section 9 Severability

If any provision of this regulation, or the application of it to any person or circumstance, is determined to be invalid by a court of competent jurisdiction, such invalidity shall not affect other provisions of this regulation which can be given effect without the invalid provision or application, and to that end the provisions of this regulation are severable.

Section 10 Effective Date

This rule is effective on January 1, 2004. 8 V.S.A. § 75; C.101, SubC. 3a, 13

History

• EFFECTIVE DATE: April 1, 1998 Secretary of State Rule Log # 98-18
• AMENDED: January 1, 2004 Secretary of State Rule Log # 03-51

Chapter 042 REGULATION I-98-1 - LIFE INSURANCE ILLUSTRATIONS REGULATION

21-042 Code Vt. R. 21-020-042-X REGULATION I-98-1 - LIFE INSURANCE ILLUSTRATIONS REGULATION

Section 1 Purpose

The purpose of this regulation is to provide rules for life insurance policy illustrations that will protect consumers and foster consumer education. The regulation provides illustration formats, prescribes standards to be followed when illustrations are used, and specifies the disclosures that are required in connection with illustrations. The goals of this regulation are to ensure that illustrations do not mislead purchasers of life insurance and to make illustrations more understandable. Insurers will, as far as possible, eliminate the use of footnotes and caveats and define terms used in the illustration in language that would be understood by a typical person within the segment of the public to which the illustration is directed.

Section 2 Authority

This regulation is issued based upon the authority granted the commissioner under Title 8 V.S.A., Sections 75 and 4724.

Section 3 Applicability and Scope

This regulation applies to all group and individual life insurance policies and certificates except:

A. Variable life insurance;

B. Individual and group annuity contracts;

C. Credit life insurance; or

D. Life insurance policies with no illustrated death benefits on any individual exceeding $ 10,000.

Section 4 Definitions

For the purposes of this regulation:

A. "Actuarial Standards Board" means the board established by the American Academy of Actuaries to develop and promulgate standards of actuarial practice.

B. "Contract premium" means the gross premium that is required to be paid under a fixed premium policy, including the premium for a rider for which benefits are shown in the illustration.

C. "Currently payable scale" means a scale of non-guaranteed elements in effect for a policy form as of the preparation date of the illustration or declared to become effective within the next ninety-five (95) days.

D. "Disciplined current scale" means a scale of non-guaranteed elements constituting a limit on illustrations currently being illustrated by an insurer that is reasonably based on actual recent historical experience, as certified annually by an illustration actuary designated by the insurer. Further guidance in determining the disciplined current scale as contained in standards established by the Actuarial Standards Board may be relied upon if the standards:

(1) Are consistent with all provisions of this regulation;

(2) Limit a disciplined current scale to reflect only actions that have already been taken or events that have already occurred;

(3) Do not permit a disciplined current scale to include any projected trends of improvements in experience or any assumed improvements in experience beyond the illustration date; and

(4) Do not permit assumed expenses to be less than minimum assumed expenses.

E. "Generic name" means a short title descriptive of the policy being illustrated such as "whole life," "term life" or "flexible premium adjustable life."

F. "Guaranteed elements" and "non-guaranteed elements"

(1) "Guaranteed elements" means the premiums, benefits, values, credits or charges under a policy of life insurance that are guaranteed and determined at issue.

(2) "Non-guaranteed elements" means the premiums, benefits, values, credits or charges under a policy of life insurance that are not guaranteed or not determined at issue.

G. "Illustrated scale" means a scale of non-guaranteed elements currently being illustrated that is not more favorable to the policy owner than the lesser of:

(1) The disciplined current scale; or

(2) The currently payable scale.

H. "Illustration" means a presentation or depiction that includes non-guaranteed elements of a policy of life insurance over a period of years and that is one of the three (3) types defined below:

(1) "Basic illustration" means a ledger or proposal used in the sale of a life insurance policy that shows both guaranteed and non-guaranteed elements.

(2) "Supplemental illustration" means an illustration furnished in addition to a basic illustration that meets the applicable requirements of this regulation, and that may be presented in a format differing from the basic illustration, but may only depict a scale of non-guaranteed elements that is permitted in a basic illustration.

(3) "In force illustration" means an illustration furnished at any time after the policy that it depicts has been in force for one year or more.

I. "Illustration actuary" means an actuary meeting the requirements of Section 11 who certifies to illustrations based on the standard of practice promulgated by the Actuarial Standards Board.

J. "Lapse-supported illustration" means an illustration of a policy form failing the test of self-supporting as defined in this regulation, under a modified persistency rate assumption using persistency rates underlying the disciplined current scale for the first five (5) years and 100 percent policy persistency thereafter.

K.

(1) "Minimum assumed expenses" means the minimum expenses that may be used in the calculation of the disciplined current scale for a policy form. The insurer may choose to designate each year the method of determining assumed expenses for all policy forms from the following:

(a) Fully allocated expenses;

(b) Marginal expenses; and

(c) A generally recognized expense table based on fully allocated expenses representing a significant portion of insurance companies and approved by the National Association of Insurance Commissioners.

(2) Marginal expenses may be used only if greater than a generally recognized expense table. If no generally recognized expense table is approved, fully allocated expenses must be used.

L. "Non-term group life" means a group policy or individual policies of life insurance issued to members of an employer group or other permitted group where:

(1) Every plan of coverage was selected by the employer or other group representative;

(2) Some portion of the premium is paid by the group or through payroll deduction; and

(3) Group underwriting or simplified underwriting is used.

M. "Policy owner" means the owner named in the policy or the certificate holder in the case of a group policy.

N. "Premium outlay" means the amount of premium assumed to be paid by the policy owner or other premium payer out-of-pocket.

O. "Self-supporting illustration" means an illustration of a policy form for which it can be demonstrated that, when using experience assumptions underlying the disciplined current scale, for all illustrated points in time on or after the fifteenth policy anniversary or the twentieth policy anniversary for second-or-later-to-die policies (or upon policy expiration if sooner), the accumulated value of all policy cash flows equals or exceeds the total policy owner value available. For this purpose, policy owner value will include cash surrender vaiues and any other illustrated benefit amounts available at the policy owner's election.

Section 5 Policies to Be Illustrated

A. Each insurer marketing policies to which this regulation is applicable shall notify the commissioner whether a policy form is to be marketed with or without an illustration. For all policy forms being actively marketed on the effective date of this regulation, the insurer shall identify in writing those forms and whether or not an illustration will be used with them. For policy forms filed after the effective date of this regulation, the identification shall be made at the time of filing. Any previous identification may be changed by notice to the commissioner.

B. If the insurer identifies a policy form as one to be marketed without an illustration, any use of an illustration for any policy using that form prior to the first policy anniversary is prohibited.

C. If a policy form is identified by the insurer as one to be marketed with an illustration, a basic illustration prepared and delivered in accordance with this regulation is required, except that a basic illustration need not be provided to individual members of a group or to individuals insured under multiple lives coverage issued to a single applicant unless the coverage is marketed to these individuals. The illustration furnished an applicant for a group life insurance policy or policies issued to a single applicant on multiple lives may be either an individual or composite illustration representative of the coverage on the lives of members of the group or the multiple lives covered.

D. Potential enrollees of non-term group life subject to this regulation shall be furnished a quotation with the enrollment materials. The quotation shall show potential policy values for sample ages and policy years on a guaranteed and non-guaranteed basis appropriate to the group and the coverage. This quotation shall not be considered an illustration for purposes of this regulation, but all information provided shall be consistent with the illustrated scale. A basic illustration shall be provided at delivery of the certificate to enrollees for non-term group life who enroll for more than the minimum premium necessary to provide pure death benefit protection. In addition, the insurer shall make a basic illustration available to any non-term group life enrollee who requests it.

Section 6 General Rules and Prohibitions

A. An illustration used in the sale of a life insurance policy shall satisfy the applicable requirements of this regulation, be clearly labeled "life insurance illustration" and contain the following basic information:

(1) Name of insurer;

(2) Name and business address of producer or insurer's authorized representative, if any;

(3) Name, age and sex of proposed insured, except where a composite illustration is permitted under this regulation;

(4) Underwriting or rating classification upon which the illustration is based;

(5) Generic name of policy, the company product name, if different, and form number;

(6) Initial death benefit; and

(7) Dividend option election or application of non-guaranteed elements, if applicable.

B. When using an illustration in the sale of a life insurance policy, an insurer or its producers or other authorized representatives shall not:

(1) Represent the policy as anything other than a life insurance policy;

(2) Use or describe non-guaranteed elements in a manner that is misleading or has the capacity or tendency to mislead;

(3) State or imply that the payment or amount of non-guaranteed elements is guaranteed;

(4) Use an illustration that does not comply with the requirements of this regulation;

(5) Use an illustration that at any policy duration depicts policy performance more favorable to the policy owner than that produced by the illustrated scale of the insurer whose policy is being illustrated;

(6) Provide an applicant with an incomplete illustration;

(7) Represent in any way that premium payments will not be required for each year of the policy in order to maintain the illustrated death benefits, unless that is the fact;

(8) Use the term "vanish" or "vanishing premium," or a similar term that implies the policy becomes paid up, to describe a plan for using non-guaranteed elements to pay a portion of future premiums;

(9) Except for policies that can never develop nonforfeiture values, use an illustration that is "lapse-supported"; or

(10) Use an illustration that is not "self-supporting."

C. If an interest rate used to determine the illustrated non-guaranteed elements is shown, it shall not be greater than the earned interest rate underlying the disciplined current scale.

Section 7 Standards for Basic Illustrations

A. Format. A basic illustration shall conform with the following requirements:

(1) The illustration shall be labeled with the date on which it was prepared.

(2) Each page, including any explanatory notes or pages, shall be numbered and show its relationship to the total number of pages in the illustration (e.g., the fourth page of a seven-page illustration shall be labeled "page 4 of 7 pages").

(3) The narrative summary described in subsection B of this section shall be the first page(s) of any basic illustration. Each page of any illustration of non-guaranteed elements shall be accompanied by a statement indicating that:

(a) The benefits and values are not guaranteed;

(b) The assumptions on which they are based are subject to change by the insurer; and

(c) Actual results may be more or less favorable.

(4) The assumed dates of payment receipt and benefit pay-out within a policy year shall be clearly identified.

(5) If the age of the proposed insured is shown as a component of the tabular detail, it shall be issue age plus the numbers of years the policy is assumed to have been in force.

(6) The assumed payments on which the illustrated benefits and values are based shall be identified as premium outlay or contract premium, as applicable. For policies that do not require a specific contract premium, the illustrated payments shall be identified as premium outlay.

(7) Guaranteed death benefits and values available upon surrender, if any, for the illustrated premium outlay or contract premium shall be shown and clearly labeled guaranteed.

(8) If the illustration shows any non-guaranteed elements, they cannot be based on a scale more favorable to the policy owner than the insurer's illustrated scale at any duration. These elements shall be clearly labeled non-guaranteed.

(9) The guaranteed elements, if any, shall be shown before corresponding non-guaranteed elements and shall be specifically referred to on any page of an illustration that shows or describes only the non-guaranteed elements (e.g., "see page one for guaranteed elements.")

(10) The account or accumulation value of a policy, if shown, shall be identified by the name this value is given in the policy being illustrated and shown in close proximity to the corresponding value available upon surrender.

(11) The value available upon surrender shall be identified by the name this value is given in the policy being illustrated and shall be the amount available to the policy owner in a lump sum after deduction of surrender charges, policy loans and policy loan interest, as applicable.

(12) Illustrations may show policy benefits and values in graphic or chart form in addition to the tabular form.

(13) If the illustration shows that the premium payer may have the option to allow policy charges to be paid using non-guaranteed values, the illustration must clearly disclose that a charge continues to be required and that, depending on actual results, the premium payer may need to continue or resume premium outlays. Similar disclosure shall be made for premium outlay of lesser amounts or shorter durations than the contract premium. If a contract premium is due, the premium outlay display shall not be left blank or show zero unless accompanied by an asterisk or similar mark to draw attention to the fact that the policy is not paid up.

(14) If the applicant plans to use dividends or policy values, guaranteed or non-guaranteed, to pay all or a portion of the contract premium or policy charges, or for any other purpose, the illustration may reflect those plans and the impact on future policy benefits and values.

B. Narrative Summary. A basic illustration shall include the following information in the order set forth below:

(1) A brief description of the policy being illustrated, including a statement that it is a life insurance policy;

(2) A statement containing in substance the following: "This illustration assumes that the currently illustrated non-guaranteed elements will continue unchanged for all years shown. This is not likely to occur, and actual results may be more or less favorable than those shown."

(3) A brief description of the premium outlay or contract premium, as applicable, for the policy. For a policy that does not require payment of a specific contract premium, the illustration shall show the premium outlay that must be paid to guarantee coverage for the term of the contract, subject to maximum premiums allowable to qualify as a life insurance policy under the applicable provisions of the Internal Revenue Code;

(4) A brief description of any policy features, riders or options, guaranteed or non-guaranteed, shown in the basic illustration and the impact they may have on the benefits and values of the policy; and

(5) Identification and a brief definition of column headings and key terms used in the illustration.

C. Numeric Summary.

(1) Following the narrative summary, a basic illustration shall include a numeric summary of the death benefits and values and the premium outlay and contract premium, as applicable. For a policy that provides for a contract premium, the guaranteed death benefits and values shall be based on the contract premium. This summary shall be shown for at least policy years five (5), ten (10) and twenty (20) and at age 70, if applicable, on the three bases shown below. For multiple life policies the summary shall show policy years five (5), ten (10), twenty (20) and thirty (30).

(a) Policy guarantees;

(b) Insurer's illustrated scale;

(c) Insurer's illustrated scale used but with the non-guaranteed elements reduced as follows:

(i) Dividends at fifty percent (50%) of the dividends contained in the illustrated scale used;

(ii) Non-guaranteed credited interest at rates that are the average of the guaranteed rates and the rates contained in the illustrated scale used; and

(iii) All non-guaranteed charges, including but not limited to, term insurance charges, mortality and expense charges, at rates that are the average of the guaranteed rates and the rates contained in the illustrated scale used.

(2) In addition, if coverage would cease prior to policy maturity or age 100, the year in which coverage ceases shall be identified for each of the three (3) bases.

D. Statements. Statements substantially similar to the following shall be included on the same page as the numeric summary and signed by the applicant, or the policy owner in the case of an illustration provided at time of delivery, as required in this regulation.

(1) A statement to be signed and dated by the applicant or policy owner reading as follows: "I have received a copy of this illustration and understand that any non-guaranteed elements illustrated are subject to change and could be either higher or lower. The agent has told me they are not guaranteed."

(2) A statement to be signed and dated by the insurance producer or other authorized representative of the insurer reading as follows: "I certify that this illustration has been presented to the applicant and that I have explained that any non-guaranteed elements illustrated are subject to change. I have made no statements that are inconsistent with the illustration."

E. Tabular Detail.

(1) A basic illustration shall include the following for at least each policy year from one (1) to ten (10) and for every fifth policy year thereafter ending at age 100, policy maturity or final expiration; and except for term insurance beyond the 20th year, for any year in which the premium outlay and contract premium, if applicable, is to change:

(a) The premium outlay and mode the applicant plans to pay and the contract premium, as applicable;

(b) The corresponding guaranteed death benefit, as provided in the policy; and

(c) The corresponding guaranteed value available upon surrender, as provided in the policy.

(2) For a policy that provides for a contract premium, the guaranteed death benefit and value available upon surrender shall correspond to the contract premium.

(3) Non-guaranteed elements may be shown if described in the contract. In the case of an illustration for a policy on which the insurer intends to credit terminal dividends, they may be shown if the insurer's current practice is to pay terminal dividends. If any non-guaranteed elements are shown they must be shown at the same durations as the corresponding guaranteed elements, if any. If no guaranteed benefit or value is available at any duration for which a non-guaranteed benefit or value is shown, a zero shall be displayed in the guaranteed column.

Section 8 Standards for Supplemental Illustrations

A. A supplemental illustration may be provided so long as:

(1) It is appended to, accompanied by or preceded by a basic illustration that complies with this regulation;

(2) The non-guaranteed elements shown are not more favorable to the policy owner than the corresponding elements based on the scale used in the basic illustration;

(3) It contains the same statement required of a basic illustration that non-guaranteed elements are not guaranteed; and

(4) For a policy that has a contract premium, the contract premium underlying the supplemental illustration is equal to the contract premium shown in the basic illustration. For policies that do not require a contract premium, the premium outlay underlying the supplemental illustration shall be equal to the premium outlay shown in the basic illustration.

B. The supplemental illustration shall include a notice referring to the basic illustration for guaranteed elements and other important information.

Section 9 Delivery of Illustration and Record Retention

A.

(1) If a basic illustration is used by an insurance producer or other authorized representative of the insurer in the sale of a life insurance policy and the policy is applied for as illustrated, a copy of that illustration, signed in accordance with this regulation, shall be submitted to the insurer at the time of policy application. A copy also shall be provided to the applicant.

(2) If the policy is issued other than as applied for, a revised basic illustration conforming to the policy as issued shall be sent with the policy. The revised illustration shall conform to the requirements of this regulation, shall be labeled "Revised Illustration" and shall be signed and dated by the applicant or policy owner and producer or other authorized representative of the insurer no later than the time the policy is delivered. A copy shall be provided to the insurer and the policy owner.

B.

(1) If no illustration is used by an insurance producer or other authorized representative in the sale of a life insurance policy or if the policy is applied for other than as illustrated, the producer or representative shall certify to that effect in writing on a form provided by the insurer. On the same form the applicant shall acknowledge that no illustration conforming to the policy applied for was provided and shall further acknowledge an understanding that an illustration conforming to the policy as issued will be provided no later than at the time of policy delivery. This form shall be submitted to the insurer at the time of policy application.

(2) If the policy is issued, a basic illustration conforming to the policy as issued shall be sent with the policy and signed no later than the time the policy is delivered. A copy shall be provided to the insurer and the policy owner.

C. If the basic illustration or revised illustration is sent to the applicant or policy owner by mail from the insurer, it shall include instructions for the applicant or policy owner to sign the duplicate copy of the numeric summary page of the illustration for the policy issued and return the signed copy to the insurer. The insurer's obligation under this subsection shall be satisfied if it can demonstrate that it has made a diligent effort to secure a signed copy of the numeric summary page. The requirement to make a diligent effort shall be deemed satisfied if the insurer includes in the mailing a self-addressed postage prepaid envelope with instructions for the return of the signed numeric summary page.

D. A copy of the basic illustration and a revised basic illustration, if any, signed as applicable, along with any certification that either no illustration was used or that the policy was applied for other than as illustrated, shall be retained by the insurer until three (3) years after the policy is no longer in force. A copy need not be retained if no policy is issued.

Section 10 Annual Report; Notice to Policy Owners

A. In the case of a policy designated as one for which illustrations will be used, the insurer shall provide each policy owner with an annual report on the status of the policy that shall contain at least the following information:

(1) For universal life policies, the report shall include the following:

(a) The beginning and end date of the current report period;

(b) The policy value at the end of the previous report period and at the end of the current report period;

(c) The total amounts that have been credited or debited to the policy value during the current report period, identifying each by type (e.g., interest, mortality, expense and riders);

(d) The current death benefit at the end of the current report period on each life covered by the policy;

(e) The net cash surrender value of the policy as of the end of the current report period;

(f) The amount of outstanding loans, if any, as of the end of the current report period; and

(g) For fixed premium policies:

If, assuming guaranteed interest, mortality and expense loads and continued scheduled premium payments, the policy's net cash surrender value is such that it would not maintain insurance in force until the end of the next reporting period, a notice to this effect shall be included in the report; or

(h) For flexible premium policies:

If, assuming guaranteed interest, mortality and expense loads, the policy's net cash surrender value will not maintain insurance in force until the end of the next reporting period unless further premium payments are made, a notice to this effect shall be included in the report.

(2) For all other policies, where applicable:

(a) Current death benefit;

(b) Annual contract premium;

(c) Current cash surrender value;

(d) Current dividend;

(e) Application of current dividend; and

(f) Amount of outstanding loan.

(3) Insurers writing life insurance policies that do not build nonforfeiture values shall only be required to provide an annual report with respect to these policies for those years when a change has been made to non-guaranteed policy elements by the insurer."

B. If the annual report does not include an in force illustration, it shall contain the following notice displayed prominently: "IMPORTANT POLICY OWNER NOTICE: You should consider requesting more detailed information about your policy to understand how it may perform in the future. You should not consider replacement of your policy or make changes in your coverage without requesting a current illustration. You may annually request, without charge, such an illustration by calling [insurer's phone number], writing to [insurer's name] at [insurer's address] or contacting your agent. If you do not receive a current illustration of your policy within 30 days from your request, you should contact your state insurance department." The insurer may vary the sequential order of the methods for obtaining an in force illustration.

C. Upon the request of the policy owner, the insurer shall furnish an in force illustration of current and future benefits and values based on the insurer's present illustrated scale. This illustration shall comply with the requirements of Section 6A, 6B, 7A and 7E. No signature or other acknowledgment of receipt of this illustration shall be required.

D. If an adverse change in non-guaranteed elements that could affect the policy has been made by the insurer since the last annual report, the annual report shall contain a notice of that fact and the nature of the change prominently displayed.

Section 11 Annual Certifications

A. The board of directors of each insurer shall appoint one or more illustration actuaries.

B. The illustration actuary shall certify that the disciplined current scale used in illustrations is in conformity with the Actuarial Standard of Practice for Compliance with the NAIC Model Regulation on Life Insurance Illustrations promulgated by the Actuarial Standards Board, and that the illustrated scales used in insurer-authorized illustrations meet the requirements of this regulation.

C. The illustration actuary shall:

(1) Be a member in good standing of the American Academy of Actuaries;

(2) Be familiar with the standard of practice regarding life insurance policy illustrations;

(3) Not have been found by the commissioner, following appropriate notice and hearing to have:

(a) Violated any provision of, or any obligation imposed by, the insurance law or other law in the course of his or her dealings as an illustration actuary;

(b) Been found guilty of fraudulent or dishonest practices;

(c) Demonstrated his or her incompetence, lack of cooperation, or untrustworthiness to act as an illustration actuary; or

(d) Resigned or been removed as an illustration actuary within the past five (5) years as a result of acts or omissions indicated in any adverse report on examination or as a result of a failure to adhere to generally acceptable actuarial standards;

(4) Not fail to notify the commissioner of any action taken by a commissioner of another state similar to that under Paragraph (3) above;

(5) Disclose in the annual certification whether, since the last certification, a currently payable scale applicable for business issued within the previous five (5) years and within the scope of the certification has been reduced for reasons other than changes in the experience factors underlying the disciplined current scale. If non-guaranteed elements illustrated for new policies are not consistent with those illustrated for similar in force policies, this must be disclosed in the annual certification. If non-guaranteed elements illustrated for both new and in force policies are not consistent with the non-guaranteed elements actually being paid, charged or credited to the same or similar forms, this must be disclosed in the annual certification; and

(6) Disclose in the annual certification the method used to allocate overhead expenses for all illustrations:

(a) Fully allocated expenses;

(b) Marginal expenses; or

(c) A generally recognized expense table based on fully allocated expenses representing a significant portion of insurance companies and approved by the National Association of Insurance Commissioners.

D.

(1) The illustration actuary shall file a certification with the board and with the commissioner:

(a) Annually for all policy forms for which illustrations are used; and

(b) Before a new policy form is illustrated.

(2) If an error in a previous certification is discovered, the illustration actuary shall notify the board of directors of the insurer and the commissioner promptly.

E. If an illustration actuary is unable to certify the scale for any policy form illustration the insurer intends to use, the actuary shall notify the board of directors of the insurer and the commissioner promptly of his or her inability to certify.

F. A responsible officer of the insurer, other than the illustration actuary, shall certify annually:

(1) That the illustration formats meet the requirements of this regulation and that the scales used in insurer-authorized illustrations are those scales certified by the illustration actuary; and

(2) That the company has provided its agents with information about the expense allocation method used by the company in its illustrations and disclosed as required in Subsection C(6) of this section.

G. The annual certifications shall be provided to the commissioner each year by a date determined by the insurer.

H. If an insurer changes the illustration actuary responsible for all or a portion of the company's policy forms, the insurer shall notify the commissioner of that fact promptly and disclose the reason for the change.

Section 12 Penalties

In addition to any other penalties provided by the laws of this state, an insurer or producer that violates a requirement of this regulation shall be guilty of a violation of Title 8 V.S.A., Sections 4724 and 4726.

Section 13 Separability

If any provision of this regulation or its application to any person or circumstance is for any reason held to be invalid by any court of law, the remainder of the regulation and its application to other persons or circumstances shall not be affected.

Section 14 Effective Date

This regulation shall become effective March 1, 1999, and shall apply to policies sold on or after the effective date.

History

• Effective Date: March 1, 1999 (Secretary of State Rule Log #98-65)
• Statutory Authority: 8 V.S.A. §§ 75 and 4724

Chapter 043 REGULATION 99-2 - RULES FOR CAPTIVE INSURANCE COMPANIES ISSUING ANNUITIES

21-043 Code Vt. R. 21-020-043-X REGULATION 99-2 - RULES FOR CAPTIVE INSURANCE COMPANIES ISSUING ANNUITIES

Section 1 Purpose

This regulation establishes reserve requirements, separate accounts and the form of the annual statement required of any captive insurance company that issues annuity contracts (which may have life or other benefits that constitute a subsidiary or incidental part of the entire contract).

Section 2 Authority

This regulation is promulgated under the authority of 8 V.S.A. Sections 75 and 6015.

Section 3 Applicability

This regulation shall apply to any captive insurance company formed or licensed under the provisions of chapter 141 of title 8 of the Vermont Statutes issuing annuity contracts (which may have life or other benefits that constitute a subsidiary or incidental part of the entire contract).

Section 4 Establishment of Separate Accounts

Any captive insurance company that issues contracts that provide variable benefits shall establish separate accounts. Such accounts shall be subject to the requirements of 8 V.S.A. section 3855.

Section 5 Reserves Required by Law

A captive insurance company that issues annuity contracts shall maintain reserves that are actuarially sufficient to support the liabilities provided by the contracts.

Section 6 Annual Report

A captive insurance company that issues annuity contracts shall submit its annual report in the form of the annual statement approved by the National Association of Insurance Commissioners for life insurers, as modified or supplemented by the commissioner.

Section 7 Severability

If any provision of this regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of the regulation and the application of such provisions to other persons or circumstances shall not be affected thereby.

Section 8 Effective Date

This regulation shall be effective on 12/31/99.

History

• Effective Date: December 31, 1999 (Secretary of State Rule Log #99-77)
• Statutory Authority: 8 V.S.A. §§ 75 and 6015

Chapter 044 REGULATION 99-3 - VALUATION OF LIFE INSURANCE POLICIES

21-044 Code Vt. R. 21-020-044-X REGULATION 99-3 - VALUATION OF LIFE INSURANCE POLICIES

Section 1 Purpose

A. The purpose of this regulation is to provide:

(1) Tables of select mortality factors and rules for their use;

(2) Rules concerning a minimum standard for the valuation of plans with non-level premiums or benefits; and

(3) Rules concerning a minimum standard for the valuation of plans with secondary guarantees.

B. The method for calculating basic reserves defined in this regulation will constitute the Commissioners' Reserve Valuation Method for policies to which this regulation is applicable.

Section 2 Authority

This regulation is issued under the authority vested in the Commissioner of Banking, Insurance, Securities, and Health Care Administration by 8 V.S.A. § 75 and subchapter 4 of chapter 103 of title 8.

Section 3 Applicability

This regulation shall apply to all life insurance policies, with or without nonforfeiture values, issued on or after the effective date of this regulation, subject to the following exceptions and conditions.

A. Exceptions

(1) This regulation shall not apply to any individual life insurance policy issued on or after the effective date of this regulation if the policy is issued in accordance with and as a result of the exercise of a re-entry provision contained in the original life insurance policy of the same or greater face amount, issued before the effective date of this regulation, that guarantees the premium rates of the new policy. This regulation also shall not apply to subsequent policies issued as a result of the exercise of such a provision, or a derivation of the provision, in the new policy.

(2) This regulation shall not apply to any universal life policy that meets all the following requirements:

(a) Secondary guarantee period, if any, is five (5) years or less;

(b) Specified premium for the secondary guarantee period is not less than the net level reserve premium for the secondary guarantee period based on the CSO valuation tables as defined in Section 4F and the applicable valuation interest rate; and

(c) The initial surrender charge is not less than 100 percent of the first year annualized specified premium for the secondary guarantee period.

(3) This regulation shall not apply to any variable life insurance policy that provides for life insurance, the amount or duration of which varies according to the investment experience of any separate account or accounts.

(4) This regulation shall not apply to any variable universal life insurance policy that provides for life insurance, the amount or duration of which varies according to the investment experience of any separate account or accounts.

(5) This regulation shall not apply to a group life insurance certificate unless the certificate provides for a stated or implied schedule of maximum gross premiums required in order to continue coverage in force for a period in excess of one year.

B. Conditions

(1) Calculation of the minimum valuation standard for policies with guaranteed non-level gross premiums or guaranteed non-level benefits (other than universal life policies), or both, shall be in accordance with the provisions of Section 6.

(2) Calculation of the minimum valuation standard for flexible premium and fixed premium universal life insurance policies, that contain provisions resulting in the ability of a policyholder to keep a policy in force over a secondary guarantee period shall be in accordance with the provisions of Section 7.

Section 4 Definitions

F or purposes of this regulation:

A. "Basic reserves" means reserves calculated in accordance with 8 V.S.A. § 3785.

B. "Contract segmentation method" means the method of dividing the period from issue to mandatory expiration of a policy into successive segments, with the length of each segment being defined as the period from the end of the prior segment (from policy inception, for the first segment) to the end of the latest policy year as determined below. All calculations are made using the 1980 CSO valuation tables, as defined in Subsection F of this section, (or any other valuation mortality table adopted by the National Association of Insurance Commissioners (NAIC) after the effective date of this regulation and promulgated by regulation by the commissioner for this purpose), and, if elected, the optional minimum mortality standard for deficiency reserves stipulated in Section 5B of this regulation.

The length of a particular contract segment shall be set equal to the minimum of the value t for which G[t] is greater than R[t] (if G[t] never exceeds R[t] the segment length is deemed to be the number of years from the beginning of the segment to the mandatory expiration date of the policy), where G[t] and R[t] are defined as follows:

G[t] = GP[x+k+t]/GP[x+k+t-1]

where:

x = original issue age;

k = the number of years from the date of issue to the beginning of the segment;

t = 1, 2, ...; t is reset to 1 at the beginning of each segment;

GP[x+k+t-1] = Guaranteed gross premium per thousand of face amount for year t of the segment, ignoring policy fees only if level for the premium paying period of the policy.

R[t] = q[x+k+t]/q[x+k+t-1], However, R[t] may be increased or decreased by one percent in any policy year, at the company's option, but R[t] shall not be less than one;

where:

x, k and t are as defined above, and

q[x+k+t-1] = valuation mortality rate for deficiency reserves in policy year k+t but using the mortality of Section 5B(2) if Section 5B(3) is elected for deficiency reserves.

However, if GP[x+k+t] is greater than 0 and GP[x+k+t-1] is equal to 0, G[t] shall be deemed to be 1000. If GP[x+k+t] and GP[x+k+t-1] are both equal to 0, G[t] shall be deemed to be 0.

C. "Deficiency reserves" means the excess, if greater than zero, of

(1) Minimum reserves calculated in accordance with 8 V.S.A. section 3788

over

(2) Basic reserves.

D. "Guaranteed gross premiums" means the premiums under a policy of life insurance that are guaranteed and determined at issue.

E. "Maximum valuation interest rates" means the interest rates defined in 8 V.S.A. section 3784a that are to be used in determining the minimum standard for the valuation of life insurance policies.

F. "1980 CSO valuation tables" means the Commissioners' 1980 Standard Ordinary Mortality Table (1980 CSO Table) without ten-year selection factors, incorporated into the 1980 amendments to the NAIC Standard Valuation Law, and variations of the 1980 CSO Table approved by the NAIC, such as the smoker and nonsmoker versions approved in December 1983.

G. "Scheduled gross premium" means the smallest illustrated gross premium at issue for other than universal life insurance policies. For universal life insurance policies, scheduled gross premium means the smallest specified premium described in Section 7A(3), if any, or else the minimum premium described in Section 7A(4).

H.

(1) "Segmented reserves" means reserves, calculated using segments produced by the contract segmentation method, equal to the present value of all future guaranteed benefits less the present value of all future net premiums to the mandatory expiration of a policy, where the net premiums within each segment are a uniform percentage of the respective guaranteed gross premiums within the segment. The uniform percentage for each segment is such that, at the beginning of the segment, the present value of the net premiums within the segment equals:

(a) The present value of the death benefits within the segment, plus

(b) The present value of any unusual guaranteed cash value (see Section 6D) occurring at the end of the segment, less

(c) Any unusual guaranteed cash value occurring at the start of the segment, plus

(d) For the first segment only, the excess of the Item (i) over Item (ii), as follows:

(i) A net level annual premium equal to the present value, at the date of issue, of the benefits provided for in the first segment after the first policy year, divided by the present value, at the date of issue, of an annuity of one per year payable on the first and each subsequent anniversary within the first segment on which a premium falls due. However, the net level annual premium shall not exceed the net level annual premium on the nineteen-year premium whole life plan of insurance of the same renewal year equivalent level amount at an age one year higher than the age at issue of the policy.

(ii) A net one year term premium for the benefits provided for in the first policy year.

(2) The length of each segment is determined by the "contract segmentation method," as defined in this section.

(3) The interest rates used in the present value calculations for any policy may not exceed the maximum valuation interest rate, determined with a guarantee duration equal to the sum of the lengths of all segments of the policy.

(4) For both basic reserves and deficiency reserves computed by the segmented method, present values shall include future benefits and net premiums in the current segment and in all subsequent segments.

I. "Tabular cost of insurance" means the net single premium at the beginning of a policy year for one-year term insurance in the amount of the guaranteed death benefit in that policy year.

J. "Ten-year select factors" means the select factors adopted with the 1980 amendments to the NAIC Standard Valuation Law.

K.

(1) "Unitary reserves" means the present value of all future guaranteed benefits less the present value of all future modified net premiums, where:

(a) Guaranteed benefits and modified net premiums are considered to the mandatory expiration of the policy; and

(b) Modified net premiums are a uniform percentage of the respective guaranteed gross premiums, where the uniform percentage is such that, at issue, the present value of the net premiums equals the present value of all death benefits and pure endowments, plus the excess of Item (i) over Item (ii), as follows:

(i) A net level annual premium equal to the present value, at the date of issue, of the benefits provided for after the first policy year, divided by the present value, at the date of issue, of an annuity of one per year payable on the first and each subsequent anniversary of the policy on which a premium falls due. However, the net level annual premium shall not exceed the net level annual premium on the nineteen-year premium whole life plan of insurance of the same renewal year equivalent level amount at an age one year higher than the age at issue of the policy.

(ii) A net one year term premium for the benefits provided for in the first policy year.

(2) The interest rates used in the present value calculations for any policy may not exceed the maximum valuation interest rate, determined with a guarantee duration equal to the length from issue to the mandatory expiration of the policy.

L. "Universal life insurance policy" means any individual life insurance policy under the provisions of which separately identified interest credits (other than in connection with dividend accumulations, premium deposit funds, or other supplementary accounts) and mortality or expense charges are made to the policy.

Section 5 General Calculation Requirements for Basic Reserves and Premium Deficiency Reserves

A. At the election of the company for any one or more specified plans of life insurance, the minimum mortality standard for basic reserves may be calculated using the 1980 CSO valuation tables with select mortality factors (or any other valuation mortality table adopted by the NAIC after the effective date of this regulation and promulgated by regulation by the commissioner for this purpose). If select mortality factors are elected, they may be:

(1) The ten-year select mortality factors incorporated into the 1980 amendments to the NAIC Standard Valuation Law;

(2) The select mortality factors in the Appendix; or

(3) Any other table of select mortality factors adopted by the NAIC after the effective date of this regulation and promulgated by regulation by the commissioner for the purpose of calculating basic reserves.

B. Deficiency reserves, if any, are calculated for each policy as the excess, if greater than zero, of the quantity A over the basic reserve. The quantity A is obtained by recalculating the basic reserve for the policy using guaranteed gross premiums instead of net premiums when the guaranteed gross premiums are less than the corresponding net premiums. At the election of the company for any one or more specified plans of insurance, the quantity A and the corresponding net premiums used in the determination of quantity A may be based upon the 1980 CSO valuation tables with select mortality factors (or any other valuation mortality table adopted by the NAIC after the effective date of this regulation and promulgated by regulation by the commissioner). If select mortality factors are elected, they may be:

(1) The ten-year select mortality factors incorporated into the 1980 amendments to the NAIC Standard Valuation Law;

(2) The select mortality factors in the Appendix of this regulation;

(3) For durations in the first segment, X percent of the select mortality factors in the Appendix, subject to the following:

(a) X may vary by policy year, policy form, underwriting classification, issue age, or any other policy factor expected to affect mortality experience;

(b) X shall not be less than twenty percent (20%);

(c) X shall not decrease in any successive policy years;

(d) X is such that, when using the valuation interest rate used for basic reserves, Item (i) is greater than or equal to Item (ii);

(i) The actuarial present value of future death benefits, calculated using the mortality rates resulting from the application of X;

(ii) The actuarial present value of future death benefits calculated using anticipated mortality experience without recognition of mortality improvement beyond the valuation date;

(e) X is such that the mortality rates resulting from the application of X are at least as great as the anticipated mortality experience, without recognition of mortality improvement beyond the valuation date, in each of the first five (5) years after the valuation date;

(f) The appointed actuary shall increase X at any valuation date where it is necessary to continue to meet all the requirements of Subsection B(3);

(g) The appointed actuary may decrease X at any valuation date as long as X does not decrease in any successive policy years and as long as it continues to meet all the requirements of Subsection B(3); and

(h) The appointed actuary shall specifically take into account the adverse effect on expected mortality and lapsation of any anticipated or actual increase in gross premiums.

(i) If X is less than 100 percent at any duration for any policy, the following requirements shall be met:

(i) The appointed actuary shall annually prepare an actuarial opinion and memorandum for the company in conformance with the requirements of 8 V.S.A. section 3577 and Regulation I-97-4; and

(ii) The appointed actuary shall annually opine for all policies subject to this regulation as to whether the mortality rates resulting from the application of X meet the requirements of Subsection B(3). This opinion shall be supported by an actuarial report, subject to appropriate Actuarial Standards of Practice promulgated by the Actuarial Standards Board of the American Academy of Actuaries. The X factors shall reflect anticipated future mortality, without recognition of mortality improvement beyond the valuation date, taking into account relevant emerging experience.

(4) Any other table of select mortality factors adopted by the NAIC after the effective date of this regulation and promulgated by regulation by the commissioner for the purpose of calculating deficiency reserves.

C. This subsection applies to both basic reserves and deficiency reserves. Any set of select mortality factors may be used only for the first segment. However, if the first segment is less than ten (10) years, the appropriate ten-year select mortality factors incorporated into the 1980 amendments to the NAIC Standard Valuation Law may be used thereafter through the tenth policy year from the date of issue.

D. In determining basic reserves or deficiency reserves, guaranteed gross premiums without policy fees may be used where the calculation involves the guaranteed gross premium but only if the policy fee is a level dollar amount after the first policy year. In determining deficiency reserves, policy fees may be included in guaranteed gross premiums, even if not included in the actual calculation of basic reserves.

E. Reserves for policies that have changes to guaranteed gross premiums, guaranteed benefits, guaranteed charges, or guaranteed credits that are unilaterally made by the insurer after issue and that are effective for more than one year after the date of the change shall be the greatest of the following:

(1) reserves calculated ignoring the guarantee,

(2) reserves assuming the guarantee was made at issue, and

(3) reserves assuming that the policy was issued on the date of the guarantee.

F. The commissioner may require that the company document the extent of the adequacy of reserves for specified blocks, including but not limited to policies issued prior to the effective date of this regulation. This documentation may include a demonstration of the extent to which aggregation with other non-specified blocks of business is relied upon in the formation of the appointed actuary opinion pursuant to and consistent with the requirements of 8 V.S.A. section 3577 and Regulation I-97-4.

Section 6 Calculation of Minimum Valuation Standard for Policies with Guaranteed Non-level Gross Premiums or Guaranteed Non-level Benefits (Other than Universal Life Policies)

A. Basic Reserves

Basic reserves shall be calculated as the greater of the segmented reserves and the unitary reserves. Both the segmented reserves and the unitary reserves for any policy shall use the same valuation mortality table and selection factors. A t the option of the insurer, in calculating segmented reserves and net premiums, either of the adjustments described in Paragraph (1) or (2) below may be made:

(1) Treat the unitary reserve, if greater than zero, applicable at the end of each segment as a pure endowment and subtract the unitary reserve, if greater than zero, applicable at the beginning of each segment from the present value of guaranteed life insurance and endowment benefits for each segment.

(2) Treat the guaranteed cash surrender value, if greater than zero, applicable at the end of each segment as a pure endowment; and subtract the guaranteed cash surrender value, if greater than zero, applicable at the beginning of each segment from the present value of guaranteed life insurance and endowment benefits for each segment.

B. Deficiency Reserves

(1) The deficiency reserve at any duration shall be calculated:

(a) On a unitary basis if the corresponding basic reserve determined by Subsection A is unitary;

(b) On a segmented basis if the corresponding basic reserve determined by Subsection A is segmented; or

(c) On the segmented basis if the corresponding basic reserve determined by Subsection A is equal to both the segmented reserve and the unitary reserve.

(2) This subsection shall apply to any policy for which the guaranteed gross premium at any duration is less than the corresponding modified net premium calculated by the method used in determining the basic reserves, but using the minimum valuation standards of mortality (specified in Section 5B) and rate of interest.

(3) Deficiency reserves, if any, shall be calculated for each policy as the excess if greater than zero, for the current and all remaining periods, of the quantity A over the basic reserve, where A is obtained as indicated in Section 5B.

(4) For deficiency reserves determined on a segmented basis, the quantity A is determined using segment lengths equal to those determined for segmented basic reserves.

C. Minimum Value

Basic reserves may not be less than the tabular cost of insurance for the balance of the policy year, if mean reserves are used. Basic reserves may not be less than the tabular cost of insurance for the balance of the current modal period or to the paid-to-date, if later, but not beyond the next policy anniversary, if mid-terminal reserves are used. The tabular cost of insurance shall use the same valuation mortality table and interest rates as that used for the calculation of the segmented reserves. However, if select mortality factors are used, they shall be the ten-year select factors incorporated into the 1980 amendments of the NAIC Standard Valuation Law. In no case may total reserves (including basic reserves, deficiency reserves and any reserves held for supplemental benefits that would expire upon contract termination) be less than the amount that the policyowner would receive (including the cash surrender value of the supplemental benefits, if any, referred to above), exclusive of any deduction for policy loans, upon termination of the policy.

D. Unusual Pattern of Guaranteed Cash Surrender Values

(1) For any policy with an unusual pattern of guaranteed cash surrender values, the reserves actually held prior to the first unusual guaranteed cash surrender value shall not be less than the reserves calculated by treating the first unusual guaranteed cash surrender value as a pure endowment and treating the policy as an n year policy providing term insurance plus a pure endowment equal to the unusual cash surrender value, where n is the number of years from the date of issue to the date the unusual cash surrender value is scheduled.

(2) The reserves actually held subsequent to any unusual guaranteed cash surrender value shall not be less than the reserves calculated by treating the policy as an n year policy providing term insurance plus a pure endowment equal to the next unusual guaranteed cash surrender value, and treating any unusual guaranteed cash surrender value at the end of the prior segment as a net single premium, where

(a) n is the number of years from the date of the last unusual guaranteed cash surrender value prior to the valuation date to the earlier of:

(i) The date of the next unusual guaranteed cash surrender value, if any, that is scheduled after the valuation date; or

(ii) The mandatory expiration date of the policy; and

(b) The net premium for a given year during the n year period is equal to the product of the net to gross ratio and the respective gross premium; and

(c) The net to gross ratio is equal to Item (i) divided by Item (ii) as follows:

(i) The present value, at the beginning of the n year period, of death benefits payable during the n year period plus the present value, at the beginning of the n year period, of the next unusual guaranteed cash surrender value, if any, minus the amount of the last unusual guaranteed cash surrender value, if any, scheduled at the beginning of the n year period.

(ii) The present value, at the beginning of the n year period, of the scheduled gross premiums payable during the n year period.

(3) For purposes of this subsection, a policy is considered to have an unusual pattern of guaranteed cash surrender values if any future guaranteed cash surrender value exceeds the prior year's guaranteed cash surrender value by more than the sum of:

(a) One hundred ten percent (110%) of the scheduled gross premium for that year;

(b) One hundred ten percent (110%) of one year's accrued interest on the sum of the prior year's guaranteed cash surrender value and the scheduled gross premium using the nonforfeiture interest rate used for calculating policy guaranteed cash surrender values; and

(c) Five percent (5%) of the first policy year surrender charge, if any.

E. Optional Exemption for Yearly Renewable Term Reinsurance (YRT). At the option of the company, the following approach for reserves on YRT reinsurance may be used:

(1) Calculate the valuation net premium for each future policy year as the tabular cost of insurance for that future year.

(2) Basic reserves shall never be less than the tabular cost of insurance for the appropriate period, as defined in Subsection C.

(3) Deficiency reserves.

(a) For each policy year, calculate the excess, if greater than zero, of the valuation net premium over the respective maximum guaranteed gross premium.

(b) Deficiency reserves shall never be less than the sum of the present values, at the date of valuation, of the excesses determined in accordance with Subdivision (a) of this subsection.

(4) For purposes of this subsection, the calculations use the maximum valuation interest rate and the 1980 CSO mortality tables with or without ten-year select mortality factors, or any other table adopted after the effective date of this regulation by the NAIC and promulgated by regulation by the commissioner for this purpose.

(5) A reinsurance agreement shall be considered YRT reinsurance for purposes of this subsection if only the mortality risk is reinsured.

(6) If the assuming company chooses this optional exemption, the ceding company's reinsurance reserve credit shall be limited to the amount of reserve held by the assuming company for the affected policies.

F. Optional Exemption for Attained-Age-Based Yearly Renewable Term Life Insurance Policies. At the option of the company, the following approach for reserves for attained-age-based YRT life insurance policies may be used:

(1) Calculate the valuation net premium for each future policy year as the tabular cost of insurance for that future year.

(2) Basic reserves shall never be less than the tabular cost of insurance for the appropriate period, as defined in Subsection 6C.

(3) Deficiency reserves.

(a) For each policy year, calculate the excess, if greater than zero, of the valuation net premium over the respective maximum guaranteed gross premium.

(b) Deficiency reserves shall never be less than the sum of the present values, at the date of valuation, of the excesses determined in accordance with Subparagraph (a) above.

(4) For purposes of this subsection, the calculations use the maximum valuation interest rate and the 1980 CSO valuation tables with or without ten-year select mortality factors, or any other table adopted after the effective date of this regulation by the NAIC and promulgated by regulation by the commissioner for this purpose.

(5) A policy shall be considered an attained-age-based YRT life insurance policy for purposes of this subsection if:

(a) The premium rates (on both the initial current premium scale and the guaranteed maximum premium scale) are based upon the attained age of the insured such that the rate for any given policy at a given attained age of the insured is independent of the year the policy was issued; and

(b) The premium rates (on both the initial current premium scale and the guaranteed maximum premium scale) are the same as the premium rates for policies covering all insureds of the same sex, risk class, plan of insurance and attained age.

(6) For policies that become attained-age-based YRT policies after an initial period of coverage, the approach of this subsection may be used after the initial period if:

(a) The initial period is constant for all insureds of the same sex, risk class and plan of insurance; or

(b) The initial period runs to a common attained age for all insureds of the same sex, risk class and plan of insurance; and

(c) After the initial period of coverage, the policy meets the conditions of Paragraph (5) above.

(7) If this election is made, this approach shall be applied in determining reserves for all attained-age-based YRT life insurance policies issued on or after the effective date of this regulation.

G. Exemption from Unitary Reserves for Certain n-Year Renewable Term Life Insurance Polices. Unitary basic reserves and unitary deficiency reserves need not be calculated for a policy if the following conditions are met:

(1) The policy consists of a series of n-year periods, including the first period and all renewal periods, where n is the same for each period, except that for the final renewal period, n may be truncated or extended to reach the expiry age, provided that this final renewal period is less than 10 years and less than twice the size of the earlier n-year periods, and for each period, the premium rates on both the initial current premium scale and the guaranteed maximum premium scale are level;

(2) The guaranteed gross premiums in all n-year periods are not less than the corresponding net premiums based upon the 1980 CSO Table with or without the ten-year select mortality factors; and

(3) There are no cash surrender values in any policy year.

H. Exemption from Unitary Reserves for Certain Juvenile Policies

Unitary basic reserves and unitary deficiency reserves need not be calculated for a policy if the following conditions are met, based upon the initial current premium scale at issue:

(1) At issue, the insured is age twenty-four (24) or younger;

(2) Until the insured reaches the end of the juvenile period, which shall occur at or before age twenty-five (25), the gross premiums and death benefits are level, and there are no cash surrender values; and

(3) After the end of the juvenile period, gross premiums are level for the remainder of the premium paying period, and death benefits are level for the remainder of the life of the policy.

Section 7 Calculation of Minimum Valuation Standard for Flexible Premium and Fixed Premium Universal Life Insurance Policies That Contain Provisions Resulting in the Ability of a Policyowner to Keep a Policy in Force Over a Secondary Guarantee Period

A. General

(1) Policies with a secondary guarantee include:

(a) A policy with a guarantee that the policy will remain in force at the original schedule of benefits, subject only to the payment of specified premiums;

(b) A policy in which the minimum premium at any duration is less than the corresponding one year valuation premium, calculated using the maximum valuation interest rate and the 1980 CSO valuation tables with or without ten-year select mortality factors, or any other table adopted after the effective date of this regulation by the NAIC and promulgated by regulation by the commissioner for this purpose; or

(c) A policy with any combination of Subparagraph (a) and (b).

(2) A secondary guarantee period is the period for which the policy is guaranteed to remain in force subject only to a secondary guarantee. When a policy contains more than one secondary guarantee, the minimum reserve shall be the greatest of the respective minimum reserves at that valuation date of each unexpired secondary guarantee, ignoring all other secondary guarantees. Secondary guarantees that are unilaterally changed by the insurer after issue shall be considered to have been made at issue. Reserves described in Subsections B and C below shall be recalculated from issue to reflect these changes.

(3) Specified premiums mean the premiums specified in the policy, the payment of which guarantees that the policy will remain in force at the original schedule of benefits, but which otherwise would be insufficient to keep the policy in force in the absence of the guarantee if maximum mortality and expense charges and minimum interest credits were made and any applicable surrender charges were assessed.

(4) For purposes of this section, the minimum premium for any policy year is the premium that, when paid into a policy with a zero account value at the beginning of the policy year, produces a zero account value at the end of the policy year. The minimum premium calculation shall use the policy cost factors (including mortality charges, loads and expense charges) and the interest crediting rate, which are all guaranteed at issue.

(5) The one-year valuation premium means the net one-year premium based upon the original schedule of benefits for a given policy year. The one-year valuation premiums for all policy years are calculated at issue. The select mortality factors defined in Section 5B(2), (3), and (4) may not be used to calculate the one-year valuation premiums.

(6) The one-year valuation premium should reflect the frequency of fund processing, as well as the distribution of deaths assumption employed in the calculation of the monthly mortality charges to the fund.

B. Basic Reserves for the Secondary Guarantees

Basic reserves for the secondary guarantees shall be the segmented reserves for the secondary guarantee period. In calculating the segments and the segmented reserves, the gross premiums shall be set equal to the specified premiums, if any, or otherwise to the minimum premiums, that keep the policy in force and the segments will be determined according to the contract segmentation method as defined in Section 4B.

C. Deficiency Reserves for the Secondary Guarantees

Deficiency reserves, if any, for the secondary guarantees shall be calculated for the secondary guarantee period in the same manner as described in Section 6B with gross premiums set equal to the specified premiums, if any, or otherwise to the minimum premiums that keep the policy in force.

D. Minimum Reserves

The minimum reserves during the secondary guarantee period are the greater of:

(1) The basic reserves for the secondary guarantee plus the deficiency reserve, if any, for the secondary guarantees; or

(2) The minimum reserves required by other rules or regulations governing universal life plans.

Section 8 Effective Date

This regulation shall take effect January 1, 2000.

Appendix. SELECT MORTALITY FACTORS

This appendix contains tables of select mortality factors that are the bases to which the respective percentage of Section 5A(2), 5B(2) and 5B(3) are applied.

The six tables of select mortality factors contained herein include:

(1) male aggregate,

(2) male nonsmoker,

(3) male smoker,

(4) female aggregate,

(5) female nonsmoker, and

(6) female smoker.

These tables apply to both age last birthday and age nearest birthday mortality tables.

For sex-blended mortality tables, compute select mortality factors in the same proportion as the underlying mortality. For example, for the 1980 CSO-B Table, the calculated select mortality factors are eighty percent (80%) of the appropriate male table in this Appendix, plus twenty percent (20%) of the appropriate female table in this Appendix.

Appendix

| SELECT MORTALITY FACTORS | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Male, Aggregate | | | | | | | | | | | | Issue Age | Duration | | | | | | | | | | | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | | | 0-15 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 16 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 17 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 18 | 96 | 98 | 98 | 99 | 99 | 100 | 100 | 90 | 92 | 92 | | 19 | 83 | 84 | 84 | 87 | 87 | 87 | 79 | 79 | 79 | 81 | | 20 | 69 | 71 | 71 | 74 | 74 | 69 | 69 | 67 | 69 | 70 | | 21 | 66 | 68 | 69 | 71 | 66 | 66 | 67 | 66 | 67 | 70 | | 22 | 65 | 66 | 66 | 63 | 63 | 64 | 64 | 64 | 65 | 68 | | 23 | 62 | 63 | 59 | 60 | 62 | 62 | 63 | 63 | 64 | 65 | | 24 | 60 | 56 | 56 | 59 | 59 | 60 | 61 | 61 | 61 | 64 | | 25 | 52 | 53 | 55 | 56 | 58 | 58 | 60 | 60 | 60 | 63 | | 26 | 51 | 52 | 55 | 56 | 58 | 58 | 57 | 61 | 61 | 62 | | 27 | 51 | 52 | 55 | 57 | 58 | 60 | 61 | 61 | 60 | 63 | | 28 | 49 | 51 | 56 | 58 | 60 | 60 | 61 | 62 | 62 | 63 | | 29 | 49 | 51 | 56 | 58 | 60 | 61 | 62 | 62 | 62 | 64 | | 30 | 49 | 50 | 56 | 58 | 60 | 60 | 62 | 63 | 63 | 64 | | 31 | 47 | 50 | 56 | 58 | 60 | 62 | 63 | 64 | 64 | 62 | | 32 | 46 | 49 | 56 | 59 | 60 | 62 | 63 | 66 | 62 | 63 | | 33 | 43 | 49 | 56 | 59 | 62 | 63 | 64 | 62 | 65 | 66 | | 34 | 42 | 47 | 56 | 60 | 62 | 63 | 61 | 63 | 66 | 67 | | 35 | 40 | 47 | 56 | 60 | 63 | 61 | 62 | 65 | 67 | 68 | | 36 | 38 | 42 | 56 | 60 | 59 | 61 | 63 | 65 | 67 | 68 | | 37 | 38 | 45 | 56 | 57 | 61 | 62 | 63 | 65 | 67 | 68 | | 38 | 37 | 44 | 53 | 58 | 61 | 62 | 65 | 66 | 67 | 69 | | 39 | 37 | 41 | 53 | 58 | 62 | 63 | 65 | 65 | 66 | 68 | | 40 | 34 | 40 | 53 | 58 | 62 | 63 | 65 | 65 | 66 | 68 | | 41 | 34 | 41 | 53 | 58 | 62 | 63 | 65 | 64 | 64 | 66 | | 42 | 34 | 43 | 53 | 58 | 61 | 62 | 63 | 63 | 63 | 64 | | 43 | 34 | 43 | 54 | 59 | 60 | 61 | 63 | 62 | 62 | 64 | | 44 | 34 | 44 | 54 | 58 | 59 | 60 | 61 | 60 | 61 | 62 | | 45 | 34 | 45 | 53 | 58 | 59 | 60 | 60 | 60 | 59 | 60 | | 46 | 31 | 43 | 52 | 56 | 57 | 58 | 59 | 59 | 59 | 60 | | 47 | 32 | 42 | 50 | 53 | 55 | 56 | 57 | 58 | 59 | 60 | | 48 | 32 | 41 | 47 | 52 | 54 | 56 | 57 | 57 | 57 | 61 | | 49 | 30 | 40 | 46 | 49 | 52 | 54 | 55 | 56 | 57 | 61 | | 50 | 30 | 38 | 44 | 47 | 51 | 53 | 54 | 56 | 57 | 61 | | 51 | 28 | 37 | 42 | 46 | 49 | 53 | 54 | 56 | 57 | 61 | | 52 | 28 | 35 | 41 | 45 | 49 | 51 | 54 | 56 | 57 | 61 | | 53 | 27 | 35 | 39 | 44 | 48 | 51 | 53 | 55 | 57 | 61 | | 54 | 27 | 33 | 38 | 44 | 48 | 50 | 53 | 55 | 57 | 61 | | 55 | 25 | 32 | 37 | 43 | 47 | 50 | 53 | 55 | 57 | 61 | | 56 | 25 | 32 | 37 | 43 | 47 | 49 | 51 | 54 | 56 | 61 | | 57 | 24 | 31 | 38 | 43 | 47 | 49 | 51 | 54 | 56 | 59 | | 58 | 24 | 31 | 38 | 43 | 48 | 48 | 50 | 53 | 56 | 59 | | 59 | 23 | 30 | 39 | 43 | 48 | 48 | 51 | 53 | 55 | 58 | | 60 | 23 | 30 | 39 | 43 | 48 | 47 | 50 | 52 | 53 | 57 | | 61 | 23 | 30 | 39 | 43 | 49 | 49 | 50 | 52 | 53 | 75 | | 62 | 23 | 30 | 39 | 44 | 49 | 49 | 51 | 52 | 75 | 75 | | 63 | 22 | 30 | 39 | 45 | 50 | 50 | 52 | 75 | 75 | 75 | | 64 | 22 | 30 | 39 | 45 | 50 | 51 | 75 | 75 | 75 | 75 | | 65 | 22 | 30 | 39 | 45 | 50 | 65 | 70 | 70 | 70 | 70 | | 66 | 22 | 30 | 39 | 45 | 60 | 65 | 70 | 70 | 70 | 70 | | 67 | 22 | 30 | 39 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 68 | 23 | 32 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 69 | 23 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 70 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 71 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 72 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 73 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 74 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 75 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 76 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 100 | | 77 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 100 | 100 | | 78 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 100 | 100 | 100 | | 79 | 48 | 52 | 55 | 60 | 60 | 65 | 100 | 100 | 100 | 100 | | 80 | 48 | 52 | 55 | 60 | 60 | 100 | 100 | 100 | 100 | 100 | | 81 | 48 | 52 | 55 | 60 | 100 | 100 | 100 | 100 | 100 | 100 | | 82 | 48 | 52 | 55 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 83 | 48 | 52 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 84 | 48 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 85+ | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 |

| SELECT MORTALITY FACTORS | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Male, Aggregate | | | | | | | | | | | | Issue Age | Duration | | | | | | | | | | | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20+ | | | 0-15 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 16 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 17 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 18 | 92 | 92 | 93 | 93 | 96 | 97 | 98 | 98 | 99 | 100 | | 19 | 81 | 82 | 82 | 82 | 85 | 88 | 91 | 94 | 97 | 100 | | 20 | 71 | 71 | 71 | 71 | 74 | 79 | 84 | 90 | 95 | 100 | | 21 | 70 | 70 | 70 | 71 | 71 | 77 | 83 | 88 | 94 | 100 | | 22 | 68 | 68 | 68 | 69 | 71 | 77 | 83 | 88 | 94 | 100 | | 23 | 65 | 67 | 67 | 69 | 70 | 76 | 82 | 88 | 94 | 100 | | 24 | 64 | 64 | 66 | 67 | 70 | 76 | 82 | 88 | 94 | 100 | | 25 | 62 | 63 | 64 | 67 | 69 | 75 | 81 | 88 | 94 | 100 | | 26 | 63 | 64 | 66 | 69 | 66 | 73 | 80 | 86 | 93 | 100 | | 27 | 63 | 64 | 67 | 66 | 67 | 74 | 80 | 87 | 93 | 100 | | 28 | 64 | 66 | 65 | 66 | 68 | 74 | 81 | 87 | 94 | 100 | | 29 | 64 | 62 | 66 | 67 | 70 | 76 | 82 | 88 | 94 | 100 | | 30 | 62 | 63 | 67 | 68 | 71 | 77 | 83 | 88 | 94 | 100 | | 31 | 63 | 66 | 68 | 70 | 72 | 78 | 83 | 89 | 94 | 100 | | 32 | 66 | 67 | 70 | 72 | 73 | 78 | 84 | 89 | 95 | 100 | | 33 | 67 | 70 | 72 | 73 | 75 | 80 | 85 | 90 | 95 | 100 | | 34 | 70 | 71 | 73 | 75 | 76 | 81 | 86 | 90 | 95 | 100 | | 35 | 71 | 73 | 74 | 76 | 76 | 81 | 86 | 90 | 95 | 100 | | 36 | 70 | 72 | 74 | 76 | 77 | 82 | 86 | 91 | 95 | 100 | | 37 | 70 | 72 | 74 | 76 | 76 | 81 | 86 | 90 | 95 | 100 | | 38 | 69 | 73 | 75 | 76 | 77 | 82 | 86 | 91 | 95 | 100 | | 39 | 69 | 72 | 74 | 76 | 76 | 81 | 86 | 90 | 95 | 100 | | 40 | 68 | 71 | 75 | 76 | 77 | 82 | 86 | 91 | 95 | 100 | | 41 | 68 | 70 | 74 | 76 | 77 | 82 | 86 | 91 | 95 | 100 | | 42 | 66 | 69 | 72 | 75 | 77 | 82 | 86 | 91 | 95 | 100 | | 43 | 66 | 67 | 72 | 74 | 77 | 82 | 86 | 91 | 95 | 100 | | 44 | 64 | 67 | 71 | 74 | 77 | 82 | 86 | 91 | 95 | 100 | | 45 | 63 | 66 | 71 | 74 | 77 | 82 | 86 | 91 | 95 | 100 | | 46 | 63 | 67 | 71 | 74 | 75 | 80 | 85 | 90 | 95 | 100 | | 47 | 65 | 68 | 71 | 74 | 75 | 80 | 85 | 90 | 95 | 100 | | 48 | 65 | 68 | 72 | 73 | 74 | 79 | 84 | 90 | 95 | 100 | | 49 | 66 | 69 | 72 | 73 | 74 | 79 | 84 | 90 | 95 | 100 | | 50 | 66 | 71 | 72 | 73 | 75 | 80 | 85 | 90 | 95 | 100 | | 51 | 66 | 71 | 72 | 73 | 75 | 80 | 85 | 90 | 95 | 100 | | 52 | 66 | 71 | 72 | 74 | 75 | 80 | 85 | 90 | 100 | 100 | | 53 | 67 | 71 | 74 | 75 | 76 | 81 | 86 | 100 | 100 | 100 | | 54 | 67 | 72 | 74 | 75 | 76 | 81 | 100 | 100 | 100 | 100 | | 55 | 68 | 72 | 74 | 75 | 78 | 100 | 100 | 100 | 100 | 100 | | 56 | 67 | 70 | 73 | 74 | 100 | 100 | 100 | 100 | 100 | 100 | | 57 | 66 | 69 | 72 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 58 | 64 | 67 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 59 | 63 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 60 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 61 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 62 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 63 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 64 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 65 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 66 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 67 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 68 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 69 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 70 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 71 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 72 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 73 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 74 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 75 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 76 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 77 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 78 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 79 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 80 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 81 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 82 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 83 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 84 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 85+ | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 |

| Male, Non-Smoker | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Issue Age | Duration | | | | | | | | | | | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | | | 0-15 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 16 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 17 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 18 | 93 | 95 | 96 | 98 | 99 | 100 | 100 | 90 | 92 | 92 | | 19 | 80 | 81 | 83 | 86 | 87 | 87 | 79 | 79 | 79 | 81 | | 20 | 65 | 68 | 69 | 72 | 74 | 69 | 69 | 67 | 69 | 70 | | 21 | 63 | 66 | 68 | 71 | 66 | 66 | 67 | 66 | 67 | 70 | | 22 | 62 | 65 | 66 | 62 | 63 | 64 | 64 | 64 | 67 | 68 | | 23 | 60 | 62 | 58 | 60 | 62 | 62 | 63 | 63 | 64 | 67 | | 24 | 59 | 55 | 56 | 58 | 59 | 60 | 61 | 61 | 63 | 65 | | 25 | 52 | 53 | 55 | 56 | 58 | 58 | 60 | 60 | 61 | 64 | | 26 | 51 | 53 | 55 | 56 | 58 | 60 | 61 | 61 | 61 | 63 | | 27 | 51 | 52 | 55 | 58 | 60 | 60 | 61 | 61 | 62 | 63 | | 28 | 49 | 52 | 57 | 58 | 60 | 61 | 63 | 62 | 62 | 64 | | 29 | 49 | 51 | 57 | 60 | 61 | 61 | 62 | 62 | 63 | 64 | | 30 | 49 | 51 | 57 | 60 | 61 | 62 | 63 | 63 | 63 | 64 | | 31 | 47 | 50 | 57 | 60 | 60 | 62 | 63 | 64 | 64 | 62 | | 32 | 46 | 50 | 57 | 60 | 62 | 63 | 64 | 64 | 62 | 63 | | 33 | 45 | 49 | 56 | 60 | 62 | 63 | 64 | 62 | 63 | 65 | | 34 | 43 | 48 | 56 | 62 | 63 | 64 | 62 | 62 | 65 | 66 | | 35 | 41 | 47 | 56 | 62 | 63 | 61 | 62 | 63 | 66 | 67 | | 36 | 40 | 47 | 56 | 62 | 59 | 61 | 62 | 63 | 66 | 67 | | 37 | 38 | 45 | 56 | 58 | 59 | 61 | 62 | 63 | 66 | 67 | | 38 | 38 | 45 | 53 | 58 | 61 | 62 | 63 | 65 | 65 | 67 | | 39 | 37 | 41 | 53 | 58 | 61 | 62 | 63 | 64 | 65 | 67 | | 40 | 34 | 41 | 53 | 58 | 61 | 62 | 63 | 64 | 64 | 66 | | 41 | 34 | 41 | 53 | 58 | 61 | 61 | 62 | 62 | 63 | 65 | | 42 | 34 | 43 | 53 | 58 | 60 | 61 | 62 | 61 | 61 | 63 | | 43 | 32 | 43 | 53 | 58 | 60 | 61 | 60 | 60 | 60 | 60 | | 44 | 32 | 44 | 52 | 57 | 59 | 60 | 60 | 59 | 59 | 58 | | 45 | 32 | 44 | 52 | 57 | 59 | 60 | 59 | 57 | 57 | 57 | | 46 | 32 | 42 | 50 | 54 | 56 | 57 | 57 | 56 | 55 | 56 | | 47 | 30 | 40 | 48 | 52 | 54 | 55 | 55 | 54 | 54 | 55 | | 48 | 30 | 40 | 46 | 49 | 51 | 52 | 53 | 53 | 54 | 55 | | 49 | 29 | 39 | 43 | 48 | 50 | 51 | 50 | 51 | 53 | 54 | | 50 | 29 | 37 | 42 | 45 | 47 | 48 | 49 | 50 | 51 | 54 | | 51 | 27 | 35 | 40 | 43 | 45 | 47 | 48 | 50 | 51 | 53 | | 52 | 27 | 34 | 39 | 42 | 44 | 45 | 48 | 49 | 50 | 53 | | 53 | 25 | 31 | 37 | 41 | 44 | 45 | 47 | 49 | 50 | 51 | | 54 | 25 | 30 | 36 | 39 | 43 | 44 | 47 | 48 | 49 | 51 | | 55 | 24 | 29 | 35 | 38 | 42 | 43 | 45 | 48 | 49 | 50 | | 56 | 23 | 29 | 35 | 38 | 42 | 42 | 44 | 47 | 48 | 50 | | 57 | 23 | 28 | 35 | 38 | 42 | 42 | 43 | 45 | 47 | 49 | | 58 | 22 | 28 | 33 | 37 | 41 | 41 | 43 | 45 | 45 | 47 | | 59 | 22 | 26 | 33 | 37 | 41 | 41 | 42 | 44 | 44 | 46 | | 60 | 20 | 26 | 33 | 37 | 41 | 40 | 41 | 42 | 42 | 45 | | 61 | 20 | 26 | 33 | 37 | 41 | 40 | 41 | 42 | 42 | 75 | | 62 | 19 | 25 | 32 | 38 | 40 | 40 | 41 | 42 | 75 | 75 | | 63 | 19 | 25 | 33 | 36 | 40 | 40 | 41 | 75 | 75 | 75 | | 64 | 18 | 24 | 32 | 36 | 39 | 40 | 75 | 75 | 75 | 75 | | 65 | 18 | 24 | 32 | 36 | 39 | 65 | 70 | 70 | 70 | 70 | | 66 | 18 | 24 | 32 | 36 | 60 | 65 | 70 | 70 | 70 | 70 | | 67 | 18 | 24 | 32 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 68 | 18 | 24 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 69 | 18 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 70 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 71 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 72 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 73 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 74 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 75 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 76 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 100 | | 77 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 100 | 100 | | 78 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 100 | 100 | 100 | | 79 | 48 | 52 | 55 | 60 | 60 | 65 | 100 | 100 | 100 | 100 | | 80 | 48 | 52 | 55 | 60 | 60 | 100 | 100 | 100 | 100 | 100 | | 81 | 48 | 52 | 55 | 60 | 100 | 100 | 100 | 100 | 100 | 100 | | 82 | 48 | 52 | 55 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 83 | 48 | 52 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 84 | 48 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 85+ | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 |

| Male, Non-Smoker | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Issue Age | Duration | | | | | | | | | | | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20+ | | | 0-15 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 16 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 17 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 18 | 92 | 92 | 95 | 95 | 96 | 97 | 98 | 98 | 99 | 100 | | 19 | 81 | 82 | 83 | 83 | 86 | 89 | 92 | 94 | 97 | 100 | | 20 | 71 | 71 | 72 | 72 | 75 | 80 | 85 | 90 | 95 | 100 | | 21 | 70 | 70 | 71 | 71 | 73 | 78 | 84 | 89 | 95 | 100 | | 22 | 68 | 68 | 70 | 70 | 73 | 78 | 84 | 89 | 95 | 100 | | 23 | 68 | 68 | 67 | 69 | 71 | 77 | 83 | 88 | 94 | 100 | | 24 | 67 | 66 | 66 | 69 | 71 | 77 | 83 | 88 | 94 | 100 | | 25 | 64 | 64 | 64 | 67 | 70 | 76 | 82 | 88 | 94 | 100 | | 26 | 64 | 64 | 66 | 69 | 67 | 74 | 80 | 87 | 93 | 100 | | 27 | 64 | 66 | 67 | 66 | 67 | 74 | 80 | 87 | 93 | 100 | | 28 | 66 | 66 | 63 | 66 | 68 | 74 | 81 | 87 | 94 | 100 | | 29 | 66 | 63 | 65 | 67 | 68 | 74 | 81 | 87 | 94 | 100 | | 30 | 62 | 63 | 66 | 68 | 70 | 76 | 82 | 88 | 94 | 100 | | 31 | 63 | 65 | 67 | 70 | 71 | 77 | 83 | 88 | 94 | 100 | | 32 | 65 | 66 | 68 | 71 | 72 | 78 | 83 | 89 | 94 | 100 | | 33 | 66 | 68 | 71 | 73 | 74 | 79 | 84 | 90 | 95 | 100 | | 34 | 67 | 70 | 72 | 74 | 74 | 79 | 84 | 90 | 95 | 100 | | 35 | 68 | 70 | 72 | 74 | 75 | 80 | 85 | 90 | 95 | 100 | | 36 | 68 | 70 | 72 | 74 | 75 | 80 | 85 | 90 | 95 | 100 | | 37 | 67 | 69 | 71 | 73 | 74 | 79 | 84 | 90 | 95 | 100 | | 38 | 68 | 70 | 72 | 74 | 73 | 78 | 84 | 89 | 95 | 100 | | 39 | 68 | 70 | 71 | 73 | 73 | 78 | 84 | 89 | 95 | 100 | | 40 | 67 | 69 | 71 | 73 | 72 | 78 | 83 | 89 | 94 | 100 | | 41 | 65 | 67 | 69 | 71 | 71 | 77 | 83 | 88 | 94 | 100 | | 42 | 64 | 66 | 67 | 69 | 71 | 77 | 83 | 88 | 94 | 100 | | 43 | 62 | 64 | 66 | 68 | 69 | 75 | 81 | 88 | 94 | 100 | | 44 | 60 | 62 | 65 | 67 | 69 | 75 | 81 | 88 | 94 | 100 | | 45 | 59 | 61 | 63 | 66 | 68 | 74 | 81 | 87 | 94 | 100 | | 46 | 59 | 61 | 63 | 65 | 67 | 74 | 80 | 87 | 93 | 100 | | 47 | 59 | 61 | 62 | 63 | 66 | 73 | 80 | 86 | 93 | 100 | | 48 | 57 | 61 | 62 | 63 | 63 | 70 | 78 | 85 | 93 | 100 | | 49 | 57 | 61 | 61 | 62 | 62 | 70 | 77 | 85 | 92 | 100 | | 50 | 57 | 61 | 61 | 61 | 61 | 69 | 77 | 84 | 92 | 100 | | 51 | 57 | 60 | 61 | 61 | 62 | 70 | 77 | 85 | 92 | 100 | | 52 | 56 | 60 | 60 | 62 | 62 | 70 | 77 | 85 | 100 | 100 | | 53 | 56 | 59 | 61 | 61 | 62 | 70 | 77 | 100 | 100 | 100 | | 54 | 55 | 59 | 59 | 61 | 62 | 70 | 100 | 100 | 100 | 100 | | 55 | 56 | 58 | 59 | 61 | 62 | 100 | 100 | 100 | 100 | 100 | | 56 | 55 | 57 | 58 | 59 | 100 | 100 | 100 | 100 | 100 | 100 | | 57 | 53 | 55 | 56 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 58 | 51 | 53 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 59 | 50 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 60 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 61 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 62 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 63 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 64 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 65 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 66 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 67 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 68 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 69 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 70 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 71 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 72 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 73 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 74 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 75 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 76 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 77 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 78 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 79 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 80 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 81 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 82 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 83 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 84 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 85+ | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 |

| Male, Smoker | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Issue Age | Duration | | | | | | | | | | | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | | | 0-15 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 16 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 17 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 18 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 19 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 20 | 98 | 100 | 100 | 100 | 100 | 100 | 100 | 99 | 99 | 99 | | 21 | 95 | 98 | 99 | 100 | 95 | 96 | 96 | 95 | 96 | 97 | | 22 | 92 | 95 | 96 | 90 | 90 | 93 | 93 | 92 | 93 | 95 | | 23 | 90 | 92 | 85 | 88 | 88 | 89 | 89 | 89 | 90 | 90 | | 24 | 87 | 81 | 82 | 85 | 84 | 86 | 88 | 86 | 86 | 88 | | 25 | 77 | 78 | 79 | 82 | 81 | 83 | 83 | 82 | 83 | 85 | | 26 | 75 | 77 | 79 | 82 | 82 | 83 | 83 | 82 | 83 | 84 | | 27 | 73 | 75 | 78 | 82 | 82 | 83 | 83 | 82 | 82 | 82 | | 28 | 71 | 73 | 79 | 82 | 81 | 82 | 83 | 81 | 81 | 82 | | 29 | 69 | 72 | 78 | 81 | 81 | 82 | 82 | 81 | 81 | 81 | | 30 | 68 | 71 | 78 | 81 | 81 | 81 | 82 | 81 | 81 | 81 | | 31 | 65 | 70 | 77 | 81 | 79 | 81 | 82 | 81 | 81 | 76 | | 32 | 63 | 67 | 77 | 78 | 79 | 81 | 81 | 81 | 76 | 77 | | 33 | 60 | 65 | 74 | 78 | 79 | 79 | 81 | 76 | 77 | 77 | | 34 | 57 | 62 | 74 | 77 | 79 | 79 | 75 | 76 | 77 | 79 | | 35 | 53 | 60 | 73 | 77 | 79 | 75 | 75 | 76 | 77 | 79 | | 36 | 52 | 59 | 71 | 75 | 74 | 75 | 75 | 76 | 77 | 79 | | 37 | 49 | 58 | 70 | 71 | 74 | 74 | 75 | 76 | 77 | 78 | | 38 | 48 | 55 | 66 | 70 | 72 | 74 | 74 | 75 | 76 | 78 | | 39 | 45 | 50 | 65 | 70 | 72 | 72 | 74 | 74 | 75 | 77 | | 40 | 41 | 49 | 63 | 68 | 71 | 72 | 73 | 74 | 74 | 76 | | 41 | 40 | 49 | 63 | 68 | 71 | 72 | 72 | 72 | 73 | 75 | | 42 | 40 | 49 | 62 | 68 | 70 | 71 | 71 | 71 | 71 | 73 | | 43 | 39 | 50 | 62 | 67 | 69 | 69 | 70 | 70 | 70 | 71 | | 44 | 39 | 50 | 60 | 66 | 68 | 69 | 68 | 69 | 69 | 69 | | 45 | 37 | 50 | 60 | 66 | 68 | 68 | 68 | 67 | 67 | 67 | | 46 | 37 | 48 | 58 | 63 | 65 | 67 | 66 | 66 | 66 | 67 | | 47 | 36 | 47 | 55 | 61 | 63 | 64 | 64 | 64 | 65 | 67 | | 48 | 35 | 46 | 53 | 58 | 60 | 62 | 63 | 63 | 65 | 67 | | 49 | 34 | 45 | 51 | 56 | 58 | 59 | 61 | 62 | 63 | 67 | | 50 | 34 | 43 | 49 | 53 | 55 | 57 | 60 | 61 | 63 | 67 | | 51 | 32 | 42 | 47 | 52 | 55 | 57 | 60 | 61 | 63 | 67 | | 52 | 32 | 40 | 46 | 50 | 54 | 56 | 60 | 61 | 63 | 67 | | 53 | 30 | 37 | 44 | 49 | 54 | 56 | 59 | 61 | 65 | 67 | | 54 | 30 | 36 | 43 | 48 | 53 | 55 | 59 | 61 | 65 | 67 | | 55 | 29 | 35 | 42 | 47 | 53 | 55 | 59 | 61 | 65 | 67 | | 56 | 28 | 35 | 42 | 47 | 53 | 55 | 57 | 60 | 63 | 68 | | 57 | 28 | 35 | 42 | 47 | 53 | 54 | 57 | 60 | 64 | 67 | | 58 | 26 | 33 | 43 | 48 | 54 | 54 | 56 | 59 | 63 | 67 | | 59 | 26 | 33 | 43 | 48 | 54 | 53 | 57 | 59 | 63 | 66 | | 60 | 25 | 33 | 43 | 48 | 54 | 53 | 56 | 58 | 62 | 66 | | 61 | 25 | 33 | 43 | 49 | 55 | 55 | 57 | 59 | 63 | 75 | | 62 | 25 | 33 | 43 | 50 | 56 | 56 | 58 | 61 | 75 | 75 | | 63 | 24 | 33 | 45 | 51 | 56 | 56 | 59 | 75 | 75 | 75 | | 64 | 24 | 34 | 45 | 51 | 57 | 57 | 75 | 75 | 75 | 75 | | 65 | 24 | 34 | 45 | 52 | 57 | 65 | 70 | 70 | 70 | 70 | | 66 | 24 | 35 | 45 | 53 | 60 | 65 | 70 | 70 | 70 | 70 | | 67 | 25 | 35 | 45 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 68 | 25 | 36 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 69 | 27 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 70 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 71 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 72 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 73 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 74 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 75 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 70 | | 76 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 70 | 100 | | 77 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 70 | 100 | 100 | | 78 | 48 | 52 | 55 | 60 | 60 | 65 | 70 | 100 | 100 | 100 | | 79 | 48 | 52 | 55 | 60 | 60 | 65 | 100 | 100 | 100 | 100 | | 80 | 48 | 52 | 55 | 60 | 60 | 100 | 100 | 100 | 100 | 100 | | 81 | 48 | 52 | 55 | 60 | 100 | 100 | 100 | 100 | 100 | 100 | | 82 | 48 | 52 | 55 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 83 | 48 | 52 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 84 | 48 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 85+ | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 |

| Male, Smoker | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Issue Age | Duration | | | | | | | | | | | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20+ | | | 0-15 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 16 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 17 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 18 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 19 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 20 | 100 | 99 | 99 | 99 | 100 | 100 | 100 | 100 | 100 | 100 | | 21 | 97 | 96 | 96 | 96 | 96 | 97 | 98 | 98 | 99 | 100 | | 22 | 95 | 93 | 93 | 92 | 93 | 94 | 96 | 97 | 99 | 100 | | 23 | 90 | 90 | 89 | 90 | 92 | 94 | 95 | 97 | 98 | 100 | | 24 | 88 | 86 | 86 | 88 | 89 | 91 | 93 | 96 | 98 | 100 | | 25 | 84 | 84 | 84 | 85 | 86 | 89 | 92 | 94 | 97 | 100 | | 26 | 84 | 84 | 84 | 85 | 81 | 85 | 89 | 92 | 96 | 100 | | 27 | 82 | 84 | 84 | 80 | 81 | 85 | 89 | 92 | 96 | 100 | | 28 | 82 | 82 | 80 | 80 | 81 | 85 | 89 | 92 | 96 | 100 | | 29 | 81 | 77 | 80 | 80 | 81 | 85 | 89 | 92 | 96 | 100 | | 30 | 76 | 77 | 80 | 80 | 81 | 85 | 89 | 92 | 96 | 100 | | 31 | 77 | 79 | 81 | 81 | 83 | 86 | 90 | 93 | 97 | 100 | | 32 | 77 | 80 | 83 | 83 | 85 | 88 | 91 | 94 | 97 | 100 | | 33 | 79 | 80 | 83 | 85 | 85 | 88 | 91 | 94 | 97 | 100 | | 34 | 79 | 81 | 83 | 85 | 87 | 90 | 92 | 95 | 97 | 100 | | 35 | 80 | 82 | 84 | 86 | 88 | 90 | 93 | 95 | 98 | 100 | | 36 | 79 | 81 | 83 | 85 | 87 | 90 | 92 | 95 | 97 | 100 | | 37 | 79 | 81 | 84 | 86 | 86 | 89 | 92 | 94 | 97 | 100 | | 38 | 79 | 81 | 83 | 85 | 87 | 90 | 92 | 95 | 97 | 100 | | 39 | 79 | 81 | 84 | 86 | 86 | 89 | 92 | 94 | 97 | 100 | | 40 | 78 | 80 | 83 | 85 | 86 | 89 | 92 | 94 | 97 | 100 | | 41 | 76 | 78 | 81 | 84 | 85 | 88 | 91 | 94 | 97 | 100 | | 42 | 75 | 76 | 81 | 83 | 85 | 88 | 91 | 94 | 97 | 100 | | 43 | 73 | 76 | 79 | 83 | 85 | 88 | 91 | 94 | 97 | 100 | | 44 | 71 | 74 | 79 | 81 | 85 | 88 | 91 | 94 | 97 | 100 | | 45 | 69 | 73 | 78 | 81 | 85 | 88 | 91 | 94 | 97 | 100 | | 46 | 71 | 74 | 78 | 81 | 84 | 87 | 90 | 94 | 97 | 100 | | 47 | 71 | 75 | 79 | 81 | 84 | 87 | 90 | 94 | 97 | 100 | | 48 | 72 | 75 | 79 | 81 | 83 | 86 | 90 | 93 | 97 | 100 | | 49 | 72 | 77 | 80 | 81 | 83 | 86 | 90 | 93 | 97 | 100 | | 50 | 73 | 78 | 80 | 81 | 81 | 85 | 89 | 92 | 96 | 100 | | 51 | 73 | 78 | 80 | 83 | 84 | 87 | 90 | 94 | 97 | 100 | | 52 | 73 | 78 | 81 | 84 | 85 | 88 | 91 | 94 | 100 | 100 | | 53 | 74 | 79 | 83 | 85 | 87 | 90 | 92 | 100 | 100 | 100 | | 54 | 74 | 80 | 84 | 85 | 89 | 91 | 100 | 100 | 100 | 100 | | 55 | 75 | 80 | 84 | 86 | 90 | 100 | 100 | 100 | 100 | 100 | | 56 | 74 | 79 | 83 | 85 | 100 | 100 | 100 | 100 | 100 | 100 | | 57 | 74 | 78 | 81 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 58 | 73 | 78 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 59 | 73 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 60 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 61 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 62 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 63 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 64 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 65 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 66 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 67 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 68 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 69 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 70 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 71 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 72 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 73 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 74 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 75 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 76 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 77 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 78 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 79 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 80 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 81 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 82 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 83 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 84 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 85+ | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 |

| Female, Aggregate | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Issue Age | Duration | | | | | | | | | | | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | | | 0-15 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 16 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 17 | 99 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 93 | 95 | | 18 | 83 | 83 | 84 | 84 | 84 | 84 | 86 | 78 | 78 | 79 | | 19 | 65 | 66 | 68 | 68 | 68 | 68 | 63 | 63 | 64 | 66 | | 20 | 48 | 50 | 51 | 51 | 51 | 47 | 48 | 48 | 49 | 51 | | 21 | 47 | 48 | 50 | 51 | 47 | 47 | 48 | 49 | 51 | 53 | | 22 | 44 | 47 | 48 | 45 | 47 | 47 | 48 | 49 | 53 | 54 | | 23 | 42 | 45 | 44 | 45 | 47 | 47 | 49 | 51 | 53 | 54 | | 24 | 39 | 40 | 42 | 44 | 47 | 47 | 50 | 51 | 54 | 56 | | 25 | 34 | 38 | 41 | 44 | 47 | 47 | 50 | 53 | 56 | 57 | | 26 | 34 | 38 | 41 | 45 | 49 | 49 | 51 | 56 | 58 | 59 | | 27 | 34 | 38 | 41 | 47 | 50 | 51 | 54 | 57 | 59 | 60 | | 28 | 34 | 37 | 43 | 47 | 53 | 53 | 56 | 59 | 62 | 63 | | 29 | 34 | 38 | 43 | 49 | 54 | 56 | 58 | 60 | 63 | 64 | | 30 | 35 | 38 | 43 | 50 | 56 | 56 | 59 | 63 | 66 | 67 | | 31 | 35 | 38 | 43 | 51 | 56 | 58 | 60 | 64 | 67 | 65 | | 32 | 35 | 39 | 45 | 51 | 56 | 59 | 63 | 66 | 65 | 66 | | 33 | 36 | 39 | 44 | 52 | 58 | 62 | 64 | 65 | 66 | 67 | | 34 | 36 | 40 | 45 | 52 | 58 | 63 | 63 | 66 | 67 | 68 | | 35 | 36 | 40 | 45 | 53 | 59 | 61 | 65 | 67 | 68 | 70 | | 36 | 36 | 40 | 45 | 53 | 55 | 62 | 65 | 67 | 68 | 70 | | 37 | 36 | 41 | 47 | 52 | 57 | 62 | 65 | 67 | 68 | 69 | | 38 | 34 | 41 | 44 | 52 | 57 | 63 | 66 | 68 | 69 | 70 | | 39 | 34 | 40 | 45 | 53 | 58 | 63 | 66 | 68 | 69 | 69 | | 40 | 32 | 40 | 45 | 53 | 58 | 65 | 65 | 67 | 68 | 69 | | 41 | 32 | 40 | 45 | 53 | 57 | 63 | 64 | 67 | 68 | 68 | | 42 | 32 | 40 | 45 | 52 | 56 | 61 | 63 | 65 | 66 | 68 | | 43 | 31 | 39 | 45 | 51 | 55 | 59 | 61 | 65 | 65 | 66 | | 44 | 31 | 39 | 45 | 50 | 54 | 58 | 61 | 63 | 64 | 66 | | 45 | 31 | 38 | 44 | 49 | 53 | 56 | 59 | 62 | 63 | 65 | | 46 | 29 | 37 | 43 | 48 | 51 | 54 | 59 | 62 | 63 | 65 | | 47 | 28 | 35 | 41 | 46 | 49 | 54 | 57 | 61 | 62 | 66 | | 48 | 28 | 35 | 41 | 44 | 49 | 52 | 57 | 61 | 63 | 66 | | 49 | 26 | 34 | 39 | 43 | 47 | 52 | 55 | 61 | 63 | 67 | | 50 | 25 | 32 | 38 | 41 | 46 | 50 | 55 | 61 | 63 | 67 | | 51 | 25 | 32 | 38 | 41 | 45 | 50 | 55 | 61 | 63 | 66 | | 52 | 23 | 30 | 36 | 41 | 45 | 51 | 56 | 61 | 62 | 65 | | 53 | 23 | 30 | 36 | 41 | 47 | 51 | 56 | 61 | 62 | 63 | | 54 | 22 | 29 | 35 | 41 | 47 | 53 | 57 | 61 | 61 | 62 | | 55 | 22 | 29 | 35 | 41 | 47 | 53 | 57 | 61 | 61 | 61 | | 56 | 22 | 29 | 35 | 41 | 45 | 51 | 56 | 59 | 60 | 61 | | 57 | 22 | 29 | 35 | 41 | 45 | 50 | 54 | 56 | 58 | 59 | | 58 | 22 | 30 | 36 | 41 | 44 | 49 | 53 | 56 | 57 | 57 | | 59 | 22 | 30 | 36 | 41 | 44 | 48 | 51 | 53 | 55 | 56 | | 60 | 22 | 30 | 36 | 41 | 43 | 47 | 50 | 51 | 53 | 55 | | 61 | 22 | 29 | 35 | 39 | 42 | 46 | 49 | 50 | 52 | 80 | | 62 | 20 | 28 | 33 | 39 | 41 | 45 | 47 | 49 | 80 | 80 | | 63 | 20 | 28 | 33 | 38 | 41 | 44 | 46 | 80 | 80 | 80 | | 64 | 19 | 27 | 32 | 36 | 40 | 42 | 80 | 80 | 80 | 80 | | 65 | 19 | 25 | 30 | 35 | 39 | 72 | 75 | 75 | 80 | 80 | | 66 | 19 | 25 | 30 | 35 | 72 | 72 | 75 | 75 | 80 | 80 | | 67 | 19 | 25 | 30 | 72 | 72 | 72 | 75 | 75 | 80 | 80 | | 68 | 19 | 25 | 68 | 72 | 72 | 72 | 75 | 75 | 80 | 80 | | 69 | 19 | 64 | 68 | 72 | 72 | 72 | 75 | 75 | 80 | 80 | | 70 | 60 | 60 | 64 | 68 | 68 | 72 | 75 | 75 | 80 | 80 | | 71 | 60 | 60 | 64 | 68 | 68 | 72 | 75 | 75 | 80 | 80 | | 72 | 60 | 60 | 64 | 68 | 68 | 72 | 75 | 75 | 80 | 80 | | 73 | 60 | 60 | 64 | 68 | 68 | 72 | 75 | 75 | 80 | 80 | | 74 | 60 | 60 | 64 | 68 | 68 | 72 | 75 | 75 | 80 | 80 | | 75 | 60 | 60 | 64 | 68 | 68 | 72 | 75 | 75 | 80 | 80 | | 76 | 60 | 60 | 64 | 68 | 68 | 72 | 75 | 75 | 80 | 100 | | 77 | 60 | 60 | 64 | 68 | 68 | 72 | 75 | 75 | 100 | 100 | | 78 | 60 | 60 | 64 | 68 | 68 | 72 | 75 | 100 | 100 | 100 | | 79 | 60 | 60 | 64 | 68 | 68 | 72 | 100 | 100 | 100 | 100 | | 80 | 60 | 60 | 64 | 68 | 68 | 100 | 100 | 100 | 100 | 100 | | 81 | 60 | 60 | 64 | 68 | 100 | 100 | 100 | 100 | 100 | 100 | | 82 | 60 | 60 | 64 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 83 | 60 | 60 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 84 | 60 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 85+ | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 |

| Female, Aggregate | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Issue Age | Duration | | | | | | | | | | | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20+ | | | 0-15 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 16 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 17 | 96 | 97 | 97 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 18 | 82 | 84 | 85 | 88 | 88 | 90 | 93 | 95 | 98 | 100 | | 19 | 69 | 71 | 72 | 74 | 75 | 80 | 85 | 90 | 95 | 100 | | 20 | 56 | 57 | 58 | 61 | 63 | 70 | 78 | 85 | 93 | 100 | | 21 | 57 | 60 | 61 | 64 | 64 | 71 | 78 | 86 | 93 | 100 | | 22 | 60 | 61 | 63 | 64 | 66 | 73 | 80 | 86 | 93 | 100 | | 23 | 61 | 64 | 64 | 67 | 69 | 75 | 81 | 88 | 94 | 100 | | 24 | 64 | 64 | 66 | 69 | 70 | 76 | 82 | 88 | 94 | 100 | | 25 | 64 | 67 | 69 | 71 | 73 | 78 | 84 | 89 | 95 | 100 | | 26 | 66 | 69 | 70 | 73 | 70 | 76 | 82 | 88 | 94 | 100 | | 27 | 69 | 70 | 73 | 70 | 71 | 77 | 83 | 88 | 94 | 100 | | 28 | 70 | 73 | 70 | 72 | 74 | 79 | 84 | 90 | 95 | 100 | | 29 | 73 | 70 | 72 | 74 | 75 | 80 | 85 | 90 | 95 | 100 | | 30 | 70 | 71 | 74 | 75 | 76 | 81 | 86 | 90 | 95 | 100 | | 31 | 71 | 72 | 74 | 75 | 76 | 81 | 86 | 90 | 95 | 100 | | 32 | 72 | 72 | 75 | 76 | 76 | 81 | 86 | 90 | 95 | 100 | | 33 | 72 | 74 | 75 | 76 | 76 | 81 | 86 | 90 | 95 | 100 | | 34 | 74 | 74 | 76 | 76 | 76 | 81 | 86 | 90 | 95 | 100 | | 35 | 75 | 74 | 75 | 76 | 75 | 80 | 85 | 90 | 95 | 100 | | 36 | 74 | 74 | 74 | 75 | 75 | 80 | 85 | 90 | 95 | 100 | | 37 | 72 | 72 | 73 | 75 | 74 | 79 | 84 | 90 | 95 | 100 | | 38 | 72 | 71 | 72 | 74 | 75 | 80 | 85 | 90 | 95 | 100 | | 39 | 70 | 70 | 70 | 73 | 74 | 79 | 84 | 90 | 95 | 100 | | 40 | 70 | 69 | 70 | 73 | 73 | 78 | 84 | 89 | 95 | 100 | | 41 | 69 | 69 | 69 | 73 | 74 | 79 | 84 | 90 | 95 | 100 | | 42 | 69 | 68 | 70 | 74 | 75 | 80 | 85 | 90 | 95 | 100 | | 43 | 68 | 69 | 69 | 74 | 77 | 82 | 86 | 91 | 95 | 100 | | 44 | 67 | 68 | 71 | 75 | 78 | 82 | 87 | 91 | 96 | 100 | | 45 | 67 | 68 | 71 | 77 | 79 | 83 | 87 | 92 | 96 | 100 | | 46 | 67 | 69 | 71 | 77 | 78 | 82 | 87 | 91 | 96 | 100 | | 47 | 68 | 69 | 71 | 77 | 77 | 82 | 86 | 91 | 95 | 100 | | 48 | 68 | 71 | 72 | 75 | 77 | 82 | 86 | 91 | 95 | 100 | | 49 | 69 | 71 | 72 | 75 | 75 | 80 | 85 | 90 | 95 | 100 | | 50 | 69 | 72 | 72 | 75 | 74 | 79 | 84 | 90 | 95 | 100 | | 51 | 68 | 69 | 71 | 74 | 74 | 79 | 84 | 90 | 95 | 100 | | 52 | 66 | 68 | 68 | 73 | 73 | 78 | 84 | 89 | 100 | 100 | | 53 | 65 | 66 | 68 | 72 | 72 | 78 | 83 | 100 | 100 | 100 | | 54 | 62 | 66 | 66 | 69 | 70 | 76 | 100 | 100 | 100 | 100 | | 55 | 62 | 63 | 64 | 68 | 69 | 100 | 100 | 100 | 100 | 100 | | 56 | 62 | 63 | 64 | 67 | 100 | 100 | 100 | 100 | 100 | 100 | | 57 | 61 | 62 | 63 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 58 | 61 | 62 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 59 | 59 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 60 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 61 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 62 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 63 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 64 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 65 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 66 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 67 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 68 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 69 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 70 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 71 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 72 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 73 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 74 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 75 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 76 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 77 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 78 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 79 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 80 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 81 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 82 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 83 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 84 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | | 85+ | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 |

History

• Effective Date: January 1, 2000 (Secretary of State Rule Log #99-78)
• Statutory Authority: 8 V.S.A. § 75 and Chapter 103, Subchapter 4

Chapter 046 RULES GOVERNING NONPROFIT CORPORATION WORKERS' COMPENSATION PROGRAMS

21-046 Code Vt. R. 21-020-046-X RULES GOVERNING NONPROFIT CORPORATION WORKERS' COMPENSATION PROGRAMS

Section 1 PURPOSE AND AUTHORITY

This regulation is promulgated pursuant to and in accordance with the provisions of Title 21 Section 687a of the Vermont Statutes Annotated. Its purpose is to establish rules, forms, and procedures relating to the administration and operation of any nonprofit corporation formed by an association in existence in Vermont for 5 or more continuous years for the purpose of securing workers' compensation and employer's liability insurance for employees of participating association member employers, for participating association member employers, for employees of the association, and for the association itself; to expedite approval of complying plans of operation; to provide for the fiscal integrity of agreements entered into under 21 V.S.A. § 687a; and to provide that trade, market, and claim practices engaged in by such corporations are equitable, fair, consistent, and in compliance with Vermont workers' compensation laws and regulations.

Systems, processes and procedures implementing the regulations governing intermunicipal insurance agreements authorized by subchapter 6 of chapter 121 of Title 24 and captive insurance companies chartered under chapter 141 of Title 8, to the extent applicable, may be utilized by the Commissioner in regulating workers' compensation programs subject to this regulation.

Section 2 DEFINITIONS

A. "Actuary" or "Approved Actuary" means a person who is not an employee of the corporation, who is a member of the Casualty Actuarial Society, who has been approved by the Commissioner and who has experience in the area of self-insured workers' compensation programs. The actuary must apply to the Department to be placed upon the approved list and have demonstrated expertise and experience in workers' compensation self insurance to the satisfaction of the Commissioner.

B. "Administrator" means the individual, partnership, corporate or other entity authorized to serve as a representative of the corporation in carrying out the policies of the corporation's board and managing the corporation's activities.

C. "Association" means an association which has been in existence in Vermont for five or more continuous years which has chosen to establish a nonprofit corporation for purposes in accordance with 21 V.S.A. § 687a.

D. "Board" means the Board of Directors or other governing authority of the corporation selected by its members pursuant to the Member Agreement and the Bylaws, and in accordance with 21 V.S.A. § 687a and 11 V.S.A. chapter 19.

E. "Commissioner" means the Commissioner of the Department of Banking, Insurance, and Securities of the State of Vermont.

F. "Contribution" means money, or a money equivalent approved by the Commissioner, required of a corporation member for the purpose of distributing, sharing, or pooling workers compensation risks in a nonprofit corporation's workers' compensation program.

G. "Corporation" means a nonprofit corporation established in accordance with 21 V.S.A. § 687a and 11 V.S.A. chapter 19.

H. "Department" means the Vermont Department of Banking, Insurance and Securities.

I. "Excess funds" means funds in excess of Reserves, Surplus and the capital necessary to fund the general operation of the corporation, as set.forth in Section 14.

J. "Fiscal integrity" means the economic soundness and fairness of a nonprofit corporation's workers' compensation program.

K. "Member" means a Vermont employer which has membership rights in a nonprofit corporation established in accordance with 21 V.S.A. § 687a and 11 V.S.A. chapter 19.

L. "Member Agreement" means the written contract between a corporation member and the corporation, in addition to the corporation's bylaws, setting forth the conditions of membership in the corporation, and the obligations of each member to the other members.

M. "Program" or "Workers' Compensation Program" means the program of workers' compensation and employer's liability insurance, self insurance, risk management or combination thereof offered by the corporation, in accordance with 21 V.S.A. § 687a, to its members and to the association.

N. "Reserves" means capital set aside for payment of claims and claims-related expenses, as set forth in Section 11.

O. "Service agent" or "Agent" means any individual, partnership, corporation or other entity that may provide any or all of the services necessary to create or maintain an approved corporation's program, including but not limited to claims adjustment, safety engineering, compilation of statistics, the preparation and collection of contribution payments, loss reports and the administration of a claims fund.

P. "Surplus," as set forth in Section 10, means fund balance in excess of organization and ongoing general operation costs, and in excess of Reserves.

Q. "Trade, marketing and claim practices" means the methods employed by the corporation in advertising, promoting, selling, administering and managing its insurance program to and for its members and prospective members, and the corporation's treatment of any employee of a member or of the association or any claimant with respect to the members' or the association's obligations under 21 V.S.A. chapter 9.

R. "Workers' Compensation Program Contract" means the written contract between a corporation member and the corporation setting forth the terms of the Workers' Compensation Program.

Section 3 APPLICATION FOR APPROVAL OF PLAN OF OPERATION AND ALL CONTRACTS, AGREEMENTS, AND OTHER DOCUMENTS UNDERLYING OR IMPLEMENTING THE PLAN OF OPERATION

A. An association which has been in existence in Vermont for five or more continuous years may establish and maintain a nonprofit corporation to secure workers' compensation insurance for employees of participating association member employers and/or for employees of the association itself, by self insurance, by obtaining or effecting insurance from any insurer authorized to transact business in this state as an admitted or surplus lines carrier, or by obtaining and effecting insurance secured in accordance with any other method provided by law, or by combination of the provisions of this section for obtaining and effecting insurance. Any insurance obtained or effected through a surplus lines carrier shall be accomplished in accordance with the requirements of 8 V.S.A. chapter 138.

The corporation shall not accept funds from any corporation member for the purpose of distributing, sharing, or pooling any risk until the corporation's Plan of Operation together with all contracts, agreements, and any other documents underlying or implementing the plan, have been filed with and approved by the Commissioner. The corporation shall supplement the application for approval with all amendments to any such documents and obtain approval of such amendments.

All Members of the corporation must be Vermont employers. An application for approval shall be verified by oath or affidavit of at least one member of the Board.

B. The application for approval of a Plan of Operation and underlying or implementing documentation shall be submitted in a form determined by the Commissioner, and shall be accompanied by the following:

(1) The Plan of Operation;

(2) Certified articles of incorporation of the corporation, including the name and address of the corporation's registered agent, and any amendments thereto;

(3) Bylaws of the corporation;

(4) The Member Agreement forms;

(5) The Workers' Compensation Program Contract forms;

(6) Proposed insurance and reinsurance contracts;

(7) Designation of the Board and the initial or interim Administrator of the corporation, together with biographical information for each member of the Board and the Administrator, or if the Administrator is a corporate entity, biographical information for each officer of such corporate entity;

(8) An Actuarial feasibility study prepared by an actuary;

(9) If a Service Agent is used, copies of all contracts between the corporation and the Service Agent, the Service Agent's fidelity bond issued to the corporation covering all Service Agent employees in an amount sufficient to protect all monies administered by the Service Agent. The fidelity bond shall be issued by an insurer or surety licensed to transact such business in the state of Vermont, or by a surplus lines insurer in accordance with the requirements of chapter 138 of Title 8;

(10) The Vermont address where the books and records of the corporation will be maintained at all times;

(11) Any other information that the Commissioner deems appropriate.

C. The Plan of Operation shall consist of two components: the financial program and the operational program.

(1) The financial program shall set forth:

(a) The coverages to be offered to the member by the corporation, the Member Agreement and the Workers' Compensation Program Contract, drafted in accordance with Sections 6 and 7 of this regulation, the applicable deductible levels, if any, and the maximum liability which the corporation will retain on an annual occurrence and aggregate basis;

(b) A composite list of the estimated annual gross contributions to be paid by each member of the corporation;

(c) The aggregate claims reserve amount;

(d) The amount of specific excess insurance to be purchased and maintained by the corporation;

(e) The amount of aggregate excess insurance to be purchased and maintained by the corporation;

(f) Pro-forma financial projections for the first 5 years of operation, including income statements, balance sheets and projected cash flow statements; and

(g) The identification and description of reserves for the self insurance coverages provided to members.

(2) The operational program shall, at a minimum, provide for the following:

(a) The standards and procedures for permitting association members to become corporation members;

(b) The method by which the Board shall fix contributions to the corporation, maintain reserves, levy and collect assessments for deficiencies, dispose of surpluses, and administer the corporation in the event of termination or insolvency;

(c) The method for establishing the annual contributions of Members;

(d) A description of underwriting practices;

(e) A description of trade, marketing and claim practices, including a statement that claims handling practices will adhere to the requirements of 8 V.S.A. §§ 4723, 4724 and regulations promulgated thereunder, and all applicable workers' compensation law, including regulations promulgated by the Department of Labor and Industry, and biographies describing the experience and qualifications of persons who shall market or manage the insurance program;

(f) A description of the loss prevention and safety engineering programs;

(g) The procedure for handling the termination of individual memberships in the corporation, including provisions for refunding member contributions;

(h) The procedure for voluntary dissolution of the corporation and the procedure for the distribution of assets in the event of dissolution;

(i) The investment program and guidelines to be employed in making investments;

(j) The procedure for handling a deficit position of the corporation's program; and

(k) Such other information as the Commissioner may require.

D. If, after reviewing the corporation's Plan of Operation, underlying or implementing documents, and other required information, the Commissioner is satisfied that the application is complete, that the corporation's financial condition and method of operation are such that the corporation may reasonably be expected to meet the obligations which it seeks to undertake, that such obligations include actual risk assumption or risk pooling, that disclosure to its members and potential members is adequate, that participation in the program will permit compliance with Vermont workers' compensation laws and regulations, and that all documents and forms required pursuant to Section 3 of these regulations are fair and reasonable, the Commissioner shall issue approval of the corporation's Plan of Operation and its underlying or implementing documents. The Commissioner shall act on the application within 90 days of the date that the Commissioner deems the application complete.

E. The Commissioner may exempt corporations which do not involve risk sharing from any or all of the requirements of Section 3.

Section 4 TERMS OF APPROVAL, REVOCATION, OR DISSOLUTION

A. The Commissioner may suspend or withdraw approval of a corporation's Plan of Operation and its underlying or implementing documents for:

(1) Insolvency of the corporation or impairment of the corporation's capital or surplus;

(2) Refusal or failure by the corporation to comply with annual filing requirements as set forth in Section 15 of this regulation, or any other report or statement required by law or by lawful order of the Commissioner;

(3) Failure by the corporation to comply with the provisions of its own charter or bylaws;

(4) Failure by the corporation to submit to examination or any legal obligation relative thereto;

(5) Refusal or failure by the corporation to pay the cost of examination as required by Section 16 of this regulation;

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

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

Any hearing shall be held in accordance with chapter 25 of Title 3.

B. Involuntary dissolution, reorganization, or receivership of a corporation shall be accomplished in accordance with 8 V.S.A. chapter 145.

C. Before suspension or withdrawal of approval of a corporation's Plan of Operation and its underlying or implementing documents, the Commissioner shall give at least 10 days notice to the corporation unless the Commissioner determines that the public welfare requires a shorter period. The notice shall be served personally, or by certified or registered mail, to the corporation's registered agent and shall state the reasons for the proposed suspension or withdrawal of approval and provide the corporation with an opportunity to introduce evidence and be heard. If approval is suspended or withdrawn after a hearing, such action shall include an Order to Cease and Desist and shall become effective immediately. The Commissioner may stay such action for a period not to exceed 30 days. The Commissioner may suspend approval of the Plan of Operation and its underlying or implementing documents prior to a hearing, if he or she finds that the public welfare requires such emergency order and incorporates that finding in the order of suspension.

D. Any suspension may be dissolved by the Commissioner upon proof by the corporation that the original reasons for suspension have been satisfactorily corrected, and that the corporation continues to meet all other requirements for approval.

Section 5 BYLAWS

The bylaws of the corporation shall provide, at a minimum:

A. That the sole purpose of the corporation is to establish and maintain a program to provide insurance for the workers' compensation and employer's liabilities of individual members of the association who meet established standards and who choose to become members of the corporation, and/or to provide insurance for the workers' compensation and employer's liabilities of the association itself, in accordance with all applicable requirements of Vermont law;

B. That the Board of Directors of the corporation shall be the same persons as those serving as directors of the association;

C. That the Board of Directors shall appoint an administrator of the corporation insurance plan, and that the administrator shall be responsible to the Board of Directors;

D. That the Board of Directors shall be responsible for fixing the contributions to the corporation, maintaining reserves, levying and collecting assessments for deficiencies, distributing excess funds, and administering the operations of the corporation in the event of voluntary dissolution;

E. That voluntary dissolution of the corporation or management of the corporation's liabilities in the event of insolvency shall be accomplished in accordance with all applicable requirements of Vermont law.

Section 6 MEMBER AGREEMENT

A. The corporation shall execute a Member Agreement with each member. The Agreement shall, at a minimum, provide for the following:

(1) Certification by a duly authorized agent of the corporation that the corporation is in good standing to operate its workers' compensation program and to enter into contracts.

(2) That the Board of Directors of the corporation shall be the same persons as those serving as directors of the association;

(3) That the Board shall designate and appoint an Administrator, who shall have authority to act for and bind the corporation and its members in all transactions relating to or arising out of the operation of the corporation. However, the Board shall retain the authority to replace the Administrator and to amend the duties and obligations of the Administrator, consistent with the requirements of Section 9 of this regulation;

(4) That the corporation, at the request of a member, shall provide without unreasonable delay to any person designated by the member, proof of any coverages provided by the program, including any insurance or reinsurance, deductible levels and the maximum liability which the corporation will retain;

(5) That all members of the corporation shall be jointly and severally liable for any and all debts of the corporation.

(6) For newly forming corporations, the Member Agreement shall include:

(a) A financial program, as set forth in Section 3.C(1) of this regulation;

(b) An operational program, as set forth in Section 3.C(2) of this regulation;

(7) For new Members joining a corporation already in existence the Member Insurance Agreement shall include:

(a) Copies of Financial Statements for the most recently completed fiscal year;

(b) An operational program as set forth in Section 3.C(2) of this regulation, including any amendments;

B. In regard to excess coverage of the corporation, where applicable, the Member Agreement shall provide:

(a) A description of the excess coverage purchased for the corporation and its limits for each coverage offered; or

(b) A statement that there is no excess coverage for the corporation, if the corporation has not obtained such coverage;

Section 7 WORKERS' COMPENSATION PROGRAM CONTRACT

A. The Workers' Compensation Program Contract shall fully disclose, where applicable:

(1) In regard to each coverage:

(a) The coverage provided, including a statement as to whether coverage outside Vermont is provided;

(b) The period of the coverage;

(c) The amount of the deductible per claim and the aggregate deductible, if applicable; and

(d) The maximum amount of coverage to be borne by the corporation.

(2) In regard to the contribution:

(a) The contribution amount and the dates contribution payments are due;

(b) The basis upon which each member's contribution is determined; and

(c) The conditions under which additional assessments may be made.

(3) The name of the proposed Service Agent and a description of the service to be performed by the Service Agent.

B. The Workers' Compensation Program Contract shall include a prominent disclosure notice that must be signed by an officer or other duly authorized agent of the member. The disclosure notice shall use the following or substantially similar language:

The coverage provided by a nonprofit corporation's workers' compensation program is not protected by any Vermont Property and Casualty Insurance Guaranty Association against default due to insolvency. In the event of insolvency, members and persons filing claims against members may be unable to collect any amount owed to them by the corporation regardless of the terms of the Member Insurance Agreement. HOWEVER, ANY MEMBER MAY BE LIABLE FOR ANY AND ALL UNPAID CLAIMS AGAINST ITSELF AND/OR ANY OTHER MEMBER.

Section 8 FIDUCIARY DUTIES

The corporation, its Administrator and the Board of Directors shall act as fiduciaries to the members. Service Agents and persons marketing the program to current or prospective Members are agents of the corporation, and shall act as fiduciaries to the corporation.

Section 9 LICENSING OF ADMINISTRATORS AND SERVICE AGENTS

Any individual acting on behalf of the corporation as an agent, broker or adjuster, as those terms are defined under 8 V.S.A. § 4791, with respect to workers' compensation and/or employer's liability coverage obtained by or for the corporation, shall be duly licensed as such. The corporation shall only engage licensed individuals or entities to perform agent, brokerage or adjusting services.

Section 10 CONTRIBUTION REQUIREMENTS

A. For the purpose of funding the program, the members shall make contributions to the corporation in the manner prescribed in the Workers' Compensation Program Contract.

B. The following surplus amounts are required at the effective date of approval of the Plan of Operation:

(1) A minimum surplus of 100% of the projected earned contributions;

(2) The Commissioner may require additional surplus funds, based on the coverages and exposures involved, and may permit a smaller minimum surplus, provided the amounts are sufficient as determined by an actuarial feasibility study performed by an approved actuary;

The corporation shall pay these amounts into a depository approved by the Commissioner. These funds are surplus and are not to be used to fund the corporation's normal operations.

C. If the level of surplus falls below the amounts required under Section 10.B, the corporation shall notify the Commissioner within 5 days, and file with the Commissioner within 45 days a plan to return the surplus to the required level. This plan shall include a report of the causes of the corporation's insufficiency, the assessments necessary to replenish the minimum surplus and the steps taken to prevent a recurrence of such circumstances.

D. In addition to the surplus required under Section 10.B of this regulation, at the effective date of the corporation's approval, the corporation shall segregate an amount necessary to fund start-up costs from the initial year's contribution to fund the start-up expenses of the corporation's operation. The remainder of the initial year's contribution shall be collected no later than the end of the ninth month of the corporation's operation.

E. The total amount of each member's annual contribution to the corporation shall be communicated by the Board to each member at least one month prior to the beginning of each fiscal year. The corporation shall also file with the Commissioner the opinion of an approved actuary as to the reasonableness of the proposed funding level for each fiscal year.

F. Each corporation may levy upon its members an additional assessment when necessary to supplement the corporation's surplus to assure payment of its obligations. A member may be assessed for any fiscal year during any part of which it held membership in the corporation. Such assessment may be made during or after the end of the corporation's fiscal year or any time after the member has discontinued membership in the corporation.

Section 11 RESERVES

A. Every corporation shall calculate and maintain reserves for all liabilities, including but not limited to the following:

(1) Reserves for all losses and claims, whether or not reported;

(2) Reserves for all loss adjustment expenses for all claims, whether or not reported; and

(3) Reserves for the unearned portion of the gross contribution or assessment, if any.

B. Discounting of loss reserves is prohibited.

C. Upon prior approval of the Commissioner, subject to the following limitations, a corporation may reduce its reserves:

(1) No reduction of reserves shall be permitted for insurance or reinsurance where the contract does not result in the complete transfer of liability;

(2) No reduction of reserves shall be permitted for insurance or reinsurance unless the coverage remains intact in the event the corporation becomes insolvent or financially impaired;

(3) Any reinsurer shall be an authorized reinsurer on Vermont's approved list or shall be approved by the Commissioner; and

(4) Copies of the complete contracts or policies of insurance or reinsurance entered into by the corporation, with all endorsements thereto or other evidence satisfactory to the Commissioner, shall be filed with the Commissioner prior to becoming effective. The Administrator shall notify the Commissioner in advance of the termination or any change in the terms of any contracts or policies of insurance or reinsurance. Such contracts shall require the insurer or reinsurer to send a copy of any cancellation or non renewal notice to the Commissioner.

Section 12 INVESTMENTS

A. Upon request, the corporation shall provide the Commissioner with a complete written description of its investment practices and policies. The investment practices shall follow the requirements set forth in 8 V.S.A. § 3463.

B. The Commissioner may prohibit or limit any investment that threatens the solvency or liquidity of the corporation.

Section 13 CHANGES TO THE PLAN AND/OR UNDERLYING OR IMPLEMENTING DOCUMENTS

Revisions or alterations to the following items submitted under Section 3.C of this regulation shall be filed with the Commissioner at least 45 days prior to their effective date and shall be approved or disapproved by the Commissioner or her designee during said 45-day period. Should the proposed revision or alteration be disapproved, the corporation shall be given notice and a statement of the reasons therefor. Items to be submitted for approval under this subsection are as follows:

A. Any amendment to the corporation's bylaws;

B. Any amendment to the corporation's articles of incorporation;

C. The election or appointment of new members to the Board of Directors, and any change in the administrator or officers of the corporation ( § 3.B(7)). The filing with the Commissioner shall include biographical information for each new individual elected or appointed;

D. Revision or alteration in forms used for the Member Agreement ( § 3.B(4));

E. Revision or alteration in forms used for the Workers' Compensation Program Contract, including changes in coverages offered, applicable member deductible levels, or the maximum liability which the corporation shall retain ( § 3.B(5);

F. Changes in the estimated annual total contribution for all members of the corporation ( § 3.C(1)(b));

G. Changes in the methodology by which the corporation determines the aggregate amount of reserves to be set aside for the payment of claims ( § 3.C(2)(b));

H. Changes in the amount or coverage of specific or aggregate excess insurance purchased and maintained by the corporation ( § 3.C(1)(d));

I. Changes in methodology relating to the identification and description of reserves for self insurance coverages provided to Members ( § 3.C(1)(g));

J. Changes in criteria for admitting new members and for terminating the memberships of existing members ( § 3.C(2)(a) and (g));

K. Changes in the methodology for establishing the annual contributions of the corporation's members ( § 3.C(2)(c));

L. Changes in underwriting practices ( § 3.C.(2)(d));

M. Changes in trade, marketing and claim practices, including the identities of any new persons marketing the program and adjusting claims ( § 3.C(2)(e));

N. Changes in the procedure for voluntary dissolution of the corporation or the process for distribution of excess funds in the event of voluntary dissolution ( § 3.C(2)(h));

O. Changes in the investment policy or guidelines employed in making investments ( § 3.C(2)(i)); and

P. Any change in the Vermont address where the books and records of the corporation are maintained ( § 3.B(10)).

Section 14 DISTRIBUTION OF EXCESS FUNDS

A. Any funds in excess of the amounts required under Sections 10 and 11 of this regulation accumulated within a corporation's fiscal year, as determined from the annual audited financial statement, may be declared refundable by the Board. No refund of the excess funds shall be made earlier than 24 months following the end of the corporation's fiscal year for which a surplus is declared. Such refund shall not be made until certified by an approved actuary. Any such refund must be in accordance with 11 V.S.A. chapter 19.

If the distribution is in excess of 10% of the corporation's surplus, or prior to 24 months after the end of the fiscal year, it shall be considered an extraordinary distribution and shall require prior approval of the Commissioner. Application for the extraordinary distribution shall be submitted to the Commissioner for approval and shall be certified by an approved actuary.

B. Excess funds accumulated within a corporation's fiscal year shall be refunded only to those who were members of the corporation during that year. The accounting shall be separate for each year.

C. Notwithstanding Section 14.B of this regulation, the Commissioner may, in his or her discretion, require or permit a corporation's excess funds accumulated within a fiscal year be allocated to a different year.

Section 15 ANNUAL FILING REQUIREMENTS

A. Each corporation shall file annually with the Commissioner and with the members of the corporation, within 90 days after the end of the fiscal year, audited financial statements for the most recently completed fiscal year certified by an independent certified public accountant. If the corporation fails to file such audited financial statements, the Commissioner may perform the audit and the corporation shall reimburse the Commissioner for such cost.

B. At a minimum, the audited financial statements shall contain the following exhibits for the current and prior fiscal years:

(1) Balance sheet;

(2) Statement of gain or loss from operations;

(3) Statement of changes in financial position;

(4) Notes to financial statements; and

(5) Management and internal control letters.

C. The financial statements shall be prepared in accordance with generally accepted accounting principles with the following exceptions:

(1) Loss reserves shall not be discounted; and

(2) Any other exceptions to generally accepted accounting principles the Commissioner finds necessary to preserve the fiscal integrity of the corporation.

D. With the financial statements, the corporation shall include an unqualified statement of opinion as to the loss and loss expense reserves certified by an approved actuary. The actuary's statement shall also certify the adequacy of the projected premiums for the following fiscal year.

E. In addition to the annual audited financial statement, the Commissioner may require any corporation to file additional financial information, including, but not limited to interim financial reports, additional financial reports or exhibits, or statements considered necessary to secure complete information concerning the condition, solvency, experience, transactions, or affairs of the corporation. The Commissioner shall establish reasonable deadlines for filing these additional reports, exhibits or statements. The Commissioner may require verification of any additional required information.

F. Each corporation shall file annually with the Commissioner the methodology for establishing the annual contributions of its members. Such contributions must be based on reasonable assumptions and certified by an actuary.

Section 16 EXAMINATION

A. The corporation shall retain and have available for examination by the Commissioner for at least five years after the close of a fiscal year the following:

(1) All executed Member Agreements;

(2) All Workers' Compensation Program Contracts;

(3) All financial books, records and accounts; and

(4) Copies of all insurance, reinsurance or excess insurance policies.

B. The Commissioner may examine the affairs, transactions, accounts, records and any other matters deemed necessary of the corporation and/or its independent accountant, including accounting work papers and assets of the corporation, at any time and at such intervals as the Commissioner deems necessary. Such records must be available for examination at a location in Vermont. The manner and frequency in which the examination of financial condition shall be conducted and the release of any reports of financial condition shall be in accordance with 8 V.S.A. §§ 3563 and 3565. The cost of the examination shall be paid by the corporation.

Section 17 DISSOLUTION, OR MERGER OF THE CORPORATION

A. Approval of a corporation's Plan of Operation and its underlying or implementing documents shall remain in effect and a corporation shall be in good standing to operate its workers' compensation program until approval is terminated at the request of the Board or by action of the Commissioner.

B. Before a corporation may voluntarily dissolve, it shall present a plan of dissolution to the Commissioner for approval. Such a plan shall provide for the payment of all incurred losses and expenses of the fund and its members, including all incurred but not reported losses, as certified by an approved actuary. No assets of the corporation may be used for any other purpose until all losses and expenses are paid in full. Voluntary dissolution shall be accomplished in accordance with the requirements of 11 V.S.A. chapter 19.

C. Subject to the approval of the Commissioner, a corporation may merge with another corporation established in accordance with 21 V.S.A. 687a, if the resulting corporation assumes in full all obligations of the merging corporations and complies with all contractual, statutory and regulatory requirements of the merging corporations, including compliance with 11 V.S.A. chapter 19. The Commissioner may hold a hearing on the merger and shall do so if any party, including a member of either corporation, so requests.

Section 18 APPLICATION OF UNFAIR TRADE PRACTICES ACT

A corporation's workers' compensation program shall be subject to the provisions of 8 V.S.A. chapter 129 and regulations promulgated thereunder governing unfair trade, market and claim practices.

Section 19 AUTHORITY OF THE COMMISSIONER OF LABOR AND INDUSTRY

This regulation shall in no way derogate the authority of the Commissioner of Labor and Industry under chapter 9 of Title 21.

Section 20 SEVERABILITY

If any provisions of this regulation, or the application of it to any person or circumstances, is determined to be invalid by a court of competent jurisdiction, such invalidity shall not affect other provisions of this regulation which can be given effect without the invalid provision or application, and to that end the provisions of this regulation are severable.

Section 21 EFFECTIVE DATE

This regulation shall become effective on September 1, 1995.

History

• Effective Date: September 1, 1995 (Secretary of State Rule Log #95-54)
• AMENDED: June 2000 Technical Revision only - changed Rule number from 21 000 004

Chapter 047 VIATICAL SETTLEMENTS - REGULATION 95-4

21-047 Code Vt. R. 21-020-047-X VIATICAL SETTLEMENTS - REGULATION 95-4

Section 1 Purpose

The purpose of this regulation is to regulate the affairs of persons and institutions engaged in viatical settlements in Vermont, to encourage competition among them, and to protect the public against unfair and unconscionable practices in the course of that business. This regulation sets forth requirements pertaining to: licensing of viatical settlement providers and viatical settlement brokers; viatical settlement contracts and payouts; reporting; examination; marketing; advertising; disclosure; and, rules applicable to life insurers which will facilitate viatical settlement transactions.

Section 2 Authority

This regulation is issued pursuant to the authority vested in the Commissioner of Banking, Insurance and Securities ("Commissioner") by Title 8 V.S.A., Sections 75 and 3833 and Chapter 129.

Section 3 Definitions

As used in this regulation:

A. "Viatical Settlement broker: means any person or his or her agent who, for a fee, commission or other valuable consideration, offers or advertises the availability of viatical settlements, introduces viators to viatical settlement providers, or solicits for, or offers or attempts to negotiate viatical settlements between a viator and one or more viatical settlement providers. "Viatical settlement broker" does not include an attorney, accountant or financial planner retained to represent the viator whose compensation is not paid by the viatical settlement provider.

B. "Viatical settlement contract" means an agreement between a viatical settlement provider and a person who owns, controls or has rights to the benefits or values of a life insurance policy, or who owns, is covered by, controls or has rights to the benefits or values of a group policy, either of which insures the life of a person who has a catastrophic or life threatening illness or condition and under which the viatical settlement provider will pay compensation or anything of value, which compensation or value is less than the expected death benefit of the insurance policy or certificate, in return for the viator's assignment, transfer, sale, devise or bequest of the death benefit or ownership of the insurance policy or certificate to the viatical settlement provider.

C. "Viatical settlement provider" means any person or entity which enters into an agreement with a person who owns, is covered by, controls or has rights to the benefits or values of a life insurance policy or who owns, controls or has rights to the benefits or values of a group policy either of which insures the life of a person who has a catastrophic or life threatening illness or condition, under the terms of which the viatical settlement provider pays compensation or anything of value, which compensation or value is less than the expected death benefit of the insurance policy or certificate, in return for the assignment, transfer, sale, devise or bequest of the death benefit or ownership of the insurance policy or certificate to the viatical settlement provider. Viatical settlement provider does not include:

1. Any bank, savings bank, savings and loan association, credit union or other licensed lending institution which takes an assignment of the subject life insurance policy as collateral for a loan;

2. The issuer of the subject life insurance policy providing accelerated benefits;

3. Any natural person who enters into no more than one agreement in a calendar year for the transfer of a life insurance policy for any value less than the expected death benefit, or,

4. Any corporation, partnership or partner that purchases a life insurance contract of an employee or retiree of the corporation of a partner. The settlement made on any contract exempt under section 4 ) of this regulation shall be reasonable and subject to the standards imposed on viatical settlement providers in 8 V.S.A. sections 3831, 3832, and 3833 and sections 9, 10, and 11 of this regulation.

D. "Viator" means any person who owns, controls or has rights to the benefits or values of a life insurance policy or who owns, is covered by, controls or has rights to the benefits or values of a group policy, either of which insures the life of a person who has a catastrophic or life threatening illness or condition; and, who enters into an agreement under which the viatical settlement provider will pay compensation or anything of value, which compensation or value is less than the expected death benefit of the insurance policy or certificate, in return for the assignment, transfer, sale, devise or bequest of the death benefit or ownership of the insurance policy or certificate to the viatical settlement provider.

Section 4 License Requirements for Viatical Settlement Providers

A. A viatical settlement provider shall not solicit or enter into a viatical settlement contract without first obtaining a license from the commissioner. Applicants for a license shall complete and submit an application in a form approved by the commissioner together with the required fee.

B. The commissioner may require such additional information as is necessary to determine whether the applicant complies with the requirements of 8 V.S.A. 3827(f). If the commissioner determines that additional information is required, any cost related to acquiring the information shall be borne by the applicant.

C. In any case where there are changes or additions to the list of persons within the viatical settlement provider organization who are authorized to offer or negotiate viatical settlement contracts, the licensed viatical settlement provider must submit a list of those persons for the commissioner's approval. No person added to the list may offer or negotiate viatical settlement contracts until approved by the Commissioner. Any persons authorized to offer or negotiate viatical settlement contracts whose positions change within the organization must notify the commissioner of such change no later than the next license renewal date.

D. Viatical settlement providers shall acquire and maintain an initial surety bond or letter of credit for the benefit of the commissioner in the amount of $ 50,000. A copy of the executed bond or letter of credit shall be filed with the commissioner at the time of application for a license. On March 31 of each subsequent year of licensing, the viatical settlement provider must file and maintain a surety bond or letter of credit to the benefit of the commissioner equal to not less than 5% of the sum of the prior year's total viatical settlement contracts which were executed in Vermont, but not less than $ 50,000, or such other amount as the commissioner may require.

E. In cases where the applicant is not a resident of Vermont, the applicant must submit a written designation of a resident of the state as his or her agent for service of process. This designation shall be maintained at all times by the viatical settlement provider.

F. The commissioner shall have the right to suspend, revoke or refuse to renew the license of any viatical settlement provider if the commissioner finds that:

1. there was any misrepresentation in the application for the license;

2. the holder of the license has engaged in fraudulent or dishonest practices, is subject to a final administrative action in any state, or is otherwise shown to be untrustworthy or incompetent to act as a viatical settlement provider;

3. the license demonstrates a pattern of unreasonable payments to viators;

4. the licensee has been convicted of a misdemeanor involving moral turpitude or has been convicted of a felony; or

5. the licensee has violated any requirements of Title 8, including the requirements outlined in 8 V.S.A. Chapter 103, Subchapter 5A, or this regulation.

G. Before the commissioner shall suspend, revoke or refuse to issue or renew the license of a viatical settlement provider, the licensee shall be entitled to notice and an opportunity to be heard in accordance with 3 V.S.A. Chapter 25.

H. All licenses issued shall continue in force not longer than 12 months, but shall expire as of 12:01 a.m. o'clock on the first day of April of the year next following date of issuance unless the licensee prior thereto has filed with the commissioner, on forms prescribed and furnished by the commissioner, a request for renewal of such license for an ensuring 12-month period. Such request must be accompanied by payment of the required renewal fee. Failure to pay the fee within the terms prescribed shall result in the automatic revocation of the license.

Section 5 License Requirements for Viatical Settlement Brokers

A. A viatical settlement broker shall not solicit a viatical settlement contract, or in any way engage in the procurement of a contract, without first obtaining a license from the commissioner. The license shall be a limited license which allows solicitation and brokering of viatical settlements only.

B. The applicant shall follow the licensing procedures as outlined in 8 V.S.A. Chapter 131 and related regulations and bulletins. The applicant must take and pass the qualifying life insurance examination and must have had two years experience as an insurance agent, or comparable employment.

C. A viatical settlement broker may not be an agent for, or employee of, a viatical settlement provider. A viatical settlement broker who solicits a viatical settlement contract has a fiduciary duty to represent the viator and not the viatical settlement provider.

D. As part of the application, the applicant shall include proof of acquisition of an errors and omissions' policy with a value of $ 250,000, or such greater amount as shall be required by the commissioner. In subsequent years of licensing, the viatical settlement broker must forward continuing proof of coverage equal to not less than 10% of the sum of the prior year's viaticated settlement contracts brokered, but not less than $ 250,000, or such other amount as the commissioner may require.

E. In cases where the applicant is not a resident of Vermont, the applicant must submit a written designation of a resident of the state as his or her agent for service of process. This designation shall be maintained at all times by the broker.

F. The commissioner shall have the right to suspend, revoke or refuse to renew the license of any viatical settlement broker if the commissioner finds that:

1. there was any misrepresentation in the application for the license;

2. the holder of the license has engaged in fraudulent or dishonest practices, is subject to a final administrative action in any state or is otherwise shown to be untrustworthy or incompetent to act as a viatical settlement broker;

3. the licensee has been convicted of a misdemeanor involving moral turpitude or has been convicted of a felony;

4. the broker or applicant has placed or attempted to place a viatical settlement with a viatical settlement provider who is required to be, but is not, licensed in this state, or,

5. the licensee has violated any requirements of Title 8, including the requirements outlined in 8 V.S.A. Chapter 131 and Chapter 103, Subchapter 5A or this regulation.

G. Before the commissioner shall suspend, revoke or refuse to issue or renew the license of a viatical settlement broker, the licensee shall be entitled to notice and an opportunity to be heard in accordance with 3 V.S.A. Chapter 25 and 8 V.S.A. Chapter 131.

H. All licenses issued shall continue in force not longer than 12 months, but shall expire as of 12:01 a.m. o'clock on the first day of April of the year next following date of issuance unless the licensee prior thereto has filed with the commissioner, on forms prescribed and furnished by the commissioner, a request for renewal of such license for an ensuing 12-month period. Such request must be accompanied by payment of the required renewal fee. Failure to pay the fee within the terms prescribed shall result in the automatic revocation of the license.

I. No viatical settlement broker may charge or receive a fee, commission or other valuable consideration in excess of two percent (2%) of the amount paid by the viatical settlement company to the viator on a policy that is the subject of the viatical settlement broker's services. Upon the written request of the viatical settlement broker, and after conferring with the viator, the commissioner may approve another rate of compensation as reasonable and appropriate under highly unusual circumstances.

Section 6 Examination of Viatical Settlement Providers and Viatical Settlement Brokers

A. The commissioner may examine the business and affairs of any licensee or applicant for a license whenever the commissioner deems it to be prudent for the protection of policyholders or the public.

B. The commissioner shall have the authority to examine any person and to order the production of any records, books, files or other information reasonably necessary to ascertain whether or not the licensee or applicant is acting or has acted in violation of the law or otherwise contrary to the interests of the public.

C. The expense incurred conducting any examination shall be paid by the licensee or applicant.

D. The names and individual identification data for all viators who have or may enter into a viatical settlement contract shall be considered private and confidential information and shall not be publicly disclosed by the commissioner, unless in furtherance of any legal or regulatory action, as otherwise required by law, or with the consent of the viator.

E. The records of all transactions of viatical settlement contracts, including the records of disclosure required under Title 8, V.S.A. Section 3831, shall be maintained by the licensee and shall be available to the commissioner for inspection and copying during normal business hours.

Section 7 Life Insurance Companies Responsibilities and Relationships

A. No life insurance company authorized to do business in Vermont may be required to pay a viatical settlement provider under a viatical settlement contract or any viator who is a resident of this state, or was a resident of this state on the date the viatical settlement contract was signed, or was a resident of this state except for having left the state for medical care or nursing home care, unless the viatical settlement provider is licensed in this state or is exempt from licensure.

B. No viatical settlement provider may viaticate life insurance policies issued by any life insurance company with which it is affiliated or of which it is a subsidiary, unless the relationship between the life insurance provider and the viatical settlement provider is fully disclosed, in writing, to the viator.

C. Upon direction of the viator, in the case of a life insurance policy which has an accidental death provision or rider, any additional payment in case of accidental death shall remain payable to the viator or beneficiary last named by the viator prior to entering into the viatical settlement agreement, or to such other beneficiary as the viator may thereafter designate, or in the absence of a designation, to the estate of the viator, notwithstanding the designation of the viatical settlement provider as beneficiary of the other policy death benefits.

D. If the life insurance policy to be viaticated provides a guaranteed option to purchase additional insurance, such option may only be exercised for the benefit of a person who has an insurable interest in the life to be insured, or such other person as the viator may designate, in writing.

E. If a life insurance policy is viaticated, that viatication does not alter any of the policy terms and conditions except as contained in the policy in the event that ownership is transferred.

F. A life insurance company which receives an authorization signed by the viator to release specified information regarding the policy or certificate to a named viatical settlement provider or broker, shall release the information requested within ten (10) business days of receipt of the authorization. The request to release information must clearly indicate that the information is being requested for the purpose of entering into a viatical settlement agreement, and is covered by Vermont regulations which require the insurer to process the request within ten (10) business days.

G. An issuer of a group life insurance policy shall, within ten (10) business days of receipt of a written request from a certificate holder for a conversion to an individual life insurance policy, deliver the conversion policy to the certificate holder, where:

1. the request for conversion is in compliance with the conversion provision in the policy, and,

2. the certificate holder has indicated that the conversion is being requested for the purpose of entering into a viatical settlement agreement.

The request to convert the subject coverage to an individual life insurance policy must clearly indicate that the conversion is being requested for the purpose of entering into a viatical settlement agreement and is covered by Vermont regulations which require the insurer to process the request within ten (10) business days.

Section 8 Standards for Evaluation of Reasonable Payments

A. In order to assure that viators receive a reasonable return for viaticating an insurance policy, the following shall be minimum payouts:

| Viator's or Insured Person's Remaining Life | Minimum Percentage of | | --- | --- | | Expectancy at Time of Viatication | Expected Death Benefit (Net of Loans and Any Cash Surrender Value) to be Received by Viator | | Less than 6 months | 85% | | At least 6, but less than 12 months | 80% | | At least 12, but less than 18 months | 75% | | At least 18, but less than 24 months | 70% | | At least 24, but less than 36 months | 60% | | Thirty-six months or more | 50% |

B. The expected death benefit is the death benefit provided under the terms of the policy being viaticated, assuming the death of the insured were to occur on the date the viatical settlement contract is signed.

C. The payment shall be increased by 100% of any net cash surrender value of the insurance at the time the viatical settlement contract is issued.

D. Payouts may be reduced by the minimum premium (including premiums payable for additional benefits retained at the option of the viator), if any, required to keep the contract in force for the duration of the viator's remaining life expectancy. Other than this allowable reduction in payout, there shall be no other retention for expenses or broker's fees.

At the time of settlement, the viatical settlement provider shall place in trust a sum equal to the amount the payout was reduced for future premiums. Sums placed in trust under this section shall only be reduced by the viatical settlement provider upon payment of policy premiums as they come due. If the viator dies with a sum held in trust under this section, the sum remaining in trust shall become the property of the viatical settlement provider.

E. If the viatical settlement provider becomes insolvent or is the subject of a bankruptcy or other insolvency proceeding during the life of the viator whose policy had riders retained, the viatical settlement provider shall notify the viator and other insureds of the insolvency or initiation of insolvency proceedings. Persons with an interest in the continuation of riders retained may pay any premiums required to keep riders retained in force.

F. In computing the minimum percentage of expected death benefit (net of loans and cash surrender value) the death benefit value of any accidental death benefit rider shall not be included. There shall be no minimum percentage payment required for the transfer of an accidental death benefit rider to the viatical settlement company.

G. Life expectancy shall be determined by a physician selected by the viator, on the basis of medical records. The physician selected will send life expectancy information to the viatical settlement provider. If the viatical settlement provider disagrees with the life expectancy estimate of the physician selected by the viator, the viator will select a second physician to make an estimate of life expectancy, based on medical records. The second physician's decision shall be final.

Section 9 Viatical Settlement Contracts

A. All viatical settlement contracts must be in writing, and must establish the terms under which the viatical settlement provider will pay compensation to the viator and the terms of the assignment, transfer, sale, devise or bequest of the death benefit or ownership of the insurance policy or certificate to the viatical settlement provider.

B. The contract must contain and give notice of a seven-day unconditional right to cancel the contract. The seven-day cancellation period shall begin the day after the date of execution of the contract and shall end midnight seven days thereafter, or the next business day, if the seventh day falls on a weekend or is a state or federal holiday.

C. If the potential viator or the person whose life is insured by the policy and who has a life threatening illness or condition dies during the seven-day cancellation period, the viatical settlement contract is considered rescinded.

D. The contract shall provide a method for notice of cancellation. If notice of cancellation is given by mail, it shall be deemed given when deposited in the United States mail, addressed and postage prepaid.

E. After the expiration of the cancellation period described above, and upon receipt from the viator of documents to effect the transfer of the insurance policy:

1. the viatical settlement provider shall pay the proceeds of the settlement to an escrow or trust account managed by a trustee or escrow agent in a bank with which the viatical settlement provider has no affiliation other than as a depositor, and approved by the commissioner, pending acknowledgment of the transfer from the insurer;

2. payment shall be by means of wire transfer or by cashier's check; and,

3. the trustee or escrow agent shall transfer the proceeds due the viator immediately upon receipt of acknowledgment of the transfer from the insurer.

F. Payment of the proceeds pursuant to a viatical settlement shall be made in a lump sum. Neither retention of a portion of the proceeds nor installment payments by the viatical settlement provider are permissible. Installment payments by the trustee or escrow agent shall not be made except at the written request of the viator and unless the viator, in writing, has authorized the trustee or escrow agent to purchase an annuity or similar financial instrument issued by a company authorized to issue the type of instrument used. The viator's estate shall be paid any amounts due under the annuity, should the viator die before the annuity is fully paid.

G. Failure to tender the proceeds of the viatical settlement by the date disclosed to the viator renders the contract and the transfer of the policy null and void and makes the viatical settlement provider and/or broker subject to administrative action.

H. The viator has the right to retain additional benefits or optional riders which were part of the life insurance policy, including but not limited to: disability income, accidental death and dismemberment, and spouse, children and family riders. Any premiums payable on the viaticated insurance policy or certificate (including premiums payable for additional benefits retained at the option of the viator) shall be paid by the viatical settlement provider when due, for the remaining duration of the viator's life.

I. If any benefits are retained by the viator, the viatical settlement provider shall not have to right to any cash surrender value unless all additional benefits, either by rider, endorsement, or boiler plate, are in a paid-up-status. If those additional benefits are in a paid-up-status and will be unaffected by any change in cash surrender value, then the viatical settlement provider shall have the right to any cash surrender value.

J. In any instance where the disposition of additional benefits, riders, or endorsements is determined by the viatical settlement contract, the contract must clearly delineate the disposition. Upon signature of the viatical settlement contract, the contract shall be transmitted to the life insurance company, with a summary of any provisions made for the disposition of any additional benefits, riders, or endorsements.

Section 10 Disclosures Required Prior to Signature of the Contract

A. Upon receipt of an application or other notice of a request to viaticate, and after determining the value to be offered in return for the assignment, transfer, sale, devise or bequest of the death benefit or ownership of a life insurance policy or certificate to the viatical settlement provider, the viatical settlement provider shall deliver a proposal to the viator before the contract is required to be signed. The proposal shall include a copy of Attachment A to this regulation, with the required specific information filled in by the viatical settlement provider, or the same general and specific information as is contained in Attachment A in substantially similar form.

The commissioner reserves the right to update the list of service and support agencies and their telephone numbers through the issuance of Bulletins containing the current approved list.

B. The viatical settlement provider must keep a copy of the disclosure statement in the provider's file on the contract, along with an affidavit signed by the provider showing the date the disclosure statement was delivered to the viator and attesting to the provider's belief that the viator read and understood the disclosure statement. A copy of the disclosure statement and the signed affidavit will be sent to the viatical settlement broker, who will also retain the copies with the broker's files on the contract.

Section 11 Rules of Conduct for Providers and Brokers

A. A viatical settlement broker may not be an agent for, or employee of, a viatical settlement provider. A viatical settlement broker who solicits a viatical settlement contract has a fiduciary duty to represent the viator and not the viator settlement provider.

B. A viatical settlement provider entering into a viatical settlement contract with any viator shall first obtain a statement signed in the presence of two witnesses in which:

1. the viator acknowledges the catastrophic or life threatening illness or condition, represents that the viator has a full and complete understanding of the viatical settlement contract and understands the benefits of the life insurance that is to be sold or otherwise transferred; and,

2. the viator acknowledges that he or she has entered into the viatical settlement contract freely and voluntarily.

C. Contracts for the purpose of determining the health status of the viator or person whose life is insured by the viatical settlement provider or broker after the viatical settlement has occurred shall be limited to:

1. once every two (2) months in cases where life expectancy is less than six months; and,

2. once every three (3) months in cases where life expectancy is six months or more.

The provider or broker shall explain the procedure for these contracts at the time the viatical settlement contract is executed.

D. A viatical settlement provider or broker shall not pay or offer to pay any finder's fee, commission or other compensation to any viator's physician, attorney, accountant or other person providing medical, legal or financial planning services to the viator, or to any other person acting as a representative or agent of the viator with respect to the viatical settlement. For the purposes of this section, "representative or agent" does not include a licensed viatical settlement broker.

E. Viatical settlement providers and brokers shall not solicit investors who could influence the treatment of the illness of the viator or person whose life is insured and whose coverage would be the subject of the investment.

F. No individual, partnership, corporation or other entity acting as a viatical settlement provider or broker shall aid or assist a health care facility or practitioner in coercing or requiring, or attempting to coerce or require, a person to enter into a viatical settlement contract as a condition of admission, on of providing a continuing care.

G. Advertising shall be truthful and not misleading in fact or by implication.

1. If the advertiser represents the speed with which the viatication will occur, the advertising must disclose the average time frame from the completed application to the date of offer and from acceptance of the offer to receipt of funds by the viator/

2. If the advertising represents the dollar amounts available to viators, the advertising shall disclose the average purchase price as a percent of the face value obtained by viators contracting with the advertiser during the past six (6) months and must indicate that amounts may vary depending on life expectancy.

3. No advertisement shall indicate or imply that viatical settlements are the only means of obtaining access to a policy's values.

H. All medical information solicited or obtained by any viatical settlement provider or viatical settlement broker shall be confidential. Individual investors of viatical settlement providers shall not have access to names or to individually-identifiable information about viators, unless such information is disclosed in the course of regulatory proceedings under 8 V.S.A., Section 3830.

The viatical settlement provider and the viatical settlement broker shall not disclose any medical information acquired in the course of the negotiation of a viatical settlement contract except as otherwise ordered by the commissioner to assist in the investigation of a crime or violation of any provision of Title 8 V.S.A. or regulations promulgated under that title.

The viatical settlement provider will pay any costs connected with obtaining medical information required in the course of negotiations.

I. A viatical settlement provider or broker shall not unfairly discriminate in the making of viatical settlements on the basis of race, age sex, national origin, creed, religion, occupation, marital or family status or sexual orientation, or discriminate between viators with dependents and viators without dependents.

J. A violation of the either Title 8 V.S.A., Chapter 103, Subchapter 5A, Viatical Settlements, or of this regulation shall be considered an unfair trade practice under chapter 129 of Title 8 V.S.A. and shall subject the violator to the penalties contained in that chapter. The penalties contained in that chapter shall be in addition to any other penalties that may be imposed under Chapter 103, Subchapter 5A Viatical Settlements.

Section 12 Approval of Contract Form and Related Forms

A. No viatical settlement provider may use any viatical settlement contract form or related form in this state unless it has been filed with and approved by the commissioner. Related forms include, but are not necessarily limited to, any disclosure form containing the information required by law and by Section 10 of this regulation, the viator's statement of understanding form as required by Section 11 of this regulation, any medical records release form to be used, any application form to be used by the viator to request a contract, and any form describing how and when contracts for the purpose of determining current health status may occur, as found in Section 11 of this regulation.

B. Any viatical settlement contract form or related form filed with the commissioner shall be deemed approved if it has not been disapproved within 60 days of the filing. The commissioner may extend by not more than 30 additional days the period within which affirmative approval or disapproval of any such form may be given, by notifying the viatical settlement provider of such extension before expiration of the initial 60-day period.

C. All contracts and related forms submitted for review must:

include an explanatory paragraph related to each form, describing its intended use and how it will accomplish its goal and the marketing targets and techniques to be used for these forms.

2. supply a side-by-side comparison of the new and the old forms, if replacement or revised forms are involved. The submission shall show deleted material in brackets and new material underlined. The submission shall describe what the new form intends to accomplish, how a replacement form differs from its predecessor, and how the forms will accomplish their goals.

3. use a Department File number, once it has been assigned.

4. be accompanied by the required filing fee and a 4" by 6" silver emulsion microfiche with completed header strip (see Regulation 86-10), a postage-paid return envelope, and two copies of the cover letter so that one copy can be stamped and returned.

D. Contracts and all forms must be written in non-technical, readily understandable language, using words of common usage. The viatical settlement provider must test the readability of its contracts and forms by use of the Flesch Readability Formula, as set forth in Rudolf Flesch's publication, "The Art of Readable Writing" (1949, revised 1974.) A total readability score of forty (40) or more on the "Flesch" scale is required. A certification that the viatical settlement provider has tested the contract and forms under this section must be submitted with the contract for approval.

E. At the request of the viator, the viatical settlement provider must provide contracts and forms in Braille, large print, or audiotape, or any other reasonable accommodation which will allow the viator to fully comprehend the words and substance of the form.

F. The commissioner may withdraw approval of a previously approved contract form or related form. Any order of the commissioner disapproving any such form or withdrawing a previous approval shall state the grounds therefor and the particulars thereof in such detail as reasonable to inform the viatical settlement provider thereof. Any withdrawal of a previously approved form shall be effective at expiration of such period as the commissioner shall in the notice prescribe.

G. Any request for a hearing relative to the commissioner's withdrawal of approval of a form which has been received by the commissioner prior to the effective date of such withdrawal shall stay such action pending the hearing thereon.

H. The commissioner shall disapprove a viatical settlement contract form if the contract or any provision contained therein is unreasonable, contrary to the interests of the public, or otherwise misleading or unfair to the policyholder, or contrary to the provisions of law or this regulation.

I. Any viatical settlement provider aggrieved by the disapproval or withdrawal of approval of any form required to be filed under this section may file a written request for a hearing within 30 days of the date of the notice of the disapproval or withdrawal. Any hearing requested under this section shall be conducted pursuant to chapter 25 of Title 3, V.S.A.

Section 13 Reporting Requirements

A. The commissioner may require each viatical settlement provider and viatical settlement broker to report such information at such intervals as the commissioner deems necessary.

B. On March 31 of each calendar year, each viatical settlement provider licensed in this state shall make a report to the commissioner as outlined in Attachment B to this regulation for the previous calendar year.

Section 14 Separability Provision

Should a court hold any provision of this regulation invalid in any circumstances, the invalidity shall not affect any other provisions or circumstances of this regulation.

ATTACHMENT A NOTICE REGARDING VIATICATION OF YOUR LIFE INSURANCE POLICY

Vermont law permits a terminally ill person to sell his or her life insurance policy. This sale is referred to as "viatication" but for ease of understanding, we will use the terms such as "sale", "sell", and "buy" throughout this notice.

You should be aware of certain facts about viatication. You should also know you have certain legal protections before you sell your life insurance policy. This notice contains general information that will help you make a decision. This notice also contains specific information about your policy and the viatical settlement provider's offer. This information will help you make a careful comparison of your life insurance policy benefits, and the benefits you will receive if you sell your insurance policy.

We have tried to customize those parts of this notice that apply to you. All of the sections should be checked with the appropriate choice.

Part I : Some Basic Facts About Your Life Insurance Policy

A. The insurance policy you are proposing to sell is with the:

Company

Policy Number

B. The expected death benefit for this policy is: ___

The expected death benefit is defined by the policy you are considering selling, as of the date the viatical settlement contract is signed.

C. __ Your expected death benefit will remain stable for at least the next five years (If this block is checked, you should skip to part D)

OR

__ Your expected death benefit will increase over the next five years, if you do not sell the policy.

Current year death benefit: ___

Year __ death benefit: ___

Year __ death benefit: ___

Year __ death benefit: ___

Year __ death benefit: ___

Year __ death benefit: ___

D. __ Your policy does not have a cash surrender value. (If this block is checked, you should skip to part 2, "The Viatical Settlement Contract Proposal.")

OR

__ The current cash surrender value of your life insurance policy is: ___

__ Because you have a loan on this policy, the net cash surrender value is: ___

OR

__ Since you do not have a loan on this policy, the net cash surrender value is the same as current cash surrender value.

E. If there is a net cash surrender value:

You can get a loan against the net cash surrender value from the insurance company before you sell your policy. Interest would have to be paid on the loan. In most instances, the interest you would have to pay on the loan will be lower than the percentage that would be deducted from your viatical settlement contract payment.

The amount that you would sell would be reduced to ___

OR

If you do not get a loan, the viatical settlement provider will be required to give you 100% of the net cash surrender value in addition to the viatical settlement proceeds.

Part 2. The Viatical Settlement Contract Proposal

A. The viatical settlement provider which is offering to buy your policy is:

Name: ___

Address: ___

Vermont License Number: ___

B. The contract you are considering entering into would sell all or part of your death benefit

If part, the amount to be sold is: ___

C. The viatical settlement provider is offering to buy your policy for (Amount)

This amount represents __% of the expected death benefit

Important note: The amount the viatical settlement provider is offering you depends on your remaining life expectancy, and is controlled by Vermont state regulation. If you wish to know the life expectancy figure the viatical settlement company is using and the minimum payment for that life expectancy which is required by Vermont regulation, you have a right to that information from the viatical settlement provider who completed this notice form.

You should also know:

• Some of all of the proceeds of the viatical settlement may be taxed under both income and estate tax laws. A personal tax advisor should be consulted.

• The proceeds of the viatical settlement could be subject to the claims of creditors;

• The receipt of proceeds from a viatical settlement may adversely affect your eligibility for Medicaid or other government benefits or entitlements. You should seek advice from the appropriate agencies.

Part 3. How Would Viatication Work?

A. If you are using the services of a viatical settlement broker that person will receive a fee of ___

This fee may not be greater than 2% of the amount the viatical settlement provider pays you, and is paid by the viatical settlement provider, not deducted from the amount you will receive.

Only a viatical settlement broker who is licensed in Vermont, and who is acting on your behalf rather than in the interests of the viatical settlement provider, may be paid a fee.

B. If decide to enter into the viatical settlement contract, you have an unconditional right to cancel the contract within seven business days of the date you and the viatical settlement provider sign the contract. When you receive the contract, it will outline what you need to do to cancel the viatical settlement contract.

If you were to die during this seven day period, the contract would automatically be rescinded, and your beneficiaries would receive your life insurance benefit.

C. When you receive the contract, it will also tell you the date by which the viatical settlement proceeds will be available to you and the source of the proceeds, i.e. what bank or other trustee or escrow agent will be sending you the money. The viatical settlement contract and transfer of the policy is null and void if the viatical settlement provider fails to tender payment of the proceeds as provided in the viatical settlement contract.

D. You will receive a wire transfer or cashier's check for the proceeds of the contract. The payment will be in a lump sum, but you may wish to make other arrangements for payment with the same (or any other) bank, trustee, or escrow agent. The viatical settlement provider is barred by Vermont law from offering you an installment payment plan, or other annuity or settlement plan.

Part 4. Alternatives to Selling Your Life Insurance Policy

A. Some insurance policies have a provision for an accelerated death benefit, which might be a good alternative to selling your life insurance policy.

__ Your insurance policy does not have an accelerated death benefit provision.

OR

__ Your insurance policy does have an accelerated death benefit provision. You may wish to contact the insurance company to determine what the accelerated death benefit provisions are and how much money would be available to you.

The insurance company name is:

Address

Phone Number

B. You may wish to sell only the basic death benefit and retain additional benefits or optional riders that are part of your current policy.

__ You do not have any additional benefits or optional riders attached to your policy.

(You may skip the rest of this section.)

OR

__ The following additional benefits or optional riders are attached to your policy.

---

Important note: If you wish to retain any of these benefits or riders, you will need to determine which those are, and negotiate an adjustment to the amount the viatical settlement provider is offering you. The viatical settlement provider has the right to adjust the offer they are making to cover up the cost of the premiums they will pay to keep these additional benefits or riders in force.

And, there are other options . . .

If you are thinking of entering into a viatical settlement contract, the State of Vermont strongly encourages you to explore other options before you make a decision. There may be services and support which could allow you to meet your needs while keeping your life insurance policy in force for your beneficiaries.

You can contact any of the following programs or agencies. These agencies either administer programs you may be eligible for, or they can refer you to other organizations that may be able to help you.

| Medicaid (VT Dept of Social Welfare) | 1-800-287-0589 | | --- | --- | | Area Agencies on Aging | 1-800-642-5119 | | Vermont AIDS Hotline | 1-800-882-2437 | | Vermont Center for Independent Living | 1-800-639-1522 | | American Cancer Society (Vermont Division) | 1-800-639-1888 |

If you have any questions about viatication, you may also call the Vermont Department of Banking, Insurance, and Securities at (802) 828-3302.

Regulation 95-4 Viatical Settlements Attachment B Viatical Settlement Provider Annual Report

Each viatical settlement provider licensed in the State of Vermont, must submit this report to the Commissioner of Banking, Insurance and Securities not later than March 31 of each calendar year.

Name of Licensed Viatical Settlement Provider: ___

Calendar Year Covered: ___

If the Viatical Settlement Provider has been licensed for less than the full calendar year, please show the date of licensing, e.g., 6/1/96 to 12/31/96.

Name, Address and Telephone No. of Contact Person for this Report: ___

Part A: Statistical Information

1. Number of applications received, viaticated and rejected:

| | Number AIDS/HIV Related | Cancer Related Other | | --- | --- | --- | | | | Illnesses/Cond itions | | Application Viaticated | | | | Applications Rejected | | | | Applications Pending | | | | Total Applications | | |

Breakdown of life insurance policies viaticated by insurer and type:

For each answer, first show the type and the number of policies viaticated. Then break down that total number by the paired categories, e.g., how many of the total policies viaticated were individual policies and how many were group policies, etc.

| Insurer | Total | Individual | Term Life | Traditional | Fixed | Main Life Policy | | --- | --- | --- | --- | --- | --- | --- | | Name | Number | Policies | Insurance | Life Insurance | Universal Fixed | | | | | Group | Whole Life | Universal | Variable | Rider on Main Policy | | | | Policies | Insurance | Life Insurance | Universal Variable | | | | | Ind = | Term = | Trad = | Fixed = | Main = | | | | | | | Univ | | | | | | | | Fixed = | | | | | Grp = | Whole = | Univ = | Var = | Rider | | | | | | | | = | | | | | | | Univ | | | | | | | | Var = | | | | | Ind = | Term = | Trad = | Fixed = | Main = | | | | | | | Univ | | | | | | | | Fixed = | | | | | Grp = | Whole = | Univ = | Var = | Rider | | | | | | | | = | | | | | | | Univ | | | | | | | | Var = | | | | | Ind = | Term = | Trad = | Fixed = | Main = | | | | | | | Univ | | | | | | | | Fixed = | | | | | Grp = | Whole = | Univ = | Var = | Rider | | | | | | | | = | | | | | | | Univ | | | | | | | | Var = | |

Financial Statistics:

a) Viatical settlement contracts purchased/financed by the viatical settlement provider:

Number ___

Total settlement amount ___

Viatical settlement contracts which were resold or brokered to independent investors:

Number ___

Total settlement amount ___

b) Viatical settlement provider portfolio size ___

c) Amount of outside borrowing ___

Part B: Individual Information

For each policy viaticated, provide the following information:

Note: "VSC" means Viatical Settlement Contract

If the viator is not the person whose life is insured and who has a life threatening illness or condition, provide the life expectancy and date of death of the person whose life is insured and who has a life threatening illness or condition.

DO NOT USE VIATORS' NAMES OR IDENTIFIERS WHICH CAN BE CONNECTED TO INDIVIDUAL NAMES.

| VSC Identifier | Date VSC Entered Into | Viator Life Expec- tancy at Time of VSC | Value of Policy | Riders/Options Retained by Viator | Amount Paid to Viator | Viator Date of Death | Premiums Paid to Maintain Insurance | Rein-surer | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | Face Amt Death Benefit | | | | | | | | | | CashS urrender | | | | | | | | | | Outstanding Loans | | | | | |

DO NOT USE VIATORS' NAMES OR IDENTIFIERS WHICH CAN BE CONNECTED TO INDIVIDUAL NAMES

| VSC Identifier | Date VSC Entered Into | Viator Life Expec- tancy at Time of VSC | Value of Policy | Riders/Options Retained by Viator | Amount Paid to Viator | Viator Date of Death | Premiums Paid to Maintain Insurance | Rein-surer | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | Face Amt Death Benefit | | | | | | | | | | Cash Surrender | | | | | | | | | | Outstanding Loans | | | | | |

| VSC Identifier | Date VSC Entered Into | Viator Life Expec- tancy at Time of VSC | Value of Policy | Riders/Options Retained by Viator | Amount Paid to Viator | Viator Date of Death | Premiums Paid to Maintain Insurance | Rein-surer | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | Face Amt Death Benefit | | | | | | | | | | Cash Surrender | | | | | | | | | | Outstanding Loans | | | | | |

History

• Effective Date: February 5, 1996 (Secretary of State Rule Log #96-9)
• AMENDED: June 2000 Technical Revision only - changed Rule number from 21 000 006
• Statutory Authority: 8 V.S.A. §§ 75, 3833 and Chapter 129

Chapter 048 MEDICARE PLUS CHOICE SOLVENCY RULE - RULE 98-2

21-048 Code Vt. R. 21-020-048-X MEDICARE PLUS CHOICE SOLVENCY RULE - RULE 98-2

Section 1 Purpose

The purpose of this rule is to implement Title 8 V.S.A. 5102b(1) to promulgate solvency standards for the licensure of provider sponsored organizations for purposes of the Medicare + Choice program.

Section 2 Authority

This rule is issued pursuant to the authority vested in the Commissioner under Title 8 V.S.A. 5102b(1).

Section 3 Applicability and Scope

This rule is only applicable to provider sponsored organizations applying for licensure in Vermont that intend to offer solely the Medicare + Choice program.

Section 4 Definitions

A. Health Care Financing Administration ("HCFA"): the agency of the federal Department of Health and Human Services that administers the Medicare program.

B. Medicare + Choice: means the Medicare health benefits program created by Section 4001 of the Balanced Budget Act of 1997 (Pub L. 105-33) as defined in 42 USC 1395 w - 21 - 28.

C. Provider sponsored organization: means a public or private entity (a) that is established or organized, and operated, by a health care provider, or group of affiliated health care providers, (b) that provides a substantial proportion of the health care items and services under the Medicare + Choice contract directly through the provider or affiliated group of providers, and (c) with respect to which the affiliated providers share, directly or indirectly, substantial financial risk with respect to the provision of such items and services and have at least majority financial interest in the entity. The term "provider sponsored network" shall have the same meaning as provider sponsored organization.

Section 5 Solvency Provisions

The solvency standards promulgated by the Health Care Financing Administration for purposes of the Medicare + Choice program for provider sponsored organizations are hereby adopted for those provider sponsored organizations who seek Vermont licensure in order to offer the Medicare + Choice product. These solvency standards are contained in 63 Fed. Reg. 25377-25379 (1998) (to be codified at 42 CFR 422.380-390), as amended or changed from time to time by the Health Care Financing Administration ("HCFA Solvency Standards"). Because it is the intent that Vermont solvency standards for provider sponsored organizations for the Medicare + Choice program mirror the HCFA Solvency Standards, any amendments or changes made by the Health Care Financing Administration to these solvency standards are automatically included in this rule.

The Commissioner is empowered to act and to exercise discretion in applying the HCFA Solvency Standards in the same manner and to the same extent as the Health Care Financing Administration is so authorized by the HCFA Solvency Standards. The Commissioner shall make an effort to exercise this discretion in a manner consistent with the discretionary decisions made by the Health Care Financing Administration.

Section 6 Severability

Should a court hold any provision of this rule invalid in any circumstance, the invalidity shall not affect any other provision or circumstance.

Section 7 Effective Date

The rule will be effective upon adoption.

History

• Effective Date: January 21, 1999 (Secretary of State Rule Log #99-01)
• AMENDED: June 2000 Technical Revision only - changed Rule number from 21 040 011
• Statutory Authority: 8 V.S.A. § 5102b(1)

Chapter 049 MAINTENANCE OF COMPLAINT RECORDS - REGULATION 76-1

21-049 Code Vt. R. 21-020-049-X MAINTENANCE OF COMPLAINT RECORDS - REGULATION 76-1

Section 1 AUTHORITY

This Rule is adopted under 8 V.S.A. §§ 75, 3562 and 4724(10).

(a) "Consumer Complaint" means either a written communication, or an oral communication subsequently confirmed in writing, to the insurer from a resident of Vermont primarily expressing a grievance;

(b) "Insurance Department Complaint" means either a written communication, or an oral communication subsequently confirmed in writing, from the Vermont Department of Banking and Insurance to the insurer involved regarding a consumer's insurance complaint to the Department of Banking and Insurance;

(c) "Complaint" means either a consumer complaint or an Insurance Department complaint.

(d) "Insurer" means any company defined in Title 8 V.S.A. Chapter 101 and any non-profit medical or hospital service corporation as defined in Title 8 V.S.A. Chapter 123 or 125;

(e) "Vermont insureds" means both individual policyholders and group certificate holders in Vermont.

Section 3 MAINTENANCE OF COMPLAINT RECORDS

Every insurer shall maintain a complaint record as provided in Section 4 of this Rule. The complaint record shall be kept on a calendar year basis and shall be maintained on and after March 1, 1976.

Section 4 CONTENT OF COMPLAINT RECORDS

Exhibit 1 of this Rule sets forth the minimum information required to be contained in an insurer's complaint record and a suggested format for the complaint record in order for it to comply with this Rule. Minor refinements and additions to the complaint record and the information specified therein are permitted. Exhibit 2 of this Rule contains an explanation of the various headings, codes, and other notations contained in Exhibit 1.

Section 5 ANNUAL REPORT TO THE DEPARTMENT

On or before August 1, 1976, every insurer shall submit to the Vermont Department of Banking and Insurance a summary sheet of its complaint record for the period starting March 1, 1976, and ending June 30, 1976, concerning Vermont complaints. On or before April 1, 1977, every insurer shall submit such a summary sheet for the period March 1, 1976 - December 31, 1976. Thereafter annually, on or before April 1, beginning April 1, 1978, every insurer shall submit such a summary sheet for the preceding calendar year. The information required and the format shall be in accordance with Exhibit 3. Exhibit 3 provides for summarizing the total number of complaints, computations of total earned premium for Vermont, total number of Vermont insureds, the ratio of total number of complaints to 1,000 Vermont insureds and the ratios of number of complaints to the number of Vermont insureds by line of insurance for those lines of insurance in which the insurer insures more than 1,000 Vermonters.

Section 6 EFFECTIVE DATE

This Rule is effective on January 15, 1976.

EXHIBIT 1

COMPLAINT RECORD

| Column A | Column B | Column C | Column D | Column E | Column F | | --- | --- | --- | --- | --- | --- | | Company's Identification Number | Function Code Reason Code | Line of Insurance | Date Received | Date Closed | Insurance Department Complaint (Yes or No) |

EXHIBIT 2

PROCEDURE

Explanation

Column Number

A. Company's Identification Number. As noted, this refers to the company's identification number of the complaint.

B. Function Code. Complaints are to be classified by function(s) of the company involved. Separate classifications are to be maintained for underwriting, marketing and sales, claims, policyholder service and miscellaneous.

Reason Code. Complaints are also to be classified by the nature of the complaint. The following is the classification required for each function specified above:

(1) Underwriting

(a) Company underwriting

(b) Individual's application (this refers to any complaint where misrepresentations or declarations in an application for insurance resulted in company action involved in the complaint)

(c) Cancellation

(d) Recission

(e) Non-renewal

(f) Premiums and rating

(g) Delays

(h) Refusal to insure

(i) Miscellaneous (not covered by above)

(2) Marketing and Sales

(a) General advertising

(b) Mass marketing advertising (advertising which is essentially directed to reach more people than in a one-to-one relationship)

(c) Agent handling

(d) Replacement

(e) Dividend illustration

(f) Delays

(g) Alleged misleading statement or representation

(h) Miscellaneous (not covered by above)

(3) Claims

(a) Claims procedure

(b) Delays

(c) Unsatisfactory settlement offer

(d) Natural disaster adjusting (hurricane or flood situations or other situations which produce a large number of claims)

(e) Unsatisfactory settlement

(f) Denial of claim

(g) Miscellaneous (not covered by above)

(4) Policyholder Service

(a) Failure to respond

(b) Delays

(c) Miscellaneous (not covered by above)

(5) Miscellaneous

C. Line of Insurance. Complaints are to be classified according to the line of insurance involved, as follows:

(1) Automobile

(2) Fire

(3) Homeowners - Farmowners

(4) Crop

(5) Inland Marine

(6) Individual Life

(7) Group Life

(8) Annuities

(9) Individual Health - Accident & Sickness

(10) Group Health - Accident & Sickness

(11) Workmen's Compensation

(12) Liability Insurance other than Automobile

(13) Mobile Homeowners

(14) Miscellaneous (not covered by above)

D. Date Received. This refers to the date the complaint was received by the insurer.

E. Date Closed. This refers to the date on which the complaint was disposed of by the insurer. If the disposition involved a series of actions, the date of disposition shall be the date of the last action in the series.

F. Insurance Department Complaint. Complaints are to be classified "yes" or "no" as to whether the complaint originated from the Insurance Department.

Company's Name ___

Calendar Year ___

EXHIBIT 3

| **SUMMARY SHEET *** | | | | | | | --- | --- | --- | --- | --- | --- | | * List total number of complaints for each subcategory. | Automobile | Fire | Homeowners -Farmowners | Crop | Inland Marine | | FUNCTION CODE UNDERWRITING | | | | | | | Company underwriting Individual's application Cancellation Recission Non-renewal Premiums & rating Delays Refusal to insure Miscellaneous | | | | | | | MARKETING AND SALES | | | | | | | General advertising Mass marketing advertising Agent handling Replacement Dividend illustration Delays Alleged misleading statement Miscellaneous | | | | | | | CLAIMS | | | | | | | Claims procedure Delays Unsatisfactory Settlement Offer Natural disaster adjusting | | | | | | | Unsatisfactory settlement Denial of claim Miscellaneous | | | | | | | POLICYHOLDER SERVICE | | | | | | | Failure to respond Delays Miscellaneous | | | | | | | MISCELLANEOUS TOTAL COMPLAINTS | | | | | | | Total Earned Premium for Vt. Number of Vermont Insureds Complaints/ 1000 Vt. Insureds * | | | | | |

• For lines of insurance, and for the total of all lines, for which company insures more than 1,000 Vermont insureds.

| **SUMMARY SHEET *** | | | | | | | --- | --- | --- | --- | --- | --- | | * List total number of complaints for each subcategory. | Individual Life | Group Life | Annuities | Individual Health -Accident & Sickness | Group Health- Accident & Sickness | | FUNCTION CODEUNDERWRITING | | | | | | | Company underwriting Individual's application Cancellation Recission Non-renewal Premiums & rating Delays Refusal to insure Miscellaneous | | | | | | | MARKETING AND SALES | | | | | | | General advertising Mass marketing advertising Agent handling Replacement Dividend illustration Delays Alleged misleading statement Miscellaneous | | | | | | | CLAIMS | | | | | | | Claims procedure Delays Unsatisfactory Settlement Offer Natural disaster adjusting Unsatisfactory settlement Denial of claim Miscellaneous | | | | | | | POLICYHOLDER SERVICE | | | | | | | Failure to respond Delays Miscellaneous | | | | | | | MISCELLANEOUS TOTAL COMPLAINTS | | | | | | | Total Earned Premium for Vt. Number of Vermont Insureds Complaints/ 1000 Vt. Insureds * | | | | | |

• For lines of insurance, and for the total of all lines, for which company insures more than 1,000 Vermont insureds.

| **SUMMARY SHEET *** | | | | | | | --- | --- | --- | --- | --- | --- | | * List total number of complaints for each subcategory. | Workmen's Compensation | Liability Insurance Other Than Auto | Mobile Homeowners | Miscellaneous | Totals - All Lines | | FUNCTION CODE UNDERWRITING | | | | | | | Company underwriting Individual's application Cancellation Recission Non-renewal Premiums & rating Delays Refusal to insure Miscellaneous | | | | | | | MARKETING AND SALES | | | | | | | General advertising Mass marketing advertising Agent handling Replacement Dividend illustration Delays Alleged misleading statement Miscellaneous | | | | | | | CLAIMS | | | | | | | Claims procedure Delays Unsatisfactory Settlement Offer Natural disaster adjusting Unsatisfactory settlement Denial of claim Miscellaneous | | | | | | | POLICYHOLDER SERVICE | | | | | | | Failure to respond Delays Miscellaneous | | | | | | | MISCELLANEOUS TOTAL COMPLAINTS | | | | | | | Total Earned Premium for Vt. Number of Vermont Insureds Complaints/ 1000 Vt. Insureds * | | | | | |

• For lines of insurance, and for the total of all lines, for which company insures more than 1,000 Vermont insureds.

History

• Effective Date: January 15, 1976
• AMENDED: July 2000 (Previously missing from Code)
• Statutory Authority: 8 V.S.A. § 75

Chapter 050 REGULATION 99-1, RECORD RETENTION

21-050 Code Vt. R. 21-020-050-X REGULATION 99-1, RECORD RETENTION

Section 1 Purpose

This regulation establishes rules for the preservation and retention of insurer records, including the media that may be used to maintain them, the minimum duration of their retention, and the requirements for their production for examination.

Section 2 Authority

This regulation is promulgated pursuant to the authority vested in the Commissioner of Banking, Insurance. Securities and Health Care Administration by Title 8 V.S.A. sections 75, 3568, 3688, 4812, 5111 and 8014.

Section 3 Definitions

As used in this regulation:

A. "Commissioner" shall mean the Commissioner of Banking, Insurance, Securities and Health Care Administration or his or her authorized designee as provided by applicable law.

B. "Department" shall mean the Department of Banking, Insurance, Securities and Health Care Administration.

C. "Foreign Insurer" shall mean an insurer organized under the laws of a jurisdiction other than Vermont.

D. "Insurer" shall mean any person engaged in the business of insurance in this state. It shall include any individual, corporation, association, partnership, reciprocal exchange, inter-insurer, Lloyds insurer, fraternal benefit society, and any other legal entity engaged in the business of insurance. The term shall also include entities formed or regulated under Title 8 V.S.A. Chapters 101, 103, 105, 107, 109, 111, 113, 121, 123, 125, 128, 132, 137, 138, 139, 143 and 151. For purposes of this regulation, "insurer" does not include persons required to be licensed under Title 8 V.S.A. Chapters 131 or 142A or entities formed under Title 8 V.S.A. Chapters 141 or 142.

E. "Policy" shall mean any policy, certificate, or contract of insurance, indemnity, medical or hospital service, suretyship or annuity, issued by any insurer, which sets forth the extent of coverage or other rights of the person to whom the policy is issued. The term policy shall also include any evidence of coverage issued by a health maintenance organization or other similar organization to an enrollee.

F. "Producer" shall mean any person required to be licensed under Title 8 V.S.A. Chapter 131 and 142A, as agent, broker, managing general agent or reinsurance intermediary.

G. "Related Entity" shall include any person authorized to act on behalf of an insurer in connection with the business of insurance, but shall not include a producer.

Section 4 Records to be Maintained

A. Each insurer or related entity doing business in this state shall maintain its books, records, documents and other business records so that the insurer's claims, rating, underwriting, marketing, complaint, and producer licensing records, rates and forms filings and other records subject to examination by the commissioner are readily available to the commissioner. The requirements of this regulation are in addition to any requirements specified by statute or other regulations and do not supersede any more specific requirements as may be contained in those statutes or regulations. Each insurer or related entity shall maintain:

(1) Policy Records. A policy record shall be maintained for each policy issued to a person who is a resident of or doing business in this state or to insure risks located in this state. Policy records no longer required to be maintained under this regulation, but which are used to rate or underwrite a current policy, must be accessible through current policy records until the policy is no longer required to be maintained. Vermont policy records need not be segregated from the policy records of other states so long as they are readily available to the commissioner as required under this rule. A separate copy need not be maintained in an individual policy record, provided that any data relating to a specific contract or policy is readily retrievable as required by this regulation. Policy records shall include:

(a) the policy term, basis for rating and, if terminated, the return premium amounts, if any;

(b) the application, including any application form or enrollment form for coverage under any insurance contract or policy;

(c) declaration pages, endorsements, riders, termination notices, guidelines or manuals associated with or used for the rating or underwriting of the policy;

(d) binders if a policy was not issued; and,

(e) any other information necessary for the reconstruction of the rating and underwriting of the policy.

(2) Declined Applications. Applications that were completed and submitted to the insurer, and for which the insurer has made a determination not to issue a policy or not to add requested additional coverage shall be maintained.

(3) Claims Records. Claims Records shall be maintained so as to show clearly the inception, handling and disposition of each claim.

(4) Complaint Records. Complaint records shall be maintained for each complaint received. Complaint records shall include:

(a) written complaints received from the insured, the Department, or any other source and the responses to them;

(b) a complaint activity log, including the outcome of each complaint; and,

(c) the complaint records to be maintained under 8 V.S.A. section 4724 and regulations issued thereunder.

(5) Producer licensing records. A producer licensing record shall be maintained for each producer with whom the insurer establishes a relationship. It shall be maintained so as to show clearly the dates of appointment and termination of each producer.

(6) Financial Records. Books, records, accounts, papers, documents and any computer or other recordings related to the property, assets, business and affairs of an insurer as necessary to allow the conduct of examinations under the provisions of Vermont law shall be maintained.

(7) Rates and Forms Filing Records. Rates and forms filing records shall be preserved and maintained for all rates and forms used, approved, or disapproved for use in this state. Rates and Forms filing records shall include:

(a) all information submitted in the filing and in support of the filing;

(b) all related correspondence with and by the Department; and,

(c) the approval or disapproval of use letter or other evidence regarding the Department's decision.

B. In addition to the records required by the regulation on trust accounts, each producer shall keep records of the transactions under his or her license. Such records shall include as to each insurance policy or contract, not less than:

(1) The name, address and telephone number of the insured;

(2) The name and address of the insurer;

(3) The number and expiration date of the policy or contract;

(4) The premium payable as to the policy or contract and the date the premium is received or returned, if applicable;

(5) The amount of any commission or other compensation and basis on which it is computed;

(6) The date, time, insurer, insured and coverage of every binder made by the agent; and

(7) The date of any mid-term cancellation.

Section 5 Form of Records

A. Records required to be preserved and retained by this regulation may be maintained in paper. photograph. microprocess, magnetic, digital, mechanical or electronic media, or in or by any other information storage device or process which forms a durable medium providing reasonable assurances against tampering and degradation of any reproduction of the original record, and which can be accurately transferred to paper in a legible written form within a reasonable time.

B. Records that bear a signature in their original form must be maintained such that the presence of the signature on the original is noted on any reproductions.

C. In cases where there is no paper document, an insurer shall be in compliance if it can produce information or data which accurately represents a record of communications between the insured and the insurer or which accurately reflects a transaction or event.

D. Records maintained in a computer based format shall be archival in nature only, so as to preclude the possibility of alteration of the content of the record by computer once the record has been transferred to that format.

E. Nothing in this regulation should be interpreted to favor a certain form of record retention.

Section 6 Production of Records

A. Records required to be retained under this regulation shall be made readily available upon request by the Commissioner.

B. Insurers domiciled in Vermont must provide requested records within the state upon request of the Commissioner.

C. An insurer must be able to retrieve, present, or reconstruct any policy, claim, complaint, or application by name of the insured as shown on the policy declarations page and by policy number.

D. Upon request of the Commissioner, the insurer shall provide a hard copy of the record, or, if the record is maintained in a medium used by the Commissioner, the Commissioner may authorize the insurer to provide the record in that medium.

Section 7 Retention Period

A. For records required to be maintained by an insurer or related entity, the following retention periods shall apply.

(1) Policy records shall be maintained for the longer of:

(a) five years from the expiration date of the policy, or

(b) until such time as the insurer is no longer required to maintain a reserve to pay claims under the specific insurance policy.

(2) Declined applications shall be maintained for at least 1 year.

(3) Claims records shall be maintained for 2 years from the settlement of the last claim filed.

(4) Rate and form filing records must be maintained for at least two years after the expiration date of any policy which uses the rate or form, for approved filings, and for six months, for disapproved filings.

(5) Financial records shall be maintained:

(a) by domestic companies, until they have been subject to an examination and a report of the examination has been made by the Department; or

(b) by foreign insurers. as required by the laws of their jurisdiction of domicile.

(6) All other records required to be maintained by this regulation shall be maintained for 5 years.

B. In the case of records required to be maintained by producers under section 4.B of this regulation, records shall be maintained for 3 years after completion of a personal lines transaction and 5 years after completion of a commercial lines transaction. For purposes of this regulation, completion shall occur at the expiration or cancellation of the policy.

C. Nothing in this regulation is intended to discourage longer retention of records than required herein. Insurers may find it prudent to use longer retention periods where statutes of limitations do not correspond to the time requirements of this regulation.

Section 8 Foreign Insurers

Foreign insurers may satisfy the requirements of this regulation by:

A. Compliance with the record retention law or regulations of its jurisdiction of domicile; or,

B. If no such law or regulation exists for a class of record described in section 4 of this regulation, compliance with the provisions of this regulation for that class of record or by presenting a statement from the commissioner of its state of domicile that its record retention system is acceptable to its state of domicile; provided, however, that the requirements of this regulation shall be satisfied once a foreign insurer's records have been subject to an examination with a report of examination having been made by the insurer's jurisdiction of domicile.

Section 9 Effective Date

This regulation is effective June 15, 2000 and shall apply to records created on or after that date.

Section 10 Severability

If any provision of this regulation, or the application of it to any person or circumstance is determined to be invalid by a court of competent jurisdiction, such invalidity shall not affect the other provisions of this regulation which can be given effect without the invalid provision or application, and to that end the provisions of this regulation are severable. 8 V.S.A. §§ 75, 3568, 3688, 4812, 5111 and 8014

History

• EFFECTIVE DATE: June 15, 2000 (SOS Rule Log # 00-32)
• AMENDED: Editorial corrections, July 2006

Chapter 051 REGULATION 2000-01-IH CIVIL UNIONS

21-051 Code Vt. R. 21-020-051-X REGULATION 2000-01-IH CIVIL UNIONS

Section 1 Purpose

This regulation is promulgated to prohibit insurers from unfairly discriminating between married couples and parties to a civil union regarding the offering of insurance policies and contracts. In accordance with this Regulation, insurers shall make insurance policies and contracts that are currently available to married couples, spouses, and their families available to civil union couples, parties to a civil union, and their families.

Section 2 Authority

This regulation is issued pursuant to the authority of the Commissioner to promulgate regulations. 8 V.S.A. § 75. The regulation is based on the legislative prohibition on unfair discrimination against the parties to a civil union. See 8 V.S.A. § 4724(7)(E).

Section 3 Applicability and Scope

(a) This regulation applies to any person transacting the business of insurance in the state of Vermont, as defined under 8 V.S.A. § 3368(b).

(b) Except as expressly provided herein, this regulation applies to all insurance policies and contracts solicited, delivered, issued, or renewed in the state of Vermont.

(c) This regulation shall not be construed to affect the ability of a fraternal benefit society to determine the admission of its members as provided under 8 V.S.A. § 4464 or to determine the scope of beneficiaries in accordance with 8 V.S.A. § 4477(a). Further, this regulation shall not apply to a fraternal benefit society that has been established and is operating for charitable and educational purposes and which is operated, supervised or controlled by or in connection with a religious organization where compliance with this regulation would violate the society's free exercise of religion, as guaranteed by the First Amendment to the Constitution of the United States or by Chapter I, Article 3rd, of the Constitution of the State of Vermont.

Section 4 Definitions

(a) "Civil Union" shall mean a civil union established pursuant to 15 V.S.A. chapter 23 and 18 V.S.A. chapter 106.

(b) "Commissioner" shall mean the Commissioner of the Vermont Department of Banking, Insurance, Securities and Health Care Administration.

(c) "Department" shall mean the Vermont Department of Banking, Insurance, Securities and Health Care Administration.

(d) "Insurance policy" or "Insurance contract" shall mean any contract of insurance, indemnity, medical, dental, optometric, or hospital service, suretyship, or annuity, issued, proposed for issuance, or intended for issuance, by any insurer.

(e) "Insurer" shall mean any individual, corporation, association, partnership, reciprocal exchange, inter-insurer, Lloyds insurer, fraternal benefit society, hospital or medical service corporation, health maintenance organization, managed care organization, mental health review agent and any other legal entity engaged in the business of insurance, including agents, brokers, appraisers, and adjusters. For the purposes of this regulation, insurer shall also include third party administrators and other agents and contractors of persons engaged in the business of insurance in Vermont.

(f) "Party to a civil union" shall mean a person who has established a civil union.

Section 5 Interpretation of Department Regulations

Pursuant to 15 V.S.A. § 1204, parties to a civil union and civil union couples shall be included in any definition or use of the terms "marriage," "spouse," "family," "immediate family," "dependent," "next of kin," and any other terms that denote a marital or spousal relationship, as those terms are used throughout the Department's regulations.

Section 6 Coverage Standards for Civil Unions

(a) Insurance contracts and policies offered by insurers to married couples, spouses, and their families shall also be offered to civil union couples, parties to a civil union, and their families. Except as specifically provided herein, all insurance contracts and policies shall provide coverage to parties to a civil union and their families that is equivalent to coverage provided to married persons and their families. At the request of a civil union party, insurers shall endorse or amend any such policy or contract to include policy or contract language which is consistent with this regulation. As provided in Section 7(c) all policies and contracts shall be amended or endorsed between January 1, 2001 and December 31, 2001.

(b) Effective January 1, 2001, any party to a civil union wishing to change his or her insurance contract or policy into a joint contract or policy shall be entitled to make that change to the extent a married person would be allowed to change his or her policy, without incurring any penalty as the result of such change. Any such change may be subject to standard and routine underwriting of the party to be added to the policy or contract.

(c) Insurers shall not use the fact that an applicant or an insured is a party to a civil union as a means to include sexual orientation in the underwriting process or in the determination of insurability. Use of sexual orientation as an underwriting standard or practice or as an eligibility requirement constitutes an unfair trade practice that is prohibited under 8 V.S.A. § 4724(7).

(d) Nothing in this regulation shall be construed to prohibit insurers from setting rates for insurance in accordance with reasonable classifications based on relevant actuarial data or actual cost experience. However, preferential rates or discounts offered to married persons that are not based on relevant actuarial data or actual cost experience, such as rates and discounts which reflect administrative cost savings for the insurer or are used as a marketing tool by insurers, shall also be made equally available to the parties to a civil union.

(e) The existence of a civil union shall automatically create for each party to a civil union an insurable interest in the other party. Both parties in a civil union shall also automatically have an insurable interest in any child for whom one party in a civil union becomes the natural parent, as that term is used in 15 V.S.A. § 1204(f), during the term of a civil union.

(f) An insurer shall not require any party to a civil union to produce proof of the existence of a valid civil union if that insurer does not also require married persons to produce proof of the existence of a valid marriage. Insurers may require an applicant to produce proof of the existence of a valid civil union only where the insurer would also require proof of the existence of a valid marriage under the same circumstances.

(g) Insurers are not required to provide a benefit available to a married person to a party to a civil union, or amend an insurance policy or contract of a party to a civil union when application of federal law prohibits such action or limits the benefit to married persons. Where an insurer declines to provide a benefit to, or amend an insurance contract of, a party to a civil union because of the application of federal law, the insurer shall notify the party to a civil union of the declination and the specific reason for the declination.

Section 7 Form Filings

(a) All forms filed on or after the effective date of this regulation shall comply with this regulation.

(b) All forms filed prior to the effective date of this regulation but not approved before January 1, 2001 shall, if approved, receive approval conditioned upon the inclusion of an appropriate endorsement that brings the policy or contract into compliance with this regulation.

(c) All forms currently on file and approved by the Department shall be amended or endorsed to bring the policy or contract into compliance with this regulation. Such amendment or endorsement shall be included in all policies and contracts issued or renewed on or after January 1, 2001. All contracts and policies that do not contain a renewal date shall be amended or endorsed to bring the policy or contract into compliance with this regulation on the first anniversary of the policy effective date following January 1, 2001. For example, a life insurance policy issued on March 1, 1965 or March 1, 1975 shall be amended or endorsed on or before March 1, 2001. For good cause shown, the Commissioner may extend these deadlines but not beyond December 31, 2001.

Section 8 Severability

If any provision of this regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of the regulation and the application of such provisions to other persons or circumstances shall not be affected thereby.

Section 9 Effective Date

This regulation shall be effective January 1, 2001.

History

• Effective Date: January 1, 2001 (Secretary of State Rule Log #00-67)
• Statutory Authority: 8 V.S.A. §§ 75, 4724(7)(E)

Chapter 052 REGULATION I-2000-02 - CONTINUING EDUCATION REQUIREMENTS FOR INSURANCE PRODUCERS

21-052 Code Vt. R. 21-020-052-X REGULATION I-2000-02 - CONTINUING EDUCATION REQUIREMENTS FOR INSURANCE PRODUCERS

Section 1 Purpose and Scope

A. The purpose of this regulation is to implement the provisions of Title 8 V.S.A. § 4800a relating to continuing education of insurance agents or brokers.

B. This regulation applies to producers for any line of insurance except a nonresident producer who resides in a state or district that has a continuing education requirement and who has satisfied such requirement, and submits documentation of continuing education completion to the Commissioner or a designated outside vendor in the manner prescribed by the Commissioner for such submissions.

Section 2 Authority

The authority for this regulation is Title 8 V.S.A. § 15 and § 4800a.

Section 3 Definitions

As used in this regulation:

A. "Commissioner" means the Commissioner of Banking, Insurance, Securities and Health Care Administration of Vermont.

B. "Course" means any continuing education presentation for producers approved by the Department under this regulation.

C. "Credit hour" means fifty minutes of classroom instruction or the equivalent thereof as determined by the Commissioner.

D. "Department" means Vermont Department of Banking, Insurance, Securities and Health Care Administration.

E. "Instructor" means an individual responsible for teaching an approved course.

F. "License" means a document issued by the Department attesting that a person has met the standards to act as an agent under Title 8 V.S.A. § 4800, and authorizing the person to do business as an insurance agent or broker.

G. "Producer" means an individual authorized to act as an agent or broker and holding a license issued by the Department to conduct insurance related business.

H. "Provider" means a person or entity approved by the Commissioner to offer courses.

I. "Review Period" means a twenty-four (24) month period beginning April 1 of odd-numbered calendar years and ending two (2) years later on March 31.

Section 4 Continuing Education Requirements for Producers

A. Beginning October 1, 2002, upon a producer's license renewal, and every renewal thereafter, a producer shall have satisfactorily completed twenty-four (24) hours of approved continuing education courses during the preceding two years, except as provided under subsection (B) of this section.

B. The continuing education requirements of subsection A shall not apply to a producer until after the first renewal or first eligibility for renewal of his or her license, on or after October 1, 2000.

C. Satisfactory completion of the requirements described in subsection A shall be a pre-condition for license renewals sought on or after October 1, 2002.

Section 5 Providers

A. Any person seeking to offer courses must be registered with and approved by the Commissioner.

B. A provider shall apply for registration on an application form approved by the Commissioner in the manner prescribed by the Commissioner. The provider shall be notified within forty-five (45) days of the date of the receipt of a completed application whether the application has been approved or disapproved. If the Commissioner or an outside vendor requests additional information to review an application, the provider shall have up to thirty (30) days to comply with the request. If such a request is not satisfied within the thirty (30) day period, the application will be disapproved.

C. To qualify for approval, a provider must demonstrate financial and organizational stability and demonstrate it has the resources to ensure its course offerings and that instructors satisfy the requirements of this regulation.

D. The Commissioner shall set a registration period of twenty-four (24) months.

E. A provider must renew its registration in the manner prescribed by the Commissioner at least 60 days prior to the expiration of the registration period. Failure to renew registration will result in the expiration of the provider's approval and all of such provider's previously approved courses.

F. An approved provider shall have the responsibility to:

1. Provide the name, address and phone number of a contact person for each course submitted for approval.

2. Provide the name and qualifications of each course instructor as prescribed in Section 8(a).

3. Promptly notify the Commissioner or outside vendor of changes to a course or instructor that has been approved.

4. Ensure that the course provides students with current and accurate information.

5. Provide students in a course with the following information in writing:

a. Course title.

b. Number of credit hours the course provides.

c. Date, time, and location where the course is offered.

d. Name, address, and telephone number of a contact person for the course.

e. A textbook or detailed outline of the subject matter being taught.

6. Supervise and evaluate instructors and course offerings.

7. Investigate complaints relating to courses or instructors.

8. A provider must refuse to award continuing education credit for periods for which the provider knows a student was absent.

Maintain accurate records of courses offered, instructors, student attendance, and student course completion for at least five (5) years from the date of course completion.

10. Notify the Commissioner or outside vendor in a format prescribed by the Commissioner of producers who have successfully completed a course within fifteen days of the date of course completion.

Issue a certificate of completion to each person who satisfactorily completes a course. The certificate must be issued within twenty (20) days of course completion in the format and manner prescribed by the department.

G. A provider shall:

1. Only advertise a course that has been approved in writing by the Commissioner or outside vendor.

2. Prominently display or announce in an advertisement the number of credit hours assigned to the course and the fee for the course.

3. Not engage in advertising that is false, misleading or deceptive.

4. At the request of the department, videotape a course and promptly submit such recording to the department.

5. At the request of the department, provide a copy of all course materials.

6. Promptly report to the department any disciplinary action taken against a provider by another state.

H. A provider shall comply with the following standards regarding fees:

1. If a course is cancelled for any reason, the provider shall refund the fees for a course within thirty (30) days of cancellation or, at the request of the producer, transfer the fee to another course offered by the provider.

2. A provider shall provide each student with a written refund policy that addresses withdrawal from or failure to complete a course.

I. A provider that employs producers or has producers as members may not require those producers to attend the provider's courses.

Section 6 Courses

A. To qualify for approval, a course must be designed to expand insurance skills and knowledge relating to insurance.

B. Any approved and active continuing education provider may submit a request for approval of any course, program of study, or subject for continuing education credit to the Commissioner or outside vendor on a form prescribed by the Commissioner.

C. Requests for course approvals that do not include all required information will be returned as incomplete.

D. A provider shall file an application for course approval on an application approved by the commissioner in the manner prescribed by the Commissioner. A provider shall be notified of course approval or disapproval within forty-five (45) days of the date of the receipt of a complete application. If the Commissioner or outside vendor requests additional information, the provider will have up to thirty (30) days to comply with the request. If the request is not satisfied within the thirty (30) day period, the application will be disapproved. No course may be advertised for continuing education prior to the provider receiving approval for the course.

E. The Commissioner shall set a course approval period of twenty-four (24) months.

F. Prior to expiration of course approval, a provider must apply for renewal of a course on a form prescribed by the Commissioner at least sixty (60) days prior to the course approval expiration date. If a provider fails to timely complete the course renewal process, the course approval will lapse.

G. The Commissioner or outside vendor will only approve courses that contribute to the professional competence of producers. Courses or programs shall meet the Commissioner's standards for an approved course.

1. Examples of topics that will qualify for approval include: insurance coverage, rating, tax law, policy content, ethics, risk management, Vermont insurance code and rules, estate planning and insurance agency management.

Examples of topics that will not qualify for approval include: sales, motivation, communication skills, prelicense training, and subjects not related to insurance.

3. The license of a producer who has failed to satisfy the continuing education requirements, and who has not been granted an extension, shall not be renewed.

H. A producer may receive continuing education credit for self-study courses approved by the Commissioner or outside vendor and subject to successfully passing an examination administered by the course provider.

I. The Commissioner or outside vendor may deem the approval of a continuing education course by another state insurance department as adequate evidence that a course is eligible for approval and award the same number of credits for the course as are awarded by the other state.

Section 7 Credit Hours

A. General information

1. The Commissioner or outside vendor will determine the number of credit hours to be assigned for each approved course. Credit hours will not include time spent on meals, breaks or other activities unrelated to the course.

2. A continuing education course must be offered for a minimum of one credit.

3. To receive credit, a producer must complete all of the requirements of an approved course, including attendance and examination requirements.

4. A producer may not earn credit for attending a subsequent offering of the same course within the same continuing education review period.

5. A producer shall maintain records of credit hours for the current and most recently completed licensing periods by keeping the original continuing education certificate of completion, and shall be prepared to demonstrate compliance with continuing education requirements at the commencement of the license renewal process.

B. Credit hour requirements

1. An instructor of an approved subject is entitled to the same credit as a student completing that course and may receive such credit once during a review period.

2. A producer cannot carry over continuing education credits earned in excess of the producer's continuing education requirements from one review period to the next.

3. A producer cannot have more than six (6) hours of the producer's twenty-four (24) hours of continuing education related to insurance agency management in any one review period.

4. Beginning with the review period ending March 31, 2009, a producer must have at least three (3) hours of the producer's twenty-four (24) hours of continuing education related to ethics.

5. Beginning with the review period ending March 31, 2009, a producer licensed to sell property and casualty insurance must complete one, three (3) hour course of the producer's twenty-four (24) hours of continuing education related to the National Flood Insurance Program (NFIP). This requirement:

a. shall apply to all producers licensed to sell property and casualty insurance, regardless of whether a producer sells flood insurance;

b. shall not apply to a producer until after the first renewal or eligibility for renewal of his or her license; and

c. is a one-time requirement that does not apply to future review periods for a producer.

Section 8 Instructors

A. The provider shall ensure that each instructor of a course possess one or more of the following requirements:

1. A minimum of three (3) years experience in the subject matter being taught.

A degree in the subject matter being taught or,

3. A minimum of two (2) years experience as an agent or broker and a minimum of six (6) months experience in the subject matter being taught.

B. Instructors shall have the responsibility to:

1. Comply with the requirements of this regulation.

2. Provide students with current and accurate information.

3. Provide accurate records of successful course completion to the course provider within ten (10) working days from the date of the course.

Section 9 Extension

A. For good cause shown, the Commissioner may extend, for no longer than six months, the period of time for completion of continuing education requirements for a review period.

B. The Commissioner shall suspend the license of any applicant who, after receiving an extension of time as set forth in subsection (A) of this paragraph, has not satisfactorily completed the continuing education requirements.

Section 10 Advisory Board

A. By January 1, 2001, the Commissioner shall establish a continuing education Advisory Board. The Board will be composed of insurance professionals and consumers. Board members will serve at the pleasure of the Commissioner.

B. The Advisory Board shall make recommendations to the Commissioner regarding the continuing education requirements of this regulation.

Section 11 Outside Vendors

The Department may contract with an outside vendor to administer continuing education requirements, including approval of courses and course providers, collection and maintenance of records, and compliance monitoring. The costs of an outside vendor shall be borne by applicants for a producer license renewal and by course providers through fees imposed by the outside vendor. All fees charged by the outside vendor will be subject to the prior approval of the Commissioner and may be payable directly to the outside vendor.

History

• EFFECTIVE DATE: February 1, 2001 Secretary of State Rule Log #01-2
• AMENDED: November 22, 2007 Secretary of State Rule Log #07-044
• STATUTORY AUTHORITY: 8 V.S.A. §§ 15, 4800a

Chapter 053 REGULATION IH-2001-01 - PRIVACY OF CONSUMER FINANCIAL AND HEALTH INFORMATION REGULATION

21-053 Code Vt. R. 21-020-053-X REGULATION IH-2001-01 - PRIVACY OF CONSUMER FINANCIAL AND HEALTH INFORMATION REGULATION

Article I GENERAL PROVSONS

Section 1 Authority

This regulation is promulgated pursuant to the authority granted by 8 V.S.A. §§ 10, 15, 3381, 3541 et seq., 3688, 3829, 3858, 4062, 4108, 4113, 4201, 4362, 4373, 4464, 4480, 4481, 4515a, 4587, 4690, Chapter 129, 4812, 4836, 4902, 4990, 5104, 5111, 6015, 8005, 8014, 8053, and 1972, Act No. 72 (Adj. Sess.), § 1.

Section 2 Purpose; Scope; Compliance

A. Purpose. This regulation governs the treatment of nonpublic personal financial information and nonpublic personal health information about individuals by all licensees under Parts 3 and 4 of title 8 V.S.A. This regulation:

(1) Requires a licensee to provide notice to individuals about its privacy policies and practices;

(2) Describes the conditions under which a licensee may disclose nonpublic personal financial information and nonpublic personal health information about individuals to nonaffiliated third parties; and

(3) Requires licensees to obtain consumer consent prior to disclosing that information subject to the exceptions in sections 14, 15, 16 and 17 of this regulation and subject to the federal Fair Credit Reporting Act and Vermont Fair Credit Reporting Act.

B. Scope. This regulation applies to:

(1) Nonpublic personal financial information about individuals who obtain or are claimants or beneficiaries of products or services primarily for personal, family or household purposes from licensees. This regulation does not apply to information about companies or about individuals who obtain financial products or services for business, commercial or agricultural purposes; and

(2) All nonpublic personal health information.

C. Compliance.

(1) A licensee domiciled in this state that is in compliance with this regulation in a state that has not enacted laws or regulations that meet the requirements of Title V of the Gramm-Leach-Bliley Act ( PL 106-102) may nonetheless be deemed to be in compliance with Title V of the Gramm-Leach-Bliley Act in such other state.

(2) For consumers who are not Vermont residents, a licensee domiciled in this state shall be deemed to be in compliance with Title V of the Gramm-Leach-Bliley Act in this state with respect to that consumer if the licensee is in compliance with a law or regulation enacted in the state of the consumer's domicile that meets the requirements of Title V of the Gramm-Leach-Bliley Act ( PL 106-102).

(3) A licensee not domiciled in this state shall comply with this rule for all transactions with Vermont consumers.

Section 3 Rule of Construction

The examples in this regulation and the sample clauses in Appendix A of this regulation are not exclusive. The examples in this regulation and the sample clauses in the Appendix of this regulation provide guidance concerning the rule's application in ordinary circumstances. The facts and circumstances of each individual situation, however, will determine whether compliance with an example or use of a sample clause, to the extent applicable, constitutes compliance with this regulation.

Section 4 Definitions

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

A. "Affiliate" means any company that controls, is controlled by or is under common control with another company.

B.

(1) "Clear and conspicuous" means that a notice is reasonably understandable and designed to call attention to the nature and significance of the information in the notice.

(2) Examples.

(a) Reasonably understandable. A licensee makes its notice reasonably understandable if it:

(i) Presents the information in the notice in clear, concise sentences, paragraphs, and sections;

(ii) Uses short explanatory sentences or bullet lists whenever possible;

(iii) Uses definite, concrete, everyday words and active voice whenever possible;

(iv) Avoids multiple negatives;

(v) Avoids legal and highly technical business terminology whenever possible;

(vi) Avoids explanations that are imprecise and readily subject to different interpretations; and,

(vii) Avoids contradictory, confusing or misleading language.

(b) Designed to call attention. A licensee designs its notice to call attention to the nature and significance of the information in it if the licensee:

(i) Uses a plain-language heading to call attention to the notice;

(ii) Uses a typeface and type size that are easy to read;

(iii) Provides wide margins and ample line spacing;

(iv) Uses boldface or italics for key words; and

(v) In a form that combines the licensee's notice with other information, uses distinctive type size, style, and graphic devices, such as shading or sidebars.

(c) Notices on web sites. If a licensee provides a notice on a web page, the licensee designs its notice to call attention to the nature and significance of the information in it if the licensee uses text or visual cues to encourage scrolling down the page if necessary to view the entire notice and ensure that other elements on the web site (such as text, graphics, hyperlinks or sound) do not distract attention from the notice, and the licensee either:

(i) Places the notice on a screen that consumers frequently access, such as a page on which transactions are conducted; or

(ii) Places a link on a screen that consumers frequently access, such as a page on which transactions are conducted, that connects directly to the notice and is labeled appropriately to convey the importance, nature and relevance of the notice.

C. "Collect" means to obtain information that the licensee organizes or can retrieve by the name of an individual or by identifying number, symbol or other identifying particular assigned to the individual, irrespective of the source of the underlying information.

D. "Commissioner" means the commissioner of the Department of Banking, Insurance, Securities and Health Care Administration of this state.

E. "Company" means a corporation, limited liability company, business trust, general or limited partnership, association, sole proprietorship or similar organization.

F.

(1) "Consumer" means an individual who seeks to obtain, obtains or has obtained an insurance product or service from a licensee that is to be used primarily for personal, family or household purposes, and about whom the licensee has nonpublic personal information, or that individual's legal representative.

(2) Examples.

(a) An individual who provides nonpublic personal information to a licensee in connection with obtaining or seeking to obtain financial, investment or economic advisory services relating to an insurance product or service is a consumer regardless of whether the licensee establishes an ongoing advisory relationship.

(b) An applicant for insurance prior to the inception of insurance coverage is a licensee's consumer.

(c) An individual who is a consumer of another financial institution is not a licensee's consumer solely because the licensee is acting as agent for, or provides processing or other services to, that financial institution.

(d) An individual is a licensee's consumer if:

(i)

(A) the individual is a beneficiary of a life insurance policy underwritten by the licensee;

(B) the individual is a claimant under an insurance policy issued by the licensee;

(C) the individual is an insured or an annuitant under an insurance policy or an annuity, respectively, issued by the licensee; or

(D) the individual is a mortgagor of a mortgage covered under a mortgage insurance policy; and

(ii) the licensee discloses nonpublic personal financial information about the individual to a nonaffiliated third party other than as permitted under Sections 14, 15 and 16 of this regulation.

(e) Provided that the licensee provides the initial, annual and revised notices under Sections 5, 6 and 9 of this regulation to the plan sponsor, group or blanket insurance policyholder or group annuity contractholder, workers' compensation plan participant, and further provided that the licensee does not disclose to a nonaffiliated third party nonpublic personal financial information about such an individual other than as permitted under Sections 14, 15 and 16 of this regulation, an individual is not the consumer of the licensee solely because he or she is:

(i) A participant or a beneficiary of an employee benefit plan that the licensee administers or sponsors or for which the licensee acts as a trustee, insurer or fiduciary;

(ii) Covered under a group or blanket insurance policy or group annuity contract issued by the licensee; or

(iii) A beneficiary in a workers' compensation plan;

(f)

(i) The individuals described in subdivisions (e)(i) through (iii) of this subsection F are consumers of a licensee if the licensee does not meet all the conditions of subdivision (e).

(ii) In no event shall the individuals, solely by virtue of the status described in subdivision (e)(i) through

(iii) of this subsection F, be deemed to be customers for purposes of this regulation.

(g) An individual is not a licensee's consumer solely because he or she is a beneficiary of a trust for which the licensee is a trustee.

(h) An individual is not a licensee's consumer solely because he or she has designated the licensee as trustee for a trust.

G. "Consumer reporting agency" has the same meaning as in Section 603(f) of the federal Fair Credit Reporting Act ( 15 U.S.C. § 1681 a(f)) and shall include any "credit reporting agency" within the meaning of 9 V.S.A. § 2480a(3).

H. "Control" means:

(1) Ownership, control or power to vote twenty-five percent (25%) or more of the outstanding shares of any class of voting security of the company, directly or indirectly, or acting through one or more other persons;

(2) Control in any manner over the election of a majority of the directors, trustees or general partners (or individuals exercising similar functions) of the company; or

(3) The power to exercise, directly or indirectly, a controlling influence over the management or policies of the company, as the commissioner determines.

I. "Customer" means a consumer who has a customer relationship with a licensee.

J.

(1) "Customer relationship" means a continuing relationship between a consumer and a licensee under which the licensee provides one or more insurance products or services to the consumer that are to be used primarily for personal, family or household purposes.

(2) Examples.

(a) A consumer has a continuing relationship with a licensee if:

(i) The consumer is a current policyholder of an insurance product issued by or through the licensee; or

(ii) The consumer obtains financial, investment or economic advisory services relating to an insurance product or service from the licensee for a fee.

(b) A consumer does not have a continuing relationship with a licensee if:

(i) The consumer applies for insurance but does not purchase the insurance;

(ii) The licensee sells the consumer travel insurance in an isolated transaction;

(iii) The individual is no longer a current policyholder of an insurance product or no longer obtains insurance services with or through the licensee;

(iv) The consumer is a beneficiary or claimant under a policy and has submitted a claim under a policy choosing a settlement option involving an ongoing relationship with the licensee;

(v) The consumer is a beneficiary or a claimant under a policy and has submitted a claim under that policy choosing a lump sum settlement option;

(vi) The customer's policy is lapsed, expired, or otherwise inactive or dormant under the licensee's business practices, and the licensee has not communicated with the customer about the relationship for a period of twelve (12) consecutive months, other than annual privacy notices, material required by law or regulation, communication at the direction of a state or federal authority, or promotional materials;

(vii) The individual is an insured or an annuitant under an insurance policy or annuity, respectively, but is not the policyholder or owner of the insurance policy or annuity; or

(viii) The individual's last known address according to the licensee's records is invalid. For purposes of this rule, an address of record is invalid if mail sent to that address by the licensee has been returned by the postal authorities as undeliverable and if subsequent attempts by the licensee to obtain a current valid address for the individual have been unsuccessful.

K.

(1) "Financial institution" means any institution the business of which is engaging in activities that are financial in nature or incidental to such financial activities as described in Section 4(k) of the Bank Holding Company Act of 1956 ( 12 U.S.C. § 1843(k)) .

(2) Financial institution does not include:

(i) Any person or entity with respect to any financial activity that is subject to the jurisdiction of the Commodity Futures Trading Commission under the Commodity Exchange Act ( 7 U.S.C. § 1 et seq.);

(ii) The Federal Agricultural Mortgage Corporation or any entity charged and operating under the Farm Credit Act of 1971 ( 12 U.S.C. § 2001 et seq.); or

(iii) Institutions chartered by Congress specifically to engage in securitizations, secondary market sales (including sales of servicing rights) or similar transactions related to a transaction of a consumer, as long as the institutions do not sell or transfer nonpublic personal information to a nonaffiliated third party.

L.

(1) "Financial product or service" means any product or service that a financial holding company could offer by engaging in an activity that is financial in nature or incidental to such a financial activity under Section 4(k) of the Bank Holding Company Act of 1956 ( 12 U.S.C. § 1843(k)) .

(2) Financial service includes a financial institution's evaluation or brokerage of information that the financial institution collects in connection with a request or an application from a consumer for a financial product or service.

M. "Health care" means:

(1) Preventive, diagnostic, therapeutic, rehabilitative, maintenance or palliative care, services, procedures, tests or counseling that:

(a) Relates to the physical, mental or behavioral condition of an individual; or

(b) Affects the structure or function of the human body or any part of the human body, including the banking of blood, sperm, organs or any other tissue; or

(2) Prescribing, dispensing or furnishing to an individual drugs or biologicals, or medical devices or health care equipment and supplies.

N. "Health care provider" means a physician or other health care practitioner licensed, accredited or certified to perform specified health services consistent with state law, or a health care facility.

O. "Health information" means any information or data except age or gender, whether oral or recorded in any form or medium, created by or derived from a health care provider or the consumer that relates to:

(1) The past, present or future physical, mental or behavioral health or condition of an individual;

(2) The provision of health care to an individual; or

(3) Payment for the provision of health care to an individual.

P.

(1) "Insurance product or service" means any product or service that is offered by a licensee pursuant to Parts 3 and 4 of title 8 V.S.A.

(2) Insurance service includes a licensee's evaluation, brokerage or distribution of information that the licensee collects in connection with a request or an application from a consumer for an insurance product or service.

Q.

(1) "Licensee" means all licensed insurers, producers and other persons licensed or required to be licensed, or authorized or required to be authorized, or registered or required to be registered pursuant to Parts 3 and 4 of title 8 V.S.A., except for persons registered under § 4248 of title 8 V.S.A.

(2) A licensee is not subject to the notice and opt in requirements for nonpublic personal financial information set forth in Articles I, II, III and IV of this regulation if the licensee is an employee, agent or other representative of another licensee ("the principal") and:

(a) The principal otherwise complies with, and provides the notices required by, the provisions of this regulation; and

(b) The licensee does not disclose any nonpublic personal information to any person other than the principal or its affiliates except in a manner permitted by this regulation.

(3)

(a) Subject to subdivision (b) of this subdivision Q (3), "licensee" shall also include an unauthorized insurer that accepts business placed through a licensed surplus lines broker in this state, but only in regard to the surplus lines placements placed pursuant to chapter 138 of title 8 V.S.A.

(b) A surplus lines broker or surplus lines insurer shall be deemed to be in compliance with the notice and opt in requirements for nonpublic personal financial information set forth in Articles I, II, III and IV of this regulation provided:

(i) The broker or insurer does not disclose nonpublic personal information of a consumer or a customer to third parties for any purpose, including joint servicing or marketing under Section 14 of this regulation, except as permitted by Section 15 or 16 of this regulation; and

(ii) The broker or insurer delivers a notice to the consumer at the time a customer relationship is established on which the following is printed in 16-point type:

PRIVACY NOTICE

"Neither the U.S. brokers that handled this insurance nor the insurers that have underwritten this insurance will disclose nonpublic personal information concerning the buyer to nonaffiliates of the brokers or insurers except as permitted by law."

R.

(1) "Nonaffiliated third party" means any person except:

(a) A licensee's affiliate; or

(b) A person employed jointly by a licensee and any company that is not the licensee's affiliate (but nonaffiliated third party includes the other company that jointly employs the person).

(2) Nonaffiliated third party includes any company that is an affiliate solely by virtue of the direct or indirect ownership or control of the company by the licensee or its affiliate in conducting merchant banking or investment banking activities of the type described in Section 4(k)(4)(H) of the federal Bank Holding Company Act and 8 V.S.A. § 12603 or insurance company investment activities of the type described in Section 4(k)(4)(I) of the federal Bank Holding Company Act ( 12 U.S.C. § 1843(k)(4)(H) and (I)) .

S. "Nonpublic personal information" means nonpublic personal financial information and nonpublic personal health information.

T.

(1) "Nonpublic personal financial information" means:

(a) Personally identifiable financial information; and

(b) Any list, description or other grouping of consumers (and publicly available information pertaining to them) that is derived using any personally identifiable financial information that is not publicly available.

(2) Nonpublic personal financial information does not include:

(a) Health information;

(b) Publicly available information, except as included on a list described in subdivision (1)(b) of this subsection (T); or

(c) Any list, description or other grouping of consumers (and publicly available information pertaining to them) that is derived without using any personally identifiable financial information that is not publicly available.

(3) Examples.

(a) Nonpublic personal financial information includes any list of individuals' names and street addresses that is derived in whole or in part using personally identifiable financial information that is not publicly available, such as account numbers.

(b) Nonpublic personal financial information does not include any list of individuals' names and addresses that contains only publicly available information, is not derived in whole or in part using personally identifiable financial information that is not publicly available, and is not disclosed in a manner that indicates that any of the individuals on the list is a consumer of a financial institution.

U. "Nonpublic personal health information" means health information:

(1) That identifies an individual who is the subject of the information; or

(2) With respect to which there is a reasonable basis to believe that the information could be used to identify an individual.

V.

(1) "Personally identifiable financial information" means any information:

(a) A consumer provides to a licensee to obtain an insurance product or service from the licensee;

(b) About a consumer resulting from a transaction involving an insurance product or service between a licensee and a consumer; or

(c) The licensee otherwise obtains about a consumer in connection with providing an insurance product or service to that consumer.

(2) Examples.

(a) Information included. Personally identifiable financial information includes:

(i) Information a consumer provides to a licensee on an application to obtain an insurance product or service;

(ii) Account balance information and payment history;

(iii) The fact that an individual is or has been one of the licensee's customers or has obtained an insurance product or service from the licensee;

(iv) Any information about the licensee's consumer if it is disclosed in a manner that indicates that the individual is or has been the licensee's consumer;

(v) Any information that a consumer provides to a licensee or that the licensee or its agent otherwise obtains in connection with collecting on a loan or servicing a loan;

(vi) Any information the licensee collects through an Internet cookie (an information-collecting device from a web server); and

(vii) Information from a consumer report.

(b) Information not included. Personally identifiable financial information does not include:

(i) Health information;

(ii) A list of names and addresses of customers of an entity that is not a financial institution; and

(iii) Information that does not identify a consumer, such as aggregate information or blind data that does not contain personal identifiers such as account numbers, names or addresses.

W.

(1) "Publicly available information" means any information that a licensee has a reasonable basis to believe is lawfully made available to the general public from:

(a) Federal, state or local government records;

(b) Widely distributed media; or

(c) Disclosures to the general public that are required to be made by federal, state or local law.

(2) Reasonable basis. A licensee has a reasonable basis to believe that information is lawfully made available to the general public if the licensee has taken steps to determine:

(a) That the information is of the type that is available to the general public; and

(b) Whether an individual can direct that the information not be made available to the general public and, if so, that the licensee's consumer has not done so.

(3) Examples.

(a) Government records. Publicly available information in government records includes information in government real estate records and security interest filings.

(b) Widely distributed media. Publicly available information from widely distributed media includes information from a telephone book, a television or radio program, a newspaper or a web site that is available to the general public on an unrestricted basis. A web site is not restricted merely because an Internet service provider or a site operator requires a fee or a password, so long as access is available to the general public.

(c) Reasonable basis.

(i) A licensee has a reasonable basis to believe that mortgage information is lawfully made available to the general public if the licensee has determined that the information is of the type included on the public record in the jurisdiction where the mortgage would be recorded.

(ii) A licensee has a reasonable basis to believe that an individual's telephone number is lawfully made available to the general public if the licensee has located the telephone number in the telephone book or the consumer has informed the licensee that the telephone number is not unlisted.

Article II PRIVACY AND OPT IN NOTICES FOR NONPUBLIC PERSONAL INFORMATION

Section 5 Initial Privacy Notice to Consumers Required

A. Initial notice requirement. A licensee shall provide a clear and conspicuous notice that accurately reflects its privacy policies and practices with respect to nonpublic personal information to:

(1) Customer. An individual who becomes the licensee's customer, not later than when the licensee establishes a customer relationship, except as provided in subsection E of this section; and

(2) Consumer. A consumer, before the licensee discloses any nonpublic personal information about the consumer to any nonaffiliated third party, if the licensee makes a disclosure other than as authorized by Sections 15, 16 and 17.

B. When initial notice to a consumer is not required. A licensee is not required to provide an initial notice to a consumer under subsection A(2) of this section if:

(1) the licensee does not disclose any nonpublic personal information about the consumer to any nonaffiliated third party, other than as authorized by Sections 15, 16 and 17, and the licensee does not have a customer relationship with the consumer; or

(2) a notice has been provided by an affiliate, as long as the notice clearly identifies all affiliates to whom the notice applies and is accurate with respect to the financial institution and the other affiliates.

C. When the licensee establishes a customer relationship.

(1) General rule. A licensee establishes a customer relationship at the time the licensee and the consumer enter into a continuing relationship.

(2) Examples of establishing customer relationship. A licensee establishes a customer relationship when the consumer:

(a) Becomes a policyholder of a licensee that is an insurer when the insurer delivers an insurance policy or contract to the consumer, or in the case of a licensee that is an insurance producer or insurance broker, obtains insurance through that licensee; or

(b) Agrees to obtain financial, economic or investment advisory services relating to insurance products or services for a fee from the licensee.

D. Existing customers. When an existing customer obtains a new insurance product or service from a licensee that is to be used primarily for personal, family or household purposes, the licensee satisfies the initial notice requirements of subsection A of this section as follows:

(1) The licensee may provide a revised policy notice, under Section 9, that covers the customer's new insurance product or service; or

(2) If the initial, revised or annual notice that the licensee most recently provided to that customer was accurate with respect to the new insurance product or service, the licensee does not need to provide a new privacy notice under subsection A of this section.

E. Exceptions to allow subsequent delivery of notice.

(1) A licensee may provide the initial notice required by subsection A(1) of this section within a reasonable time after the licensee establishes a customer relationship if:

(a) Establishing the customer relationship is not at the customer's election; or

(b) Providing notice not later than when the licensee establishes a customer relationship would substantially delay the customer's transaction and the customer agrees to receive the notice at a later time.

(2) Examples.

(a) Not at customer's election. Establishing a customer relationship is not at the customer's election if a licensee acquires or is assigned a customer's policy from another financial institution or residual market mechanism and the customer does not have a choice about the licensee's acquisition or assignment.

(b) Substantial delay of customer's transaction. Providing notice not later than when a licensee establishes a customer relationship would substantially delay the customer's transaction when the licensee and the individual agree over the telephone to enter into a customer relationship involving prompt delivery of the insurance product or service.

(c) No substantial delay of customer's transaction. Providing notice not later than when a licensee establishes a customer relationship would not substantially delay the customer's transaction when the relationship is initiated in person at the licensee's office or through other means by which the customer may view the notice, such as on a web site.

F. Delivery. When a licensee is required to deliver an initial privacy notice by this section, the licensee shall deliver it according to Section 10. If the licensee uses a short-form initial notice for non-customers according to Section 7D, the licensee may deliver its privacy notice according to Section 7D(3).

Section 6 Annual Privacy Notice to Customers Required

A.

(1) General rule. A licensee shall provide a clear and conspicuous notice to customers that accurately reflects its privacy policies and practices with respect to nonpublic personal information not less than annually during the continuation of the customer relationship. Annually means at least once in any period of twelve (12) consecutive months during which that relationship exists. A licensee may define the twelve-consecutive-month period, but the licensee shall apply it to the customer on a consistent basis.

(2) Example. A licensee provides a notice annually if it defines the twelve-consecutive-month period as a calendar year and provides the annual notice to the customer once in each calendar year following the calendar year in which the licensee provided the initial notice. For example, if a customer opens an account on any day of year 1, the licensee shall provide an annual notice to that customer by December 31 of year 2.

B.

(1) Termination of customer relationship. A licensee is not required to provide an annual notice to a former customer. A former customer is an individual with whom a licensee no longer has a continuing relationship.

(2) Examples.

(a) A licensee no longer has a continuing relationship with an individual if the individual no longer is a current policyholder of an insurance product or no longer obtains insurance services with or through the licensee.

(b) A licensee no longer has a continuing relationship with an individual if the individual's policy is lapsed, expired or otherwise inactive or dormant under the licensee's business practices, and the licensee has not communicated with the customer about the relationship for a period of twelve (12) consecutive months, other than to provide annual privacy notices, material required by law or regulation, or promotional materials.

(c) For the purposes of this regulation, a licensee no longer has a continuing relationship with an individual if the individual's last known address according to the licensee's records is deemed invalid. An address of record is deemed invalid if mail sent to that address by the licensee has been returned by the postal authorities as undeliverable and if subsequent attempts by the licensee to obtain a current valid address for the individual have been unsuccessful.

(d) A licensee no longer has a continuing relationship with a customer in the case of providing real estate settlement services, at the time the customer completes execution of all documents related to the real estate closing, payment for those services has been received, or the licensee has completed all of its responsibilities with respect to the settlement, including filing documents on the public record, whichever is later.

C. Delivery. When a licensee is required by this section to deliver an annual privacy notice, the licensee shall deliver it according to Section 10.

Section 7 Information to be Included in Privacy Notices

A. General rule. The initial, annual and revised privacy notices that a licensee provides under Sections 5, 6 and 9 shall include each of the following items of information, in addition to any other information the licensee wishes to provide, that applies to the licensee and to the consumers to whom the licensee sends its privacy notice:

(1) The categories of nonpublic personal information that the licensee collects;

(2) The categories of nonpublic personal information that the licensee discloses;

(3) The categories of affiliates and nonaffiliated third parties to whom the licensee discloses nonpublic personal information, other than those parties to whom the licensee discloses information under Sections 15, 16 and 17;

(4) The categories of nonpublic personal information about the licensee's former customers that the licensee discloses and the categories of affiliates and nonaffiliated third parties to whom the licensee discloses nonpublic personal information about the licensee's former customers, other than those parties to whom the licensee discloses information under Sections 15, 16 and 17;

(5) If a licensee discloses nonpublic personal financial information to a nonaffiliated third party under Section 14 (and no other exception in Sections 15 and 16 applies to that disclosure), a separate description of the categories of information that the licensee discloses as modified by Section 14 of this rule and the categories of nonaffiliated third parties with whom the licensee has contracted;

(6) An explanation of the consumer's right to opt in under Section 11A prior to the disclosure of nonpublic personal financial information to nonaffiliated third parties, including the methods by which the consumer may exercise that right at any time;

(7) Any disclosures that the licensee makes under Section 603(d)(2)(A) (iii) of the federal Fair Credit Reporting Act ( 15 U.S.C. § 1681 a(d)(2)(A)(iii)) and the federal implementing regulations, as modified by 15 U.S.C. section 1681 t(b)(2) and the Vermont Fair Credit Reporting Act, 9 V.S.A. § 2480e (that is, under Vermont law, require that consumers consent prior to disclosures of information among affiliates);

(8) The licensee's policies and practices with respect to protecting the confidentiality and security of nonpublic personal information; and

(9) Any disclosure that the licensee makes under subsection B of this section.

B. Description of parties subject to exceptions. If a licensee discloses nonpublic personal information as authorized under Sections 15, 16 and 17, the licensee is not required to list those exceptions in the initial or annual privacy notices required by Sections 5 and 6. When describing the categories of parties to whom disclosure is made, the licensee is required to state only that it makes disclosures to other affiliated or nonaffiliated third parties, as applicable, as permitted by law.

C. Examples.

(1) Categories of nonpublic personal financial information that the licensee collects. A licensee satisfies the requirement to categorize the nonpublic personal financial information it collects if the licensee categorizes it according to the source of the information, as applicable:

(a) Information from the consumer;

(b) Information about the consumer's transactions with the licensee or its affiliates;

(c) Information about the consumer's transactions with nonaffiliated third parties; and

(d) Information from a consumer reporting agency.

(2) Categories of nonpublic personal financial information a licensee discloses.

(a) A licensee satisfies the requirement to categorize nonpublic personal financial information it discloses if the licensee categorizes the information according to source, as described in subdivision (1) of this subsection C, as applicable, and provides a few examples to illustrate the types of information in each category. These might include:

(i) Information from the consumer, including application information, such as assets and income and identifying information, such as name, address and social security number;

(ii) Transaction information, such as information about balances, payment history and parties to the transaction; and

(iii) Information from consumer reports, such as a consumer's creditworthiness and credit history. .

(b) A licensee does not adequately categorize the information that it discloses if the licensee uses only general terms, such as transaction information about the consumer.

(c) If a licensee reserves the right to disclose all of the nonpublic personal financial information about consumers that it collects, the licensee may simply state that fact without describing the categories or examples of nonpublic personal financial information that the licensee discloses.

(3) Categories of affiliates and nonaffiliated third parties to whom the licensee discloses.

(a) A licensee satisfies the requirement to categorize the affiliates and nonaffiliated third parties to which the licensee discloses nonpublic personal financial information about consumers if the licensee identifies the types of businesses in which they engage.

(b) Types of businesses may be described by general terms only if the licensee uses a few illustrative examples of significant lines of business. For example, a licensee may use the term financial products or services if it includes appropriate examples of significant lines of businesses, such as life insurer, automobile insurer, consumer banking or securities brokerage.

(c) A licensee also may categorize the affiliates and nonaffiliated third parties to which it discloses nonpublic personal financial information about consumers using more detailed categories.

(4) Disclosures under exception for service providers and joint marketers. If a licensee discloses nonpublic personal financial information under the exception in Section 14 to a nonaffiliated third party to market products or services that it offers alone or jointly with another financial institution, the licensee satisfies the disclosure requirement of Subsection A(5) of this section if it:

(a) Subject to the limitations in Section 14, lists the categories of nonpublic personal financial information it discloses, using the same categories and examples the licensee used to meet the requirements of Subsection A(2) of this section, as applicable; and

(b) States whether the third party is:

(i) A service provider that performs marketing services on the licensee's behalf or on behalf of the licensee and another financial institution; or

(ii) A financial institution with whom the licensee has a joint marketing agreement.

(5) Simplified notices. If a licensee does not disclose, and does not wish to reserve the right to disclose, nonpublic personal information about customers or former customers to affiliates or nonaffiliated third parties except as authorized under Sections 15, 16 and 17, the licensee may simply state that fact, in addition to the information it must provide under subsections A(1), A(8), A(9), and subsection B of this section.

(6) Confidentiality and security. A licensee describes its policies and practices with respect to protecting the confidentiality and security of nonpublic personal information if it does both of the following:

(a) Describes in general terms who is authorized to have access to the information; and

(b) States whether the licensee has security practices and procedures in place to ensure the confidentiality of the information in accordance with the licensee's policy. The licensee is not required to describe technical information about the safeguards it uses.

D. Short-form initial notice with opt in notice for non-customers.

(1) A licensee may satisfy the initial notice requirements in Sections 5 A(2) and 8C for a consumer who is not a customer by providing a short-form initial notice at the same time as the licensee delivers an opt in notice under Section 8.

(2) A short-form initial notice shall:

(a) Be clear and conspicuous;

(b) State that the licensee's privacy notice is available upon request; and

(c) Explain a reasonable means by which the consumer may obtain that notice.

(3) The licensee shall deliver its short-form initial notice according to Section 10. The licensee is not required to deliver its privacy notice with its short-form initial notice. The licensee instead may simply provide the consumer a reasonable means to obtain its privacy notice. If a consumer who receives the licensee's short-form notice requests the licensee's privacy notice, the licensee shall deliver its privacy notice according to Section 10.

(4) Examples of obtaining privacy notice. The licensee provides a reasonable means by which a consumer may obtain a copy of its privacy notice if the licensee:

(a) Provides a toll-free telephone number that the consumer may call to request the notice; or

(b) For a consumer who conducts business in person at the licensee's office, maintains copies of the notice on hand that the licensee provides to the consumer immediately upon request.

E. Future disclosures. The licensee's notice may include:

(1) Categories of nonpublic personal financial information that the licensee reserves the right to disclose in the future, but does not currently disclose; and

(2) Categories of affiliates or nonaffiliated third parties to whom the licensee reserves the right in the future to disclose, but to whom the licensee does not currently disclose, nonpublic personal financial information.

F. Sample clauses. Sample clauses illustrating some of the notice content required by this section are included in Appendix A of this regulation.

Section 8 Form of Opt In Notice to Consumers and Opt In Methods

A.

(1) Form of opt in notice. A licensee required to provide an opt in notice under Section 11A may not disclose any nonpublic personal financial information pertaining to a consumer to a nonaffiliated third party unless the licensee:

(a) Has provided to the consumer a clear and conspicuous notice, in writing or electronic form, of the categories of nonpublic personal financial information that may be disclosed and the categories of nonaffiliated third parties to whom the licensee discloses nonpublic personal financial information;

(b) Has identified the financial products or services that the consumer obtains from the financial institution, either singly or jointly, to which the opt in direction would apply;

(c) Has identified the methods by which the consumer may subsequently revoke the opt in direction;

(d) Has clearly and conspicuously requested in writing or in electronic form that the consumer affirmatively authorize such disclosure; and

(e) Has obtained from the consumer such affirmative consent and such consent has not been withdrawn.

(2) Unreasonable revocation of opt in direction. A means of revocation of an opt in direction is unreasonable if the only means is for the consumer to write his or her own letter or is to use a check-off box that was provided with the initial notice but is not included with subsequent notices.

(3) Duration and withdrawal of consent. A consumer's direction to opt in under this subsection is effective until the consumer revokes it in writing or, if the consumer agrees, electronically; further provided however, any withdrawal or revocation of consent is subject to the rights of any licensee that acted reasonably in reliance on the consent prior to knowledge of its withdrawal or revocation. When a customer relationship terminates, the customer's opt in direction continues to apply to the nonpublic personal financial information collected during or related to that relationship. If the individual subsequently establishes a new customer relationship with the licensee, the opt in direction that applied to the former relationship does not apply to the new relationship.

(4) A licensee may not disclose any aggregate list of consumers containing or derived from nonpublic personal financial information to a nonaffiliated third party unless the licensee has satisfied, for each consumer on the list, the requirements of subdivisions (a), (b), (c), (d) and (e) of subsection A (1) of this section.

(5) This section shall not restrict a licensee from disclosing nonpublic personal information as authorized in sections 14, 15, 16 or 17.

(6) A licensee shall retain the authorization or a copy thereof in the record of the individual who is the subject of nonpublic personal financial information.

(7) Joint relationships. If two or more consumers jointly obtain an insurance product or service from a licensee, the licensee may only disclose nonpublic personal financial information of a consumer to a nonaffiliated third party after obtaining an affirmative consent notice from that consumer. Joint information may only be disclosed after obtaining the affirmative consent notice from all joint consumers of the product or service.

B. Same form as initial notice permitted. A licensee may provide the opt in notice required by this section together with or on the same written or electronic form as the initial notice the licensee provides in accordance with Section 5.

C. Initial notice required when opt in notice under this section delivered subsequent to initial notice. If a licensee provides the opt in notice later than required for the initial notice in accordance with Section 5, the licensee shall also include a copy of the initial notice with the opt in notice in writing or, if the consumer agrees, electronically.

D. Delivery. When a licensee is required to deliver an opt in notice by this section, the licensee shall deliver it according to Section 10.

Section 9 Revised Privacy Notices

A. General rule. Except as otherwise authorized in this regulation, a licensee shall not, directly or through an affiliate, disclose any nonpublic personal information about a consumer to any nonaffiliated third party other than as described in the initial notice that the licensee provided to that consumer under Section 5, unless:

(1) The licensee has provided to the consumer a clear and conspicuous revised notice that accurately describes its policies and practices;

(2) The licensee has provided to the consumer a new opt in notice; and

(3) The consumer has provided affirmative consent to the disclosure described in the notice.

B. Examples.

(1) Except as otherwise permitted by Sections 14, 15 and 16, a licensee shall provide a revised notice before it:

(a) Discloses a new category of nonpublic personal financial information to any nonaffiliated third party;

(b) Discloses nonpublic personal financial information to a new category of nonaffiliated third party; or

(c) Discloses nonpublic personal financial information about a former customer to a nonaffiliated third party, if that former customer has not given affirmative consent regarding that disclosure.

(2) A revised notice is not required if the licensee discloses nonpublic personal financial information to a new nonaffiliated third party that the licensee adequately described in its prior notice.

C. Delivery. When a licensee is required to deliver a revised privacy notice by this section, the licensee shall deliver it according to Section 10.

D. Nothing in this regulation shall relieve any licensee of any requirement under the federal or Vermont Fair Credit Reporting Acts or regulations promulgated thereunder with respect to notice and consumer consent for disclosures to affiliates.

Section 10 Delivery

A. How to provide notices. A licensee shall provide any notices that this regulation requires so that each consumer can reasonably be expected to receive actual notice in writing or, if the customer agrees to electronic receipt, transmit them in a form that the customer can download and print.

B.

(1) Examples of reasonable expectation of actual notice. A licensee may reasonably expect that a consumer will receive actual notice if the licensee:

(a) Hand-delivers a printed copy of the notice to the consumer;

(b) Mails a printed copy of the notice to the last known address of the consumer separately, or in a policy, billing or other written communication;

(c) For a consumer who conducts transactions electronically, posts the notice on the electronic site and requires the consumer to acknowledge receipt of the notice as a necessary step to obtaining a particular insurance product or service (electronic receipt must include the ability to download and print the notice); or

(d) For an isolated transaction with a consumer, such as the licensee providing an insurance quote or selling the consumer travel insurance, posts the notice and requires the consumer to acknowledge receipt of the notice as a necessary step to obtaining the particular insurance product or service.

(2) Examples of unreasonable expectation of actual notice. A licensee may not, however, reasonably expect that a consumer will receive actual notice of its privacy policies and practices if it:

(a) Only posts a sign in its office or generally publishes advertisements of its privacy policies and practices; or

(b) Sends the notice via electronic mail to a consumer who does not obtain an insurance product or service from the licensee electronically.

C. Annual notices only. A licensee may reasonably expect that a customer will receive actual notice of the licensee's annual privacy notice if:

(1) The customer uses the licensee's web site to access insurance products and services electronically and agrees to receive notices at the web site and the licensee posts its current privacy notice continuously in a clear and conspicuous manner on the web site; or

(2) The customer has requested that the licensee refrain from sending any information regarding the customer relationship, and the licensee's current privacy notice remains available to the customer upon request.

D. Oral description of notice insufficient. A licensee may not provide any notice required by this regulation solely by orally explaining the notice, either in person or over the telephone.

E. Retention or accessibility of notices for customers.

(1) For customers only, a licensee shall provide the initial notice required by Section 5A(1), the annual notice required by Section 6A, and the revised notice required by Section 9 so that the customer can retain them or obtain them later in writing or, if the customer agrees, electronically.

(2) Examples of retention or accessibility. A licensee provides a privacy notice to the customer so that the customer can retain it or obtain it later if the licensee:

(a) Hand-delivers a printed copy of the notice to the customer;

(b) Mails a printed copy of the notice to the last known address of the customer; or

(c) Makes its current privacy notice available on a web site (or a link to another web site) for the customer who obtains an insurance product or service electronically and agrees to receive the notice at the web site.

F. Joint notice with other financial institutions. A licensee may provide a joint notice from the licensee and one or more of its affiliates or other financial institutions, as identified in the notice, as long as the notice is accurate with respect to the licensee and the other institutions. A licensee also may provide a notice on behalf of another financial institution.

G. Joint relationships. If two (2) or more consumers jointly obtain an insurance product or service from a licensee, the licensee may satisfy the initial, annual and revised notice requirements of Sections 5A, 6A and 9A, respectively, by providing one notice to those consumers jointly.

Article III LIMITS ON DISCLOSURES OF FINANCIAL INFORMATION

Section 11 Limits on Disclosure of Nonpublic Personal Financial Information to Nonaffiliated Third Parties

A.

(1) Conditions for disclosure. Except as otherwise authorized in this regulation, a licensee may not, directly or through any affiliate, disclose any nonpublic personal financial information about a consumer to a nonaffiliated third party unless:

(a) The licensee has provided to the consumer an initial notice as required under Section 5;

(b) The licensee has provided to the consumer an opt in notice under section 8 of this rule;

(c) The consumer has authorized the disclosure in writing or, if the consumer agrees, electronically.

(2) Opt in definition. "Opt in" means the written or, if the consumer agrees, electronic authorization of the consumer allowing a licensee to disclose nonpublic personal financial information to a nonaffiliated third party, other than as permitted under sections 14, 15 or 16 of this regulation.

B. Application of opt in to all consumers and all nonpublic personal financial information.

(1) A licensee shall comply with this section, regardless of whether the licensee and the consumer have established a customer relationship.

(2) Unless a licensee complies with this section, the licensee may not, directly or through any affiliate, disclose any nonpublic personal financial information about a consumer that the licensee has collected, regardless of whether the licensee collected it before or after providing the opt in notice.

C. Partial opt in. A licensee may allow a consumer to select certain nonpublic personal financial information or certain nonaffiliated third parties with respect to which the consumer wishes to opt in.

Section 12 Limits on Redisclosure and Reuse of Nonpublic Personal Financial Information

A.

(1) Information the licensee receives under an exception. If a licensee receives nonpublic personal financial information from a nonaffiliated financial institution under an exception in Sections 15 or 16 of this regulation, the licensee's disclosure and use of that information is limited as follows:

(a) The licensee may disclose the information to the affiliates of the financial institution from which the licensee received the information;

(b) The licensee may disclose the information to its affiliates, but the licensee's affiliates may, in turn, disclose and use the information only to the extent that the licensee may disclose and use the information; and

(c) The licensee may disclose and use the information pursuant to an exception in

Sections 15 or 16 of this regulation, in the ordinary course of business to carry out the activity covered by the exception under which the licensee received the information.

(2) Example. If a licensee receives information from a nonaffiliated financial institution for claims settlement purposes, the licensee may disclose the information for fraud prevention, or in response to a properly authorized subpoena. The licensee may not disclose that information to a third party for marketing purposes or use that information for its own marketing purposes.

B.

(1) Information a licensee receives outside of an exception. If a licensee receives nonpublic personal financial information from a nonaffiliated financial institution other than under an exception in Sections 15 or 16 of this regulation, the licensee may disclose the information only:

(a) To the affiliates of the financial institution from which the licensee received the information;

(b) To its affiliates, but its affiliates may, in turn, disclose the information only to the extent that the licensee may disclose the information; and

(c) To any other person, if the disclosure would be lawful if made directly to that person by the financial institution from which the licensee received the information.

(2) Example. If a licensee obtains a customer list from a nonaffiliated financial institution outside of the exceptions in Sections 15 or 16:

(a) The licensee may use that list for its own purposes; and

(b) The licensee may disclose that list to another nonaffiliated third party only if the financial institution from which the licensee purchased the list could have lawfully disclosed the list to that third party. That is, the licensee may disclose the list in accordance with the privacy policy of the financial institution from which the licensee received the list, as limited by the absence or limitation of the opt in direction of each consumer whose nonpublic personal financial information the licensee intends to disclose, and the licensee may disclose the list in accordance with an exception in Sections 15 or 16, such as to the licensee's attorneys or accountants.

C. Information a licensee discloses under an exception. If a licensee discloses nonpublic personal financial information to a nonaffiliated third party under an exception in Sections 15 or 16 of this regulation, the third party may disclose and use that information only as follows:

(1) The third party may disclose the information to the licensee's affiliates;

(2) The third party may disclose the information to its affiliates, but its affiliates may, in turn, disclose and use the information only to the extent that the third party may disclose and use the information; and

(3) The third party may disclose and use the information pursuant to an exception in Sections 15 or 16 in the ordinary course of business to carry out the activity covered by the exception under which it received the information.

D. Information a licensee discloses outside of an exception. If a licensee discloses nonpublic personal financial information to a nonaffiliated third party other than under an exception in Sections 15 or 16 of this regulation, the third party may disclose the information only:

(1) To the licensee's affiliates;

(2) To the third party's affiliates, but the third party's affiliates, in turn, may disclose the information only to the extent the third party can disclose the information; and

(3) To any other person, if the disclosure would be lawful if the licensee made it directly to that person.

E. Nothing in this regulation shall authorize any licensee to make any disclosure to an affiliate not otherwise in compliance with the requirement of the federal Fair Credit Reporting Act or regulations promulgated thereunder or the Vermont Fair Credit Reporting Acts, including, but not limited to, notice and consumer consent.

Section 13 Limits on Sharing Account Number Information for Marketing Purposes

A. General prohibition on disclosure of policy or account numbers. A licensee shall not, directly or through an affiliate, disclose, other than to a consumer reporting agency, a policy number or similar form of access number or access code for a consumer's policy or transaction account to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing through electronic mail to the consumer. A licensee shall not provide a policy number, or similar form of access number or access code, in an encrypted form to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing through electronic mail to the consumer.

B. Exceptions. Subsection A of this section does not apply if a licensee discloses a policy number or similar form of access number or access code:

(1) To the licensee's service provider solely in order to perform marketing for the licensee's own products or services, as long as the service provider is not authorized to directly initiate charges to the account;

(2) To a licensee who is a producer solely in order to perform marketing for the licensee's own products or services; or

(3) To a participant in an affinity or similar program where the participants in the program are identified to the customer when the customer enters into the program.

C. Examples.

(1) Policy number. A policy number, or similar form of access number or access code, includes a number or code in an encrypted form.

(2) Policy or transaction account. For the purposes of this section, a policy or transaction account is an account other than a deposit account or a credit card account. An account is not a transaction account if a third party cannot initiate charges to it.

Article IV EXCEPTIONS TO LIMITS ON DISCLOSURES OF FINANCIAL INFORMATION

Section 14 Exception to Opt In Requirements for Disclosure of Nonpublic Personal Financial Information for Service Providers and Joint Marketing

A. General rule.

(1) The opt in requirements in Sections 8 and 11 do not apply when a licensee provides nonpublic personal financial information to a nonaffiliated third party to perform services for the licensee or functions on the licensee's behalf, if the licensee:

(a) Provides the initial notice in accordance with Section 5;

(b) Enters into a contractual agreement with the third party that prohibits the nonaffiliated third party from disclosing or using the information other than to carry out the purposes for which the licensee disclosed the information, including use under an exception in Sections 15 or 16 in the ordinary course of business to carry out those purposes; and,

(c) For joint agreements for marketing, provides only the consumer's name, contact information and own transaction and experience information within the meaning of the federal Fair Credit Reporting A ct, 15 U.S.C. section 1681 a(d)(2)(A)(i) and the Vermont Fair Credit Reporting Act, 9 V.S.A. § 2480a(2)(A).

(2) Examples.

(a) If a licensee discloses nonpublic personal financial information under this section to a financial institution with which the licensee performs joint marketing, the licensee's contractual agreement with that institution meets the requirements of subdivision (1)(b) of subsection A of this section if it prohibits the institution from disclosing or using the nonpublic personal financial information except as necessary to carry out the joint marketing or under an exception in Sections 15 or 16 in the ordinary course of business to carry out that joint marketing.

(b) A licensee that complies with the provisions of section 14.A (1) (a) and (b) may provide nonpublic personal financial information to a service provider that is a nonaffiliated third party agent of that licensee (e.g. an insurance agent who is an independent contractor as to the licensee) to enable the agent to offer, renew or service products on behalf of the licensee. Such disclosure shall not be subject to the limitations of subdivision A (1)(c) of this rule.

B. Service may include joint marketing. The services a nonaffiliated third party performs for a licensee under Subsection A of this section may include marketing of the licensee's own products or services or marketing of financial products or services offered pursuant to joint agreements between the licensee and one or more financial institutions.

C. Definition of "joint agreement." For purposes of this section, "joint agreement" means a written contract pursuant to which a licensee and one or more financial institutions jointly offer, endorse or sponsor a financial product or service.

Section 15 Exceptions to Notice and Opt In Requirements for Disclosure of Nonpublic Personal Financial Information for Processing and Servicing Transactions

A. Exceptions for processing transactions at consumer's request. The requirements for initial notice in Section 5A(2) and the opt in requirements in Sections 8 and 11, and service providers and joint marketing in Section 14 do not apply if the licensee discloses nonpublic personal financial information as necessary to effect, administer or enforce a transaction that a consumer requests or authorizes, or in connection with:

(1) Servicing or processing an insurance product or service that a consumer requests or authorizes;

(2) Maintaining or servicing the consumer's account with a licensee, or with another entity as part of a private label credit card program or other extension of credit on behalf of such entity;

(3) A proposed or actual securitization, secondary market sale (including sales of servicing rights) or similar transaction related to a transaction of the consumer;

(4) Reinsurance or stop loss or excess loss insurance; or

(5) Administering a workers compensation claim.

B. "Necessary to effect, administer or enforce a transaction" means that the disclosure is:

(1) Required, or is one of the lawful or appropriate methods, to enforce the licensee's rights or the rights of other persons engaged in carrying out the financial transaction or providing the product or service; or

(2) Required, or is a usual, appropriate or acceptable method:

(a) To carry out the transaction or the product or service business of which the transaction is a part, and record, service or maintain the consumer's account in the ordinary course of providing the insurance product or service;

(b) To administer or service benefits or claims relating to the transaction or the product or service business of which it is a part;

(c) To provide a confirmation, statement or other record of the transaction, or information on the status or value of the insurance product or service to the consumer or the consumer's agent or broker;

(d) To accrue or recognize incentives or bonuses associated with the transaction that are provided by a licensee or any other party;

(e) To underwrite insurance at the consumer's request or for any of the following purposes as they relate to a consumer's insurance: account administration, reporting, investigating or preventing fraud or material misrepresentation, processing premium payments, processing insurance claims, administering insurance benefits (including utilization review activities), participating in research projects or as otherwise required or specifically permitted by federal or state law; or

(f) In connection with:

(i) The authorization, settlement, billing, processing, clearing, transferring, reconciling or collection of amounts charged, debited or otherwise paid using a debit, credit or other payment card, check or account number, or by other payment means;

(ii) The transfer of receivables, accounts or interests therein; or

(iii) The audit of debit, credit or other payment information.

Section 16 Other Exceptions to Notice and Opt In Requirements for Disclosure of Nonpublic Personal Financial Information

A. Exceptions to opt in requirements. The requirements for initial notice to consumers in Section 5A(2) and the opt in requirements in Sections 8 and 11, and service providers and joint marketing under section 14 do not apply when a licensee discloses nonpublic personal financial information:

(1) With the consent or at the direction of the consumer, provided that the consumer has not revoked the consent or direction;

(2)

(a) To protect the confidentiality or security of a licensee's records pertaining to the consumer, service, product or transaction;

(b) To protect against or prevent actual or potential fraud or unauthorized transactions;

(c) For required institutional risk control or for resolving consumer disputes or inquiries;

(d) To persons holding a legal or beneficial interest relating to the consumer; or

(e) To persons acting in a fiduciary or representative capacity on behalf of the consumer;

(3) To provide information to insurance rate advisory organizations, guaranty funds or agencies, agencies that are rating a licensee, persons that are assessing the licensee's compliance with industry standards, and the licensee's attorneys, accountants and auditors;

(4) To the extent specifically permitted or required under other provisions of law and in accordance with the federal Right to Financial Privacy Act of 1978 ( 12 U.S.C. § 3401 et seq.), to law enforcement agencies (including the Federal Reserve Board, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, Office of Thrift Supervision, National Credit Union Administration, the Securities and Exchange Commission, the Secretary of the Treasury, with respect to 31 U.S.C. Chapter 53, Subchapter II (Records and Reports on Monetary Instruments and Transactions) and 12 U.S.C. Chapter 21 (Financial Recordkeeping) and the Federal Trade Commission), to state or federal civil or administrative authorities (including, but not limited to, a state insurance authority, a state banking authority, and a state securities authority), self-regulatory organizations or for an investigation on a matter related to public safety;

(5)

(a) To a consumer reporting agency in accordance with the federal Fair Credit Reporting Act ( 15 U.S.C. § 1681 et seq.); or

(b) From a consumer report reported by a consumer reporting agency;

(6) In connection with a proposed or actual affiliation, reorganization, sale, merger, transfer or exchange of all or a portion of a business or operating unit if the disclosure of nonpublic personal financial information concerns solely consumers of the business or unit;

(7)

(a) To comply with federal, state or local laws, rules and other applicable legal requirements;

(b) To comply with a properly authorized civil, criminal or regulatory investigation, or subpoena or summons by federal, state or local authorities; or

(c) To respond to judicial process or government regulatory authorities having jurisdiction over a licensee for examination, compliance or other purposes as authorized by law;

(8) For purposes related to the replacement of a group benefit plan, a group health plan, a group welfare plan or a workers' compensation plan;

(9) In the administration of an order or proceeding under Chapter 145 of title 8.

B. Revocation of consent. A consumer may revoke any authorization given to a financial institution at any time, subject to the rights of any person that acted in reliance on the authorization prior to notice of the revocation.

Article V RULES FOR HEALTH INFORMATION

Section 17 When Authorization Required for Disclosure of Nonpublic Personal Health Information

A. General rule. A licensee shall not disclose nonpublic personal health information about a consumer or customer unless an authorization is obtained from the consumer or customer whose nonpublic personal health information is sought to be disclosed.

B. Exceptions.

(1) Nothing in this section shall prohibit, restrict or require an authorization for the disclosure of nonpublic personal health information by a licensee for the performance of the following insurance functions by or on behalf of the licensee:

(a) claims administration;

(b) claims adjustment and management;

(c) underwriting;

(d) policy placement or issuance;

(e) loss control;

(f) ratemaking and guaranty fund functions;

(g) reinsurance and excess loss insurance;

(h) risk management;

(i) case management;

(j) disease management;

(k) quality assurance;

(l) quality improvement;

(m) performance evaluation;

(n) provider credentialing verification;

(o) utilization review;

(p) peer review activities;

(q) actuarial, scientific, medical or public policy research;

(r) grievance procedures;

(s) internal administration of compliance, managerial, and information systems;

(t) policyholder service functions;

(u) auditing;

(v) reporting;

(w) database security;

(x) administration of consumer disputes and inquiries;

(y) external accreditation standards;

(z) the replacement of a group benefit plan or workers compensation policy or program;

(aa) activities in connection with a proposed or actual affiliation, reorganization, sale, merger, transfer or exchange of all or part of a business or operating unit if the disclosure concerns solely consumers of the business or unit; and,

(bb) disclosure that is required, or is one of the lawful or appropriate methods, to enforce the licensee's rights or the rights of other persons engaged in carrying out a transaction or providing a product or service that a consumer requests or authorizes; and,

(cc) any activity otherwise authorized by law.

(2) Nothing in this section shall prohibit, restrict or require an authorization for the disclosure of nonpublic personal health information by a licensee for the following:

(a) detection, investigation or reporting of actual or potential fraud, misrepresentation or criminal activity;

(b) detection, investigation or reporting of actual or potential violations of law or examinations by a civil or administrative agency;

(c) any activity that permits disclosure without authorization pursuant to the federal Health Insurance Portability and Accountability Act privacy rules promulgated by the U.S. Department of Health and Human Services, except as provided in section 20 of this rule; and

(d) any activity required pursuant to governmental reporting authority or to comply with legal process.

C. Additional insurance functions may be added with the approval of the commissioner to the extent they are necessary for appropriate performance of insurance functions and are fair and reasonable to the interest of consumers.

Section 18 Authorizations

A. A valid authorization to disclose nonpublic personal health information pursuant to this Article V shall be in written or electronic form and shall contain all of the following:

(1) The identity of the consumer or customer who is the subject of the nonpublic personal health information;

(2) A general description of the types of nonpublic personal health information to be disclosed;

(3) General descriptions of the parties to whom the licensee discloses nonpublic personal health information, the purpose of the disclosure and how the information will be used;

(4) The signature of the consumer or customer who is the subject of the nonpublic personal health information or the individual who is legally empowered to grant authority and the date signed; and

(5) Notice of the length of time for which the authorization is valid and that the consumer or customer may revoke the authorization at any time and the procedure for making a revocation.

B. An authorization for the purposes of this Article V shall specify a length of time for which the authorization shall remain valid, which in no event shall be for more than twenty-four (24) months.

C. A consumer or customer who is the subject of nonpublic personal health information may revoke an authorization provided pursuant to this Article V at any time, subject to the rights of an individual who acted in reliance on the authorization prior to notice of the revocation.

D. A licensee shall retain the authorization or a copy thereof in the record of the individual who is the subject of nonpublic personal health information.

Section 19 Authorization Request Delivery

A request for authorization and an authorization form may be delivered to a consumer or a customer as part of an opt in notice pursuant to Section 10, provided that the request and the authorization form are clear and conspicuous. An authorization form is not required to be delivered to the consumer or customer or included in any other notices unless the licensee intends to disclose protected health information pursuant to Section 17A.

Section 20 Relationship to Federal Rules

Irrespective of whether a licensee is subject to the federal Health Insurance Portability and Accountability Act privacy rule as promulgated by the U.S. Department of Health and Human Services, 45 C.F.R. Parts 160 and 164, (the "federal rule"), if a licensee complies with all requirements of the federal rule and its effective date provision, the licensee shall be deemed to be in compliance with the provisions of this Article V; provided, however, a licensee shall be prohibited from making disclosures under the provisions of 45 C.F.R § 164.514(e)(2) without the consumer's prior written consent.

Section 21 Relationship to State Laws

Nothing in this article shall preempt or supercede state law related to medical records, health or insurance information privacy.

Article VI ADDITIONAL PROSIONS

Section 22 Protection of Fair Credit Reporting Acts

A. No inference shall be drawn on the basis of the provisions of this regulation regarding whether information is transaction or experience information under Section 603 of the federal Fair Credit Reporting Act.

B. Nothing in this regulation shall be construed to modify, limit or supersede the operation of the Vermont Fair Credit Reporting Act ( 9 V.S.A. §§ 2480a-2480g). No inference shall be drawn on the basis of the provisions of this regulation regarding whether information is transaction or experience information under Section 2480a(2) of the Vermont Fair Credit Reporting Act. These rules shall not be construed to extend the application of the Vermont Fair Credit Reporting Act to persons who are not residents of Vermont.

Section 23 Nondiscrimination

A. A licensee shall not unfairly discriminate against a consumer or customer because that consumer or customer has not opted in to the disclosure of his or her nonpublic personal financial information pursuant to the provisions of this regulation.

B. A licensee shall not unfairly discriminate against a consumer or customer because that consumer or customer has not opted in to the disclosure of his or her nonpublic personal health information pursuant to the provisions of this regulation.

Section 24 Violations

In addition to any other sanctions available to the commissioner under Vermont law for violations of this rule, any violation of this rule shall be deemed to be an unfair method of competition or an unfair or deceptive act or practice in the conduct of the business of insurance in this State for the purposes of Chapter 129 of title 8 V.S.A.

Section 25 Severability

If any section or portion of a section of this regulation or its applicability to any person or circumstance is held invalid by a court, the remainder of the regulation or the applicability of the provision to other persons or circumstances shall not be affected.

Section 26 Effective Date

A. Effective date. This regulation is effective November 17, 2001. In order to provide sufficient time for licensees to establish policies and systems to comply with the requirements of this regulation, the time for compliance with this regulation is extended until 90 days after the effective date.

B. Notice requirement for consumers who are the licensee's customers on the effective date.

(1) On or before 90 days after the effective date of this regulation, a licensee shall provide an initial notice, as required by Section 5, to consumers who are the licensee's customers on the effective date of this rule, except as otherwise provided in subdivisions (2), (3), (4), (5) and (6) of this subsection.

(2) A licensee is not required to provide additional notice under section 5 to any consumer who is the licensee's customer on the effective date of this rule, other than as provided in sections 6 and 9 of this rule, if:

(a)

(i) the licensee has previously provided notice to the consumer that meets the requirements of section 5 of this rule; and,

(ii) the notice sent indicated that the licensee does not intend to disclose consumer information other than as provided in Sections 15 or 16; and

(b) the prior notice remains accurate.

(3) A licensee is not required to provide an additional notice under section 5 to any consumer who is the licensee's customer on the effective date of this rule, other than as provided in sections 6 and 9 of this rule, if:

(a)

(i) the licensee has previously provided notice to the consumer that meets the requirements of section 5 and section 7.A.5 of this rule; and,

(ii) the notice sent indicated that the licensee intends to disclose consumer information only as provided in Sections 14, 15, 16 of this rule; and

(b) the prior notice remains accurate.

(4) A licensee is not required to provide an additional notice under Section 5 to any consumer who is the licensee's customer on the effective date of this rule, other than as provided in sections 6 and 9 of this rule, if:

(a)

(i) the licensee has previously provided notice to the consumer that meets the requirements of section 5 and section 7.A.5 of this rule;

(ii) the notice sent indicated that the licensee intends to disclose consumer information as provided in Sections 14, 15, 16 of this rule; and,

(iii) the licensee has, in conformity with sections 8 and 11 of this rule, sought the consumer's affirmative consent to make disclosures outside of the exceptions in Sections 14, 15 and 16; and

(b) the prior notice remains accurate.

(5) A licensee is not required to provide additional notice under section 5 to any consumer who is the licensee's customer on the effective date of this rule, other than as provided in sections 6 and 9 of this rule, if:

(a) the licensee has previously provided notice to the consumer that meets the requirements of section 5 of this rule, but which notice used terminology consistent with the terms "nonpublic personal financial information" and "nonpublic personal information" as used in the Department's proposed rule; and,

(b) the substance of the prior notice remains accurate taking the differences in the terminology incorporated into the adopted rule into account.

(6) A licensee is not required to provide additional notice under section 5 to any consumer who is the licensee's customer on the effective date of this rule, other than as provided in sections 6 and 9 of this rule, if:

(a) the licensee has previously provided notice to the consumer that meets the requirements of section 5 of this rule, but which notice provided the consumer with the opportunity to prevent the disclosure of nonpublic personal information by the licensee ("opt out");

(b) the prior notice disclosed the fact that the consumer may have other rights under state law that apply;

(c) the licensee does not disclose consumer information other than as provided in the final Vermont rule; and,

(d) the prior notice remains accurate.

(7) Example. A licensee provides an initial notice to consumers who are its customers on the effective date, if, by 90 days after that date, the licensee has established a system for providing an initial notice to all new customers and has mailed an initial notice to all the licensee's existing customers that is consistent with the provisions of this rule.

C. Notwithstanding subsection A of this section 26, a licensee shall include the information described in section 7.A (7) of this rule in its privacy notices beginning no later than the date upon which compliance is required under regulations of the federal banking agencies, with respect to disclosures under the federal Fair Credit Reporting Act.

D. Grandfathering of service agreements. Until July 1, 2002, a contract that a licensee has entered into with a nonaffiliated third party to perform services for the licensee or functions on the licensee's behalf satisfies the provisions of Section 14(A)(1)(b) of this regulation, even if the contract does not include a requirement that the third party maintain the confidentiality of nonpublic personal financial information, as long as the licensee entered into the agreement on or before July 1, 2000.

Appendix A Sample Clauses

Licensees, including a group of financial holding company affiliates that use a common privacy notice, may use the following sample clauses, if the clause is accurate for each institution that uses the notice. (Note that disclosure of certain information, such as assets, income and information from a consumer reporting agency, may give rise to obligations under the federal Fair Credit Reporting Act and Vermont Fair Credit Reporting Act, such as a requirement to permit a consumer to opt in to disclosures to affiliates or designation as a consumer reporting agency if disclosures are made to nonaffiliated third parties.)

A-1-Categories of information a licensee collects (all institutions)

A licensee may use this clause, as applicable, to meet the requirement of Section 7A(1) to describe the categories of nonpublic personal information the licensee collects.

Sample Clause A-1:

We collect nonpublic personal information about you from the following sources:

. Information we receive from you on applications or other forms;

. Information about your transactions with us, our affiliates or others; and

. Information we receive from a consumer reporting agency.

A-2-Categories of information a licensee discloses (institutions that disclose outside of the exceptions)

A licensee may use one of these clauses, as applicable, to meet the requirement of Section 7A(2) to describe the categories of nonpublic personal financial information the licensee discloses. The licensee may use these clauses if it discloses nonpublic personal financial information other than as permitted by the exceptions in Sections 14, 15 and 16. Sample Clause A-2, Alternative 1: We may disclose the following kinds of nonpublic personal financial information about you:

. Information we receive from you on applications or other forms, such as [provide illustrative examples, such as "your name, address, social security number, assets, income, and beneficiaries"];

. Information about your transactions with us, our affiliates or others, such as [provide illustrative examples, such as "your policy coverage, premiums, and payment history"]; and

. Information we receive from a consumer reporting agency, such as [provide illustrative examples, such as "your creditworthiness and credit history"].

Sample Clause A-2, Alternative 2:

We may disclose all of the information that we collect, as described [describe location in the notice, such as "above" or "below"].

A-3-Categories of information a licensee discloses and parties to whom the licensee discloses (institutions that do not disclose outside of the exceptions)

A licensee may use this clause, as applicable, to meet the requirements of Sections 7A(2), (3), and (4) to describe the categories of nonpublic personal information about customers and former customers that the licensee discloses and the categories of affiliates and nonaffiliated third parties to whom the licensee discloses. A licensee may use this clause if the licensee does not disclose nonpublic personal financial information to any party, other than as permitted by the exceptions in Sections 15 and 16.

Sample Clause A-3:

We do not disclose any nonpublic personal financial information about our customers or former customers to anyone, except as permitted by law.

A-4-Categories of parties to whom a licensee discloses (institutions that disclose outside of the exceptions)

A licensee may use this clause, as applicable, to meet the requirement of Section 7A(3) to describe the categories of affiliates and nonaffiliated third parties to whom the licensee discloses nonpublic personal information. This clause may be used if the licensee discloses nonpublic personal financial information other than as permitted by the exceptions in Sections 14, 15 and 16, as well as when permitted by the exceptions in Sections 15 and 16. Sample Clause A-4:

We may disclose nonpublic personal information about you to the following types of third parties:

. Financial service providers, such as [provide illustrative examples, such as "life insurers, automobile insurers, mortgage bankers, securities broker-dealers, and insurance agents"];

. Non-financial companies, such as [provide illustrative examples, such as "retailers, direct marketers, airlines, and publishers"]; and

. Others, such as [provide illustrative examples, such as "non-profit organizations"]. We may also disclose nonpublic personal information about you to third parties as permitted by law.

A-5-Service provider/joint marketing exception

A licensee may use one of these clauses, as applicable, to meet the requirements of Section 7A(5) related to the exception for service providers and joint marketing in Section 14. If a licensee discloses nonpublic personal financial information under this exception, the licensee shall describe the categories of nonpublic personal financial information the licensee discloses and the categories of third parties with which the licensee has contracted. Sample Clause A-5, Alternative 1: We may disclose the following information to companies that perform services on our behalf:

. Information we receive from you on applications or other forms, such as [provide illustrative examples, such as "your name, address, social security number, assets, income, and beneficiaries"];

. Information about your transactions with us, our affiliates or others, such as [provide illustrative examples, such as "your policy coverage, premium, and payment history"]; and

. Information we receive from a consumer reporting agency, such as [provide illustrative examples, such as "your creditworthiness and credit history"].

Sample Clause A-5, Alternative 2:

We may disclose all of the information we collect, as described [describe location in the notice, such as "above" or "below"] to companies that perform services on our behalf.

Sample Clause A-5, Alternative 3:

We may disclose the following information to other financial institutions with which we have joint marketing agreements:

. The following information we receive from you: "your name and contact information";

. Information about your transactions with us or our affiliates, such as [provide illustrative examples of transaction and experience information, such as "your policy coverage, premium, and payment history"].

A-6-Explanation of opt in (institutions that disclose to a nonaffiliated third party outside of the exceptions)

A licensee may use this clause, as applicable, to meet the requirement of Section 7A(6) to provide an explanation of the consumer's right to authorize the disclosure of nonpublic personal financial information to nonaffiliated third parties, including the method(s) by which the consumer may exercise those rights. The licensee may use this clause if the licensee discloses nonpublic personal financial information to nonaffiliated third parties other than as permitted by the exceptions in Sections 14, 15 and 16.

Sample Clause A-6:

We will not disclose nonpublic personal financial information about you to nonaffiliated third parties (other than as permitted by law) unless you authorize us to make that disclosure. Your authorization must be in writing or, if you agree, in electronic form. If you wish to authorize us to disclose your nonpublic personal financial information to nonaffiliated third parties, you may [describe the means to opt in, such as "complete and sign the enclosed, postage prepaid card and mail it to us."].

A-7-Confidentiality and security (all institutions)

A licensee may use this clause, as applicable, to meet the requirement of Section 7A(8) to describe its policies and practices with respect to protecting the confidentiality and security of nonpublic personal information.

Sample Clause A-7:

We restrict access to nonpublic personal information about you to [provide an appropriate description, such as "those employees who need to know that information to provide products or services to you"]. We maintain physical, electronic, and procedural safeguards that comply with state and federal law to guard your nonpublic personal information. 8 V.S.A. §§ 10, 15, 3381, 3541 et seq., 3688, 3829, 3858, 4062, 4108, 4113, 4201, 4362, 4373, 4464, 4480, 4481, 4515a, 4587, 4690, Chapter 129, 4812, 4836, 4902, 4990, 5104, 5111, 6015, 8005, 8014, 8053

History

• EFFECTIVE DATE: November 17, 2001 Secretary of State Rule Log # 01-61

Chapter 054 REGULATION I-2002-02 BUSINESS ENTITY LIMITED LINES PRODUCER LICENSE FOR RENTAL CAR INSURANCE

21-054 Code Vt. R. 21-020-054-X REGULATION I-2002-02 BUSINESS ENTITY LIMITED LINES PRODUCER LICENSE FOR RENTAL CAR INSURANCE

VERMONT DEPARTMENT OF BANKING, INSURANCE, SECURITIES AND HEALTH CARE ADMINISTRATION

REGULATION I-2002-02

BUSINESS ENTITY LIMITED LINES PRODUCER LICENSE FOR RENTAL CAR INSURANCE, REVISED

Section 1 Authority

This regulation is promulgated under the authority granted to the Commissioner by Title 8 V.S.A., § 15, 4813a(6) and 4813f(b).

Section 2 Purpose

The purpose of this regulation is to establish a business entity limited lines producer license for the sale of rental car insurance and to set forth requirements for the sale of rental car insurance by a rental car company, its employees and representatives.

Section 3 Scope

This regulation governs the sale of rental car insurance by a rental car company and its employees and representatives.

Section 4 Definitions

As used in this regulation:

A. "Rental Agreement" means any written master, corporate, group or individual agreement setting forth the terms and conditions governing the use of a rental car rented or leased by a rental car company.

B. "Rental Car" means any motor vehicle that is intended to be rented or leased for a period of 90 consecutive days or less by a driver who is not required to possess a commercial driver's license to operate the motor vehicle and the motor vehicle is either of the following:

1. A private passenger motor vehicle, including a passenger van, minivan, or sports utility vehicle; or

2. A cargo vehicle, including cargo van, pickup truck, or truck with a gross vehicle weight of less than 26,000 pounds.

C. "Rental Car Agent" means any rental car company that is licensed to offer, sell or solicit rental car insurance pursuant to this regulation.

D. "Rental Car Company" means any person or entity primarily in the business of renting motor vehicles to the public.

E. "Rental Car Insurance" means insurance offered, sold or solicited in connection with and incidental to the rental of rental cars, whether at the rental office or by preselection of coverage in master, corporate, group or individual agreements that:

(i) is not transferable;

(ii) applies only to the rental car that is the subject of the rental agreement; and

(iii) is limited to the following kinds of insurance:

1. Personal accident insurance for renters and other rental car occupants, for accidental death or dismemberment, and for medical expenses resulting from an accident that occurs during the rental period;

2. Liability insurance, which must include uninsured or underinsured motorist coverage that provides protection to the renters and to other authorized drivers of a rental car during the rental period;

Personal effects insurance that provides coverage to renters and other vehicle occupants for the loss of, or damage to, personal effects in the rental car for liability arising from the operation of the rental car during the rental period;

4. Roadside assistance and emergency sickness protection insurance; and

5. Such other travel or vehicle related coverage that a rental car company may offer in connection with, and incidental to, the rental of a rental car as may be approved by the Commissioner.

Section 5 General Rules

A. No rental car company, and no officer, director, employee or agent of a rental car company, shall offer, sell, or solicit the purchase of rental car insurance unless that rental car company and/or person is licensed as an insurance producer pursuant to Title 8 V.S.A, § Chapter 131, or such rental car company and/or person is in compliance with the requirements of this regulation.

B. The Commissioner may issue to a rental car company that has complied with the requirements of this regulation, a limited lines business entity license that authorizes the rental car company to act as a rental car agent in accordance with the provisions of this regulation, in connection to rental agreements, on behalf of any insurer authorized to write such business in this State.

Section 6 Licensing

In order for a rental car company to obtain a business entity limited lines producer license for the sale of rental car insurance, it must:

A. Submit an application and fees for licensure as required under Title 8 V.S.A., § Chapter 131. Such application must be signed by an officer of the business entity;

B. Have designated a licensed limited lines producer who is a natural person that is familiar with the terms and requirements of this regulation and is appointed by the insurer in subsection D of this paragraph, to be responsible for the business entity's compliance with the insurance laws and regulations of this state;

C. Submit a certificate by an appointing insurer, stating that the insurer has satisfied itself that the named applicant is trustworthy and competent to act as its rental car agent; that the insurer has reviewed the employee/representative training and education requirements for conformity with the requirements set forth in section 7C. of this regulation, and that the insurer will appoint the applicant to act as its rental car agent. An officer of the insurer shall execute the certification; and

D. Be appointed by an insurer to act as its agent.

Section 7 Rental Car Company Employees

A. An employee or representative of a rental car agent may be authorized to offer, sell or solicit rental car insurance under the authority of the rental car insurance business entity limited lines producer license if all of the following conditions have been satisfied:

The employee or representative is 18 years of age or older; and

2. The employee or representative has completed a training and education program.

B. A rental car agent is responsible for all actions of its employees and representatives relating to the offering, sale or solicitation of rental car insurance. The conduct of an employee or a representative related to insurance shall be deemed to be the conduct of the rental car agent for purposes of this regulation.

C. Each rental car agent shall provide a training and education program for each employee or representative prior to allowing such person to offer, sell or solicit rental car insurance which shall meet the following minimum standards:

Include instruction about the kinds of insurance specified in the regulation that are offered for sale to prospective renters; and

2. Provide training about the requirements and limitations imposed on car rental agents and employees. This training shall include specific instruction that the employee is prohibited by law from making any statement or engaging in any conduct, express or implied, that would lead a consumer to believe:

(i) That the purchase of rental car insurance is required in order for the renter to rent a motor vehicle;

(ii) That the renter does not have insurance policies in place that already provide the coverage being offered by the rental car company; and

(iii) That the employee/agent is qualified to evaluate the adequacy of the renter's existing coverage as it relates to rental.

Section 8 Rental Car Agent Requirements

No insurance may be offered, sold, or solicited pursuant to this regulation unless:

A. The rental period of the rental agreement is 90 consecutive days or less.

B. At every location where rental agreements are executed, the rental car agent provides brochures or other written materials to each renter who purchases rental car insurance that clearly, conspicuously and in plain language:

Summarizes the material terms, exclusions, limitations and conditions of coverage, including the identity of the insurer;

2. Describes the process for filing a claim, including a toll-free telephone number to report a claim;

3. Informs the consumer that the rental car insurance offered, sold, or solicited by the rental car agent may provide a duplication of coverage already provided by a renter's personal automobile insurance policy, homeowner's insurance policy, or by another source of coverage;

4. Informs the consumer that the purchase by the renter of the rental car insurance is not required in order to rent a rental car from the rental agent; and

5. Informs the consumer that neither the rental car agent nor the rental car agent's employees or representatives are qualified to evaluate the adequacy of the renter's existing insurance coverages.

C. Evidence of the rental car insurance coverage is stated on the face of the rental agreement.

D. All costs for the rental car insurance are separately itemized in the rental agreement.

E. For transactions conducted by electronic means, the rental car agent must prominently notify the consumer of the brochure and make access to it easy.

Section 9 Rental Car Agent Prohibitions

A rental car agent shall not:

A. Offer, sell, or solicit the purchase of insurance except in conjunction with and incidental to rental car agreements;

B. Advertise, represent, or otherwise portray itself or any of its employees or representatives as licensed producers;

C. Pay any person, including rental car agent employees or representatives, any compensation, fee, or commission that is dependent solely on the placement of insurance under the license issued pursuant to this regulation;

D. Make any statement or engage in any conduct, express or implied, that would lead a consumer to believe:

1. That the insurance coverage offered by the rental car agent does not provide a duplication of coverage already provided by a renter's personal automobile insurance policy, homeowner's insurance policy, or by another source of coverage;

2. That the purchase by the renter of rental car insurance is required in order to rent a rental car from the rental agent; and

3. That the rental car agent or the rental car agent's employees or representatives are qualified to evaluate the adequacy of the renter's existing insurance coverages.

Section 10 Trust Accounts

A rental car agent shall not be required to establish trust accounts for moneys collected from renters purchasing rental car insurance, provided that the charges for rental car insurance coverage are itemized and ancillary to rental transaction.

Section 11 Effective Date

This regulation shall take effect on October 15, 2004. 8 V.S.A. §§ 15, 4813a(6), 4813f(b)

History

• EFFECTIVE DATE: October 10, 2003 Secretary of State Rule Log # 03-36
• AMENDED: October 15, 2004 Secretary of State Rule Log # 04-35

Chapter 055 REGULATION IH-2002-03 STANDARDS FOR SAFEGUARDING CUSTOMER INFORMATION

21-055 Code Vt. R. 21-020-055-X REGULATION IH-2002-03 STANDARDS FOR SAFEGUARDING CUSTOMER INFORMATION

Section 1 Preamble & Authority

A. This regulation establishes standards for developing and implementing administrative, technical and physical safeguards to protect the security, confidentiality and integrity of customer information, consistent with sections 501, 505(b), and 507 of the Gramm-Leach-Bliley Act, codified at 15 U.S.C. 6801, 6805(b) and 6807 and 8 V.S.A. §§ 15, 3568, 3688, 4812, 5111, and 8014.

B. Section 501(a) of the Gramm-Leach-Bliley Act provides that it is the policy of the Congress that each financial institution has an affirmative and continuing obligation to respect the privacy of its customers and to protect the security and confidentiality of those customers' nonpublic personal information. Section 501(b) and 505(b) (2) require the state insurance regulatory authorities to establish appropriate standards relating to administrative, technical and physical safeguards:

(1) to ensure the security and confidentiality of customer records and information;

(2) to protect against any anticipated threats or hazards to the security or integrity of such records; and

(3) to protect against unauthorized access to or use of records or information that could result in substantial harm or inconvenience to a customer.

C. Section 505(b) (2) calls on state insurance regulatory authorities to implement the standards prescribed under Section 501(b) by regulation with respect to persons engaged in providing insurance.

D. Section 507 provides, among other things, that a state regulation may afford persons greater privacy protections than those provided by subtitle A of Title V of the Gramm-Leach-Bliley Act. This regulation requires that the safeguards established pursuant to this regulation shall apply to nonpublic personal information, including nonpublic personal financial information and nonpublic personal health information.

Section 2 Definitions

For purposes of this regulation, the following definitions apply:

A. "Customer" means a customer of the licensee as the term customer is defined in Section 4.1 of Regulation IH-2001-01, Privacy of Consumer Financial and Health Information Regulation.

B. "Customer information" means nonpublic personal information as defined in Section 4.S of Regulation IH-2001-01, Privacy of Consumer Financial and Health Information about a customer, whether in paper, electronic or other form, that is maintained by or on behalf of the licensee.

C. "Customer information systems" means the electronic or physical methods used to access, collect, store, use, transmit, protect or dispose of customer information.

D. "Licensee" means a licensee as that term is defined in Section 4.Q of Regulation IH-2001-01, Privacy of Consumer Financial and Health Information, except that "licensee" shall not include: a purchasing group; or an unauthorized insurer in regard to the surplus lines business conducted pursuant to chapter 138 of title 8 V.S.A.

E. "Service provider" means a person that maintains, processes or otherwise is permitted access to customer information through its provision of services directly to the licensee.

Section 3 Information Security Program

Each licensee shall implement a comprehensive written information security program that includes administrative, technical and physical safeguards for the protection of customer information. The administrative, technical and physical safeguards included in the information security program shall be appropriate to the size and complexity of the licensee and the nature and scope of its activities.

Section 4 Objectives of Information Security Program

A licensee's information security program shall be designed to:

A. Ensure the security and confidentiality of customer information;

B. Protect against any anticipated threats or hazards to the security or integrity of the information; and

C. Protect against unauthorized access to or use of the information that could result in substantial harm or inconvenience to any customer.

Section 5 Examples of Methods of Development and Implementation

The actions and procedures described in Sections 6 through 9 of this regulation are examples of methods of implementation of the requirements of Sections 3 and 4 of this regulation. These examples are non-exclusive illustrations of actions and procedures that licensees may follow to implement Sections 3 and 4 of this regulation.

Section 6 Risk Assessment

The licensee:

A. Identifies reasonably foreseeable internal or external threats that could result in unauthorized disclosure, misuse, alteration or destruction of customer information or customer information systems;

B. Assesses the likelihood and potential damage of these threats, taking into consideration the sensitivity of customer information; and

C. Assesses the sufficiency of policies, procedures, customer information systems and other safeguards in place to control risks.

Section 7 Management and Control of Risk

The licensee:

A. Designs its information security program to control the identified risks, commensurate with the sensitivity of the information, as well as the complexity and scope of the licensee's activities;

B. Trains staff, as appropriate, to implement the licensee's information security program; and

C. Regularly tests or otherwise regularly monitors the key controls, systems and procedures of the information security program. The frequency and nature of these tests or other monitoring practices are determined by the licensee's risk assessment.

Section 8 Oversight of Service Provider Arrangements

The licensee:

A. Exercises appropriate due diligence in selecting its service providers; and

B. Requires its service providers to implement appropriate measures designed to meet the objectives of this regulation, and, where indicated by the licensee's risk assessment, takes appropriate steps to confirm that its service providers have satisfied these obligations.

Section 9 Program Adjustment

The licensee monitors, evaluates and adjusts, as appropriate, the information security program in light of any relevant changes in technology, the sensitivity of its customer information, internal or external threats to information, and the licensee's own changing business arrangements, such as mergers and acquisitions, alliances and joint ventures, outsourcing arrangements and changes to customer information systems.

Section 10 Violations

In addition to any other sanctions available to the commissioner under Vermont law for violations of this regulation, any violation of this rule shall be subject to the powers and penalties set forth in 8 V.S.A. 3661.

Section 11 Severability

If any section or portion of a section of this regulation or its applicability to any person or circumstance is held invalid by a court, the remainder of the regulation or the applicability of the provision to other persons or circumstances shall not be affected.

Section 12 Effective Date

This regulation is effective 30 days from the date of adoption. Each licensee shall establish and implement an information security program, including appropriate policies and systems pursuant to this regulation by October 10, 2003. 8 V.S.A. §§ 15, 3568, 3688, 4812, 5111, 8014

History

• EFFECTIVE DATE: October 10, 2003 Secretary of State Rule Log # 03-37

Chapter 056 RECOGNITION OF THE 2001 CSO MORTALITY TABLE FOR USE IN DETERMINING MINIMUM RESERVE LIABILITIES AND NONFORFEITURE BENEFITS MODEL REGULATION

21-056 Code Vt. R. 21-020-056-X RECOGNITION OF THE 2001 CSO MORTALITY TABLE FOR USE IN DETERMINING MINIMUM RESERVE LIABILITIES AND NONFORFEITURE BENEFITS MODEL REGULATION

I-2005-01

RECOGNITION OF THE 2001 CSO MORTALITY TABLE FOR USE IN DETERMINING MINIMUM RESERVE LIABILITIES AND NONFORFEITURE BENEFITS MODEL REGULATION

Section 1 Authority

This Regulation is promulgated by the Commissioner of Banking, Insurance, Securities and Health Care Administration pursuant to 8 V.S.A. § 15, 8 V.S.A. § 3784(a)(2) ("Vermont Standard Valuation Law"), 8 V.S.A. § 3747a(h)(6) ("Vermont Standard Nonforfeiture Law for Life Insurance"), Sections 5A and 5B of Regulation 99-3-I ("Valuation of Life Insurance Policies") of the Vermont Department of Banking, Insurance, Securities and Health Care Administration, and Sec. 21 of Act 105 of the 2004 session of the Vermont General Assembly.

Section 2 Purpose

The purpose of this Regulation is to recognize, permit and prescribe the use of the 2001 Commissioners Standard Ordinary (CSO) Mortality Table in accordance with 8 V.S.A. § 15, 8 V.S.A. § 3784(a)(2) ("Vermont Standard Valuation Law"), 8 V.S.A. § 3747a(h)(6) ("Vermont Standard Nonforfeiture Law for Life Insurance"), Sections 5A and 5B of Regulation 99-3-I ("Valuation of Life Insurance Policies") of the Vermont Department of Banking, Insurance, Securities and Health Care Administration, and Sec. 21 of Act 105 of the 2004 session.

Section 3 Definitions

As used in this Regulation:

A. "2001 CSO Mortality Table" means that mortality table, consisting of separate rates of mortality for male and female lives, developed by the American Academy of Actuaries CSO Task Force from the Valuation Basic Mortality Table developed by the Society of Actuaries Individual Life Insurance Valuation Mortality Task Force, and adopted by the NAIC in December 2002. The 2001 CSO Mortality Table is included in the Proceedings of the NAIC (2nd Quarter 2002). Unless the context indicates otherwise, the "2001 CSO Mortality Table" includes both the ultimate form of that table and the select and ultimate form of that table and includes both the smoker and nonsmoker mortality tables and the composite mortality tables. It also includes both the age-nearest-birthday and age-last-birthday bases of the mortality tables.

B. "2001 CSO Mortality Table (F)" means that mortality table consisting of the rates of mortality for female lives from the 2001 CSO Mortality Table.

C. "2001 CSO Mortality Table (M)" means that mortality table consisting of the rates of mortality for male lives from the 2001 CSO Mortality Table.

D. "Composite mortality tables" means mortality tables with rates of mortality that do not distinguish between smokers and nonsmokers.

E. "Smoker and nonsmoker mortality tables" means mortality tables with separate rates of mortality for smokers and nonsmokers.

Section 4 2001 CSO Mortality Table

A. At the election of the company for any one or more specified plans of insurance and subject to the conditions stated in this Regulation, the 2001 CSO Mortality Table may be used as the minimum standard for policies issued on or after October 8, 2004 and before the date specified in Subsection B of this Section 4 to which 8 V.S.A. § 15, 8 V.S.A. § 3784(a)(2) ("Vermont Standard Valuation Law"), 8 V.S.A. § 3747a(h)(6) ("Vermont Standard Nonforfeiture Law for Life Insurance"), Sections 5A and 5B of Regulation 99-3-I ("Valuation of Life Insurance Policies") of the Vermont Department of Banking, Insurance, Securities and Health Care Administration are applicable. If the company elects to use the 2001 CSO Mortality Table, it shall do so for both valuation and nonforfeiture purposes.

B. Subject to the conditions stated in this Regulation, the 2001 CSO Mortality Table shall be used in determining minimum standards for policies issued on and after January 1, 2009, to which 8 V.S.A. § 15, 8 V.S.A. § 3784(a)(2) ("Vermont Standard Valuation Law"), 8 V.S.A. § 3747a(h)(6) ("Vermont Standard Nonforfeiture Law for Life Insurance"), Sections 5A and 5B of Regulation 99-3-I ("Valuation of Life Insurance Policies") of the Vermont Department of Banking, Insurance, Securities and Health Care Administration are applicable.

Section 5 Conditions

A. For each plan of insurance with separate rates for smokers and nonsmokers, an insurer may use:

(1) Composite mortality tables to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits;

(2) Smoker and nonsmoker mortality tables to determine the valuation net premiums and additional minimum reserves, if any, required by 8 V.S.A. § 3788 and use composite mortality tables to determine the basic minimum reserves, minimum cash surrender values and amounts of paid-up nonforfeiture benefits; or

(3) Smoker and nonsmoker mortality to determine minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits.

B. For plans of insurance without separate rates for smokers and nonsmokers, the composite mortality tables shall be used.

C. For the purpose of determining minimum reserve liabilities and minimum cash surrender values and amounts of paid-up nonforfeiture benefits, the 2001 CSO Mortality Table may, at the option of the company for each plan of insurance, be used in its ultimate or select and ultimate form, subject to the restrictions of Section 6 and Regulation 99-3-I ("Valuation of Life Insurance Policies") of the Vermont Department of Banking, Insurance, Securities and Health Care Administration relative to the use of the select and ultimate form.

D. When the 2001 CSO Mortality Table is the minimum reserve standard for any plan for a company, the actuarial opinion in the statement filed with the Commissioner shall be based on an asset adequacy analysis as specified in Section 5 of Regulation 97-4 ("Actuarial Opinion and Memorandum Regulation") of the Vermont Department of Banking, Insurance, Securities and Health Care Administration. A Commissioner may exempt a company from this requirement if it only does business in this state and in no other state.

Section 6 Applicability of the 2001 CSO Mortality Table to Regulation 99-3-I ("Valuation of Life Insurance Policies") of the Vermont Department of Banking, Insurance, Securities and Health Care Administration

A. The 2001 CSO Mortality Table may be used in applying Regulation 99-3-I ("Valuation of Life Insurance Policies") of the Vermont Department of Banking, Insurance, Securities and Health Care Administration in the following manner, subject to the transition dates for use of the 2001 CSO Mortality Table in Section 4 of this Regulation (unless otherwise noted, the references in this section are to Regulation 99-3-I ("Valuation of Life Insurance Policies") of the Vermont Department of Banking, Insurance, Securities and Health Care Administration):

(1) Section 3A(2)(b): The net level reserve premium is based on the ultimate mortality rates in the 2001 CSO Mortality Table.

(2) Section 4B: All calculations are made using the 2001 CSO Mortality Rate, and, if elected, the optional minimum mortality standard for deficiency reserves stipulated in Section 6A(4) of this Regulation. The value of "qx+k+t-1" is the valuation mortality rate for deficiency reserves in policy year k+t, but using the unmodified select mortality rates if modified select mortality rates are used in the computation of deficiency reserves.

(3) Section 5A: The 2001 CSO Mortality Table is the minimum standard for basic reserves.

(4) Section 5B: The 2001 CSO Mortality Table is the minimum standard for deficiency reserves. If select mortality rates are used, they may be multiplied by X percent for durations in the first segment, subject to the conditions specified in Sections 5B(3)(a) to (i). In demonstrating compliance with those conditions, the demonstrations may not combine the results of tests that utilize the 1980 CSO Mortality Table with those tests that utilize the 2001 CSO Mortality Table, unless the combination is explicitly required by regulation or necessary to be in compliance with relevant Actuarial Standards of Practice.

(5) Section 6C: The valuation mortality table used in determining the tabular cost of insurance shall be the ultimate mortality rates in the 2001 CSO Mortality Table.

(6) Section 6E(4): The calculations specified in Section 6E shall use the ultimate mortality rates in the 2001 CSO Mortality Table.

(7) Section 6F(4): The calculations specified in Section 6F shall use the ultimate mortality rates in the 2001 CSO Mortality Table.

(8) Section 6G(2): The calculations specified in Section 6G shall use the ultimate mortality rates in the 2001 CSO Mortality Table.

(9) Section 7A(1)(b): The one-year valuation premium shall be calculated using the ultimate mortality rates in the 2001 CSO Mortality Table.

B. Nothing in this section shall be construed to expand the applicability of Regulation 99-3-I ("Valuation of Life Insurance Policies") of the Vermont Department of Banking, Insurance, Securities and Health Care Administration to include life insurance policies exempted under Section 3A of such Regulation.

Section 7 Gender-Blended Tables

A. For any ordinary life insurance policy delivered or issued for delivery in this state on and after October 8, 2004, that utilizes the same premium rates and charges for male and female lives or is issued in circumstances where applicable law does not permit distinctions on the basis of gender, a mortality table that is a blend of the 2001 CSO Mortality Table (M) and the 2001 CSO Mortality Table (F) may, at the option of the company for each plan of insurance, be substituted for the 2001 CSO Mortality Table for use in determining minimum cash surrender values and amounts of paid-up nonforfeiture benefits. No change in minimum valuation standards is implied by this subsection of the Regulation.

B. The company may choose from among the blended tables developed by the American Academy of Actuaries CSO Task Force and adopted by the NAIC in December 2002.

C. It shall not, in and of itself, be a violation of 8 V.S.A., Chapter 129 ("Insurance Trade Practices") for an insurer to issue the same kind of policy of life insurance on both a sex-distinct and sex-neutral basis.

Section 8 Separability

If any provision of this Regulation or its application to any person or circumstance is for any reason held to be invalid, the remainder of the Regulation and the application of the provision to other persons or circumstances shall not be affected.

Section 9 Effective Date

The effective date of this Regulation is February 20, 2005. 8 V.S.A. §§ 15, 3747a(h) (6), 3784(a) (2)

History

• EFFECTIVE DATE: February 20, 2005 Secretary of State Rule Log # 05-08

Chapter 057 REGULATION C-2006-02; CAPTIVE INSURANCE COMPANIES REINSURING LIFE INSURANCE POLICIES

21-057 Code Vt. R. 21-020-057-X REGULATION C-2006-02; CAPTIVE INSURANCE COMPANIES REINSURING LIFE INSURANCE POLICIES

Section 1 Purpose

This regulation establishes reserve requirements and the form of the annual report required of a captive insurance company that reinsures life insurance policies, including term, universal and variable life policies, and related guarantees and riders (collectively, "Life Insurance Policies").

Section 2 Authority

This regulation is promulgated under the authority of 8 V.S.A. §§ 15 and 6015.

Section 3 Applicability

This regulation shall apply to any captive insurance company formed or licensed under the provisions of chapter 141 of title 8 of the Vermont Statutes that reinsures Life Insurance Policies, with respect to fiscal years ending on and after December 31, 2005. Regulation 81-2 shall apply to any such captive insurance company other than to the extent specifically provided in this regulation.

Section 4 Reserves Required by Law

A captive insurance company described in Section 3 shall maintain reserves that are actuarially sufficient to support the liabilities incurred by the captive insurance company in reinsuring Life Insurance Policies.

Section 5 Annual Report

For purposes of the annual report required by 8 V.S.A. § 6007(b):

(i) a captive insurance company described in Section 3 that uses statutory accounting principles (i.e., the National Association of Insurance Commissioners' Accounting Practices and Procedures Manual, including any appropriate or necessary modifications or adaptations thereto approved by the Commissioner of Banking, Insurance, Securities and Health Care Administration) shall submit the annual report in the form of the annual statement approved by the National Association of Insurance Commissioners for life insurers, as modified or supplemented by the Commissioner, unless the Commissioner requires or approves a different form of annual report; and

(ii) a captive insurance company described in Section 3 that uses generally accepted accounting principles, including any appropriate or necessary modifications or adaptations thereto approved by the Commissioner, shall submit the annual report in the form approved by the Commissioner.

Section 6 Severability

If any provision of this regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of the regulation and the application of such provisions to other persons or circumstances shall not be affected thereby. 8 V.S.A. §§ 15, 6015

History

• EFFECTIVE DATE: April 1, 2007 Secretary of State Rule Log # 07-008

Chapter 058 REGULATION I-2007-03 - RECOGNITION OF PREFERRED MORTALITY TABLES FOR USE IN DETERMINING MINIMUM RESERVE LIABILITIES

21-058 Code Vt. R. 21-020-058-X REGULATION I-2007-03 - RECOGNITION OF PREFERRED MORTALITY TABLES FOR USE IN DETERMINING MINIMUM RESERVE LIABILITIES

Section 1 Authority

This Regulation is promulgated by the Commissioner of Banking, Insurance, Securities and Health Care Administration pursuant to 8 V.S.A. § 15, 8 V.S.A. § 3784(a)(2) ("Vermont Standard Valuation Law"), 8 V.S.A. § 3747a(h)(6) ("Vermont Standard Nonforfeiture Law for Life Insurance"), and Sections 5A and 5B of Regulation 99-3-I ("Valuation of Life Insurance Policies") of the Vermont Department of Banking, Insurance, Securities and Health Care Administration.

Section 2 Purpose

The purpose of this Regulation is to recognize, permit and prescribe the use of mortality tables that reflect differences in mortality between Preferred and Standard lives in determining minimum reserve liabilities in accordance with 8 V.S.A. § 15, 8 V.S.A. § 3784(a)(2), 8 V.S.A. § 3747a(h)(6), and Sections 5A and 5B of Regulation 99-3-I of the Vermont Department of Banking, Insurance, Securities and Health Care Administration.

Section 3 Definitions

As used in this Regulation:

A. "2001 CSO Mortality Table" means that mortality table, consisting of separate rates of mortality for male and female lives, developed by the American Academy of Actuaries CSO Task Force from the Valuation Basic Mortality Table developed by the Society of Actuaries Individual Life Insurance Valuation Mortality Task Force, and adopted by the NAIC in December 2002. The 2001 CSO Mortality Table is included in the Proceedings of the NAIC (2nd Quarter 2002) and supplemented by the 2001 CSO Preferred Class Structure Mortality Table defined below in Subsection B. Unless the context indicates otherwise, the "2001 CSO Mortality Table" includes both the ultimate form of that table and the select and ultimate form of that table and includes both the smoker and nonsmoker mortality tables and the composite mortality tables. It also includes both the age-nearest-birthday and age-last-birthday bases of the mortality tables. Mortality tables in the 2001 CSO Mortality Table include the following:

"2001 CSO Mortality Table (F)" means that mortality table consisting of the rates of mortality for female lives from the 2001 CSO Mortality Table.

2. "2001 CSO Mortality Table (M)" means that mortality table consisting of the rates of mortality for male lives from the 2001 CSO Mortality Table.

3. "Composite mortality tables" means mortality tables with rates of mortality that do not distinguish between smokers and nonsmokers.

4. "Smoker and nonsmoker mortality tables" means mortality tables with separate rates of mortality for smokers and nonsmokers.

B. "2001 CSO Preferred Class Structure Mortality Table" means mortality tables with separate rates of mortality for Super Preferred Nonsmokers, Preferred Nonsmokers, Residual Standard Nonsmokers, Preferred Smokers, and Residual Standard Smoker splits of the 2001 CSO Nonsmoker and Smoker tables as adopted by the NAIC at the September, 2006 National Meeting and published in the NAIC Proceedings (3rd Quarter 2006). Unless the context indicates otherwise, the "2001 CSO Preferred Class Structure Mortality Table" includes both the ultimate form of that table and the select and ultimate form of that table. It includes both the smoker and nonsmoker mortality tables. It includes both the male and female mortality tables and the gender composite mortality tables. It also includes both the age-nearest birthday and age-last birthday bases of the mortality table.

C. "Statistical agent" means an entity with proven systems for protecting the confidentiality of individual insured and insurer information; demonstrated resources for and history of ongoing electronic communications and data transfer ensuring data integrity with insurers, which are its members or subscribers; and a history of and means for aggregation of data and accurate promulgation of the experience modifications in a timely manner.

Section 4 2001 CSO Preferred Class Structure Table

At the election of the company, for each calendar year of issue, for any one or more specified plans of insurance and subject to satisfying the conditions stated in this regulation, the 2001 CSO Preferred Class Structure Mortality Table may be substituted in place of the 2001 CSO Smoker or Nonsmoker Mortality Table as the minimum valuation standard for policies issued on or after January 1, 2007. No such election shall be made until the company demonstrates at least 20% of the business to be valued on this table is in one or more of the preferred classes. A table from the 2001 CSO Preferred Class Structure Mortality Table used in place of a 2001 CSO Mortality Table, pursuant to the requirements of this rule, will be treated as part of the 2001 CSO Mortality Table only for purposes of reserve valuation pursuant to the requirements of Department Regulation 1-2005-01.

Section 5 Conditions

A. For each plan of insurance with separate rates for Preferred and Standard Nonsmoker lives, an insurer may use the Super Preferred Nonsmoker, Preferred Nonsmoker, and Residual Standard Nonsmoker tables to substitute for the Nonsmoker mortality table found in the 2001 CSO Mortality Table to determine minimum reserves. At the time of election and annually thereafter, except for business valued under the Residual Standard Nonsmoker Table, the appointed actuary shall certify that:

1. The present value of death benefits over the next ten years after the valuation date, using the anticipated mortality experience without recognition of mortality improvement beyond the valuation date for each class, is less than the present value of death benefits using the valuation basic table corresponding to the valuation table being used for that class.

2. The present value of death benefits over the future life of the contracts, using anticipated mortality experience without recognition of mortality improvement beyond the valuation date for each class, is less than the present value of death benefits using the valuation basic table corresponding to the valuation table being used for that class.

B. For each plan of insurance with separate fees for Preferred and Standard Smoker lives, an insurer may use the Preferred Smoker and Residual Standard Smoker tables to substitute for the Smoker mortality table found in the 2001 CSO Mortality Table to determine minimum reserves. At the time of election and annually thereafter, for business valued under the Preferred Smoker Table, the appointed actuary shall certify that:

1. The present value of death benefits over the next ten years after the valuation date, using the anticipated mortality experience without recognition of mortality improvement beyond the valuation date for each class, is less than the present value of death benefits using the Preferred Smoker valuation basic table corresponding to the valuation table being used for that class.

2. The present value of death benefits over the future life of the contracts, using anticipated mortality experience without recognition of mortality improvement beyond the valuation date for each class, is less than the present value of death benefits using the Preferred Smoker valuation basic table.

C. Unless exempted by the commissioner, every authorized insurer using the 2001 CSO Preferred Class Structure Table shall annually file with the commissioner, with the NAIC, or with a statistical agent designated by the NAIC and acceptable to the commissioner, statistical reports showing mortality and such other information as the commissioner may deem necessary or expedient for the administration of the provisions of this regulation. The form of the reports shall be established by the commissioner or the commissioner may require the use of a form established by the NAIC or by a statistical agent designated by the NAIC and acceptable to the commissioner.

Section 6 Separability

If any provision of this Regulation or its application to any person or circumstance is for any reason held to be invalid, the remainder of the Regulation and the application of the provision to other persons or circumstances shall not be affected.

Section 7 Effective Date

The effective date of this Regulation is December 21, 2007.

History

• EFFECTIVE DATE: December 21, 2007 Secretary of State Rule Log #07-048
• STATUTORY AUTHORITY: 8 V.S.A. §§ 15, 3747, 3784

Chapter 059 REGULATION I-2007-02, LIMITED LINES PRODUCER LICENSE FOR CREDIT INSURANCE

21-059 Code Vt. R. 21-020-059-X REGULATION I-2007-02, LIMITED LINES PRODUCER LICENSE FOR CREDIT INSURANCE

Section 1 Authority

This Regulation is promulgated under the authority granted to the Commissioner of the Department of Banking, Insurance, Securities and Health Care Administration by 8 V.S.A. §§ 15 and 4813a(6).

Section 2 Purpose

The purpose of this Regulation is to establish a Limited Lines Producer License for the sale of Credit Insurance and to set forth requirements for the sale of Credit Insurance by a Limited Lines Credit Insurance Producer.

Section 3 Scope

This Regulation governs the sale, solicitation and negotiation of Credit Insurance by a Limited Lines Credit Insurance Producer.

Section 4 Definitions

As used in this Regulation:

A. "Credit Insurance" means credit life, credit disability, credit property, credit unemployment, involuntary unemployment, mortgage life, mortgage disability, guaranteed automobile protection (gap) insurance, which are hereby designated as forms of limited line Credit Insurance for purposes of this Regulation, and any other form of insurance offered to a consumer in connection with an extension of credit to such consumer that is limited to partially or wholly extinguishing such credit obligation and which the Commissioner designates as a form of limited line Credit Insurance for purposes of this Regulation. For purposes of this Regulation, "Credit Insurance" shall not include Private Mortgage Insurance ("PMI").

B. "Limited Lines Credit Insurance Producer" means a natural person licensed pursuant to this Regulation to sell, solicit or negotiate Credit Insurance.

C. "Insurer" means any insurance company licensed to offer, sell or negotiate Credit Insurance in this state.

Capitalized terms not defined in this Regulation shall have the meaning set forth in 8 V.S.A. § 4813a.

Section 5 General Requirements

A. The Commissioner hereby determines that the solicitation, sale and negotiation of Credit Insurance in this state does not require the professional competency of a licensed Insurance Producer and that an individual involved in such activities shall be subject to the requirements of this Regulation except as provided in Section 5(D) of this Regulation.

B. A Limited Lines Credit Insurance Producer must be appointed by any Insurer with which Credit Insurance is sold, solicited or negotiated.

C. A Limited Lines Credit Insurance Producer shall not be subject to training or continuing education requirements with respect to the sale, solicitation or negotiation of Credit Insurance other than as set forth in this Regulation.

D. This Regulation shall not apply to a licensed Insurance Producer or to an individual operating under a Business Entity Limited Lines Producer License granted pursuant to Regulation I-2007-01.

Section 6 Licensing

To obtain a Limited Lines Credit Insurance Producer license, an individual must:

A. Submit to the Commissioner an application and fees for licensure as required under 8 V.S.A. Chapter 131;

B. Be appointed by an Insurer to act as its agent; and

C. Have read the provisions of this Regulation.

Section 7 Limited Lines Credit Insurance Producer Requirements

No Credit Insurance may be offered, sold, solicited or negotiated pursuant to this Regulation unless the Limited Lines Credit Insurance Producer:

A. Informs a consumer applying for Credit Insurance that the purchase of Credit Insurance is not required for a consumer to make a purchase or obtain financing;

B. Makes no representation to the consumer that Limited Line Credit Insurance Producer is qualified to evaluate the adequacy of the consumer's existing insurance coverages, including but not limited to whether the consumer has coverage with respect to the purchase or financing transaction at issue;

C. Separately itemizes all costs for the Credit Insurance in any loan or purchase documents and agreements; and

D. Provides, at the time of application for Credit Insurance, in writing, the following information to a consumer:

1. The purpose of the proposed coverage;

2. Proposed coverage amounts;

3. Cost of coverage (which may be expressed in terms of the total cost of the proposed coverage or in terms of the unit cost of coverage relative to various dollar amounts of a loan or purchase) and the availability of refunds, if applicable;

4. Name of the Insurer;

5. Any limitations or exclusions of the proposed coverage;

6. Any underwriting requirements, including pre-existing condition limitations or eligibility requirements;

7. A statement whether an application is accepted and coverage is effective upon receipt of a completed application by the Limited Lines Credit Insurance Producer or, if not, when and how the consumer will be told whether an application is accepted and when coverage is effective;

8. A certificate of coverage or other evidence of coverage if available, or a copy of the application for insurance or other receipt if evidence of coverage is not available; and

9. A description of the process for filing a claim, including a toll-free number of the Insurer to report a claim.

If the consumer applies for Credit Insurance through a medium other than applying in writing, the foregoing information may be provided to the consumer in compliance with Title 9 V.S.A., Chapter 20.

Section 8 Trust Accounts

A. A Limited Lines Credit Insurance Producer shall establish trust accounts for moneys collected from applicants purchasing Credit Insurance in accordance with the requirements of Regulation 95-1, Trust Accounts.

B. Any money held in trust for an Insurer or a consumer shall be paid to such Insurer or consumer within thirty-five (35) business days of receipt.

C. This Section shall not apply to a Limited Lines Credit Insurance Producer with respect to the solicitation, sale or negotiation of Credit Insurance by a Business Entity licensed as a Business Entity Limited Lines Credit Insurance Producer pursuant to Regulation I-2007-01, where the Limited Lines Credit Insurance Producer is the Designated Responsible Licensed Producer for such Business Entity as defined in Regulation 1-2007-01.

Section 9 Record Retention

A Limited Lines Credit Insurance Producer shall comply with all record retention requirements set forth in Regulation 99-1, Record Retention. Each licensee shall keep records of the transactions under the license granted pursuant to this Regulation. This Section shall not apply to a Limited Lines Credit Insurance Producer with respect to the solicitation, sale or negotiation of Credit Insurance by a Business Entity licensed as a Business Entity Limited Lines Credit Insurance Producer pursuant to Regulation I-2007-01, where the Limited Lines Credit Insurance Producer is the Designated Responsible Licensed Producer for such Business Entity as defined in Regulation I-2007-01.

Section 10 Effective Date

This Regulation shall take effect on May 1, 2008.

History

• STATUTORY AUTHORITY: 8 V.S.A. §§ 15, 4813a
• EFFECTIVE DATE: May 1, 2008 Secretary of State Rule Log #08-006

Chapter 060 REGULATION I-2007-01, BUSINESS ENTITY LIMITED LINES PRODUCER LICENSE FOR CREDIT INSURANCE

21-060 Code Vt. R. 21-020-060-X REGULATION I-2007-01, BUSINESS ENTITY LIMITED LINES PRODUCER LICENSE FOR CREDIT INSURANCE

Section 1 Authority

This Regulation is promulgated under the authority granted to the Commissioner of the Department of Banking, Insurance, Securities and Health Care Administration by 8 V.S.A. §§ 15, 4813a(6) and 4813f(b).

Section 2 Purpose

The purpose of this Regulation is to establish a Business Entity Limited Lines Producer License for the sale of Credit Insurance and to set forth requirements for the sale of Credit Insurance by a Business Entity Limited Lines Credit Insurance Producer and its employees and representatives.

Section 3 Scope

This Regulation governs the sale, solicitation and negotiation of Credit Insurance by a Business Entity Limited Lines Credit Insurance Producer and its employees and representatives.

Section 4 Definitions

As used in this Regulation:

A. "Business Entity" means a corporation, association, partnership, limited liability company, limited liability partnership or other legal entity.

B. "Business Entity Limited Lines Producer License" means the license issued to a Business Entity pursuant to this Regulation.

C. "Business Entity Limited Lines Credit Insurance Producer" means a Business Entity licensed under this Regulation to sell, solicit or negotiate Credit Insurance.

D. "Credit Insurance" means credit life, credit disability, credit property, credit unemployment, involuntary unemployment, mortgage life, mortgage disability, and guaranteed automobile protection (gap) insurance, which are hereby designated as forms of limited line Credit Insurance for purposes of this Regulation, and any other form of insurance offered to a consumer in connection with an extension of credit to such consumer that is limited to partially or wholly extinguishing such credit obligation and which the Commissioner designates as a form of limited line Credit Insurance for purposes of this Regulation. For purposes of this Regulation, "Credit Insurance" shall not include Private Mortgage Insurance ("PMI").

E. "Designated Responsible Licensed Producer" means a natural person described in Section 6(B) of this Regulation.

F. "Insurer" means any insurance company licensed to offer, sell or negotiate Credit Insurance in this state.

G. "Insurance Producer" means a natural person required to be licensed under the laws of this state to sell, solicit or negotiate insurance.

H. "Limited Lines Credit Insurance Producer" means a natural person licensed pursuant to Insurance Division Regulation I-2007-02 to sell, solicit or negotiate Credit Insurance.

Capitalized terms not defined in this Regulation shall have the meaning set forth in 8 V.S.A. § 4813a.

Section 5 General Requirements

A. The Commissioner hereby determines that the solicitation, sale and negotiation of Credit Insurance in this state does not require the professional competency of a licensed Insurance Producer and that an individual involved in such activities shall be subject to the requirements of this Regulation unless such individual is licensed as an Insurance Producer or as a Limited Lines Credit Insurance Producer.

B. No person, including an officer, director, employee or representative of a Business Entity, shall sell, solicit or negotiate Credit Insurance unless:

(i) that person is licensed as an Insurance Producer or as a Limited Lines Credit Insurance Producer, or

(ii) such Business Entity and person are in compliance with the requirements of this Regulation.

C. The Commissioner may issue to a Business Entity that has complied with the requirements of this Regulation, a Business Entity Limited Lines Producer License authorizing the Business Entity to act as a Business Entity Limited Lines Credit Insurance Producer subject to the provisions of this Regulation in connection with the solicitation, sale or negotiation of Credit Insurance.

Section 6 Licensing

To obtain a Business Entity Limited Lines Credit Insurance Producer license, a Business Entity shall:

A. Submit to the Commissioner an application and fees for licensure as required under 8 V.S.A. Chapter 131. Such application must be signed by an officer of the Business Entity;

B. Have designated a Designated Responsible Licensed Producer for each Insurer referenced in Section 6(C):

1. who is a natural person;

2. who is a full-time supervisor or an owner of the Business Entity;

3. who is appointed as an agent of each Insurer referenced in Section 6(C) of this Regulation;

4. who is responsible for the Business Entity's compliance with the insurance laws of this state as a Business Entity Limited Lines Credit Insurance Producer; and

5. who is licensed as an Insurance Producer or a Limited Lines Credit Insurance Producer and who has certified on a form prepared by the Commissioner that he/she understands the requirements of this Regulation, has read the provisions of this Regulation, and has complied with all other applicable requirements set forth in 8 V.S.A. Chapter 131.

C. Submit to the Commissioner a certificate by each appointing Insurer, stating that the Insurer has satisfied itself that the Business Entity applicant is trustworthy and competent to act as its Credit Insurance agent; that the Insurer has provided training and education in conformity with the requirements set forth in Section 7(C) of this Regulation, and that the Insurer will appoint the applicant to act as its agent for the solicitation, sale or negotiation of Credit Insurance. An officer of the Insurer shall execute the certification; and

D. Be appointed by an Insurer to act as its agent.

Section 7 Employees and Representatives of the Business Entity

A. An employee or representative of a Business Entity Limited Lines Credit Insurance Producer is authorized to sell, solicit or negotiate Credit Insurance under the authority of the Business Entity Limited Lines Credit Insurance Producer License, without such person being individually licensed as an Insurance Producer or a Limited Lines Credit Insurance Producer, if all of the following conditions have been satisfied:

1. The employee or representative is 18 years of age or older;

2. The Business Entity has taken reasonable steps to ensure the employee or representative is competent and trustworthy;

3. The employee or representative has completed a training and education program consistent with the requirements of this Regulation; and

4. The employee or representative complies with the requirements of this Regulation.

B. A Business Entity Limited Lines Credit Insurance Producer, the Designated Responsible Licensed Producer and the appointing Insurer are responsible for all actions of the Business Entity's employees and representatives relating to the sale, solicitation or negotiation of Credit Insurance. The conduct of an employee or representative related to insurance shall be deemed to be the conduct of the Business Entity, the Designated Responsible Licensed Producer and the appointing Insurer for purposes of this Regulation.

C. Each appointing Insurer of the Business Entity Limited Lines Credit Insurance Producer shall provide a training and education program for each employee and representative of the Business Entity prior to allowing such person to sell, solicit or negotiate Credit Insurance pursuant to this Regulation. The training and education program shall meet the following minimum standards:

1. Include instruction about the kinds of insurance subject to this Regulation that are offered for sale by the Business Entity;

2. Provide training about the requirements and limitations imposed on a Business Entity Limited Lines Credit Insurance Producer and its employees and representatives. This training shall include specific instruction that the employee or representative is prohibited by law from making any statement or engaging in any conduct, express or implied, that would lead a consumer to believe:

a. That the purchase of Credit Insurance is required for a consumer to make a purchase or obtain financing;

b. That the consumer does not already have insurance policies in place that provide the coverage being offered; or

c. That the employee or representative is qualified to evaluate the adequacy of the consumer's existing insurance coverage, including but not limited to whether the consumer has coverage with respect to the purchase or financing transaction at issue;

3. Provide comprehensive training about the product to be sold by an employee or representative, including insurance coverages and terms, any coverage limitations or exclusions, pricing, underwriting requirements and for whom such product is suitable or unsuitable.

D. At the time of application for Credit Insurance an employee or representative must provide the following information to a consumer, in writing, in a format and manner established and approved by the appointing Insurer:

1. The purpose of the proposed coverage;

2. Proposed coverage amounts;

3. Cost of coverage (which may be expressed in terms of the total cost of the proposed coverage or in terms of the unit cost of coverage relative to various dollar amounts of a loan or purchase) and the availability of refunds, if applicable;

4. Name of the Insurer;

5. Any limitations or exclusions of the proposed coverage;

6. Any underwriting requirements, including pre-existing condition limitations or eligibility requirements;

7. A statement whether an application is accepted and coverage is effective upon receipt of a completed application by the employee or representative or, if not, when and how the consumer will be told whether an application is accepted and when coverage is effective;

8. A certificate of coverage or other evidence of coverage if available, or a copy of the application for insurance or other receipt if evidence of coverage is not available; and

9. A description of the process for filing a claim, including a toll-free number for the Insurer to report a claim.

If the consumer applies for Credit Insurance through a medium other than applying in writing, the foregoing information may be provided to the consumer in compliance with Title 9 V.S.A., Chapter 20.

E. For purposes of this Regulation, an employee or representative shall not be deemed to be engaged in the sale, solicitation or negotiation of Credit Insurance if the employee or representative's activities with respect to Credit Insurance are limited to referral of a customer to the Designated Responsible Licensed Producer, to a licensed Insurance Producer, or to an employee qualified under this Section 7 of this Regulation, without any discussion of insurance coverage terms and conditions.

Section 8 Business Entity Limited Lines Credit Insurance Producer Requirements

No insurance may be offered, sold, solicited or negotiated pursuant to this Regulation unless:

A. At every location where a Business Entity Limited Lines Credit Insurance Producer sells Credit Insurance, the Business Entity provides brochures or other written materials to each consumer applying for Credit Insurance, prior to sale, which clearly, conspicuously and in plain language:

1. Summarize the material terms, exclusions, limitations and conditions of coverage, including the identity of the Insurer;

2. Describe the process for filing a claim, including a toll-free telephone number of the Insurer to report a claim;

3. Inform the consumer that the purchase by applicant of Credit Insurance is not required to make a purchase or to obtain financing; and

4. Inform the consumer that neither the Business Entity Limited Lines Credit Insurance Producer nor the Business Entity's employees and representatives are qualified to evaluate the adequacy of the consumer's existing insurance coverages, unless an employee or representative is a licensed Insurance Producer.

B. All costs for the Credit Insurance are separately itemized in any loan or purchase documents and agreements.

C. For transactions conducted by electronic means, the Business Entity Limited Lines Credit Insurance Producer must prominently notify the consumer of the availability of the brochures or other written materials required by this Regulation and ensure the consumer can readily access them.

D. If the Business Entity is not authorized to underwrite and bind coverage on behalf of the Insurer, every application for Credit Insurance shall be forwarded to the Insurer within fifteen (15) business days of receipt by the Business Entity. If the Business Entity is authorized to underwrite and bind coverage on behalf of the Insurer, every application for Credit Insurance shall be forwarded to the Insurer within sixty (60) business days of receipt by the Business Entity.

Section 9 Business Entity Limited Lines Credit Insurance Producer Prohibitions

A Business Entity Limited Lines Credit Insurance Producer shall not:

A. Advertise, represent, or otherwise portray itself or any of its employees or representatives as licensed Insurance Producers, other than an employee or representative who is a licensed Insurance Producer;

B. Pay any employee or representative of the Business Entity Limited Lines Credit Insurance Producer a commission for the sale of Credit Insurance unless such person is a licensed Insurance Producer or a Limited Lines Credit Insurance Producer.

Section 10 Trust Accounts

A. A Business Entity Limited Lines Credit Insurance Producer shall establish trust accounts for moneys collected from applicants purchasing Credit Insurance in accordance with the requirements of Regulation 95-1, Trust Accounts.

B. Any money held in trust for a consumer shall be paid to such consumer within thirty-five (35) business days of receipt. Any money held in trust for an Insurer shall be paid to such Insurer within thirty-five (35) business days of receipt, unless the Business Entity and the Insurer have agreed to a different time period.

C. In the case of a Business Entity that is a federally insured depository institution, for purposes of applying Regulation 95-1:

1. a "trust account" shall mean a separately stated account as shown on the Business Entity's annual audited financial statements; a "trust account" shall not mean a "financial account";

2. the Business Entity shall not be precluded from commingling funds credited to the trust account with any other non-segregated funds held by the Business Entity;

3. a "deposit" to a trust account shall mean that the Business Entity credits the trust account with the amount of funds accepted by the Business Entity as a third-party recipient; and

4. a "withdrawal" or "transfer" from a trust account shall mean that the Business Entity debits the trust account by the amount of funds to be removed from the trust account.

Section 11 Record Retention

A Business Entity Limited Lines Credit Insurance Producer shall comply with all record retention requirements set forth in Regulation 99-1, Record Retention. Each Business Entity shall keep records of the transactions under the license granted pursuant to this Regulation.

Section 12 Effective Date

This Regulation shall take effect on May 1, 2008.

History

• STATUTORY AUTHORITY: 8 V.S.A. §§ 15, 4813a, 4813f
• EFFECTIVE DATE: May 1, 2008 Secretary of State Rule Log #08-007

Chapter 061 REGULATION I-2007-04; MILITARY SALES PRACTICES

21-061 Code Vt. R. 21-020-061-X REGULATION I-2007-04; MILITARY SALES PRACTICES

Section 1 Authority

This regulation is promulgated under the authority granted to the Commissioner of The Department of Banking, Insurance, Securities and Health Care Administration pursuant to 8 V.S.A. §§ 15, 4721, 4723 and 4724.

Section 2 Purpose

A. The purpose of this regulation is to set forth standards to protect active duty service members of the United States Armed Forces from dishonest and predatory insurance sales practices by declaring certain identified practices to be false, misleading, unfair or deceptive acts or practices.

B. Nothing herein shall be construed to create or imply a private cause of action for a violation of this regulation.

Section 3 Scope

This regulation shall apply only to the solicitation or sale of any life insurance or annuity product by an insurer or insurance producer to an active duty service member of the United States Armed Forces.

Section 4 Exemptions

A. This regulation shall not apply to solicitations or sales involving:

1. Credit insurance;

2. Group life insurance or group annuities where there is no in-person, face- to-face solicitation of individuals by an insurance producer or where the contract or certificate does not include a side fund;

3. An application to the existing insurer that issued the existing policy or contract when a contractual change or a conversion privilege is being exercised; or, when the existing policy or contract is being replaced by the same insurer pursuant to a program filed with and approved by the commissioner; or, when a term conversion privilege is exercised among corporate affiliates;

4. Individual stand-alone health policies, including disability income policies;

5. Contracts offered by Servicemembers' Group Life Insurance (SGLI) or Veterans' Group Life Insurance (VGLI), as authorized by 38 U.S.C. Section 1965 et seq.;

6. Life insurance contracts offered through or by a non-profit military association, qualifying under Section 501(c) (23) of the Internal Revenue Code (IRC), and which are not underwritten by an insurer; or

7. Contracts used to fund:

(a) An employee pension or welfare benefit plan that is covered by the Employee Retirement and Income Security Act (ERISA);

(b) A plan described by Sections 401(a), 401(k), 403(b), 408(k) or 408(p) of the IRC, as amended, if established or maintained by an employer;

(c) A government or church plan defined in Section 414 of the IRC, a government or church welfare benefit plan, or a deferred compensation plan of a state or local government or tax exempt organization under Section 457 of the IRC;

(d) A nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor;

(e) Settlements of or assumptions of liabilities associated with personal injury litigation or any dispute or claim resolution process; or

(f) Prearranged funeral contracts.

B. Nothing herein shall be construed to abrogate the ability of nonprofit organizations (and/or other organizations) to educate members of the United States Armed Forces in accordance with Department of Defense DoD Instruction 1344.07 - PERSONAL COMMERCIAL SOLICITATION ON DoD INSTALLATIONS or successor directive.

C. For purposes of this regulation, general advertisements, direct mail and internet marketing shall not constitute "solicitation." Telephone marketing shall not constitute "solicitation" provided the caller explicitly and conspicuously discloses that the product concerned is life insurance and makes no statements that avoid a clear and unequivocal statement that life insurance is the subject matter of the solicitation. Provided however, nothing in this subsection shall be construed to exempt an insurer or insurance producer from this regulation in any in-person, face-to-face meeting established as a result of the "solicitation" exemptions identified in this subsection.

Section 5 Definitions

A. "Active Duty" means full-time duty in the active military service of the United States and includes members of the reserve component (National Guard and Reserve) while serving under published orders for active duty or full-time training or in a drill status in the National Guard or United States Armed Forces Reserves.

B. "Department of Defense (DoD) Personnel" means all active duty service members and all civilian employees, including nonappropriated fund employees and special government employees, of the Department of Defense.

C. "Door to Door" means a solicitation or sales method whereby an insurance producer proceeds randomly or selectively from household to household without prior specific appointment.

D. "General Advertisement" means an advertisement having as its sole purpose the promotion of the reader's or viewer's interest in the concept of insurance, or the promotion of the insurer or the insurance producer.

E. "Insurer" means an insurance company required to be licensed under the laws of this state to provide life insurance products, including annuities.

F. "Insurance producer" means a person required to be licensed under the laws of this state to sell, solicit or negotiate life insurance, including annuities.

G. "Known" or "Knowingly" means, depending on its use herein, the insurance producer or insurer had actual awareness, or in the exercise of ordinary care should have known, at the time of the act or practice complained of, that the person solicited is a service member.

H. "Life Insurance" means insurance coverage on human lives including benefits of endowment and annuities, and may include benefits in the event of death or dismemberment by accident and benefits for disability income and unless otherwise specifically excluded, includes individually issued annuities.

I. "Military Installation" means any federally owned, leased, or operated base, reservation, post, camp, building, or other facility to which service members are assigned for duty, including barracks, transient housing, and family quarters.

J. "MyPay" is a Defense Finance and Accounting Service (DFAS) web-based system that enables service members to process certain discretionary pay transactions or provide updates to personal information data elements without using paper forms.

K. "Service Member" means any active duty officer (commissioned and warrant) or enlisted member of the United States Armed Forces.

L. "Side Fund" means a fund or reserve that is part of or otherwise attached to a life insurance policy (excluding individually issued annuities) by rider, endorsement or other mechanism which accumulates premium or deposits with interest or by other means. The term does not include:

(1) accumulated value or cash value or secondary guarantees provided by a universal life policy;

(2) cash values provided by a whole life policy which are subject to standard nonforfeiture law for life insurance; or

(3) a premium deposit fund which:

(a) contains only premiums paid in advance which accumulate at interest;

(b) imposes no penalty for withdrawal;

(c) does not permit funding beyond future required premiums;

(d) is not marketed or intended as an investment; and

(e) does not carry a commission, either paid or calculated.

M. "Specific Appointment" means a prearranged appointment agreed upon by both parties and definite as to place and time.

N. "United States Armed Forces" means all components of the Army, Navy, Air Force, Marine Corps, and Coast Guard.

Section 6 Practices Declared False, Misleading, Deceptive or Unfair on a Military Installation

A. The following acts or practices when committed on a military installation by an insurer or insurance producer with respect to the in-person, face-to-face solicitation of life insurance are declared to be false, misleading, unfair or deceptive acts or practices:

(1) Knowingly soliciting the purchase of any life insurance product "door to door" or without first establishing a specific appointment for each meeting with the prospective purchaser.

(2) Soliciting service members in a group or "mass" audience or in a "captive" audience where attendance is not voluntary.

(3) Knowingly making appointments with or soliciting service members during their normally scheduled duty hours.

(4) Making appointments with or soliciting service members in barracks, day rooms, unit areas, or transient personnel housing or other areas where the installation commander has prohibited solicitation.

(5) Soliciting the sale of life insurance without first obtaining permission from the installation commander or the commander's designee.

(6) Posting unauthorized bulletins, notices or advertisements.

(7) Failing to present DD Form 2885, Personal Commercial Solicitation Evaluation, to service members solicited or encouraging service members solicited not to complete or submit a DD Form 2885.

(8) Knowingly accepting an application for life insurance or issuing a policy of life insurance on the life of an enlisted member of the United States Armed Forces without first obtaining for the insurer's files a completed copy of any required form which confirms that the applicant has received counseling or fulfilled any other similar requirement for the sale of life insurance established by regulations, directives or rules of the DoD or any branch of the Armed Forces.

B. The following acts or practices when committed on a military installation by an insurer or insurance producer constitute corrupt practices, improper influences or inducements and are declared to be false, misleading, unfair or deceptive acts or practices:

(1) Using DoD personnel, directly or indirectly, as a representative or agent in any official or business capacity with or without compensation with respect to the solicitation or sale of life insurance to service members.

(2) Using an insurance producer to participate in any United States Armed Forces sponsored education or orientation program.

Section 7 Practices Declared False, Misleading, Deceptive or Unfair Regardless of Location

A. The following acts or practices by an insurer or insurance producer constitute corrupt practices, improper influences or inducements and are declared to be false, misleading, unfair or deceptive acts or practices:

(1) Submitting, processing or assisting in the submission or processing of any allotment form or similar device used by the United States Armed Forces to direct a service member's pay to a third party for the purchase of life insurance. The foregoing includes, but is not limited to, using or assisting in using a service member's "MyPay" account or other similar internet or electronic medium for such purposes. This subsection does not prohibit assisting a service member by providing insurer or premium information necessary to complete any allotment form.

(2) Knowingly receiving funds from a service member for the payment of premium from a depository institution with which the service member has no formal banking relationship. For purposes of this section, a formal banking relationship is established when the depository institution:

(a) provides the service member a deposit agreement and periodic statements and makes the disclosures required by the Truth in Savings Act, 12 U.S.C. § 4301 et seq. and the regulations promulgated thereunder; and

(b) permits the service member to make deposits and withdrawals unrelated to the payment or processing of insurance premiums.

(3) Employing any device or method or entering into any agreement whereby funds received from a service member by allotment for the payment of insurance premiums are identified on the service member's Leave and Earnings Statement or equivalent or successor form as "Savings" or "Checking" and where the service member has no formal banking relationship as defined in subsection 7(A)(2).

(4) Entering into any agreement with a depository institution for the purpose of receiving funds from a service member whereby the depository institution, with or without compensation, agrees to accept direct deposits from a service member with whom it has no formal banking relationship.

(5) Using DoD personnel, directly or indirectly, as a representative or agent in any official or unofficial capacity with or without compensation with respect to the solicitation or sale of life insurance to service members who are junior in rank or grade, or to the family members of such personnel.

(6) Offering or giving anything of value, directly or indirectly, to DoD personnel to procure their assistance in encouraging, assisting or facilitating the solicitation or sale of life insurance to another service member.

(7) Knowingly offering or giving anything of value to a service member for his or her attendance to any event where an application for life insurance is solicited.

(8) Advising a service member to change his or her income tax withholding or State of legal residence for the sole purpose of increasing disposable income to purchase life insurance.

B. The following acts or practices by an insurer or insurance producer lead to confusion regarding source, sponsorship, approval or affiliation and are declared to be false, misleading, unfair or deceptive acts or practices:

(1) Making any representation, or using any device, title, descriptive name or identifier that has the tendency or capacity to confuse or mislead a service member into believing that the insurer, insurance producer or product offered is affiliated, connected or associated with, endorsed, sponsored, sanctioned or recommended by the U.S. Government, the United States Armed Forces, or any state or federal agency or government entity. Examples of prohibited insurance producer titles include, but are not limited to, "Battalion Insurance Counselor," "Unit Insurance Advisor," "Servicemen's Group Life Insurance Conversion Consultant" or "Veteran's Benefits Counselor."

Nothing herein shall be construed to prohibit a person from using a professional designation awarded after the successful completion of a course of instruction in the business of insurance by an accredited institution of higher learning. Such designations include, but are not limited to, Chartered Life Underwriter (CLU), Chartered Financial Consultant (ChFC), Certified Financial Planner (CFP), Master of Science In Financial Services (MSFS), or Masters of Science Financial Planning (MS).

(2) Soliciting the purchase of any life insurance product through the use of or in conjunction with any third party organization that promotes the welfare of or assists members of the United States Armed Forces in a manner that has the tendency or capacity to confuse or mislead a service member into believing that either the insurer, insurance producer or insurance product is affiliated, connected or associated with, endorsed, sponsored, sanctioned or recommended by the U.S. Government, or the United States Armed Forces.

C. The following acts or practices by an insurer or insurance producer lead to confusion regarding premiums, costs or investment returns and are declared to be false, misleading, unfair or deceptive acts or practices:

(1) Using or describing the credited interest rate on a life insurance policy in a manner that implies that the credited interest rate is a net return on premium paid.

(2) Excluding individually issued annuities, misrepresenting the mortality costs of a life insurance product, including stating or implying that the product "costs nothing" or is "free."

D. The following acts or practices by an insurer or insurance producer regarding SGLI or VGLI are declared to be false, misleading, unfair or deceptive acts or practices:

(1) Making any representation regarding the availability, suitability, amount, cost, exclusions or limitations to coverage provided to a service member or dependents by SGLI or VGLI, which is false, misleading or deceptive.

(2) Making any representation regarding conversion requirements, including the costs of coverage, or exclusions or limitations to coverage of SGLI or VGLI to private insurers which is false, misleading or deceptive.

(3) Suggesting, recommending or encouraging a service member to cancel or terminate his or her SGLI policy or issuing a life insurance policy which replaces an existing SGLI policy unless the replacement shall take effect upon or after the service member's separation from the United States Armed Forces.

E. The following acts or practices by an insurer and or insurance producer regarding disclosure are declared to be false, misleading, unfair or deceptive acts or practices:

(1) Deploying, using or contracting for any lead generating materials designed exclusively for use with service members that do not clearly and conspicuously disclose that the recipient will be contacted by an insurance producer, if that is the case, for the purpose of soliciting the purchase of life insurance.

(2) Failing to disclose that a solicitation for the sale of life insurance will be made when establishing a specific appointment for an in-person, face-to-face meeting with a prospective purchaser.

(3) Excluding individually issued annuities, failing to clearly and conspicuously disclose the fact that the product being sold is life insurance.

(4) Failing to make, at the time of sale or offer to an individual known to be a service member, the written disclosures required by Section 10 of the "Military Personnel Financial Services Protection Act," Pub. L. No. 109-290, p.16.

(5) Excluding individually issued annuities, when the sale is conducted in-person face-to-face with an individual known to be a service member, failing to provide the applicant at the time the application is taken:

(a) an explanation of any free look period with instructions on how to cancel if a policy is issued; and

(b) either a copy of the application or a written disclosure. The copy of the application or the written disclosure shall clearly and concisely set out the type of life insurance, the death benefit applied for and its expected first year cost. A basic illustration that meets the requirements of Vermont Department of Banking, Insurance, Securities and Health Care Administration Regulation 98-1 shall be deemed sufficient to meet this requirement for a written disclosure.

F. The following acts or practices by an insurer or insurance producer with respect to the sale of certain life insurance products are declared to be false, misleading, unfair or deceptive acts or practices:

(1) Excluding individually issued annuities, recommending the purchase of any life insurance product which includes a side fund to a service member unless the insurer has reasonable grounds for believing that the life insurance death benefit, standing alone, is suitable.

(2) Offering for sale or selling a life insurance product which includes a side fund to a service member who is currently enrolled in SGLI, is presumed unsuitable unless, after the completion of a needs assessment, the insurer demonstrates that the applicant's SGLI death benefit, together with any other military survivor benefits, savings and investments, survivor income, and other life insurance are insufficient to meet the applicant's insurable needs for life insurance.

(a) "Insurable needs" are the risks associated with premature death taking into consideration the financial obligations and immediate and future cash needs of the applicant's estate and/or survivors or dependents.

(b) "Other military survivor benefits" include, but are not limited to: the Death Gratuity, Funeral Reimbursement, Transition Assistance, Survivor and Dependents' Educational Assistance, Dependency and Indemnity Compensation, TRICARE Healthcare benefits, Survivor Housing Benefits and Allowances, Federal Income Tax Forgiveness, and Social Security Survivor Benefits.

(3) Excluding individually issued annuities, offering for sale or selling any life insurance contract which includes a side fund:

(a) unless interest credited accrues from the date of deposit to the date of withdrawal and permits withdrawals without limit or penalty;

(b) unless the applicant has been provided with a schedule of effective rates of return based upon cash flows of the combined product. For this disclosure, the effective rate of return will consider all premiums and cash contributions made by the policyholder and all cash accumulations and cash surrender values available to the policyholder in addition to life insurance coverage. This schedule will be provided for at least each policy year from one (1) to ten (10) and for every fifth policy year thereafter ending at age 100, policy maturity or final expiration; and

(c) which by default diverts or transfers funds accumulated in the side fund to pay, reduce or offset any premiums due.

(4) Excluding individually issued annuities, offering for sale or selling any life insurance contract which after considering all policy benefits, including but not limited to endowment, return of premium or persistency, does not comply with standard nonforfeiture law for life insurance.

(5) Selling any life insurance product to an individual known to be a service member that excludes coverage if the insured's death is related to war, declared or undeclared, or any act related to military service except for an accidental death coverage, e.g., double indemnity, which may be excluded.

Section 8 Severability

If any provision of these sections or the application thereof to any person or circumstance is held to be invalid for any reason, the invalidity shall not affect the other provisions or any other application of these sections which can be given effect without the invalid provisions or application. To this end all provisions of these sections are declared to be severable.

Section 9 Effective Date

This regulation shall become effective on April 11, 2008.

History

• STATUTORY AUTHORITY: 8 V.S.A. §§ 15, 4721, 4723, 4724
• EFFECTIVE DATE: April 11, 2008 Secretary of State Rule Log #08-009

Chapter 062 REGULATION I-2009-06 - ANNUAL FINANCIAL REPORTING

21-062 Code Vt. R. 21-020-062-X REGULATION I-2009-06 - ANNUAL FINANCIAL REPORTING

Section 1 Authority

This Regulation is promulgated under the authority granted the Commissioner of the Department of Financial Regulation pursuant to 8 V.S.A. §§ 15 and 3578a.

Section 2 Purpose and Scope

The purpose of this regulation is to improve the Department's surveillance of the financial condition of insurers by requiring

(1) an annual audit of financial statements reporting the financial position and the results of operations of insurers by independent certified public accountants,

(2) Communication of Internal Control Related Matters Noted in an Audit, and

(3) Management's Report of Internal Control over Financial Reporting. Every insurer (as defined in Section 3) shall be subject to this regulation. Insurers having direct premiums written in this state of less than $ 1,000,000 in any calendar year and less than 1,000 policyholders or certificate holders of direct written policies nationwide at the end of the calendar year shall be exempt from this regulation for the year (unless the commissioner makes a specific finding that compliance is necessary for the commissioner to carry out statutory responsibilities) except that insurers having assumed premiums pursuant to contracts and/or treaties of reinsurance of $ 1,000,000 or more will not be so exempt.

Foreign or alien insurers filing the Audited financial report in another state, pursuant to that state's requirement for filing of Audited financial reports, which has been found by the commissioner to be substantially similar to the requirements herein, are exempt from Sections 4 through 13 of this regulation if:

A. A copy of the Audited financial report, Communication of Internal Control Related Matters Noted in an Audit, and the Accountant's Letter of Qualifications that are filed with the other state are filed with the commissioner in accordance with the filing dates specified in Sections 4, 11 and 12, respectively (Canadian insurers may submit accountants' reports as filed with the Office of the Superintendent of Financial Institutions, Canada).

B. A copy of any Notification of Adverse Financial Condition Report filed with the other state is filed with the commissioner within the time specified in Section 10.

Foreign or alien insurers required to file Management's Report of Internal Control over Financial Reporting in another state are exempt from filing the Report in this state provided the other state has substantially similar reporting requirements and the Report is filed with the commissioner of the other state within the time specified.

This regulation shall not prohibit, preclude or in any way limit the commissioner from ordering or conducting or performing examinations of insurers under the rules and regulations of the Department and the practices and procedures of the Department.

Section 3 Definitions

The terms and definitions contained herein are intended to provide definitional guidance as the terms are used within this regulation.

A. "Accountant" or "independent certified public accountant" means an independent certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants (AICPA) and in all states in which he or she is licensed to practice; for Canadian and British companies, it means a Canadian chartered or British-chartered accountant.

B. An "affiliate" of, or person "affiliated" with, a specific person, is a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.

C. "Audit committee" means a committee (or equivalent body) established by the board of directors of an entity for the purpose of overseeing the accounting and financial reporting processes of an insurer or group of insurers, and audits of financial statements of the insurer or group of insurers. The audit committee of any entity that controls a group of insurers may be deemed to be the audit committee for one or more of these controlled insurers solely for the purposes of this regulation at the election of the controlling person. Refer to Section 14E for exercising this election. If an audit committee is not designated by the insurer, the insurer's entire board of directors shall constitute the audit committee.

D. "Audited financial report" means and includes those items specified in Section 5 of this regulation.

E. "Indemnification" means an agreement of indemnity or a release from liability where the intent or effect is to shift or limit in any manner the potential liability of the person or firm for failure to adhere to applicable auditing or professional standards, whether or not resulting in part from knowing of other misrepresentations made by the insurer or its representatives.

F. "Independent board member" has the same meaning as described in Section 14C.

G. "Insurer" means an insurer licensed or authorized under Ch. 101 of Title 8, Vermont Statutes Annotated.

H. "Group of insurers" means those licensed insurers included in the reporting requirements of Subchapter 13, Chapter 101 of Title 8, Vermont Statutes Annotated, or a set of insurers as identified by management, for the purpose of assessing the effectiveness of Internal control over financial reporting.

I. "Internal control over financial reporting" means a process effected by an entity's board of directors, management and other personnel designed to provide reasonable assurance regarding the reliability of the financial statements, i.e., those items specified in Section 5B through 5G of this regulation and includes those policies and procedures that:

(1) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets;

(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements, i.e., those items specified in Section 5B through 5G of this regulation and that receipts and expenditures are being made only in accordance with authorizations of management and directors; and

(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements, i.e., those items specified in Section 5B through 5G of this regulation.

J. "SEC" means the United States Securities and Exchange Commission.

K. " Section 404 " means Section 404 of the Sarbanes-Oxley Act of 2002 and the SEC's rules and regulations promulgated thereunder.

L. " Section 404 Report" means management's report on "internal control over financial reporting" as defined by the SEC and the related attestation report of the independent certified public accountant as described in Section 3A.

M. "SOX Compliant Entity" means an entity that either is required to be compliant with, or voluntarily is compliant with, all of the following provisions of the Sarbanes- Oxley Act of 2002:

(i) the preapproval requirements of Section 201 ( Section 10A(i) of the Securities Exchange Act of 1934);

(ii) the Audit committee independence requirements of Section 301 ( Section 10A(m) (3) of the Securities Exchange Act of 1934); and

(iii) the Internal control over financial reporting requirements of Section 404 (Item 308 of SEC Regulation S-K).

Section 4 General Requirements Related to Filing and Extensions for Filing of Annual Audited Financial Reports and Audit Committee Appointment

A. All insurers shall have an annual audit by an independent certified public accountant and shall file an audited financial report with the commissioner on or before June 1 for the year ended December 31 immediately preceding. The commissioner may require an insurer to file an audited financial report earlier than June 1 with ninety (90) days advance notice to the insurer.

B. Extensions of the June 1 filing date may be granted by the commissioner for thirty day periods upon a showing by the insurer and its independent certified public accountant of the reasons for requesting an extension and determination by the commissioner of good cause for an extension. The request for extension must be submitted in writing not less than ten (10) days prior to the due date in sufficient detail to permit the commissioner to make an informed decision with respect to the requested extension.

C. If an extension is granted in accordance with the provisions in Section 4B, a similar extension of thirty (30) days is granted to the filing of Management's Report of Internal Control over Financial Reporting.

D. Every insurer required to file an annual audited financial report pursuant to this regulation shall designate a group of individuals as constituting its audit committee, as defined in Section 3. The audit committee of an entity that controls an insurer may be deemed to be the insurer's audit committee for purposes of this regulation at the election of the controlling person.

Section 5 Contents of Annual Audited Financial Report

The annual audited financial report shall report the financial position of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the Department of Insurance of the state of domicile.

The annual audited financial report shall include the following:

A. Report of independent certified public accountant.

B. Balance sheet reporting admitted assets, liabilities, capital and surplus.

C. Statement of operations.

D. Statement of cash flow.

E. Statement of changes in capital and surplus.

F. Notes to financial statements. These notes shall be those required by the appropriate NAIC Annual Statement Instructions and the NAIC Accounting Practices and Procedures Manual. The notes shall include a reconciliation of differences, if any, between the audited statutory financial statements and the annual statement filed pursuant to 8 V.S.A.§ 3561 with a written description of the nature of these differences.

G. The financial statements included in the Audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the commissioner, and the financial statement shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. (However, in the first year in which an insurer is required to file an Audited financial report, the comparative data may be omitted).

Section 6 Designation of Independent Certified Public Accountant

A. Each insurer required by this regulation to file an annual audited financial report must within sixty (60) days after becoming subject to the requirement, register with the commissioner in writing the name and address of the independent certified public accountant or accounting firm retained to conduct the annual audit set forth in this regulation, and pay a registration fee of $ 100.00. Insurers not retaining an independent certified public accountant on the effective date of this regulation shall register the name and address of their retained independent certified public accountant not less than six (6) months before the date when the first audited financial report is to be filed, and pay a registration fee of $ 100.00.

B. The insurer shall obtain a letter from the accountant, and file a copy with the commissioner stating that the accountant is aware of the provisions of the insurance code and the regulations of the insurance department of the state of domicile that relate to accounting and financial matters and affirming that the accountant ':"ill express his or her opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by that insurance department, specifying such exceptions as he or she may believe appropriate.

C. If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns, the insurer shall within five (5) business days notify the commissioner of this event. The insurer shall also furnish the commissioner with a separate letter within ten (10) business days of the above notification stating whether in the twenty-four (24) months preceding such event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure; which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him or her to make reference to the subject matter of the disagreement in connection with his or her opinion. The disagreements required to be reported in response to this section include both those resolved to the former accountant's satisfaction and those not resolved to the former accountant's satisfaction. Disagreements contemplated by this section are those that occur at the decision-making level, i.e., between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The insurer shall also in writing request the former accountant to furnish a letter addressed to the insurer stating whether the accountant agrees with the statements contained in the insurer's letter and, if not, stating the reasons for which he or she does not agree; and the insurer shall furnish the responsive letter from the former accountant to the commissioner together with its own.

Section 7 Qualifications of Independent Certified Public Accountant

A. The commissioner shall not recognize a person or firm as a qualified independent certified public accountant if the person or firm:

(1) Is not in good standing with the AICPA and in all states in which the accountant is licensed to practice, or, for a Canadian or British company, that is not a chartered accountant; or annual Financial Reporting Model Regulation

(2) Has either directly or indirectly entered into an agreement of indemnity or release from liability (collectively referred to as indemnification) with respect to the audit of the insurer.

B. Except as otherwise provided in this regulation, the commissioner shall recognize an independent certified public accountant as qualified as long as he or she conforms to the standards of his or her profession, as contained in the Code of Professional Ethics of the AI CPA and Rules and Regulations and Code of Ethics and Rules of Professional Conduct of the Vermont Board of Public Accountancy, or similar code.

C. A qualified independent certified public accountant may enter into an agreement with an insurer to have disputes relating to an audit resolved by mediation or arbitration. However, in the event of a delinquency proceeding commenced against the insurer under Ch.145 of Title 8, Vermont Statutes Annotated, the mediation or arbitration provisions shall operate at the option of the statutory successor.

D.

(1) The lead (or coordinating) audit partner (having primary responsibility for the audit) may not act in that capacity for more than five (5) consecutive years. The person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of five (5) consecutive years. An insurer may make application to the commissioner for relief from the above rotation requirement on the basis of unusual circumstances. This application should be made at least thirty (30) days before the end of the calendar year. The commissioner may consider the following factors in determining if the relief should be granted:

(a) Number of partners, expertise of the partners or the number of insurance clients in the currently registered firm;

(b) Premium volume of the insurer; or

(c) Number of jurisdictions in which the insurer transacts business.

(2) The insurer shall file, with its annual statement filing, the approval for relief from Subsection D(1) with the states that it is licensed in or doing business in and with the NAIC. If the nondomestic state accepts electronic filing with the NAIC, the insurer shall file the approval in an electronic format acceptable to the NAIC.

E. The commissioner shall neither recognize as a qualified independent certified public accountant, nor accept an annual audited financial report, prepared in whole or in part by, a natural person who:

(1) Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961 to 1968, or any dishonest conduct or practices under federal or state law;

(2) Has been found to have violated the insurance laws of this state with respect to any previous reports submitted under this regulation; or

(3) Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this regulation.

F. The commissioner, after notice and hearing, may find that an independent certified public accountant is not qualified for purposes of expressing his or her opinion on the financial statements in the annual audited financial report made pursuant to this regulation and require the insurer to replace the accountant with another whose relationship with the insurer is qualified within the meaning of this regulation. Any hearing held shall be governed by the provisions of Ch. 25 of Title 3, Vermont Statutes Annotated, applicable to contested cases.

G.

(1) The commissioner shall not recognize as a qualified independent certified public accountant, nor accept an annual audited financial report, prepared in whole or in part by an accountant who provides to an insurer, contemporaneously with the audit, the following non-audit services:

(a) Bookkeeping or other services related to the accounting records or financial statements of the insurer;

(b) Financial information systems design and implementation;

(c) Appraisal or valuation services, fairness opinions, or contribution-in-kind reports;

(d) Actuarially-oriented advisory services involving the determination of amounts recorded in the financial statements. The accountant may assist an insurer in understanding the methods, assumptions and inputs used in the determination of amounts recorded in the financial statement only if it is reasonable to conclude that the services provided will not be subject to audit procedures during an audit of the insurer's financial statements. An accountant's actuary may also issue an actuarial opinion or certification ("opinion") on an insurer's reserves if the following conditions have been met:

(i) Neither the accountant nor the accountant's actuary has performed any management functions or made any management decisions;

(ii) The insurer has competent personnel (or engages a third party actuary) to estimate the reserves for which management takes responsibility; and

(iii) The accountant's actuary tests the reasonableness of the reserves after the insurer's management has determined the amount of the reserves;

(e) Internal audit outsourcing services;

(f) Management functions or human resources;

(g) Broker or dealer, investment adviser, or investment banking services;

(h) Legal services or expert services unrelated to the audit; or

(i) Any other services that the commissioner determines, by regulation, are impermissible.

(2) In general, the principles of independence with respect to services provided by the qualified independent certified public accountant are largely predicated on three basic principles, violations of which would impair the accountant's independence. The principles are that the accountant cannot function in the role of management, cannot audit his or her own work, and cannot serve in an advocacy role for the insurer.

H. Insurers having direct written and assumed premiums of less than $ 100,000,000 in any calendar year may request an exemption from Subsection G(1). The insurer shall file with the commissioner a written statement discussing the reasons why the insurer should be exempt from these provisions. If the commissioner finds, upon review of this statement, that compliance with this regulation would constitute a financial or organizational hardship upon the insurer, an exemption may be granted.

I. A qualified independent certified public accountant who performs the audit may engage in other non-audit services, including tax services, that are not described in Subsection G(1) or that do not conflict with Subsection G(2), only if the activity is approved in advance by the Audit committee, in accordance with Subsection J.

J. All auditing services and non-audit services provided to an insurer by the qualified independent certified public accountant of the insurer shall be pre approved by the Audit committee. The pre approval requirement is waived with respect to non-audit services if the insurer is a SOX Compliant Entity or a direct or indirect wholly-owned subsidiary of a SOX Compliant Entity or:

(1) The aggregate amount of all such non-audit services provided to the insurer constitutes not more than five percent (5%) of the total amount of fees paid by the insurer to its qualified independent certified public accountant during the fiscal year in which the non-audit services are provided;

(2) The services were not recognized by the insurer at the time of the engagement to be non-audit services; and

(3) The services are promptly brought to the attention of the audit committee and approved prior to the completion of the audit by the audit committee or by one or more members of the audit committee who are the members of the board of directors to whom authority to grant such approvals has been delegated by the audit committee.

K. The audit committee may delegate to one or more designated members of the audit committee the authority to grant the preapprovals required by Subsection J. The decisions of any member to whom this authority is delegated shall be presented to the full audit committee at each of its scheduled meetings.

L.

(1) The commissioner shall not recognize an independent certified public accountant as qualified for a particular insurer if a member of the board, president, chief executive officer, controller, chief financial officer, chief accounting officer, or any person serving in an equivalent position for that insurer, was employed by the independent certified public accountant and participated in the audit of that insurer during the one-year period preceding the date that the most current statutory opinion is due. This section shall only apply to partners and senior managers involved in the audit. An insurer may make application to the commissioner for relief from the above requirement on the basis of unusual circumstances.

(2) The insurer shall file, with its annual statement filing, the approval for relief from Subsection L(1) with the states that it is licensed in or doing business in and the NAIC. If the nondomestic state accepts electronic filing with the NAIC, the insurer shall file the approval in an electronic format acceptable to the NAIC.

Section 8 Consolidated or Combined Audits

The Commissioner may permit any insurer to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies which utilizes a pooling or 100 percent reinsurance agreement that affects the solvency and integrity of the insurer's reserves and the insurer cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or combining worksheet shall be filed with the report, as follows:

A. Amounts shown on the consolidated or combined Audited financial report shall be shown on the worksheet;

B. Amounts for each insurer subject to this section shall be stated separately;

C. Noninsurance operations may be shown on the worksheet on a combined or individual basis;

D. Explanations of consolidating and eliminating entries shall be included; and

E. A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the annual statements of the insurers.

Section 9 Scope of Audit and Report of Independent Certified Public Accountant

Financial statements furnished pursuant to Section 5 shall be examined by the independent certified public accountant. The audit of the insurer's financial statements shall be conducted in accordance with generally accepted auditing standards. In accordance with AU Section 319 of the Professional Standards of the AICPA, Consideration of Internal Control in a Financial Statement Audit, the independent certified public accountant should obtain an understanding of internal control sufficient to plan the audit. To the extent required by AU 319, for those insurers required to file a Management's Report of Internal Control over Financial Reporting pursuant to Section 16, the independent certified public accountant should consider (as that term is defined in Statement on Auditing Standards (SAS) No. 102, Defining Professional Requirements in Statements on Auditing Standards or its replacement) the most recently available report in planning and performing the audit of the statutory financial statements. Consideration shall be given to the procedures illustrated in the Financial Condition Examiners Handbook promulgated by the National Association of Insurance Commissioners as the independent certified public accountant deems necessary.

Section 10 Notification of Adverse Financial Condition

A. The insurer required to furnish the annual Audited financial report shall require the independent certified public accountant to report, in writing, within five (5) business days to the board of directors or its audit committee any determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the commissioner as of the balance sheet date currently under audit or that the insurer does not meet Vermont's minimum capital and surplus requirement as of that date. An insurer that has received a report pursuant to this paragraph shall forward a copy of the report to the commissioner within five (5) business days of receipt of the report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the commissioner. If the independent certified public accountant fails to receive the evidence within the required five (5) business day period, the independent certified public accountant shall furnish to the commissioner a copy of its report within the next five (5) business days.

B. No independent certified public accountant shall be liable in any manner to any person for any statement made in connection with the above paragraph if the statement is made in good faith in compliance with Subsection A.

C. If the accountant, subsequent to the date of the Audited financial report filed pursuant to this regulation, becomes aware of facts that might have affected his or her report, the commissioner notes the obligation of the accountant to take such action as prescribed in Volume 1, Section AU 561 of the Professional Standards of the AICPA.

Section 11 Communication of Internal Control Related Matters Noted in an Audit

A. In addition to the annual audited financial report, each insurer shall furnish the commissioner with a written communication as to any unremediated material weaknesses in its internal control over financial reporting noted during the audit. Such communication shall be prepared by the accountant within sixty (60) days after the filing of the annual audited financial report, and shall contain a description of any unremediated material weakness (as the term material weakness is defied by Statement on Auditing Standard 60, Communication of Internal Control Related Matters Noted in an Audit, or its replacement) as of December 31 immediately preceding (so as to coincide with the audited financial report discussed in Section 4(A) ) in the insurer's internal control over financial reporting noted by the accountant during the course of their audit of the financial statements. If no unremediated material weaknesses were noted, the communication should so state.

B. The insurer is required to provide a description of remedial actions taken or proposed to correct unremediated material weaknesses, if the actions are not described in the accountant's communication.

Section 12 Accountant's Letter of Qualifications

The accountant shall furnish the insurer in connection with, and for inclusion in, the filing of the annual audited financial report, a letter stating:

A. That the accountant is independent with respect to the insurer and conforms to the standards of his or her profession as contained in the Code of Professional Ethics and pronouncements of the AICPA and the Rules of Professional Conduct of the Vermont Board of Public Accountancy, or similar code;

B. The background and experience in general, and the experience in audits of insurers of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this regulation shall be construed as prohibiting the accountant from utilizing such staff as he or she deems appropriate where use is consistent with the standards prescribed by generally accepted auditing standards;

C. That the accountant understands the annual audited financial report and his opinion thereon will be filed in compliance with this regulation and that the commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers;

D. That the accountant consents to the requirements of Section 13 of this regulation and that the accountant consents and agrees to make available for review by the commissioner, or the commissioner's designee or appointed agent, the workpapers, as defined in Section 13;

E. A representation that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the AICPA; and

F. A representation that the accountant is in compliance with the requirements of Section 7 of this regulation.

Section 13 Definition, Availability and Maintenance of Independent Certified Public Accountants Workpapers

A. Workpapers are the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to the accountant's audit of the financial statements of an insurer. Workpapers, accordingly, may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of his or her audit of the financial statements of an insurer and which support the accountant's opinion.

B. Every insurer required to file an audited financial report pursuant to this regulation, shall require the accountant to make available for review by insurance department examiners, all workpapers prepared in the conduct of the accountant's audit and any communications related to the audit between the accountant and the insurer, at the offices of the insurer, at the insurance department or at any other reasonable place designated by the commissioner. The insurer shall require that the accountant retain the audit workpapers and communications until the insurance department has filed a report on examination covering the period of the audit but no longer than seven (7) years from the date of the audit report.

C. In the conduct of the aforementioned periodic review by the insurance department examiners, it shall be agreed that photocopies of pertinent audit workpapers may be made and retained by the department. Such reviews by the department examiners shall be considered investigations and all working papers and communications obtained during the course of such investigations shall be afforded the same confidentiality as other examination workpapers generated by the department.

Section 14 Requirements for Audit Committees

This section shall not apply to foreign or alien insurers licensed in this state or an insurer that is a SOX Compliant Entity or a direct or indirect wholly-owned subsidiary of a SOX Compliant Entity.

A. The audit committee shall be directly responsible for the appointment, compensation and oversight of the work of any accountant (including resolution of disagreements between management and the accountant regarding financial reporting) for the purpose of preparing or issuing the audited financial report or related work pursuant to this regulation. Each accountant shall report directly to the audit committee.

B. Each member of the audit committee shall be a member of the board of directors of the insurer or a member of the board of directors of an entity elected pursuant to Subsection E and Section 3C.

C. In order to be considered independent for purposes of this section, a member of the audit committee may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee, accept any consulting, advisory or other compensatory fee from the entity or be an affiliated person of the entity or any subsidiary thereof. However, if law requires board participation by otherwise non-independent members, that law shall prevail and such members may participate in the audit committee and be designated as independent for audit committee purposes, unless they are an officer or employee of the insurer or one of its affiliates.

D. If a member of the audit committee ceases to be independent for reasons outside the member's reasonable control, that person, with notice by the responsible entity to the state, may remain an audit committee member of the responsible entity until the earlier of the next annual meeting of the responsible entity or one year from the occurrence of the event that caused the member to be no longer independent.

E. To exercise the election of the controlling person to designate the audit committee for purposes of this regulation, the ultimate controlling person shall provide written notice to the commissioners of the affected insurers. Notification shall be made timely prior to the issuance of the statutory audit report and include a description of the basis for the election: The election can be changed through notice to the commissioner by the insurer, which shall include a description of the basis for the change. The election shall remain in effect for perpetuity, until rescinded.

F.

(1) The audit committee shall require the accountant that performs for an insurer any audit required by this regulation to timely report to the audit committee in accordance with the requirements of SAS 61, Communication with Audit Committees, or its replacement, including:

(a) All significant accounting policies and material permitted practices;

(b) All material alternative treatments of financial information within statutory accounting principles that have been discussed with management officials of the insurer, ramifications of the use of the alternative disclosures and treatments, and the treatment preferred by the accountant; and

(c) Other material written communications between the accountant and the management of the insurer, such as any management letter or schedule of unadjusted differences.

(2) If an insurer is a member of an insurance holding company system, the reports required by Subsection F(1) may be provided to the audit committee on an aggregate basis for insurers in the holding company system, provided that any substantial differences among insurers in the system are identified to the audit committee.

G. The proportion of independent audit committee members shall meet or exceed the following criteria:

| Prior Calendar Year Direct Written and Assumed Premiums | | | | --- | --- | --- | | $ 0 - 300,000,000 | Over $ 300,000,000 -$ 500,000,000 | Over $ 500,000,000 | | No minimum requirements. See also Note A and B. | Majority (50% or more) of members shall be independent. See also Note A and B. | Supermajority of members (75% or more) shall be independent. See also Note A. |

Note A: The commissioner has authority afforded by state law to require the entity's board to enact improvements to the independence of the audit committee membership if the insurer is in a RBC action level event, meets one or more of the standards of an insurer deemed to be in hazardous financial condition, or otherwise exhibits qualities of a troubled insurer.

Note B: All insurers with less than $ 500,000,000 in prior year direct written and assumed premiums are encouraged to structure their audit committees with at least a supermajority of independent audit committee members.

Note C: Prior calendar year direct written and assumed premiums shall be the combined total of direct premiums and assumed premiums from non-affiliates for the reporting entities.

H. An insurer with direct written and assumed premium, excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, less than $ 500,000,000 may make application to the commissioner for a waiver from the Section 14 requirements based upon hardship. The insurer shall file, with its annual statement filing, the approval for relief from Section 14 with the states that it is licensed in or doing business in and the NAIC. If the nondomestic state accepts electronic filing with the NAIC, the insurer shall file the approval in an electronic format acceptable to the NAIC.

Section 15 Internal Audit Function Requirements

A. Exemptions-An insurer is exempt from the requirements of this section if:

(1) The insurer has annual direct written and unaffiliated assumed premium, including international direct and assumed premium but excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, less than $ 500,000,000; and

(2) If the insurer is a member of a group of insurers, the group has annual direct written and unaffiliated assumed premium, including international, direct and assumed premium but excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, less than $ 1,000,000,000.

B. Function- The insurer or group of insurers shall establish an internal audit function providing independent, objective and reasonable assurance to the Audit committee and insurer management regarding the insurer's governance, risk management and internal controls. This assurance shall be provided by performing general and specific audits, reviews and tests and by employing other techniques deemed necessary to protect assets, evaluate control effectiveness and efficiency, and evaluate compliance with policies and regulations.

C. Independence- In order to ensure that internal auditors remain objective, the internal audit function must be organizationally independent. Specifically, the internal audit function will not defer ultimate judgment on audit matters to others, and shall appoint an individual to head up the internal audit function who will have direct and unrestricted access to the board of directors. Organizational independence does not preclude dual-reporting relationships.

D. Reporting--The head of the internal audit function shall report to the audit committee regularly, but no less than annually, on the periodic audit plan, factors that may adversely impact the internal audit function's independence or effectiveness, material findings from completed audits and the appropriateness of corrective actions implemented by management as a result of audit findings.

E. Additional Requirements--If an insurer is a member of an insurance holding company system or included in a group of insurers, the insurer may satisfy the internal audit function requirements set forth in this section at the ultimate controlling parent level, an intermediate holding company level or the individual legal entity level.

Section 16 Conduct of Insurer in Connection with the Preparation of Required Reports and Documents

A. No director or officer of an insurer shall, directly or indirectly:

(1) Make or cause to be made a materially false or misleading statement to an accountant in connection with any audit, review or communication required under this regulation; or

(2) Omit to state, or cause another person to omit to state, any material fact necessary in order to make statements made, in light of the circumstances under which the statements were made, not misleading to an accountant in connection with any audit, review or communication required under this regulation.

B. No officer or director of an insurer, or any other person acting under the direction thereof, shall directly or indirectly take any action to coerce, manipulate, mislead or fraudulently influence any accountant engaged in the performance of an audit pursuant to this regulation if that person knew or should have known that the action, if successful," could result in rendering the insurer's financial statements materially misleading.

C. For purposes of Subsection B of this section, actions that, "if successful, could result in rendering the insurer's financial statements materially misleading" include, but are not limited to, actions taken at any time with respect to the professional engagement period to coerce, manipulate, mislead or fraudulently influence an accountant:

(1) To issue or reissue a report on an insurer's financial statements that is not warranted in the circumstances (due to material violations of statutory accounting principles prescribed by the commissioner, generally accepted auditing standards, or other professional or regulatory standards);

(2) Not to perform audit, review or other procedures required by generally accepted auditing standards or other professional standards;

(3) Not to withdraw an issued report; or

(4) Not to communicate matters to an insurer's Audit committee.

Section 17 Management's Report of Internal Control over Financial Reporting

A. Every insurer required to file an audited financial report pursuant to this regulation that has annual direct written and assumed premiums, excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, of $ 500,000,000 or more shall prepare a report of the insurer's or Group of insurers' Internal control over financial reporting, as these terms are defined in Section 3. The report shall be filed with the commissioner along with the Communication of Internal Control Related Matters Noted in an Audit described under Section 11. Management's Report of Internal Control over Financial Reporting shall be as of December 31 immediately preceding.

B. Notwithstanding the premium threshold in Subsection A, the commissioner may require an insurer to file Management's Report of Internal Control over Financial Reporting if the insurer is in any RBC level event, or meets any one or more of the standards of an insurer deemed to be in hazardous financial condition as defined in (include reference to Corrective Action statute).

C. An insurer or a Group of insurers that is

(1) directly subject to Section 404;

(2) part of a holding company system whose parent is directly subject to Section 404;

(3) not directly subject to Section 404 but is a SOX Compliant Entity; or

(4) a member of a holding company system whose parent is not directly subject to Section 404 but is a SOX Compliant Entity;

may file its or its parent's Section 404 Report and an addendum in satisfaction of this Section 1 7 requirement provided that those internal controls of the insurer or Group of insurers having a material impact on the preparation of the insurer's or Group of insurers' audited statutory financial statements (those items included in Section 5B through 5G of this regulation) were included in the scope of the Section 404 Report. The addendum shall be a positive statement by management that there are no material processes with respect to the preparation of the insurer's or Group of insurers' audited statutory financial statements (those items included in Section 5B through 5G of this regulation) excluded from the Section 404 Report. If there are internal controls of the insurer or Group of insurers that have a material impact on the preparation of the insurer's or Group of insurers' audited statutory financial statements and those internal controls were not included in the scope of the Section 404 Report, the insurer or Group of insurers may either file (i) a Section 17 report, or (ii) the Section 404 Report and a Section 17 report for those internal controls that have a material impact on the preparation of the insurer's or Group of insurers' audited statutory financial statements not covered by the Section 404 Report.

D. Management's Report of Internal Control over Financial Reporting shall include:

(1) A statement that management is responsible for establishing and maintaining adequate Internal control over financial reporting;

(2) A statement that management has established Internal control over financial reporting and an assertion, to the best of management's knowledge and belief, after diligent inquiry, as to whether its Internal control over financial reporting is effective to provide reasonable assurance regarding the reliability of financial statements in accordance with statutory accounting principles;

(3) A statement that briefly describes the approach or processes by which management evaluated the effectiveness of its Internal control over financial reporting; and

(4) A statement that briefly describes the scope of work that is included and whether any internal controls were excluded;

(5) Disclosure of any unremediated material weaknesses in the Internal control over financial reporting identified by management as of December 31 immediately preceding. Management is not permitted to conclude that the Internal control over financial reporting is effective to provide reasonable assurance regarding the reliability of financial statements in accordance with statutory accounting principles if there is one or more unremediated material weaknesses in its Internal control over financial reporting;

(6) A statement regarding the inherent limitations of internal control systems; and

(7) Signatures of the chief executive officer and the chief financial officer (or equivalent position/title).

E. Management shall document and make available upon financial condition examination the basis upon which its assertions, required in Subsection D above, are made. Management may base its assertions, in part, upon its review, monitoring and testing of internal controls undertaken in the normal course of its activities.

(1) Management shall have discretion as to the nature of the internal control framework used, and the nature and extent of documentation, in order to make its assertion in a cost effective manner and, as such, may include assembly of or reference to existing documentation.

(2) Management's Report on Internal Control over Financial Reporting, required by Subsection A above, and any documentation provided in support thereof during the course of a financial condition examination, shall be kept confidential by the state insurance department.

Section 18 Exemptions and Deadlines

A. Upon written application of any insurer, the commissioner may grant an exemption from compliance with any and all provisions of this regulation if the commissioner finds, upon review of the application, that compliance with this regulation would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for a specified period or periods. Within ten (10) days from a denial of an insurer's written request for an exemption from this regulation, the insurer may request in writing a hearing on its application for an exemption. The hearing shall be held in accordance with Department Regulation 82-1 pertaining to administrative hearing procedures.

B. Domestic insurers shall comply with this regulation for the year ending December 31, 2010 and each year thereafter unless the commissioner permits otherwise.

C. Foreign insurers shall comply with this regulation for the year ending December 31, 2010 and each year thereafter, unless the commissioner permits otherwise. Foreign insurers are not required to file reports and other materials with the commissioner but shall make them available to the commissioner on request.

D. The requirements of Section 7D shall be in effect for audits of the year beginning January 1, 2010 and thereafter.

E. The requirements of Section 14 are to be in effect January 1, 2010. An insurer or group of insurers that is not required to have independent Audit committee members or only a majority of independent audit committee members (as opposed to a supermajority) because the total written and assumed premium is below the threshold and subsequently becomes subject to one of the independence requirements due to changes in premium shall have one (1) year following the year the threshold is exceeded to comply with the independence requirements. Likewise, an insurer that becomes subject to one of the independence requirements as a result of a business combination shall have one (1) calendar year following the date of acquisition or combination to comply with the independence requirements.

F. The requirements of Section 15 are effective January 1, 2020.

G. The requirements of Section 17, except for Section 14 covered above, are effective beginning with the reporting period ending December 31, 2010 and each year thereafter. An insurer or group of insurers that is not required to file a report because the total written premium is below the threshold and subsequently becomes subject to the reporting requirements shall have two (2) years following the year the threshold is exceeded to file a report. Likewise an insurer acquired in a business combination shall have two (2) calendar years following the date of acquisition or combination to comply with the reporting requirements.

Section 19 Canadian and British Companies

A. In the case of Canadian and British insurers, the annual Audited financial report shall be defined as the annual statement of total business on the form filed by such companies with their supervision authority duly audited by an independent chartered accountant.

B. For such insurers, the letter required in Section 6B shall state that the accountant is aware of the requirements relating to the annual Audited financial report filed with the commissioner pursuant to Section 4 and shall affirm that the opinion expressed is in conformity with those requirements.

Section 20 Severability Provision

If any section or portion of a section of this regulation or its applicability to any person or circumstance is held invalid by a court, the remainder of the regulation or the applicability of the provision to other persons or circumstances shall not be affected.

Section 21 Effective Date

The effective date of this Regulation, as revised, is January 2010, except as provided in Section 18 of this Regulation.

History

• EFFECTIVE DATE:
• January 4, 2010 Secretary of State Log #09-041
• AMENDED:
• June 1, 2019 Secretary of State Rule Log #19-022
• Statutory Authority 8 V.S.A. §§ 15, 3578a

Chapter 063 ANNUAL FINANCIAL REPORTING REGULATION FOR RISK RETENTION GROUPS CHARTERED IN VERMONT (C-2012-1)

21-063 Code Vt. R. 21-020-063-X ANNUAL FINANCIAL REPORTING REGULATION FOR RISK RETENTION GROUPS CHARTERED IN VERMONT (C-2012-1)

Section 1 Authority

This Regulation is promulgated under the authority granted the Commissioner of the Department of Banking, Insurance, Securities and Health Care Administration pursuant to 8 V.S.A. §§ 15 and 3578a.

Section 2 Purpose and Scope

The purpose of this regulation is to improve the Department's surveillance of the financial condition of RRGs by requiring (1) an annual audit of financial statements reporting the financial position and the results of operations of RRGs by independent certified public accountants, (2) Communication of Internal Control Related Matters Noted in an Audit, and (3) Management's Report of Internal Control over Financial Reporting.

Every RRG (as defined in Section 3) shall be subject to this regulation. RRGs having less than 1,000 policyholders or certificateholders of direct written policies nationwide at the end of the calendar year shall be exempt from this regulation for the year (unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory responsibilities)

This regulation shall not prohibit, preclude or in any way limit the commissioner from ordering or conducting or performing examinations of RRGs under the rules and regulations of the Department and the practices and procedures of the Department.

Section 3 Definitions

The terms and definitions contained herein are intended to provide definitional guidance as the terms are used within this regulation.

A. "Accountant" or "independent certified public accountant" means an independent certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants (AICPA) and in all states in which he or she is licensed to practice.

B. An "affiliate" of, or person "affiliated" with, a specific person, is a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.

C. "Audit committee" means a committee (or equivalent body) established by the board of directors (or equivalent governing body) of an entity for the purpose of overseeing the accounting and financial reporting processes of an RRG or group of Insurers , and audits of financial statements of the RRG or group of Insurers . The audit committee of any entity that controls a group of Insurers may be deemed to be the audit committee for one or more of these controlled RRGs solely for the purposes of this regulation at the election of the controlling person. Refer to Section 14E for exercising this election. If an audit committee is not designated by the RRG, the RRG's entire board of directors shall constitute the audit committee.

D. "Audited financial report" means and includes those items specified in Section 5 of this regulation.

E. "Indemnification" means an agreement of indemnity or a release from liability where the intent or effect is to shift or limit in any manner the potential liability of the person or firm for failure to adhere to applicable auditing or professional standards, whether or not resulting in part from knowing of other misrepresentations made by the RRG or its representatives.

F. "Independent board member" has the same meaning as described in Section 14C.

G. "Risk Retention Group" or "RRG" means a risk retention group licensed or authorized under Ch. 141 of Title 8, Vermont Statutes Annotated.

G. 1 "Insurer" means an insurer licensed or authorized under Ch. 101 of Title 8, Vermont Statutes Annotated.

H. "Group of insurers" means those licensed insurers and/or RRGs included in the reporting requirements of Subchapter 13, Chapter 101 of Title 8, Vermont Statutes Annotated, or a set of insurers and/or RRGs as identified by management, for the purpose of assessing the effectiveness of Internal control over financial reporting.

I. "Internal control over financial reporting" means a process effected by an entity's board of directors, management and other personnel designed to provide reasonable assurance regarding the reliability of the financial statements, i.e., those items specified in Section 5B through 5G of this regulation and includes those policies and procedures that:

(1) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets;

(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements, i.e., those items specified in Section 5B through 5G of this regulation and that receipts and expenditures are being made only in accordance with authorizations of management and directors; and

(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements, i.e., those items specified in Section 5B through 5G of this regulation.

J. "SEC" means the United States Securities and Exchange Commission.

K. " Section 404 " means Section 404 of the Sarbanes-Oxley Act of 2002 and the SEC's rules and regulations promulgated thereunder.

L. " Section 404 Report" means management's report on "internal control over financial reporting" as defined by the SEC and the related attestation report of the independent certified public accountant as described in Section 3A.

M. "SOX Compliant Entity" means an entity that either is required to be compliant with, or voluntarily is compliant with, all of the following provisions of the Sarbanes- Oxley Act of 2002:

(i) the preapproval requirements of Section 201 ( Section 10A(i) of the Securities Exchange Act of 1934);

(ii) the Audit committee independence requirements of Section 301 ( Section 10A(m)(3) of the Securities Exchange Act of 1934); and

(iii) the Internal control over financial reporting requirements of Section 404 (Item 308 of SEC Regulation S-K).

Section 4 General Requirements Related to Filing and Extensions for Filing of Annual Audited Financial Reports and Audit Committee Appointment

A. All RRGs shall have an annual audit by an independent certified public accountant and shall file an audited financial report with the commissioner on or before June 30 for the year ended December 31 immediately preceding. The commissioner may require an RRG to file an audited financial report earlier than June 30 with ninety (90) days advance notice to the RRG.

B. Extensions of the June 30 filing date may be granted by the commissioner for thirty day periods upon a showing by the RRG and its independent certified public accountant of the reasons for requesting an extension and determination by the commissioner of good cause for an extension. The request for extension must be submitted in writing not less than ten (10) days prior to the due date in sufficient detail to permit the commissioner to make an informed decision with respect to the requested extension.

C. If an extension is granted in accordance with the provisions in Section 4B, a similar extension of thirty (30) days is granted to the filing of Management's Report of Internal Control over Financial Reporting.

D. Every RRG required to file an annual audited financial report pursuant to this regulation shall designate a group of individuals as constituting its audit committee, as defined in Section 3. The audit committee of an entity that controls an RRG may be deemed to be the RRG's audit committee for purposes of this regulation at the election of the controlling person.

Section 5 Contents of Annual Audited Financial Report

The annual audited financial report shall report the financial position of the RRG as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with accounting practices generally accepted in the United States and including any practices prescribed, or otherwise permitted, by the Department.

The annual audited financial report shall include the following:

A. Report of independent certified public accountant.

B. Balance sheet reporting admitted assets, liabilities, capital and surplus.

C. Statement of operations.

D. Statement of cash flow.

E. Statement of changes in capital and surplus.

F. Notes to financial statements. These notes shall be those required by generally accepted accounting principles. The notes shall include a reconciliation of differences, if any, between the audited financial statements and the annual statement filed pursuant to 8 V.S.A.§ 3561 with a written description of the nature of these differences.

If the use of Statutory Accounting Principles, or any other comprehensive basis of accounting is permitted, the notes shall be those required by said basis of accounting.

Regardless of the basis of accounting used in the audited financial statements, the notes shall include a reconciliation of differences, if any, between the audited financial statements and statements prepared in accordance with the NAIC Accounting Practices and Procedures Manual, with a written description of the nature of these differences.

G. The financial statements included in the Audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the RRG filed with the commissioner, and the financial statement shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. (However, in the first year in which an RRG is required to file an Audited financial report, the comparative data may be omitted).

Section 6 Designation of Independent Certified Public Accountant

A. Each RRG required by this regulation to file an annual audited financial report must within sixty (60) days after becoming subject to the requirement, register with the commissioner in writing the name and address of the independent certified public accountant or accounting firm retained to conduct the annual audit set forth in this regulation. RRGs not retaining an independent certified public accountant on the effective date of this regulation shall register the name and address of their retained independent certified public accountant not less than six (6) months before the date when the first audited financial report is to be filed.

B. The RRG shall obtain a letter from the accountant, and file a copy with the commissioner stating that the accountant is aware of the provisions of the insurance code and the regulations of the insurance department of the state of Vermont that relate to accounting and financial matters and affirming that the accountant will express his or her opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by that insurance department, specifying such exceptions as he or she may believe appropriate.

C. If an accountant who was the accountant for the immediately preceding filed audited financial report is dismissed or resigns, the RRG shall within five (5) business days notify the commissioner of this event. The RRG shall also furnish the commissioner with a separate letter within ten (10) business days of the above notification stating whether in the twenty-four (24) months preceding such event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure; which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him or her to make reference to the subject matter of the disagreement in connection with his or her opinion. The disagreements required to be reported in response to this section include both those resolved to the former accountant's satisfaction and those not resolved to the former accountant's satisfaction. Disagreements contemplated by this section are those that occur at the decision-making level, i.e., between personnel of the RRG responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering its report. The RRG shall also in writing request the former accountant to furnish a letter addressed to the RRG stating whether the accountant agrees with the statements contained in the RRG's letter and, if not, stating the reasons for which he or she does not agree; and the RRG shall furnish the responsive letter from the former accountant to the commissioner together with its own.

Section 7 Qualifications of Independent Certified Public Accountant

A. The commissioner shall not recognize a person or firm as a qualified independent certified public accountant if the person or firm:

(1) is not in good standing with the AICPA and in all states in which the accountant is licensed to practice.

(2) Has either directly or indirectly entered into an agreement of indemnity or release from liability (collectively referred to as indemnification) with respect to the audit of the RRG.

B. Except as otherwise provided in this regulation, the commissioner shall recognize an independent certified public accountant as qualified as long as he or she conforms to the standards of his or her profession, as contained in the Code of Professional Ethics of the AICPA and Rules and Regulations and Code of Ethics and Rules of Professional Conduct of the Vermont Board of Public Accountancy, or similar code.

C. A qualified independent certified public accountant may enter into an agreement with an RRG to have disputes relating to an audit resolved by mediation or arbitration. However, in the event of a delinquency proceeding commenced against the RRG under Ch.145 of Title 8, Vermont Statutes Annotated, the mediation or arbitration provisions shall operate at the option of the statutory successor.

D.

(1) The lead (or coordinating) audit partner (having primary responsibility for the audit) may not act in that capacity for more than five (5) consecutive years. The person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of five (5) consecutive years. An RRG may make application to the commissioner for relief from the above rotation requirement on the basis of unusual circumstances. This application should be made at least thirty (30) days before the end of the calendar year. The commissioner may consider the following factors in determining if the relief should be granted:

(a) Number of partners, expertise of the partners or the number of insurance clients in the currently registered firm;

(b) Premium volume of the RRG; or

(c) Number of jurisdictions in which the RRG transacts business.

(2) The RRG shall file, with its annual statement filing, the approval for relief from Subsection D(1) with the states that it is doing business in and with the NAIC. If the nondomestic state accepts electronic filing with the NAIC, the RRG shall file the approval in an electronic format acceptable to the NAIC.

E. The commissioner shall neither recognize as a qualified independent certified public accountant, nor accept an annual audited financial report, prepared in whole or in part by, a natural person who:

(1) Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961 to 1968, or any dishonest conduct or practices under federal or state law;

(2) Has been found to have violated the insurance laws of this state with respect to any previous reports submitted under this regulation; or

(3) Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this regulation.

F. The commissioner, after notice and hearing, may find that an independent certified public accountant is not qualified for purposes of expressing his or her opinion on the financial statements in the annual audited financial report made pursuant to this regulation and require the RRG to replace the accountant with another whose relationship with the RRG is qualified within the meaning of this regulation. Any hearing held shall be governed by the provisions of Ch. 25 of Title 3, Vermont Statutes Annotated, applicable to contested cases.

G.

(1) The commissioner shall not recognize as a qualified independent certified public accountant, nor accept an annual audited financial report, prepared in whole or in part by an accountant who provides to an RRG, contemporaneously with the audit, the following non-audit services:

(a) Bookkeeping or other services related to the accounting records or financial statements of the RRG;

(b) Financial information systems design and implementation;

(c) Appraisal or valuation services, fairness opinions, or contribution-in-kind reports;

(d) Actuarially-oriented advisory services involving the determination of amounts recorded in the financial statements. The accountant may assist an RRG in understanding the methods, assumptions and inputs used in the determination of amounts recorded in the financial statement only if it is reasonable to conclude that the services provided will not be subject to audit procedures during an audit of the RRG's financial statements. An accountant's actuary may also issue an actuarial opinion or certification ("opinion") on an RRG's reserves if the following conditions have been met:

(i) Neither the accountant nor the accountant's actuary has performed any management functions or made any management decisions;

(ii) The RRG has competent personnel (or engages a third party actuary) to estimate the reserves for which management takes responsibility; and

(iii) The accountant's actuary tests the reasonableness of the reserves after the RRG's management has determined the amount of the reserves;

(e) Internal audit outsourcing services;

(f) Management functions or human resources;

(g) Broker or dealer, investment adviser, or investment banking services;

(h) Legal services or expert services unrelated to the audit; or

(i) Any other services that the commissioner determines, by regulation, are impermissible.

(2) In general, the principles of independence with respect to services provided by the qualified independent certified public accountant are largely predicated on three basic principles, violations of which would impair the accountant's independence. The principles are that the accountant cannot function in the role of management, cannot audit his or her own work, and cannot serve in an advocacy role for the RRG.

H. RRGs having direct written and assumed premiums of less than $ 100,000,000 in any calendar year may request an exemption from Subsection G(1). The RRG shall file with the commissioner a written statement discussing the reasons why the RRG should be exempt from these provisions. If the commissioner finds, upon review of this statement, that compliance with this regulation would constitute a financial or organizational hardship upon the RRG, an exemption may be granted.

I. A qualified independent certified public accountant who performs the audit may engage in other non-audit services, including tax services, that are not described in Subsection G(1) or that do not conflict with Subsection G(2), only if the activity is approved in advance by the Audit committee, in accordance with Subsection J.

J. All auditing services and non-audit services provided to an RRG by the qualified independent certified public accountant of the RRG shall be preapproved by the Audit committee. The preapproval requirement is waived with respect to non-audit services if the RRG is a SOX Compliant Entity or a direct or indirect wholly-owned subsidiary of a SOX Compliant Entity or:

(1) The aggregate amount of all such non-audit services provided to the RRG constitutes not more than five percent (5%) of the total amount of fees paid by the RRG to its qualified independent certified public accountant during the fiscal year in which the non-audit services are provided;

(2) The services were not recognized by the RRG at the time of the engagement to be non-audit services; and (3) The services are promptly brought to the attention of the audit committee and approved prior to the completion of the audit by the audit committee or by one or more members of the audit committee who are the members of the board of directors to whom authority to grant such approvals has been delegated by the audit committee.

K. The audit committee may delegate to one or more designated members of the audit committee the authority to grant the preapprovals required by Subsection J. The decisions of any member to whom this authority is delegated shall be presented to the full audit committee at each of its scheduled meetings.

L.

(1) The commissioner shall not recognize an independent certified public accountant as qualified for a particular RRG if a member of the board, president, chief executive officer, controller, chief financial officer, chief accounting officer, or any person serving in an equivalent position for that RRG, was employed by the independent certified public accountant and participated in the audit of that RRG during the one-year period preceding the date that the most current statutory opinion is due. This section shall only apply to partners and senior managers involved in the audit. An RRG may make application to the commissioner for relief from the above requirement on the basis of unusual circumstances.

(2) The RRG shall file, with its annual statement filing, the approval for relief from Subsection L(1) with the states that it is doing business in and the NAIC. If the nondomestic state accepts electronic filing with the NAIC, the RRG shall file the approval in an electronic format acceptable to the NAIC.

Section 8 Consolidated or Combined Audits

The Commissioner may permit any RRG to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the RRG is part of a group of insurance companies which utilizes a pooling or 100 percent reinsurance agreement that affects the solvency and integrity of the RRG's reserves and the RRG cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or combining worksheet shall be filed with the report, as follows:

A. Amounts shown on the consolidated or combined Audited financial report shall be shown on the worksheet;

B. Amounts for each RRG subject to this section shall be stated separately;

C. Noninsurance operations may be shown on the worksheet on a combined or individual basis;

D. Explanations of consolidating and eliminating entries shall be included; and

E. A reconciliation shall be included of any differences between the amounts shown in the individual RRG columns of the worksheet and comparable amounts shown on the annual statements of the RRGs.

Section 9 Scope of Audit and Report of Independent Certified Public Accountant

Financial statements furnished pursuant to Section 5 shall be examined by the independent certified public accountant. The audit of the RRG's financial statements shall be conducted in accordance with generally accepted auditing standards. In accordance with AU Section 319 of the Professional Standards of the AICPA, Consideration of Internal Control in a Financial Statement Audit, the independent certified public accountant should obtain an understanding of internal control sufficient to plan the audit. To the extent required by AU 319, for those RRGs required to file a Management's Report of Internal Control over Financial Reporting pursuant to Section 16, the independent certified public accountant should consider (as that term is defined in Statement on Auditing Standards (SAS) No. 102, Defining Professional Requirements in Statements on Auditing Standards or its replacement) the most recently available report in planning and performing the audit of the statutory financial statements. Consideration shall be given to the procedures illustrated in the Financial Condition Examiners Handbook promulgated by the National Association of Insurance Commissioners as the independent certified public accountant deems necessary.

Section 10 Notification of Adverse Financial Condition

A. The RRG required to furnish the annual Audited financial report shall require the independent certified public accountant to report, in writing, within five (5) business days to the board of directors or its audit committee any determination by the independent certified public accountant that the RRG has materially misstated its financial condition as reported to the commissioner as of the balance sheet date currently under audit or that the RRG does not meet Vermont's minimum capital and surplus requirement as of that date. An RRG that has received a report pursuant to this paragraph shall forward a copy of the report to the commissioner within five (5) business days of receipt of the report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the commissioner. If the independent certified public accountant fails to receive the evidence within the required five (5) business day period, the independent certified public accountant shall furnish to the commissioner a copy of its report within the next five (5) business days.

B. No independent certified public accountant shall be liable in any manner to any person for any statement made in connection with the above paragraph if the statement is made in good faith in compliance with Subsection A.

C. If the accountant, subsequent to the date of the Audited financial report filed pursuant to this regulation, becomes aware of facts that might have affected his or her report, the commissioner notes the obligation of the accountant to take such action as prescribed in Volume 1, Section AU 561 of the Professional Standards of the AICPA.

Section 11 Communication of Internal Control Related Matters Noted in an Audit

A. In addition to the annual audited financial report, each RRG shall furnish the commissioner with a written communication as to any unremediated material weaknesses in its internal control over financial reporting noted during the audit. Such communication shall be prepared by the accountant within sixty (60) days after the filing of the annual audited financial report, and shall contain a description of any unremediated material weakness (as the term material weakness is defied by Statement on Auditing Standard 60, Communication of Internal Control Related Matters Noted in an Audit, or its replacement) as of December 31 immediately preceding (so as to coincide with the audited financial report discussed in Section 4(A) ) in the RRG's internal control over financial reporting noted by the accountant during the course of their audit of the financial statements. If no unremediated material weaknesses were noted, the communication should so state.

B. The RRG is required to provide a description of remedial actions taken or proposed to correct unremediated material weaknesses, if the actions are not described in the accountant's communication.

Section 12 Accountant's Letter of Qualifications

The accountant shall furnish the RRG in connection with, and for inclusion in, the filing of the annual audited financial report, a letter stating:

A. That the accountant is independent with respect to the RRG and conforms to the standards of his or her profession as contained in the Code of Professional Ethics and pronouncements of the AICPA and the Rules of Professional Conduct of the Vermont Board of Public Accountancy, or similar code;

B. The background and experience in general, and the experience in audits of RRGs of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this regulation shall be construed as prohibiting the accountant from utilizing such staff as he or she deems appropriate where use is consistent with the standards prescribed by generally accepted auditing standards;

C. That the accountant understands the annual audited financial report and his opinion thereon will be filed in compliance with this regulation and that the commissioner will be relying on this information in the monitoring and regulation of the financial position of RRGs;

D. That the accountant consents to the requirements of Section 13 of this regulation and that the accountant consents and agrees to make available for review by the commissioner, or the commissioner's designee or appointed agent, the workpapers, as defined in Section 13;

E. A representation that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the AICPA; and

F. A representation that the accountant is in compliance with the requirements of Section 7 of this regulation.

Section 13 Definition, Availability and Maintenance of Independent Certified Public Accountants Workpapers

A. Workpapers are the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to the accountant's audit of the financial statements of an RRG. Workpapers, accordingly, may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of his or her audit of the financial statements of an RRG and which support the accountant's opinion.

B. Every RRG required to file an audited financial report pursuant to this regulation, shall require the accountant to make available for review by insurance department examiners, all workpapers prepared in the conduct of the accountant's audit and any communications related to the audit between the accountant and the RRG, at the offices of the RRG, at the insurance department or at any other reasonable place designated by the commissioner.

The RRG shall require that the accountant retain the audit workpapers and communications until the insurance department has filed a report on examination covering the period of the audit but no longer than seven (7) years from the date of the audit report.

C. In the conduct of the aforementioned periodic review by the insurance department examiners, it shall be agreed that photocopies of pertinent audit workpapers may be made and retained by the department. Such reviews by the department examiners shall be considered investigations and all working papers and communications obtained during the course of such investigations shall be afforded the same confidentiality as other examination workpapers generated by the department.

Section 14 Requirements for Audit Committees

This section shall not apply to an RRG that is a SOX Compliant E ntity or a direct or indirect wholly-owned subsidiary of a SOX Compliant Entity.

A. The audit committee shall be directly responsible for the appointment, compensation and oversight of the work of any accountant (including resolution of disagreements between management and the accountant regarding financial reporting) for the purpose of preparing or issuing the audited financial report or related work pursuant to this regulation. Each accountant shall report directly to the audit committee.

B. Each member of the audit committee shall be a member of the board of directors of the RRG or a member of the board of directors of an entity elected pursuant to Subsection E and Section 3C.

C. In order to be considered independent for purposes of this section, a member of the audit committee may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee, accept any consulting, advisory or other compensatory fee from the entity during any 12- month period in an amount exceeding (A) 5 percent of the gross written premiums of such RRG for such 12- month period; or (B) 2 percent of the surplus of such RRG as measured at the end of any fiscal quarter falling within such 12-month period, or be an affiliated person of the entity or any subsidiary thereof. However, if law requires board participation by otherwise non-independent members, that law shall prevail and such members may participate in the audit committee and be designated as independent for audit committee purposes, unless they are an officer or employee of the RRG or one of its affiliates.

D. If a member of the audit committee ceases to be independent for reasons outside the member's reasonable control, that person, with notice by the responsible entity to the state, may remain an audit committee member of the responsible entity until the earlier of the next annual meeting of the responsible entity or one year from the occurrence of the event that caused the member to be no longer independent.

E. To exercise the election of the controlling person to designate the audit committee for purposes of this regulation, the ultimate controlling person shall provide written notice to the commissioners of the affected RRGs. Notification shall be made timely prior to the issuance of the statutory audit report and include a description of the basis for the election. The election can be changed through notice to the commissioner by the RRG, which shall include a description of the basis for the change. The election shall remain in effect for perpetuity, until rescinded.

F.

(1) The audit committee shall require the accountant that performs for an RRG any audit required by this regulation to timely report to the audit committee in accordance with the requirements of SAS 61, Communication with Audit Committees, or its replacement, including:

(a) All significant accounting policies and material permitted practices;

(b) All material alternative treatments of financial information within statutory accounting principles that have been discussed with management officials of the RRG, ramifications of the use of the alternative disclosures and treatments, and the treatment preferred by the accountant; and

(c) Other material written communications between the accountant and the management of the RRG, such as any management letter or schedule of unadjusted differences.

(2) If an RRG is a member of an insurance holding company system, the reports required by Subsection F(1) may be provided to the audit committee on an aggregate basis for RRGs in the holding company system, provided that any substantial differences among RRGs in the system are identified to the audit committee.

G. The proportion of independent audit committee members shall meet or exceed the following criteria:

Prior Calendar Year Direct Written and Assumed Premiums

| $ 0 - 300,000,000 | Over $ 300,000,000 - $ 500,000,000 | Over $ 500,000,000 | | --- | --- | --- | | No minimum requirements. See also Note A and B. | Majority (50% or more) of members shall be independent. See also Note A and B. | Supermajority of members (75% or more) shall be independent. See also Note A. |

Note A: The commissioner has authority afforded by state law to require the entity's board to enact improvements to the independence of the audit committee membership if the RRG is in a RBC action level event, meets one or more of the standards of an RRG deemed to be in hazardous financial condition, or otherwise exhibits qualities of a troubled RRG.

Note B: All RRGs with less than $ 500,000,000 in prior year direct written and assumed premiums are encouraged to structure their audit committees with at least a supermajority of independent audit committee members.

Note C: Prior calendar year direct written and assumed premiums shall be the combined total of direct premiums and assumed premiums from non-affiliates for the reporting entities.

H. An RRG with direct written and assumed premium less than $ 500,000,000 may make application to the commissioner for a waiver from the Section 14 requirements based upon hardship. The RRG shall file, with its annual statement filing, the approval for relief from Section 14 with the states that it is doing business in and the NAIC. If the nondomestic state accepts electronic filing with the NAIC, the RRG shall file the approval in an electronic format acceptable to the NAIC.

Section 15 Conduct of RRG in Connection with the Preparation of Required Reports and Documents

A. No director or officer of an RRG shall, directly or indirectly:

(1) Make or cause to be made a materially false or misleading statement to an accountant in connection with any audit, review or communication required under this regulation; or

(2) Omit to state, or cause another person to omit to state, any material fact necessary in order to make statements made, in light of the circumstances under which the statements were made, not misleading to an accountant in connection with any audit, review or communication required under this regulation.

B. No officer or director of an RRG, or any other person acting under the direction thereof, shall directly or indirectly take any action to coerce, manipulate, mislead or fraudulently influence any accountant engaged in the performance of an audit pursuant to this regulation if that person knew or should have known that the action, if successful, could result in rendering the RRG's financial statements materially misleading.

C. For purposes of Subsection B of this section, actions that, "if successful, could result in rendering the RRG's financial statements materially misleading" include, but are not limited to, actions taken at any time with respect to the professional engagement period to coerce, manipulate, mislead or fraudulently influence an accountant:

(1) To issue or reissue a report on an RRG's financial statements that is not warranted in the circumstances (due to material violations of statutory accounting principles prescribed by the commissioner, generally accepted auditing standards, or other professional or regulatory standards);

(2) Not to perform audit, review or other procedures required by generally accepted auditing standards or other professional standards;

(3) Not to withdraw an issued report; or

(4) Not to communicate matters to an RRG's Audit committee.

Section 16 Management's Report of Internal Control over Financial Reporting

A. Every RRG required to file an audited financial report pursuant to this regulation that has annual direct written and assumed premiums of $ 500,000,000 or more shall prepare a report of the RRG's or Group of Insurers' Internal control over financial reporting, as these terms are defined in Section 3. The report shall be filed with the commissioner along with the Communication of Internal Control Related Matters Noted in an A udit described under Section 11. Management's Report of Internal Control over Financial Reporting shall be as of D ecember 31 immediately preceding.

B. Notwithstanding the premium threshold in Subsection A, the commissioner may require an RRG to file Management's Report of Internal Control over Financial Reporting if the RRG is in any RBC level event, or meets any one or more of the standards of an RRG deemed to be in hazardous financial condition as defined in 8 V.S.A. Chapter 145.

C. An RRG or a Group of Insurers that is

(1) directly subject to Section 404;

(2) part of a holding company system whose parent is directly subject to Section 404;

(3) not directly subject to Section 404 but is a SOX Compliant Entity; or

(4) a member of a holding company system whose parent is not directly subject to Section 404 but is a SOX Compliant Entity; may file its or its parent's Section 404 Report and an addendum in satisfaction of this Section 16 requirement provided that those internal controls of the RRG or Group of Insurers having a material impact on the preparation of the RRG's or Group of Insurers' audited statutory financial statements (those items included in Section 5B through 5G of this regulation) were included in the scope of the Section 404 Report. The addendum shall be a positive statement by management that there are no material processes with respect to the preparation of the RRG's or Group of Insurers' audited statutory financial statements (those items included in Section 5B through 5G of this regulation) excluded from the Section 404 Report. If there are internal controls of the RRG or Group of Insurers that have a material impact on the preparation of the RRG's or Group of Insurers audited statutory financial statements and those internal controls were not included in the scope of the Section 404 Report, the RRG or Group of Insurers may either file (i) a Section 16 report, or (ii) the Section 404 Report and a Section 16 report for those internal controls that have a material impact on the preparation of the RRG's or Group of Insurers audited statutory financial statements not covered by the Section 404 Report.

D. Management's Report of Internal Control over Financial Reporting shall include:

(1) A statement that management is responsible for establishing and maintaining adequate Internal control over financial reporting;

(2) A statement that management has established Internal control over financial reporting and an assertion, to the best of management's knowledge and belief, after diligent inquiry, as to whether its Internal control over financial reporting is effective to provide reasonable assurance regarding the reliability of financial statements in accordance with statutory accounting principles;

(3) A statement that briefly describes the approach or processes by which management evaluated the effectiveness of its Internal control over financial reporting; and

(4) A statement that briefly describes the scope of work that is included and whether any internal controls were excluded;

(5) Disclosure of any unremediated material weaknesses in the Internal control over financial reporting identified by management as of December 31 immediately preceding. Management is not permitted to conclude that the Internal control over financial reporting is effective to provide reasonable assurance regarding the reliability of financial statements in accordance with statutory accounting principles if there is one or more unremediated material weaknesses in its Internal control over financial reporting;

(6) A statement regarding the inherent limitations of internal control systems; and

(7) Signatures of the chief executive officer and the chief financial officer (or equivalent position/title).

E. Management shall document and make available upon financial condition examination the basis upon which its assertions, required in Subsection D above, are made. Management may base its assertions, in part, upon its review, monitoring and testing of internal controls undertaken in the normal course of its activities.

(1) Management shall have discretion as to the nature of the internal control framework used, and the nature and extent of documentation, in order to make its assertion in a cost effective manner and, as such, may include assembly of or reference to existing documentation.

(2) Management's Report on Internal Control over Financial Reporting, required by Subsection A above, and any documentation provided in support thereof during the course of a financial condition examination, shall be kept confidential by the state insurance department.

Section 17 Exemptions and Deadlines

A. Upon written application of any RRG, the commissioner may grant an exemption from compliance with any and all provisions of this regulation if the commissioner finds, upon review of the application, that compliance with this regulation would constitute a financial or organizational hardship upon the RRG. An exemption may be granted at any time and from time to time for a specified period or periods.

B. RRGs shall comply with this regulation for the year ending December 31, 2012 and each year thereafter unless the commissioner permits otherwise.

C. The requirements of Section 7D shall be in effect for audits of the year beginning January 1, 2011 and thereafter.

D. The requirements of Section 14 are to be in effect January 3, 2012. An RRG or group of Insurers that is not required to have independent Audit committee members or only a majority of independent audit committee members (as opposed to a supermajority) because the total written and assumed premium is below the threshold and subsequently becomes subject to one of the independence requirements due to changes in premium shall have one (1) year following the year the threshold is exceeded to comply with the independence requirements. Likewise, an RRG that becomes subject to one of the independence requirements as a result of a business combination shall have one (1) calendar year following the date of acquisition or combination to comply with the independence requirements.

F. The requirements of Section 16, except for Section 14 covered above, are effective beginning with the reporting period ending December 31, 2012 and each year thereafter. An RRG or group of Insurers that is not required to file a report because the total written premium is below the threshold and subsequently becomes subject to the reporting requirements shall have two (2) years following the year the threshold is exceeded to file a report. Likewise, an RRG acquired in a business combination shall have two (2) calendar years following the date of acquisition or combination to comply with the reporting requirements.

Section 18 Severability Provision

If any section or portion of a section of this regulation or its applicability to any person or circumstance is held invalid by a court, the remainder of the regulation or the applicability of the provision to other persons or circumstances shall not be affected.

History

• STATUTORY AUTHORITY: 8 V.S.A. §§ 15, 3578a, 6015
• EFFECTIVE DATE: August 1, 2012 Secretary of State Rule Log #12-027

Chapter 064 HOLDING COMPANY SYSTEM REGULATIONS FOR RISK RETENTION GROUPS CHARTERED IN VERMONT (C-2012-2)

21-064 Code Vt. R. 21-020-064-X HOLDING COMPANY SYSTEM REGULATIONS FOR RISK RETENTION GROUPS CHARTERED IN VERMONT (C-2012-2)

Section 1 Authority

This regulation is promulgated under the authority granted to the commissioner by Title 8 V.S.A. §15, Title 8 V.S.A. § 6015, and Title 8 V.S.A.§ 6052(e), to implement the provisions of the Vermont Insurance Holding Companies Act, Title 8 V.S.A. Chapter 101, Subchapter 13, §§ 3681 et. seq. (the "Holding Companies and Subsidiaries Act" or "Act"), with respect to risk retention groups chartered in Vermont.

Section 2 Scope and Purpose of Regulation

(a) The purpose of this regulation is to set forth rules and procedural requirements which the commissioner deems necessary to carry out the provisions of 8 V.S.A. chapter 101, Subchapter 13, which relates to holding companies and subsidiaries with respect to risk retention groups chartered in this state.

(b) This regulation applies to risk retention groups chartered in this State unless specifically exempted under subsection (c) set forth below or as otherwise provided in the Act. Except as specifically incorporated by reference into this regulation, risk retention groups are not subject to Regulation 71-2, or to any successor regulation or order, which are in effect as of the effective date of this regulation. Any exemption provided in this regulation shall not be construed to exempt, limit, or modify a risk retention group's obligations to comply with the provisions of 8 V.S.A. Chapters 141 and 142 and any regulation or order of the commissioner applicable to risk retention groups, and this regulation shall not be construed to limit or modify the commissioner's powers to enforce such provisions with respect to any risk retention group.

(c) The commissioner may exempt:

(1) Any risk retention group or class of risk retention groups from any provision of this regulation, when the commissioner deems the exemption consistent with the purposes of this regulation; or

(2) Upon request of the person required to supply information or perform an act, that person from any provision of this regulation when the commissioner deems the exemption consistent with the purposes of this regulation; or

(3) Any risk retention group not otherwise exempt or excepted from the requirements of 8 V. S.A. § 3684 pursuant to a written request by such risk retention group to the commissioner, setting forth its reasons for requesting exemption. Any such exemption given by the commissioner may, at a later date, be withdrawn by the commissioner by giving written notice to the risk retention group, provided the risk retention group is not otherwise exempt under the law.

(d) The purposes of this regulation include:

(1) Exercising surveillance over the acquisition of a risk retention group, to ensure that in the process of making it part of an insurance holding company system, the interests of policyholders, shareholders, and the public are not subject to undue risk; and

(2) Providing the regulatory monitoring of those intercorporate relationships and transactions among affiliates within an insurance holding company system that may affect the solvency of risk retention groups.

Section 3 Severability Clause

If any provision of these regulations, or the application thereof to any person or circumstance, is held invalid, such invalidity shall not affect other provisions or applications of these regulations which can be given effect without the invalid provision or application, and to that end the provisions of these regulations are severable.

Section 4 Forms General Requirements

Any reference in this regulation to "Form A," "Form B," "Form C," "Form D," or "Form F" shall mean such forms as described in Regulation 71-2 and as promulgated by the Department.

(a) Forms A, B, C, D, and F are intended to be guides in the preparation of the statements required by 8 V.S.A. Chapter 101, Subchapter 13. They are not intended to be blank forms which are to be filled in. The statements filed shall contain the numbers and captions of all items, but the text of the items may be omitted provided the answers thereto are prepared in such a manner as to indicate clearly the scope and coverage of the items. All instructions, whether appearing under the items of the form or elsewhere therein, are to be omitted. Unless expressly provided otherwise, if any item is inapplicable or the answer thereto is in the negative, an appropriate statement to that effect shall be made.

(b) One copy of each statement, including exhibits and all other papers and documents filed as a part thereof, shall be filed with the commissioner by personal delivery or mail addressed to: Captive Insurance Division of the State of Vermont, Department of Financial Regulation, 89 Main Street, Montpelier, VT 05620-3101, or as a single unsecured Adobe PDF file sent via email to CaptiveMail@state.vt.us. A copy of Form C shall be filed in each state in which a risk retention group has registered to do business, if the Commissioner of that state has notified the risk retention group of its request in writing, in which case the risk retention group has 30 days from receipt of the notice to file such form. The statement shall be signed in the manner prescribed on the form. If the signature of any person is affixed pursuant to a power of attorney or other similar authority, a copy of the power of attorney or other authority shall also be filed with the statement.

(c) Statements should be prepared on paper 8-1/2" x 11" or 8-1/2" x 14" in size and preferably bound at the top or the top left-hand corner. Exhibits and financial statements, unless specifically prepared for the filing, may be submitted in their original size. All copies of any statement, financial statements or exhibits shall be clear, easily readable and suitable for photocopying. Debits in credit categories and credits in debit categories shall be designated so as to be clearly distinguishable as such on photocopies. Statements shall be in the English language and monetary values shall be stated in United States currency. If any exhibit or other paper or document filed with the statement is in a foreign language, it shall be accompanied by a translation into the English language and any monetary value shown in a foreign currency shall be converted into United States currency.

Section 5 Forms Incorporation by Reference, Summaries and Omissions

(a) Information required by any item of Form A, Form B, Form D, or Form F may be incorporated by reference in answer or partial answer to any other item. Information contained in any financial statement, annual report, proxy statement, or any other document may be incorporated by reference in answer or partial answer to any item of Form A, Form B Form D, or Form F provided such information substantially satisfies the requirements of Form A, Form B, Form D, or Form F, and provided such document or paper is filed as an exhibit to the statement. Excerpts of documents may be filed as exhibits if the documents are extensive. Documents currently on file with the commissioner which were filed within three (3) years need not be attached as exhibits. References to information contained in exhibits or in documents already on file shall clearly identify the material and shall specifically indicate that such material is to be incorporated by reference in answer to the item. Matter shall not be incorporated by reference in any case where such incorporation would render the statement incomplete, unclear, or confusing.

(b) Where an item requires a summary or outline of the provisions of any document, only a brief statement shall be made as to the pertinent provisions of the document. In addition to the statement, the summary or outline may incorporate by reference particular parts of any exhibit or document currently on file with the commissioner which was filed within three (3) years and may be qualified in its entirety by such reference. In any case where two (2) or more documents required to be filed as exhibits are substantially identical in all material respects except as to the parties thereto, the dates of execution, or other details, a copy of only one of the documents need be filed with a schedule identifying the omitted documents and setting forth the material details in which such documents differ from the documents, a copy of which is filed. The commissioner may at any time in his or her discretion require the filing of copies of any omitted documents,

Section 6 Forms Information Unknown or Unavailable and Extension of Time to Furnish

If it is impractical to furnish any required information, document or report at the time it is required to be filed, there shall be filed with the Commissioner a separate document:

(a) Identifying the information, document, or report in question;

(b) Stating why the filing thereof at the time required is impractical; and

(c) Requesting an extension of time for filing the information, document, or report to a specified date.

Section 7 Forms Additional Information and Exhibits

In addition to the information expressly required to be included in Form A, Form B, Form C, Form D, and Form F, there shall be added such further material information, if any, as may be necessary to make the information contained therein not misleading. The person filing may also file such exhibits as it may desire in addition to those expressly required by the statement. Such exhibits shall be so marked as to indicate clearly the subject matters to which they refer. Changes to Forms A, B, C, D, or F shall include on the top of the cover page the phrase: Change No. [insert number] to and shall indicate the date of the change and not the date of the original filing.

Section 8 Definitions

As used in this regulation and for purposes of preparing any filing on Forms A, B, C D, or F,:

(a) All definitions set forth in 8 V.S.A. § 3681, as amended from time to time, are incorporated into this regulation, unless specifically defined otherwise in this regulation.

(b) "Association" has the meaning set forth in 15 U.S.C. § 3901(a)(4)(E)(ii).

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

(1) that is not in the corporate system of any member of the risk retention group or such member's affiliates;

(2) that has an existing contractual relationship with a member of the risk retention group or one of such member's affiliates; and

(3) whose risks are managed by a risk retention group in accordance with 8 V.S.A. § 6019.

(d) For purposes of the definition of "control" as set forth in 8 V.S.A. § 3681 (3):

(1) a risk retention group's authorized captive insurance management company, and any employee of such management company, shall not be deemed to have any control with respect to a risk retention group if such management company does not own any voting security in the risk retention group.

(2) if any person, acting alone, has the power (either directly or through control of an association that is the sole member/owner of the risk retention group) to elect or remove a majority or more of the members of a risk retention group's governing board, such person shall be deemed to have control with respect to the risk retention group.

(3) any person who owns less than 10% of the voting securities of a risk retention group shall not be deemed to have control of the risk retention group, unless such person otherwise has the power to direct or cause the direction of the management of the risk retention group other than by virtue of the person's position as a member of the governing board or as an officer of the risk retention group.

(4) if an association is the sole member/owner of a risk retention group, and no single person has control of the association, the association shall not be deemed to control the risk retention group.

(e) "Enterprise Risk" means any activity, circumstance, event or series of events involving one or more affiliates of a risk retention group that, if not remedied promptly, is likely to have a material adverse effect upon the financial condition or liquidity of the risk retention group or its insurance holding company system as a whole, including, but not limited to, anything that would cause the risk retention group's Risk-Based Capital to fall into company action level as set forth in 8 V.S.A. § 8301(12)(A) or would cause the risk retention group to be in hazardous financial condition (as set forth in Regulation 93-2).

(f) "Executive officer" means any individual charged with active management and control in an executive capacity, including a president, vice president, treasurer, secretary, controller, and any other individual performing for a person, whether incorporated or unincorporated, functions corresponding to those performed by the foregoing officers.

(g) "Foreign insurer" includes an alien insurer except where clearly noted otherwise.

(h) "Governing board" of a risk retention group means:

(1) in the case of a stock corporation or a mutual corporation, the board of directors;

(2) in the case of a manager-managed limited liability company, the individuals elected or appointed as managers; or

(3) in the case of a reciprocal risk retention group, the subscribers advisory committee.

(i) "Member" of a risk retention group means:

(1) in the case of a stock corporation, a shareholder of the corporation;

(2) in the case of a mutual corporation formed as a nonprofit corporation, a member of the corporation, and in the case of a mutual corporation formed as a mutual insurance company, a policyholder of the company;

(3) in the case of a limited liability company, a member of the company;

(4) in the case of a reciprocal insurer, a subscriber to the insurer; and

(5) in the case of a risk retention group owned by an association, each of the member/ owners of said association.

(j) "Voting securities" of a risk retention group means:

(1) in the case of a stock corporation, any stock or other security that includes the right to vote in the election of any member of the governing board, or to vote for the removal of any member of the governing board;

(2) in the case of a limited liability company, an ownership interest that includes the right to vote in the election of any member of the governing board, or to vote for the removal of any member of the governing board;

(3) in the case of a mutual corporation, as defined in 8 V.S.A. § 6001(12), an ownership interest that includes the right to vote in the election of any member of the governing board, or to vote for the removal of any member of the governing board;

(4) in the case of a reciprocal risk retention group, a subscriber interest that includes the right to vote in the election of a member of the governing board, or to vote for the removal of any member of the governing board.

The number of voting securities owned by a person shall be determined based on the number of votes that such person is entitled to cast in the election of each member of the risk retention group's governing board. The determination shall be made without regard to such person's rights to operating or liquidating distributions by the risk retention group. An individual who has the power to appoint or elect an officer of the risk retention group pursuant to his or her position as an officer of the risk retention group shall not be deemed to own voting securities of the risk retention group solely because of such office.

(k) "Ultimate controlling person" means that person within an insurance holding company system which is not controlled by any other person.

Section 9 Subsidiaries of Domestic Risk Retention Groups

The authority to invest in the types of subsidiaries set forth in 8 V.S.A. 3682(a) is in addition to any authority to invest in subsidiaries as set forth in 8 V.S.A. 3682(b) or as set forth in other provisions of the law applicable to insurance companies.

Section 10 Obtaining Commissioner's Approval to Invest in Subsidiaries

Any domestic insurance company which proposes to invest in any security of a subsidiary pursuant to 8 V.S.A. 3682(b)(4) shall request in writing the commissioner's approval to make such investment. Such request shall be made at least sixty (60) days prior to the date it is proposed that such investment be made and shall set forth complete facts concerning the proposed investment, which shall include, but not be limited to, complete financial information about the corporation, the securities of which are to be acquired and a pro forma balance sheet of the acquiring insurance company showing the effect of such investment. The commissioner may require such additional information as he or she may deem necessary to make a determination hereunder.

Section 11 Acquisition of Control Statement Filing

A person required to file a statement pursuant to 8 V.S.A. 3683, acquisition of control of, or merger with, domestic risk retention group, shall furnish the required information on Form A, hereby made a part of this regulation.

Section 12 Amendments to Form A

The applicant shall, within seven days after it learns of any change in the information so furnished, advise the commissioner of any such changes arising subsequent to the date upon which such information was furnished, but prior to the commissioner's disposition of the application.

Section 13 Registration of Risk Retention Groups Annual Statement Filing

Any risk retention group required to file a statement pursuant to 8 V.S.A. 3684, and not exempted from registration pursuant to the regulation or 8 V.S.A 3684(h), shall furnish the required information on Form B, hereby made a part of these regulations.

Section 14 Summary of Registration Statement Filing

Any risk retention group required to file an annual registration statement pursuant to 8 V.S.A. 3684 is also required to furnish information required on Form C.

Section 15 Amendments to Form B

(a) An amendment to Form B shall be filed within fifteen 15 days after the end of any month in which the following occurs:

(1) there is a change in the control of the registrant, in which case the entire Form B shall be made current;

(2) there is a material change in the information given in Item 5 or Item 6 of Form B in which case the respective item shall be made current.

(b) Amendments shall be filed in the Form B format with only those items which are being amended reported. Each such amendment shall include at the top of the cover page Amendment No. [insert number] to Form B for [insert year] and shall indicate the date of the change and not the date of the original filings.

Section 16 Alternative and Consolidated Registration

Any risk retention group may file a registration statement on behalf of any affiliated risk retention group or risk retention groups which are required to register under 8 V.S.A. 3684. A registration statement may include information regarding any risk retention group in the insurance holding company system even if such risk retention group is not registered in this State. In lieu of filing a registration statement on Form B, the risk retention group may file a copy of the registration statement or similar report which it is required to file in its State of domicile, provided the statement or report contains substantially similar information required to be furnished on Form B.

Section 17 Disclaimers and Termination of Registration

(a) A disclaimer of affiliation pursuant to 8 V.S.A. 3684(i) or a request for termination of registration pursuant to 8 V.S.A. 3684(e) claiming that a person does not, or shall not upon the taking of some proposed action, control another person (hereinafter referred to as the subject) shall contain the following information:

(1) the number of authorized, issued and outstanding voting securities of the subject;

(2) with respect to the person whose control is denied and all affiliates of such person, the number and percentage of shares of the subject's voting securities which are held of record or known to be beneficially owned, and the number of such shares concerning which there is a right to acquire, directly or indirectly;

(3) all material relationships and bases for affiliation between the subject and the person whose control is denied and all affiliates of such person; and

(4) a statement explaining why such person should not be considered to control the subject.

(b) A request for termination of registration shall be deemed to have been granted unless the commissioner, within ten (10) days after receiving the request, notifies the registrant otherwise.

(c) The Commissioner shall require any risk retention group chartered in this state, which has been granted a disclaimer of affiliation pursuant to 8 V.S.A. 3684(i), to file a copy of the disclaimer as a change in plan of operation with all other states in which the risk retention group is registered.

Section 18 Transactions Subject to Prior Notice

(a) Any risk retention group required to give notice of a proposed transaction pursuant to 8 V. S.A. 3685 shall furnish the required information on Form D, hereby made a part of these regulations. Notwithstanding the provisions of 8 V.S.A. 3685, no risk retention group domiciled in Vermont shall pay any dividend or make any distribution to its shareholders or policyholders without the prior written consent of the commissioner.

(b) From and after the effective date of this regulation, any new agreement, or renewal or amendment of an existing agreement, for cost sharing services and management services shall at a minimum and as applicable:

(1) Identify the person providing services and the nature of such services;

(2) Set forth the methods to allocate costs;

(3) Require timely settlement, not less frequently than on a quarterly basis, and compliance with the requirements in the NAIC Accounting Practices and Procedures Manual;

(4) Prohibit advancement of funds by the risk retention group to the affiliate except to pay for services defined in the agreement;

(5) State that the risk retention group will maintain oversight for functions provided to the risk retention group by the affiliate and that the risk retention group will monitor services annually for quality assurance;

(6) Define books and records of the risk retention group to include all books and records developed or maintained under or related to the agreement;

(7) Specify that all books and records of the risk retention group are and remain the property of the risk retention group and are subject to control of the risk retention group;

(8) State that all funds and invested assets of the risk retention group are the exclusive property of the risk retention group, held for the benefit of the risk retention group and are subject to the control of the risk retention group;

(9) Include standards for termination of the agreement with and without cause;

(10) Include provisions for indemnification of the risk retention group in the event of gross negligence or willful misconduct on the part of the affiliate providing the services;

(11) Specify that, if the risk retention group is placed in receivership or seized by the Commissioner under 8 V.S.A. chapter 145:

A. all of the rights of the risk retention group under the agreement extend to the receiver or Commissioner; and,

B. all books and records will immediately be made available to the receiver or the Commissioner, and shall be turned over to the receiver or Commissioner immediately upon the receiver or the Commissioner's request;

(12) Specify that the affiliate has no automatic right to terminate the agreement if the risk retention group is placed in receivership pursuant to 8 V.S.A. chapter 145; and

(13) Specify that the affiliate will continue to maintain any systems, programs, or other infrastructure notwithstanding a seizure by the Commissioner under 8 V.S.A. chapter 145, and will make them available to the receiver, for so long as the affiliate continues to receive timely payment for services rendered.

Section 19 Enterprise Risk Report

The ultimate controlling person of a risk retention group required to file an enterprise risk report pursuant to 8 V.S.A. § 3684(m) shall furnish the required information on Form F, hereby made a part of these regulations. The Commissioner shall require any risk retention group chartered in this state, which is a member of a holding company system, in cases in which this state is not the lead state, to furnish a copy of Form F filed by such risk retention group chartered in this state. The lead state commissioner of the insurance company holding system is as determined by the procedures within the Financial Analysis Handbook adopted by the National Association of Insurance Commissioners.

Section 20 Adequacy of Surplus

The factors set forth in 8 V.S.A. § 3685(b) are not intended to be an exhaustive list. In determining the adequacy and reasonableness of an insurer's surplus, no single factor is necessarily controlling. The Commissioner instead will consider the net effect of all of the factors specified in 8 V.S.A. § 3685(b), as well as other factors bearing on the financial condition of the insurer. In comparing the surplus maintained by other insurers, the Commissioner will consider the extent to which each of these factors varies from company to company and in determining the quality and liquidity of investments in subsidiaries, the Commissioner will consider the individual subsidiary and may discount or disallow its valuation to the extent that the individual investments so warrant.

History

• EFFECTIVE DATE:
• August 1, 2012 Secretary of State Rule Log #12-028
• AMENDED:
• June 1, 2017 Secretary of State Rule Log #17-028
• STATUTORY AUTHORITY: 8 V.S.A. 15, 8 V.S.A. 6015, 8 V.S.A. 6052(e).

Chapter 065 BUSINESS ENTITY LIMITED LINES PRODUCER LICENSE FOR PORTABLE ELECTRONICS INSURANCE (REGULATION I-2012-01)

21-065 Code Vt. R. 21-020-065-X BUSINESS ENTITY LIMITED LINES PRODUCER LICENSE FOR PORTABLE ELECTRONICS INSURANCE (REGULATION I-2012-01)

Section 1 Authority

This regulation is promulgated under the authority granted to the Commissioner by Title 8 V.S.A., §§ 15, 4261, 4813a(6) and 4813f(b).

Section 2 Purpose

The purpose of this regulation is to establish a business entity limited lines producer license for the sale of portable electronics insurance and to set forth requirements for the sale of portable electronics insurance by a vendor, its employees and authorized representatives as well as establishing standards for the adjusting of claims under a policy of portable electronics insurance by a supervising entity.

Section 3 Scope

This regulation governs the sale of portable electronics insurance by a vendor and its employees and authorized representatives.

Section 4 Definitions

As used in this regulation:

A. "Automated Claims Adjudication System" means a preprogrammed computer system designed for the collection, data entry, calculation and final resolution of portable electronics insurance claims which;

1. May only be utilized by a licensed adjuster, licensed insurance producer, or supervised individuals operating pursuant to this regulation;

Must comply with all claims payment requirements of Title 8 V.S.A.; and

3. Must be certified as compliant with this regulation by a licensed adjuster that is an officer of the entity which employs the individuals operating pursuant to section 10 of this regulation.

B. "Customer" means a person who purchases portable electronics or services;

C. "Enrolled Customer" means a customer who elects coverage under a portable electronics insurance policy issued to a vendor of portable electronics;

D. "Location" means any physical location in the State of Vermont or any website, call center site or similar location directed to residents of the State of Vermont;

E. "Portable Electronics" shall have the same meaning as given in Title 8 V.S.A.§ 4257(1);

F. "Portable Electronics Insurance" shall have the same meaning as given in Title 8 V.SA § 4257(2).

G. "Portable Electronics Insurance Producer" means any portable electronics vendor that is licensed to offer, sell or solicit portable electronics insurance pursuant to this regulation.

H. "Portable Electronics Transaction" means:

1. the sale or lease of portable electronics by a vendor to a customer; or

the sale of a service related to the use of portable electronics by a vendor to a customer.

I. "Supervising Entity" means a business entity that is a licensed insurer or insurance producer that is appointed by an insurer to supervise the administration of a portable electronics insurance program;

J. "Portable Electronics Vendor" shall have the same meaning as given in Title 8 V.S.A. § 4257(3).

Section 5 General Rules

A. No portable electronics vendor, and no officer, director, employee or authorized representative of a portable electronics vendor, shall offer, sell, or solicit the purchase of portable electronics insurance unless that portable electronics vendor is licensed in compliance with the requirements of this regulation.

B. The Commissioner shall issue to a portable electronics vendor that has complied with the requirements of this regulation, a business entity limited lines producer license that authorizes any employee or authorized representative of the portable electronics vendor to sell or offer coverage under a policy of portable electronics insurance to a customer at each location at which the portable electronics vendor engages in portable electronics transactions.

Section 6 Licensing

A. In order for a portable electronics vendor to obtain a business entity limited lines producer license for the sale of portable electronics insurance, it must:

1. Submit an application and fees for licensure as required under Title 8 V.S.A., Chapter 131. Such application must provide the name, residence address, and other information required by the Commissioner for an employee or officer of the portable electronics vendor that is designated by the applicant as the person responsible for the portable electronics vendor's compliance with the requirements of this Chapter;

2. Have designated a licensed producer who is a natural person and appointed by the insurer in subdivision 4 of this subsection, to be responsible for the business entity's compliance with the insurance laws and regulations of this state. The producer designated by a portable electronics vendor pursuant to this subsection shall not be required to be an officer, director, or employee of the portable electronics vendor;

3. Submit a certificate by an appointing insurer, stating that the insurer has satisfied itself that the named applicant is trustworthy and competent to act as its portable electronics insurance agent; that the insurer has reviewed the training requirements for conformity with the requirements set forth in section 7A.2. of this regulation, and that the insurer will appoint the applicant to act as its portable electronics insurance agent. An officer of the insurer shall execute the certification; and

4. Be appointed by an insurer to act as its agent.

B. Portable electronics vendors applying for licensure pursuant to this regulation shall be exempt from any written examination requirement under Title 8 V.S.A., Chapter 131.

Section 7 Portable Electronics insurance Producer Employees and Authorized Representatives

A. The employees and authorized representatives of portable electronics insurance producers may sell or offer portable electronics insurance to customers and shall not be subject to licensure as an insurance producer provided that:

1. The portable electronics insurance vendor obtains a limited lines license to authorize its employees or representatives to sell or offer portable electronics insurance pursuant to this section;

2. The insurer issuing the portable electronics insurance either directly supervises or appoints a supervising entity to supervise the administration of the program including development of a training program for employees and authorized representatives of the portable electronics insurance producer. The training required by this subdivision shall comply with the following:

(i) The training shall be delivered to employees and authorized representatives of a portable electronics insurance producer who are directly engaged in the activity of selling or offering portable electronics insurance;

(ii) The training may be provided in electronic form. However, if conducted in an electronic form the supervising entity shall implement a supplemental education program regarding the portable electronics insurance product that is conducted and overseen by licensed employees of the supervising entity;

(iii) Each employee and authorized representative shall receive basic instruction about the portable electronics insurance offered to customers, the disclosures required under section 8 of this regulation and ethical sales practices; and,

(iv) All training material used shall be made available to the Commissioner upon request.

Section 8 Requirements for the Sale of Portable Electronics Insurance

A. At every location where portable electronics insurance is offered to customers, brochures or other written materials must be made available to a prospective customer which:

1. Disclose that portable electronics insurance may provide a duplication of coverage already provided by a customer's homeowner's insurance policy, renter's insurance policy or other source of coverage;

2. State that the enrollment by the customer in a portable electronics insurance program is not required in order to purchase or lease portable electronics or services;

3. Summarize the material terms of the insurance coverage, including:

(i) The identity of the insurer;

(ii) The identity of the supervising entity;

(iii) The amount of any applicable deductible and how it is to be paid;

(iv) Benefits of the coverage; and

(v) Key terms and conditions of coverage such as whether portable electronics may be repaired or replaced with similar make and model reconditioned or non-original manufacturer parts or equipment.

4. Summarize the process for filing a claim, including a description of how to return portable electronics and the maximum fee applicable in the event the customer fails to comply with any equipment return requirements.

5. State that an enrolled customer may cancel enrollment for coverage under a portable electronics insurance policy at any time and the person paying the premium shall receive a refund or credit of any applicable unearned premium.

B. Eligibility and underwriting standards for customers electing to enroll in coverage shall be established for each portable electronics insurance program.

Section 9 Portable Electronics Insurance Producer Prohibitions

A portable electronics insurance producer shall not:

A. Offer, sell, or solicit the purchase of insurance except in conjunction with and incidental to portable electronics transactions;

B. Advertise, represent, or otherwise portray itself or any of its employees or representatives as non-limited lines licensed producers, unless so licensed;

C. Make any statement or engage in any conduct, express or implied, that would lead a consumer to believe:

1. That the insurance coverage offered by the portable electronics insurance producer does not provide a duplication of coverage already provided by a customer's personal homeowner's insurance policy, renter's insurance policy, or by another source of coverage;

2. That the purchase by the customer of portable electronics insurance is required in order to purchase or lease portable electronics from the portable electronics insurance producer; and

3. That the portable electronics insurance producer or the portable electronics insurance producer's employees or authorized representatives are qualified to evaluate the adequacy of the customer's existing insurance coverage.

Section 10 Portable Electronics Insurance Claims

A license as an adjuster shall not be required of an individual who collects claim information from, or furnishes claim information to, insureds or claimants, and who conducts data entry including entering data into an automated claims adjudication system, provided that no more than twenty five such persons are under the supervision of one licensed adjuster or licensed insurance producer. A licensed insurance producer who is functioning as a supervising entity pursuant to this regulation may also negotiate and resolve outstanding portable electronic insurance claims.

Section 11 Severability

If any provision of this regulation or its application to any person or circumstance is for any reason held to be invalid, the remainder of the Regulation and the application of the provision to other persons or circumstances shall not be affected.

Section 12 Effective Date

This regulation shall take effect on April 15, 2013.

History

• STATUTORY AUTHORITY: 8 V.S.A.§§ 4261, 4813a, 4813f
• EFFECTIVE DATE: April 15, 2013 Secretary of State Rule Log #13-009

Chapter 066 REGULATION I - 2013 - 01 GUIDELINES FOR DISTINGUISHING BETWEEN PRIMARY AND SPECIALTY MENTAL HEALTH AND SUBSTANCE ABUSE SERVICES

21-066 Code Vt. R. 21-020-066-X REGULATION I - 2013 - 01 GUIDELINES FOR DISTINGUISHING BETWEEN PRIMARY AND SPECIALTY MENTAL HEALTH AND SUBSTANCE ABUSE SERVICES

Section 1 Purpose

Under Vermont Law, a health plan shall apply member co-pays to mental health services and to medical services consistently in its health insurance policies/certificates. The member co-pay applicable to mental health and substance abuse services designated as "primary" when rendered by a mental health care provider shall be no greater than the member co-pay applicable to medical services rendered by a primary care provider. The member co-pay for "specialty" mental health and substance abuse services shall be no greater than the member co-pay applicable to specialty medical services and shall apply only to those mental health and substance abuse services not deemed "primary." The purpose of this regulation is to prescribe guidelines for distinguishing between "primary" and "specialty" mental health and substance abuse services.

Section 2 Authority

This rule is issued pursuant to the authority vested in the Commissioner of Financial Regulation ("Commissioner"), including but not limited to 8 V.S.A. § 15, 3 V.S.A. chapter 25, and Act 171 of 2012, Section 11e, which states: "No later than October 1, 2013, the commissioner of financial regulation shall adopt rules pursuant to 3 V.S.A. chapter 25 establishing the guidelines for distinguishing between primary and specialty mental health services developed pursuant to Section 11c of this act, taking into account any recommendations received from the committees of jurisdiction."

Section 3 Legislative Mandate

"A health insurance plan shall provide coverage for the treatment of a mental health condition and shall not establish any rate, term, or condition that places a greater burden on an insured for access to treatment for a mental health condition [n1] [] than for access to treatment for other health conditions, including no greater co-payment for primary mental health care or services than the co-payment applicable to care or services provided by a primary care provider under an insured's policy and no greater co-payment for specialty mental health care or services than the co-payment applicable to care or services provided by a specialist provider under an insured's policy[.]" 8 V.S.A. § 4089b(c)(1) (effective January 1, 2014).

[n1 The definition of "mental health condition" includes conditions or disorders involving alcohol or substance abuse. 8 V.S.A. § 4089b.]

Pursuant to Act 171 of 2012, Section 11c, the Department of Financial Regulation ("Department"), in collaboration with a group of stakeholders, compiled a list of mental health and substance abuse services, identified by procedure codes, and recommended to the Commissioner that these services be deemed "primary" mental health and substance abuse services for purposes of implementing 8 V.S.A.§ 4089b(c)(1) on January 1, 2014. The list of mental health and substance abuse services with associated procedure codes compiled by the stakeholder group titled "Primary Care Mental Health and Substance Abuse Procedure Codes" shall be published on the Department's website.

Section 4 Mental Health and Substance Abuse Services Deemed to Be "Primary" and Therefore Subject to a CoPay No Greater Than the Co-Pay Applicable to Medical Services Offered by Primary Care Providers

The list of services and related procedure codes (CPT/HCPCS) in "Primary Care Mental Health and Substance Abuse Procedure Codes" shall be deemed "primary" mental health and substance abuse services. The common elements underlying the selection of these "primary" mental health and substance abuse services include:

(1) the most common or routine mental health and substance abuse services;

(2) outpatient/office mental health and substance abuse services only; and

(3) services provided to all persons regardless of age or gender.

On and after October 1, 2013, each health insurance plan shall establish, maintain, administer, and update as required, a list of mental health and substance abuse services consistent with those identified in "Primary Care Mental Health and Substance Abuse Procedure Codes" that shall be "primary" when rendered by a mental health care provider and for which the member co-pay shall be no greater than the co-pay applicable to medical services rendered by a primary care provider.

Section 5 Biennial Review of Services Deemed "Primary" Mental Health and Substance Abuse Services

The Department in consultation with the Department of Mental Health shall convene a stakeholder group every two years to determine any appropriate changes to the services and related codes in "Primary Care Mental Health and Substance Abuse Procedure Codes." Any addition or deletion of services shall require amendment of this rule. The stakeholder group may be of similar composition to the group originally engaged in the compilation of "Primary Care Mental Health and Substance Abuse Procedure Codes." This group was comprised of stakeholders, providers, and staff within state agencies, including: the Department of Vermont Health Access, the University of Vermont/Fletcher Allen Health Care, the Vermont Council of Developmental & Mental Health Agencies, the Vermont Department of Mental Health, the Vermont Division of Alcohol & Substance Abuse Programs, the Vermont Psychiatric Association, the Vermont Psychological Association, designated Mental Health Agencies, practicing licensed mental health counselors, licensed clinical social workers, and licensed master's level psychologists.

The initial review of "Primary Care Mental Health and Substance Abuse Procedure Codes" shall occur in 2015 and reviews shall then be conducted every two years thereafter. The stakeholder group shall be convened by June 1 of the review year and shall provide a recommendation to the Commissioner of the Department by August 31 of the review year. If the stakeholder group recommends changes to "Primary Care Mental Health and Substance Abuse Procedure Codes," the Commissioner may approve the changes, in which case "Primary Care Mental Health and Substance Abuse Procedure Codes" will be updated and a Bulletin will be issued by October 1 of the review year to take effect January 1 of the following year.

Section 6 Effective Date

This rule shall take effect on October 1, 2013, and shall apply to all health insurance plans issued, offered, or renewed on or after January 1, 2014.

Primary Care Mental Health & Substance Abuse Procedure Codes.

2013 Codes

Initial Psychiatric Evaluation

90791, Psychiatric diagnostic evaluation (no medical services);

90792, Psychiatric diagnostic evaluation with medical services (E/M new patient codes may be used in lieu of 90792)

Interactive psychiatric diagnostic evaluation: 90791 or 90792 , with +90785 (interactive complexity add-on code)

Outpatient Psychotherapy

(Time is face-to-face with patient and/or family)

90832, Psychotherapy, 30 minutes

With medical evaluation and management services: appropriate outpatient E/M code (not selected on the basis of time), and +90833 , 30-minute psychotherapy add-on-code

90834, Psychotherapy 45 minutes

With medical evaluation and management services: appropriate outpatient E/M code (not selected on the basis of time), and +90836 , 45-minute psychotherapy add on-code

90837, Psychotherapy, 60 minutes

With medical evaluation and management services: appropriate outpatient E/M code (not selected on the basis of time), and +90838 , 60-minute psychotherapy add-on-code

OutPatient Interactive Psychotherapy

(Time is with patient and/or family)

90832, Psychotherapy, 30 minutes and +90785 , interactive complexity add-on-code

With medical evaluation and management services: appropriate outpatient E/M code (not selected on the basis of time), and +90833, 30-minute psychotherapy add-on-code, and +90785 , interactive complexity add-on-code

90834, Psychotherapy, 45 minutes and +90785, interactive complexity add-on-code

With medical evaluation and management services: appropriate outpatient E/M code (not selected on the basis of time), and +90836 , 45-minute psychotherapy add-on-code, and +90785 , interactive complexity add-on-code

90837, psychotherapy, 60 minutes and +90785 , interactive complexity add-on-code

With medical evaluation and management services; appropriate outpatient E/M code (not selected on the basis of time), and +90838 , 60-minute psychotherapy add-on-code, and +90785 , interactive complexity add-on-code

Other Psychotherapy

90846, Family psychotherapy (without the patient present)

90847, Family psychotherapy (conjoint psychotherapy) (with patient present)

90853, Group psychotherapy (for other than multiple-family group), +90875 , interactive complexity add-on

Interactive group psychotherapy use 90853 (for other than multiple-family group), +90875 , interactive complexity

Other Psychiatric Services or Procedures

Pharmacologic management, including prescription, use, and review of medication with no more than minimal medical psychotherapy; use appropriate E/M code (Psychologists will use +90863)

HCPCS Codes for Substance Abuse Treatment

H0001, Alcohol and/or drug assessment

H0004, Behavioral health counseling and therapy, per 15 minutes

H0005, Alcohol and/or drug services; group counseling by a clinician

H0006, Alcohol and/or drug services; case management

H0015, Alcohol and/or drug services; intensive outpatient (treatment program that operates at least 3 hours/day and at least 3 days/week and is based on an individualized treatment plan), including assessment, counseling; crisis intervention, and activity therapies or education

H0020, Alcohol and/or drug services; methadone administration and/or service (provision of the drug by a licensed program)

History

• STATUTORY AUTHORITY: 8 V.S.A. § 4089b
• EFFECTIVE DATE: October 1, 2013 Secretary of State Rule Log #13-027

Chapter 067 REGULATION I-2014-01 - ELECTRONIC INSURANCE NOTICES

21-067 Code Vt. R. 21-020-067-X REGULATION I-2014-01 - ELECTRONIC INSURANCE NOTICES

Section 1 Authority

This regulation is promulgated pursuant to the authority granted by 8 V.S.A. §§ 15, 3666 and chapters 105, 113, and 128.

Section 2 Purpose

The purpose of this regulation is to set forth rules and procedural requirements which the Commissioner deems necessary to permit certain insurers to send certain notices to policyholders by electronic means.

Section 3 Severability Clause

If any provision of these regulations or the application thereof to any person or circumstance, is held invalid, such invalidity shall not affect other provisions or applications of these regulations which can be given effect without the invalid provision or application, and to that end the provisions of these regulations are severable.

Section 4 Definitions

A. "Delivered by electronic means" includes:

(1) Delivery to an electronic mail address at which a party has consented to receive notice; and

(2) Posting on an electronic network, or site accessible via the internet, mobile application, computer, mobile device, tablet, or any other electronic device, together with separate notice to a party sent to the electronic mail address at which the party has consented to receive notice of the posting.

B. "Party" means any recipient of any notice required as part of an insurance transaction, including but not limited to an applicant, an insured, or a policyholder.

Section 5 Delivery of Notices by Electronic Means

A. Subject to subsection (C) of this section, any notice to a party required under section 3880, 3881, 4224, 4225, 4712, or 4713 of title 8 V.S.A. may be but is not required to be delivered by electronic means, provided the process used to obtain consent of the party to have notice delivered by electronic means meets the requirements of 9 V.S.A. chapter 20 (the Uniform Electronic Transactions Act).

B. Delivery of a notice pursuant to subsection (A) of this section shall be considered equivalent to any delivery method required under section 3883, 4226, or 4714 of title 8 V.S.A., including delivery by first-class mail, certified mail, or certificate of mailing.

C. A notice may be delivered by electronic means by an insurer to a party under this section if:

(1) The party has affirmatively consented to such method of delivery and not subsequently withdrawn consent;

(2) The party, before giving consent, is provided with a clear and conspicuous statement informing the party of:

(i) The right of the party to have the notice provided or made available in paper or another nonelectronic form at no additional cost;

(ii) The right of the party to withdraw consent to have notice delivered by electronic means, at any time, and any conditions or consequences imposed in the event consent is withdrawn;

(iii) Whether the party's consent applies:

(a) Only to the particular transaction as to which the notice must be given; or

(b) To identified categories of notices that may be delivered by electronic means during the course of the party's relationship with the insurer;

(iv) How, after consent is given, the party may obtain a paper copy of a notice delivered by electronic means at no additional cost; and

(v) The procedures the party must follow to withdraw consent to have notice delivered by electronic means and to update information needed to contact the party electronically;

(3) The party, before giving consent:

(i) Is provided with a statement of the hardware and software requirements for access to and retention of a notice delivered by electronic means as to which the party has given consent; and

(ii) Consents electronically and confirms consent electronically, in a manner that reasonably demonstrates that the party can access information in the electronic form that will be used for notices delivered by electronic means as to which the party has given consent; and

(4) After consent of the party is given, the insurer, in the event a change in the hardware or software requirements needed to access or retain a notice delivered by electronic means creates a material risk that the party will not be able to access or retain a subsequent notice to which the consent applies:

(i) Provides the party with a statement of:

(a) The revised hardware and software requirements for access to and retention of a notice delivered by electronic means; and

(b) A revised statement required by subdivision (2) of this subsection; and

(ii) The party affirmatively consents to continued delivery of notices by electronic means.

D. If a provision of chapter 105, 113, or 128 of title 8 V.S.A. requiring notice to be provided to a party expressly requires verification or acknowledgement of receipt of the notice, the notice may be delivered by electronic means only if the method used provides for verification or acknowledgement of receipt. Upon notification to the insurer that the electronic notice was not deliverable, the insurer shall send a paper copy of the notice as otherwise required by law.

E. The legal effectiveness, validity, or enforceability of any contract or policy of insurance may not be made contingent upon obtaining electronic consent or confirmation of consent of a party in accordance with subdivision (C)(3)(ii) of this section.

F. Withdrawal of consent:

(1) A withdrawal of consent by a party does not affect the legal effectiveness, validity, or enforceability of a notice delivered by electronic means to the party before the withdrawal of consent is effective.

(2) A withdrawal of consent by a party is effective within 30 days after receipt of the withdrawal by the insurer.

(3) Failure to comply with subdivision (C)(4) of this section shall be treated as a withdrawal of consent for purposes of this section.

G. A party who does not consent to delivery of notices by electronic means under subsection (A) of this section or who withdraws his or her consent shall not be subjected to any additional fees or costs for having notices provided or made available in paper or another nonelectronic form.

H. This section shall not be construed to modify, limit, or supersede the provisions of the federal Electronic Signatures in Global and National Commerce Act, 15 U.S.C. chapter 96, as amended.

Section 6 Interpretation

The delivery of notice in accordance with Section 5 of this regulation is intended and shall be construed to meet the requirements of Department Insurance Regulation 78-01, Section 1, as revised.

Section 7 Effective Date

This regulation shall become effective September 18, 2015.

History

• STATUTORY AUTHORITY: 8 V.S.A. §§ 15, 3666, Ch. 105, 113, 128
• EFFECTIVE DATE: September 18, 2015 Secretary of State Rule Log #15-042

Chapter 068 REGULATION I-2015-01 - CORPORATE GOVERNANCE ANNUAL DISCLOSURE REGULATION

21-068 Code Vt. R. 21-020-068-X REGULATION I-2015-01 - CORPORATE GOVERNANCE ANNUAL DISCLOSURE REGULATION

Section 1 Authority

This regulation is promulgated pursuant to the authority granted by 8 V.S.A. §§ 15 and 3316.

Section 2 Purpose

The purpose of this regulation is to set forth the procedures for filing and the required contents of the Corporate Governance Annual Disclosure (CGAD), deemed necessary by the Commissioner to carry out the provisions of 8 V.S.A. § 3316.

Section 3 Definitions

A. "Insurance group" means those insurers and affiliates included within an insurance holding company system as defined in 8 V.S.A. § 3681(4).

B. "Insurer" means an insurance company that offers any of the types of insurance itemized under 8 V.S.A. § 3301(a), except that it shall not include agencies, authorities or instrumentalities of the United States, its possessions and territories, the Commonwealth of Puerto Rico, the District of Columbia, or a state or political subdivision of a state.

C. "Senior Management" means any corporate officer responsible for reporting information to the board of directors at regular intervals or providing this information to shareholders or regulators and shall include, for example and without limitation, the Chief Executive Officer ("CEO"), Chief Financial Officer ("O"), Chief Operations Officer ("COO"), Chief Procurement Officer ("CPO"), Chief Legal Officer ("CLO"), Chief Information Officer ("CIO"), Chief Technology Officer ("CTO"), Chief Revenue Officer ("CRO"), Chief Visionary Officer ("CVO"), or any other "C" level executive.

Section 4 Filing Procedures

A. An insurer, or the insurance group of which the insurer is a member, required to file a CGAD by 8 V.S.A. § 3316, shall, no later than June 1 of each calendar year, submit to the Commissioner a CGAD that contains the information described in Section 5 of this regulation.

B. The CGAD must include a signature of the insurer's or insurance group's CEO or corporate secretary attesting to the best of that individual's belief and knowledge that the insurer or insurance group has implemented the corporate governance practices and that a copy of the CGAD has been provided to the insurer's or insurance group's Board of Directors (hereafter "Board") or the appropriate committee thereof.

C. The insurer or insurance group shall have discretion regarding the appropriate format for providing the information required by this regulation and is permitted to customize the CGAD to provide the most relevant information necessary to permit the Commissioner to gain an understanding of the corporate governance structure, policies and practices utilized by the insurer or insurance group.

D. For purposes of completing the CGAD, the insurer or insurance group may choose to provide information on governance activities that occur at the ultimate controlling parent level, an intermediate holding company level and/or the individual legal entity level, depending upon how the insurer or insurance group has structured its system of corporate governance. The insurer or insurance group is encouraged to make the CGAD disclosures at the level at which the insurer's or insurance group's risk appetite is determined, or at which the earnings, capital, liquidity, operations, and reputation of the insurer are overseen collectively and at which the supervision of those factors are coordinated and exercised, or the level at which legal liability for failure of general corporate governance duties would be placed. If the insurer or insurance group determines the level of reporting based on these criteria, it shall indicate which of the three criteria was used to determine the level of reporting and explain any subsequent changes in level of reporting.

E. Notwithstanding subsection A of this Section, and as outlined in 8 V.S.A. § 3316(e), if the CGAD is completed at the insurance group level, then it must be filed with the lead state of the group as determined by the procedures outlined in the most recent Financial Analysis Handbook adopted by the NAIC. In these instances, a copy of the CGAD must also be provided to the chief regulatory official of any state in which the insurance group has a domestic insurer, upon request.

F. An insurer or insurance group may comply with this section by referencing other existing documents (e.g., ORSA Summary Report, Holding Company Form B or F Filings, Securities and Exchange Commission (SEC) Proxy Statements, foreign regulatory reporting requirements, etc.) if the documents provide information that is comparable to the information described in Section 5. The insurer or insurance group shall clearly reference the location of the relevant information within the CGAD and attach the referenced document if it is not already filed or available to the regulator.

G. Each year following the initial filing of the CGAD, the insurer or insurance group shall file an amended version of the previously filed CGAD indicating where changes have been made. If no changes were made in the information or activities reported by the insurer or insurance group, the filing should so state.

Section 5 Contents of Corporate Governance Annual Disclosure

A. The insurer or insurance group shall be as descriptive as possible in completing the CGAD, with inclusion of attachments or example documents that are used in the governance process, since these may provide a means to demonstrate the strengths of their governance framework and practices.

B. The CGAD shall describe the insurer's or insurance group's corporate governance framework and structure including consideration of the following:

(1) The Board and various committees thereof ultimately responsible for overseeing the insurer or insurance group and the level(s) at which that oversight occurs (e.g., ultimate control level, intermediate holding company, legal entity, etc.). The insurer or insurance group shall describe and discuss the rationale for the current Board size and structure; and

(2) The duties of the Board and each of its significant committees and how they are governed (e.g., bylaws, charters, informal mandates, etc.), as well as how the Board's leadership is structured, including a discussion of the roles of CEO and Chairman of the Board within the organization.

C. The insurer or insurance group shall describe the policies and practices of the most senior governing entity and significant committees thereof, including a discussion of the following factors:

(1) How the qualifications, expertise and experience of each Board member meet the needs of the insurer or insurance group.

(2) How an appropriate amount of independence is maintained on the Board and its significant committees.

(3) The number of meetings held by the Board and its significant committees over the past year as well as information on director attendance.

(4) How the insurer or insurance group identifies, nominates and elects members to the Board and its committees. The discussion should include, for example:

(a) Whether a nomination committee is in place to identify and select individuals or consideration.

(b) Whether term limits are placed on directors.

(c) How the election and re-election processes function.

(d) Whether a Board diversity policy is in place and if so, how it functions.

(5) The processes in place for the Board to evaluate its performance and the performance of its committees, as well as any recent measures taken to improve performance (including any Board or committee training programs that have been put in place).

D. The insurer or insurance group shall describe the policies and practices for directing Senior Management, including a description of the following factors:

(1) Any processes or practices (i.e., suitability standards) to determine whether officers and key persons in control functions have the appropriate background, experience and integrity to fulfill their prospective roles, including:

(a) Identification of the specific positions for which suitability standards have been developed and a description of the standards employed.

(b) Any changes in an officer's or key person's suitability as outlined by the insurer's or insurance group's standards and procedures to monitor and evaluate such changes.

(2) The insurer's or insurance group's code of business conduct and ethics, the discussion of which considers, for example:

(a) Compliance with laws, rules, and regulations; and

(b) Proactive reporting of any illegal or unethical behavior.

(3) The insurer's or insurance group's processes for performance evaluation, compensation and corrective action to ensure effective senior management throughout the organization, including a description of the general objectives of significant compensation programs and what the programs are designed to reward. The description shall include sufficient detail to allow the Commissioner to understand how the organization ensures that compensation programs do not encourage and/or reward excessive risk taking. Elements to be discussed may include, for example:

(a) The Board's role in overseeing management compensation programs and practices.

(b) The various elements of compensation awarded in the insurer's or insurance group's compensation programs and how the insurer or insurance group determines and calculates the amount of each element of compensation paid.

(c) How compensation programs are related to both company and individual performance over time.

(d) Whether compensation programs include risk adjustments and how those adjustments are incorporated into the programs for employees at different levels.

(e) Any clawback provisions built into the programs to recover awards or payments if the performance measures upon which they are based are restated or otherwise adjusted.

(f) Any other factors relevant in understanding how the insurer or insurance group monitors its compensation policies to determine whether its risk management objectives are met by incentivizing its employees.

(4) The insurer's or insurance group's plans for CEO and Senior Management succession.

E. The insurer or insurance group shall describe the processes by which the Board, its committees and Senior Management ensure an appropriate amount of oversight to the critical risk areas impacting the insurer's business activities, including a discussion of:

(1) How oversight and management responsibilities are delegated between the Board, its committees and Senior Management.

(2) How the Board is kept informed of the insurer's strategic plans, the associated risks, and steps that Senior Management is taking to monitor and manage those risks.

(3) How reporting responsibilities are organized for each critical risk area. The description should allow the Commissioner to understand the frequency at which information on each critical risk area is reported to and reviewed by Senior Management and the Board. This description may include, for example, the following critical risk areas of the insurer:

(a) Risk management processes (An ORSA Summary Report filer may refer to its ORSA Summary Report);

(b) Actuarial function;

(c) Investment decision-making processes;

(d) Reinsurance decision-making processes;

(e) Business strategy/finance decision-making processes;

(f) Compliance function;

(g) Financial reporting/internal auditing; and

(h) Market conduct decision-making processes.

Section 6 Severability Clause

If any provision of this regulation, or the application thereof to any person or circumstance, is held invalid, such determination shall not affect other provisions or applications of this regulation which can be given effect without the invalid provision or application, and to that end the provisions of this regulation are severable.

Section 7 Effective Date

This regulation shall become effective March 30, 2016.

History

• STATUTORY AUTHORITY: 8 V.S.A. 15 and 8 V.S.A. 3316
• EFFECTIVE DATE: March 30, 2016 Secretary of State Rule Log #16-007

Chapter 069 RULE 1-2016-01 - POSTING ONLINE OF PRESCRIPTION DRUG FORMULARIES BY HEALTH INSURERS

21-069 Code Vt. R. 21-020-069-X RULE 1-2016-01 - POSTING ONLINE OF PRESCRIPTION DRUG FORMULARIES BY HEALTH INSURERS

Section 1 Purpose

The purpose of this rule is to standardize the posting of qualified health plan Prescription Drug Formularies by Health Insurers

Section 2 Authority

The Commissioner of the Department of Financial Regulation has the authority to issue this rule under 8 V.S.A. § 15 and Act 165 of the 2015-2016 session.

Section 3 Applicability and Scope

This rule shall apply to all health insurers that offer health benefit plans to Vermont residents through the Health Benefit Exchange ("Health Insurers"). Health Insurers shall ensure that their prescription drug formularies are posted online, updated frequently, and are searchable by enrollees, potential enrollees, and health care providers.

Section 4 Online Posting Requirements

1. Health Insurers must post their prescription drug formularies online beginning on or before November 1, 2016, or the effective date of this rule, whichever is later.

2. Health Insurers must update the posted formularies at least quarterly.

Posted formularies must be searchable by enrollees, potential enrollees, and health care providers. This may be accomplished by separate online functions for paragraphs 4 and 5 of this section.

4. Posted formularies must include information about covered prescription drugs, applicable cost- sharing amounts, drug tiers, and any requirements for prior authorization, step therapy or other utilization management.

5. Each Health Insurer shall post cost sharing amounts that are specific to each of the qualified plans that are certified by DVHA. The health insurer may provide a narrative explanation of any additional impacts on cost sharing such as, but limited to, choice of deductibles, federal or state cost sharing reduction programs or federal cost sharing programs for Native Americans.

6. Each Health Insurer shall post cost sharing by dosage and strength.

Each Health Insurer shall display online cost sharing amounts for each individual drug and in the aggregate for all drugs that an individual is searching.

Section 5 Effective Date

This Rule shall be effective 15 days after filing (Date). Health Insurers may request an extension of time for compliance until January 1, 2017 for good cause.

History

• EFFECTIVE DATE:
• December 24, 2016 Secretary of State Rule Log #16-061
• STATUTORY AUTHORITY: 8 V.S.A. § 15 and Act 165 of the 2015-2016 session

Chapter 070 REGULATION I-2016-02 BUSINESS ENTITY LIMITED LINES PRODUCER FOR TRAVEL INSURANCE LICENSE

21-070 Code Vt. R. 21-020-070-X REGULATION I-2016-02 BUSINESS ENTITY LIMITED LINES PRODUCER FOR TRAVEL INSURANCE LICENSE

Section 1 Authority

This regulation is promulgated under the authority granted to the Commissioner by 8 V.S.A. §§ 15, 4813a(6) and 4813f(b).

Section 2 Definitions

(A) "Limited lines producer for travel insurance" means a:

Licensed insurance producer, including a limited lines producer, designated by an insurer as the travel insurance supervising entity as set forth in section 6 below.

(B) "Offer and disseminate" means providing general information, including a description of the coverage and price, as well as processing the application, collecting premiums, and performing other non-licensable activities permitted by the Department of Financial Regulation.

(C) "Travel insurance" means insurance coverage for personal risks incident to planned travel, including but not limited to:

(1) interruption or cancellation of trip or event;

(2) loss of baggage or personal effects;

(3) damages to accommodations or rental vehicles; or

(4) sickness, accident, disability or death occurring during travel.

Travel insurance does not include major medical plans, which provide comprehensive medical protection for travelers with trips lasting six (6) months or longer, including for example, those working overseas as an ex-patriot or military personnel being deployed.

(D) "Travel retailer" means a business entity that makes, arranges or offers travel services and may offer and disseminate travel insurance as a service to its customers on behalf of and under the direction of a limited lines producer for travel insurance.

Section 3 Authority

(A) The Commissioner may issue to an individual or to a business entity that has complied with the requirements of this regulation and filed an application for such limited lines license in a form and manner prescribed by the Commissioner, a business entity limited lines producer for travel insurance license, which authorizes the limited lines producer for travel insurance to sell, solicit or negotiate travel insurance through a licensed insurer.

(B) A travel retailer may offer and disseminate travel insurance under a business entity limited lines producer for travel insurance license ("licensed business entity") only if the following conditions are met:

(1) The limited lines producer for travel insurance or travel retailer provides to purchasers of travel insurance:

a. A description of the material terms or the actual material terms of the insurance coverage;

d. A description of the process for filing a claim;

c. A description of the review or cancellation process for the travel insurance policy; and

d. The identity and contact information of the insurer and limited lines producer.

(2) At the time of licensure, the limited lines producer for travel insurance shall establish and maintain a register on a form prescribed by the Commissioner of each travel retailer that offers travel insurance on the limited lines producer for travel insurance's behalf. The register shall be maintained and updated annually by the limited lines producer for travel insurance and shall include the name, address, and contact information of the travel retailer and an officer or person who directs or controls the travel retailer's operations, and the travel retailer's Federal Tax Identification Number. The limited lines producer for travel insurance shall submit such register within 30 days upon request by the Department of Financial Regulation. The limited lines producer shall also certify that the travel retailer registered complies with 18 USC I 033.

(3) The limited lines producer for travel insurance has designated one of its employees who is a licensed individual producer as the person (a "Designated Responsible Licensed Producer" or "DRLP") responsible for the limited lines producer for travel insurance's compliance with the travel insurance laws, rules and regulations of the state and who is appointed as an agent of the limited lines producer for travel insurance consistent with 8 V.S.A. § 4813.

(4) The DRLP, president, secretary, treasurer, and any other officer or person who directs or controls the limited lines producer for travel insurance's insurance operations has complied with the fingerprinting requirements applicable to insurance producers in the resident state of the limited lines producer for travel insurance.

(5) The limited lines producer for travel insurance has paid all applicable insurance producer licensing fees as set forth in applicable state law.

(6) The limited lines producer for travel insurance requires each employee and authorized representative of the travel retailer whose duties include offering and disseminating travel insurance to receive a program of instruction or training, which may be subject to review by the Commissioner. The training material shall, at a minimum, contain instructions on the types of insurance offered, ethical sales practices, and required disclosures to prospective customers.

(7) Limited lines producers for travel insurance, and those registered under its license, are exempt from examination requirements pursuant to section 8 V.S.A. § 4813 i(c) and continuing education requirements under 8 V.S.A. § 4800a.

(C) Any travel retailer offering or disseminating travel insurance shall make available to prospective purchasers, brochures or other written materials that:

(1) Provide the identity and contact information of the insurer and the limited lines producer for travel insurance;

(2) Explain that the purchase of travel insurance is not required in order to purchase any other product or service from the travel retailer; and

(3) Explain that an unlicensed travel retailer is permitted to provide general information about the insurance offered by the travel retailer, including a description of the coverage and price, but is not qualified or authorized to answer technical questions about the terms and conditions of the insurance offered by the travel retailer or to evaluate the adequacy of the customer's existing insurance coverage.

(D) A travel retailer's employee or authorized representative who is not licensed as an insurance producer may not:

(1) Evaluate or interpret the technical terms, benefits, and conditions of the offered travel insurance coverage;

(2) Evaluate or provide advice concerning a prospective purchaser's existing insurance coverage; or

(3) Hold himself or itself out as a licensed insurer, licensed producer, or insurance expert.

Section 4 Registration

Notwithstanding any other provision of law, a travel retailer whose insurance-related activities, and those of its employees and authorized representatives, are limited to offering and disseminating travel insurance on behalf of and under the direction of a limited lines producer for travel insurance meeting the conditions stated in this section, is authorized to do so and receive related compensation for such services, upon registration by the limited lines producer for travel insurance as described in section 3(B)(2) of this rule.

Section 5 Policy

Travel insurance may be provided under an individual policy or under a group or master policy.

Section 6 Responsibility

The limited lines producer for travel insurance, its designated responsible licensed producer, and the appointing insurer are responsible for the acts of the travel retailer related to the offer and dissemination of travel insurance and shall use reasonable means to ensure the travel retailer's compliance with this rule.

Section 7 Enforcement

The limited lines producer for travel insurance and any travel retailer offering and disseminating travel insurance under the business entity limited lines producer license for travel insurance shall be subject to the provisions of 8 V.S.A. § 13, 8 V.S.A. Chapter 129, and 8 V.S.A. § 4804.

Section 8 Effectiveness

This regulation shall become effective May 15, 2017.

History

• EFFECTIVE DATE:
• May 15, 2017 Secretary of State Rule Log #17-012
• STATUTORY AUTHORITY: 8 V.S.A. §§ 15, 4813a(6) and 4813f(b)

Chapter 071 FULLY-INSURED MULTIPLE EMPLOYER WELFARE ARRANGEMENTS AND ASSOCIATION HEALTH PLANS (I-2018-01)

21-071 Code Vt. R. 21-020-071-X FULLY-INSURED MULTIPLE EMPLOYER WELFARE ARRANGEMENTS AND ASSOCIATION HEALTH PLANS (I-2018-01)

Section 1 Purpose

This rule is promulgated pursuant to 8 V.S.A. § 4079a and in response to the United States Department of Labor's June 21, 2018 amendment to 29 C.F.R. § 2510. See Definition of "Employer" Under Section 3(5) of ERISA--Association Health Plans, 83 Fed. Reg. 28,961 (June 21, 2018) (to be codified at 29 C.F.R. § 2510.3-5) . The purpose of this rule is to set forth rules, forms, and procedures regarding fully-insured association health plans. This rule protects Vermont consumers and promotes the stability of Vermont's health insurance markets, to the extent permitted under federal law, including rules regarding licensure, solvency, reserve requirements, and rating requirements. This rule shall not apply to association health plans that are self-funded. All associations and MEWAs must be in compliance with this rule after September 1, 2018.

Section 2 Definitions

The following terms are defined for purposes of this rule as follows:

A. "Association" means any foreign or domestic association that provides a health benefit plan that covers the employees of at least one employer that is either domiciled in Vermont or has its principal headquarters or principal administrative office in Vermont.

B. "Commissioner" means the Commissioner of the Vermont Department of Financial Regulation.

C. "Department" means the Vermont Department of Financial Regulation.

D. "Employee Welfare Benefit Plan," as used in this rule, has the same meaning as that contained in 29 U.S.C. § 1002(1).

E. "Fully Insured" means any association or MEWA health benefit plan coverage provided by a foreign or domestic insurer licensed to do business in Vermont and in compliance with 8 V.S.A. §§ 3368 and 4079(2) and 29 U.S.C. § 1144(b)(6)(D).

F. "Health Benefit Plan" means a policy, contract, certificate, or agreement offered or issued by a health insurer to provide, deliver, arrange for, pay for, or reimburse any of the costs of health services. The health benefit plan shall be issued to an association; to a trust; or to one or more trustees of a fund established, created, or maintained for the benefit of the members of one or more associations or a contract or plan issued by an association or trust or by a MEWA.

G. "Insurer" means any insurer, nonprofit hospital or medical service corporation, health maintenance organization, or managed care organization offering health insurance as defined in 8 V.S.A. § 3301(a)(2). An insurer shall not offer a health benefit plan to an association or MEWA with covered lives in Vermont unless it possesses a certificate of authority from the Commissioner.

H. "Multiple employer welfare arrangement (MEWA)," as used in this rule, has the same meaning as that contained in 29 U.S.C. § 1002(40).

Section 3 Authority

The Department has authority to promulgate rules for domestic and foreign fully-insured association health plans pursuant to 8 V.S.A. §§ 3368(a)(4) and 4079a(b) and 29 U.S.C. § 1144(b)(6)(A)(i). The Department has authority to regulate any association or MEWA offering a fully-insured health benefit plan in this State.

Section 4 Captive Insurers

Fully-insured associations and MEWAs insured by a captive insurance company are exempt from this rule pursuant to 8 V.S.A. § 6016. Such associations and MEWAs will be regulated by the Department's Captive Insurance Division per 8 V.S.A. Chapter 141.

Section 5 Licensing Requirement

A. Initial Filing Requirements. No association or MEWA may offer a fully-insured health benefit plan in this State unless duly licensed with the Department. An association or MEWA seeking to offer a fully-insured health benefit plan shall make application for a license to the Department by July 1 at 4:00 p.m. and shall not operate or offer such plans in this State until it is licensed. No association shall offer, obtain, market, sell, or maintain a health benefit plan to its members absent a valid license pursuant to this Section. All licenses of associations or MEWAs issued pursuant to this rule shall take effect upon issuance, unless otherwise stated in the license, and shall expire upon the issuance or denial of the MEWA or association's renewal application. If a MEWA or association does not file a license renewal by July 1, the previous license will expire on this date. The application for license shall be on a form prescribed by the Department and shall include the following, submitted under signature and certification of an officer, director, or trustee of the fully-insured association or MEWA:

1. Identifying information:

a. Name of association or MEWA;

b. Mailing address, email address, and telephone number at which communications are to be received;

c. Names, titles, and business addresses of all principals, owners, officers, directors, trustees, and other persons responsible for the association or MEWA's operation;

d. Names and addresses of the employer members and participants;

e. Eligibility requirements for membership in the association or MEWA; and

f. Fees, if any, charged for membership.

2. A copy of the association or MEWA's by-laws, articles of incorporation, and/or Trust Agreement(s);

3. A copy of the association or MEWA's certificate of good standing from the state in which it incorporated, formed, or is headquartered;

4. Documentary evidence indicating compliance with the Statutes of Vermont relating to foreign corporations, if applicable;

5. The name and contact information for the Vermont registered agent for service of process;

6. A certification of an officer, director, or trustee of the association or MEWA that states compliance with 8 V.S.A. § 4079(2);

7. A copy of any documents required to be executed by an employer to become a member of the association or MEWA, including, but not limited to, an application for membership, a membership agreement, and any document required to enroll in a health benefit plan offered by the association or MEWA;

Biographical affidavits for all trustees, officers, directors, and other members of the association or MEWA's governing body responsible for its operation;

9. The names, addresses, and license numbers, if applicable, of persons who will solicit, negotiate, procure, or effect applications for coverage with the association or MEWA, including, but not limited to, the names, addresses, and license numbers of all brokers acting on behalf of the association or MEWA in Vermont;

10. A copy of all current policies or contracts of insurance issued to the association or MEWA (or to the members or subscribers of a health benefit plan offered by the association or MEWA) that provide coverage for health care benefits and services to be offered in Vermont. If an association or MEWA intends to offer policies, contracts, or certificates that have not yet been approved by the Department, the association or MEWA may refer to the applicable SERFF filing number(s) of the proposed policy, contract, and/or certificate under review. No such policy, contract, or certificate may be marketed or issued until approved by the Department;

11. A copy of all current contracts between the association or MEWA and insurers to provide coverage for health care benefits and services to be offered in Vermont;

12. A copy of all proposed advertising and marketing materials to be used by the association or MEWA, which includes, but is not limited to, the crosswalk of benefits described in Section 17(B). If an association or MEWA intends to use advertising or marketing materials that have not yet been approved by the Department, but has submitted those materials on SERFF, the association or MEWA may refer to the applicable SERFF filing number(s) of the proposed advertising or marketing materials under review. If an association or MEWA proposes advertising or marketing materials that do not get filed for approval in SERFF, the association or MEWA shall submit these materials directly to the Department either with its application or ongoing as needed to DFR.AHPLicensing@vermont.gov. No such advertising or marketing materials may be used until approved by the Department. The association or MEWA has an ongoing obligation to file advertising or marketing materials for approval by the Department;

13. The names and addresses of all administrators and organizations, including third party administrators, responsible for the operation of the association or MEWA;

14. Most recent audited financial statement as defined in Section 12 of this rule;

15. A copy of the surety bond required in Section 6 of this rule;

16. Copy of M-1, which must be filed with United States Department of Labor according to the instructions accompanying that form; and

17. A $ 750 filing fee.

B. Ongoing Filing Requirements and License Renewal. In addition to the requirements in subsection (A) above, fully-insured associations and MEWAs offering plans in the State shall annually, on or before July 1 at 4:00 p.m., submit the following information:

1. A Proof of Coverage form affirming that all the covered benefits are fully insured on a direct basis by an insurer, health maintenance organization, health services plan, or dental or vision services plan. This form is to be completed and certified by an officer, director, or trustee of the plan.

2. Contact information form providing association, MEWA, third party administrator, regulatory, and insurer contacts. The association or MEWA contact shall be the person responsible for filing all applicable forms and changes in information with the Department. The regulatory contact shall, be the person responsible for receiving notice of laws, rules, bulletins, and the like that may affect the plan.

3. Notice of any changes in information previously filed with the Commissioner. This shall include, but is not limited to, the following items:

a. Biographical Affidavits of any new trustees, officers, directors, or other members of the plan's governing body;

b. The names, addresses, and qualifications of any new individuals responsible for the administration of the association or MEWA's health benefit plan, including any third-party administrators;

c. The names, addresses, and qualifications of any new persons who will solicit, negotiate, procure, or effect applications for coverage with the plan, including, but not limited to, the names, addresses, and license numbers of all brokers acting on behalf of the association or MEWA in Vermont;

d. The names and addresses of any new employers and participants enrolled in the plan;

e. Any insurance policy, contract, certificate, amendment, Plan Document, or Plan Summary as approved by the Department, or, if an association or MEWA intends to use a policy, contract, certificate, or amendment that has not yet been approved by the Department, the association or MEWA may refer to the applicable SERFF filing number(s) of the proposed policy, contract, certificate, or amendment under review;

f. Any new association or MEWA, Trust Agreement, Bylaws, contract, or agreement that relates to an association or MEWA's offering a health benefit plan to its members;

g. Any new advertising and marketing material, which includes, but is not limited to, the crosswalk of benefits described in Section 17(B). If an association or MEWA intends to use advertising or marketing materials that have not yet been approved by the Department, but has submitted those materials on SERFF, the association or MEWA may refer to the applicable SERFF filing number(s) of the proposed advertising or marketing materials under review. If an association or MEWA proposes advertising or marketing materials that do not get filed for approval in SERFF, the association or MEWA shall submit these materials directly to the Department either with its application or ongoing as needed. No such advertising or marketing materials may be used until approved by the Department. The association or MEWA has an ongoing obligation to file advertising or marketing materials for approval by the Department; and

4. Most recent audited financial statement as defined in Section 12 of this rule; and

5. A $ 750 filing fee.

C. All filings made under this rule shall be submitted to:

Department of Financial Regulation Insurance Division Attn: Company Licensing 89 Main Street Montpelier VT 05620-3101

D. The Commissioner shall review an application for license and notify the applicant in writing of any deficiencies within 45 business days of receipt. An applicant shall address any deficiencies in its application within 30 business days of notice thereof. Upon written request from the applicant and for good cause shown, the Commissioner may extend this 30-day time frame for no more than 30 business days. The Department shall notify the applicant in writing of its response to any such request.

E. The Commissioner may approve or conditionally approve a license or license renewal by acknowledging the need for further documentation or approvals.

F. If the Commissioner rejects a complete initial license application, or a subsequent annual license application filed pursuant to Section 5 of this rule, the Department shall advise the applicant in writing that the license request is denied and shall specify the reason for denial. The applicant or licensee may make written demand upon the Commissioner within a reasonable time for a hearing before the Commissioner to determine the reasonableness of the Commissioner's action. The hearing shall be held within 30 days from the date of receipt of the written demand by the applicant and shall be held pursuant to 3 V.S.A. Chapter 25.

Section 6 Security Requirements

A. When a fully-insured association or MEWA submits its application for license with the Department, it shall have at least one of the following:

1. A minimum surplus that is not less than

a. $ 250,000 if the insurer directly bills members or certificate holders for premiums on behalf of the association or MEWA; or

b. $ 500,000 if the fully-insured association or MEWA bills its members or certificate holders for premiums and remits the premiums to the insurer.

c. If the level of surplus falls below the amounts specified in Section 6(A)(1), the association or MEWA shall notify the Commissioner within five days and file with the Commissioner within 45 days a plan to return the surplus to the required level. This plan shall include a report of the causes of the association or MEWA's surplus insufficiency, the assessments necessary to replenish the minimum surplus, and the steps taken to prevent a recurrence of such circumstances.

2. A surety bond in the amount of $ 500,000 to ensure the association or MEWA's contractual obligations to its health benefit plan members. This bond shall be in a form to be determined by the Commissioner. The bond shall be issued by an insurer or surety licensed to transact such business in Vermont or any other insurer approved by the Commissioner. A copy of the bond shall be provided to the Commissioner at the time of application for license and annually thereafter. An association or MEWA shall notify the Department within five days of a notice of cancellation or termination of its surety bond.

3. An irrevocable letter of credit in the amount of $ 500,000 to ensure the association or MEWA's contractual obligations to its health benefit plan members. This letter of credit shall be in a form to be determined by the Commissioner. The letter of credit shall be issued by an insurer or surety licensed to transact such business in Vermont or any other insurer approved by the Commissioner. A copy of the letter of credit shall be provided to the Commissioner at the time of application for license and annually thereafter. An association or MEWA shall notify the Department within five days of a notice of cancellation or termination of its letter of credit.

4. An Errors and Omissions insurance policy with $ 500,000 of coverage to insure the association or MEWA's contractual obligations to its health benefit plan members. The Errors and Omissions insurance policy shall be issued by an insurer or surety licensed to transact such business in Vermont or any other insurer approved by the Commissioner. A copy of the Errors and Omissions insurance policy shall be provided to the Commissioner at the time of application for license and annually thereafter. An association or MEWA shall notify the Department within five days of a notice of cancellation or termination of its Errors and Omissions insurance policy.

B. A fully-insured association or MEWA shall continue to maintain the required minimum security indicated in subsection (A) of this Section so long as it continues to provide a health benefit plan in Vermont.

C. One year after the application for license is approved and annually thereafter, a fully-insured association or MEWA shall provide to the Department documentation of its annual premium collected for insurance issued to Vermont residents and/or employees of businesses with a principle place of business in Vermont for the preceding policy year and an estimate of its annual premium for the following year.

D. Surplus used for security as required under this Section is not to be used to fund the association or MEWA's normal operations, including providing a health benefit plan to its members. This unimpaired free surplus shall be in the form of cash or marketable securities.

E. The Commissioner may require additional security, based on the coverages and exposures involved.

Section 7 Rating Requirements

A. An insurer offering a health benefit plan to an association or MEWA shall obtain rate approval annually from the Green Mountain Care Board through the rate review process provided in 8 V.S.A. §§ 4062 and 4062a.

B. Any insurer contracting with an association or MEWA to provide a health benefit plan shall use a community rating methodology acceptable to the Commissioner as outlined in this subsection. The association or MEWA may be rated based on the collective group experience of its members, provided that each certificate holder and dependent is charged the same community rate. The following risk classification factors are prohibited from use in rating individual employees or employer members, and dependents of such employees or members:

demographic rating, including age and gender rating;

2. geographic area rating;

3. health status rating;

4. industry rating;

5. medical underwriting and screening;

6. experience rating;

7. tier rating (except for tiers related to family structure); or

8. durational rating.

C. The Commissioner may permit an insurer to establish rewards, premium discounts, split benefit designs, rebates, or otherwise waive or modify applicable co-payments, deductibles, or other cost-sharing amounts in return for adherence by a member or subscriber to programs of health promotion and disease prevention that are satisfactory to the Commissioner. If such a wellness plan is integrated in the health benefit plan, approval shall occur through the SERFF product approval process, and the provisions of Section 5 shall apply to filing, licensure, and renewal. If the wellness plan is offered as a standalone program or is offered without an insurer, then it must be submitted pursuant to Section 5(A)(10) and 5(B)(3) for approval in conjunction with licensure and renewal.

D. An insurer offering a health benefit plan to an association or MEWA shall guarantee acceptance of all persons within the association or MEWA and their dependents.

E. An insurer offering a health benefit plan or plans to an association or MEWA shall guarantee the rates on all such plans for a minimum of 12 months. The calendar year constitutes the plan year for all health benefit plans offered by an association or MEWA.

F. Medical Loss Ratio. A foreign or domestic insurer offering a health benefit plan to an association or MEWA with covered lives in Vermont shall comply, with respect to those covered lives, with the medical loss ratio and rebating requirements of 45 C.F.R. §§ 158.210-240. Consistent with 45 C.F.R. § 158.210(a), a minimum loss ratio of 85 percent is required and should be calculated consistent with the federal methodology.

G. All expenses incurred by the insurer and payable to a licensed agent, broker, or producer who is not an employee of the insurer shall be incorporated into the medical loss ratio under subsection (G) of this Section, and shall be incorporated in the administrative expense portion of an insurer's rate filing. All expenses incurred by the association or MEWA and payable to a licensed agent, broker, or producer whether an employee of the association or MEWA or not shall be reported to the Department with an explanation of how those fees are funded. If the association or MEWA utilizes an agent, broker, or producer for the sale of products including, but not limited to, a health benefit, the association or MEWA shall report the portion of the fee as it relates to the advertising, marketing, and sale of the health benefit plan only.

Section 8 Benefit Requirements

A. Each health benefit plan offered to an association or MEWA shall, at a minimum, provide the following benefits:

1. Essential Health Benefits as defined in 42 U.S.C. § 18022(b)(1).

2. Cost sharing requirements of 42 U.S.C. § 18022(c)(1), (c)(3).

3. Lifetime and annual limits as prescribed in 29 C.F.R. § 2590.715-2711.

4. A level of coverage equal to or greater than that designed to provide benefits that are actuarially equivalent to 60 percent of the full actuarial value of the benefits provided under the plan.

5. The requirements of Department Regulation H-2009-03.

All other insurance requirements and benefit mandates as provided in 8 V.S.A. Chapter 107 and 18 V.S.A. Chapter 221, as may be amended from time to time, and as specified by rule by the Commissioner.

7. All other benefits required to comply with applicable federal laws and regulations.

8. Pediatric dental and vision coverage as required in (A)(1) of this Section may be offered to the association in either a stand-alone dental or vision plan or as a benefit embedded in the health benefit plan.

B. Every health benefit plan offered by any insurer to an association or MEWA shall include a process for subscribers to appeal adverse benefit determinations that complies with the requirements of 8 V.S.A. § 4089f and Department Regulation H-2011-02.

C. No health benefit plan or related policy, contract, certificate, or agreement offered or issued in this State may reserve discretion to the insurer, association, or MEWA to interpret the terms of the contract or to provide standards of interpretation or review that are inconsistent with the laws of this State. Any such policy, contract, certificate, or agreement shall be null and void to the extent it conflicts with this subsection, pursuant to 8 V.S.A. § 4062f.

D. An insurer shall not deliver or issue for delivery an association or MEWA health benefit plan covering lives located in this State that contains an exclusion or limitation for pre-existing conditions or a waiting period on the coverage of pre-existing conditions.

Section 9 Membership Requirements

A. An association or MEWA offering a health benefit plan in the State shall meet the requirements of 8 V.S.A. § 4079 and 83 Fed. Reg. 28,961 (June 21, 2018) (to be codified at 29 C.F.R. § 2510.3-5(c)) , provided these standards are not implemented in a manner that is subterfuge for discrimination as is prohibited under 8 V.S.A. §§ 4062 and 4083 and 83 Fed. Reg. 28,961 (June 21, 2018) (to be codified at 29 C.F.R. § 2510.3-5(d) ).

B. An association or MEWA doing business in this State may not restrict membership to employers located within a particular geographic region of the State and shall accept employers with a principal place of business located in any part of the State.

Section 10 Filing Requirements

No policy or certificate of health insurance shall be delivered or issued for delivery in this State until a copy of the form and of the rules for the classification of risks has been filed with and approved by the Department in accordance with 8 V.S.A. §§ 3541, 4062, 4515a, 4587, or 5104.

A. The following notice shall be provided to employers and employees who obtain coverage from an association or MEWA and shall be printed in no less than 14-point boldface type of uniform font in the policy, certificate, and/or a stand-alone notice:

"NOTICE

THE ASSOCIATION OR MULTIPLE EMPLOYER WELFARE ARRANGEMENT IS NOT AN INSURANCE COMPANY. FOR ADDITIONAL INFORMATION ABOUT THE ASSOCIATION OR MULTIPLE EMPLOYER WELFARE ARRANGEMENT YOU SHOULD ASK QUESTIONS OF YOUR ASSOCIATION OR MULTIPLE EMPLOYER WELFARE ARRANGEMENT ADMINISTRATOR, OR YOU MAY CONTACT THE VERMONT DEPARTMENT OF FINANCIAL REGULATION AT __________ ."

B. Each association or MEWA notice under subsection A of this Section shall include the Department's current consumer service telephone number and website in the blank provided in this notice.

C. The insurer shall include in its policy document the following disclosures:

(1) the Vermont employer has the option of purchasing insurance on Vermont Health Connect (Exchange) and does not have to join an association or MEWA to purchase insurance,

(2) purchasing an association or MEWA health benefit plan may prevent your employees from accessing premium subsidies and cost sharing reductions,

(3) purchasing an association or MEWA health benefit plan may be more expensive than purchasing a plan on Vermont Health Connect (Exchange) and may not be the most cost-effective option for the employer or its employees; and

(4) the Vermont employer should understand all of its purchasing and financing options before electing insurance coverage through an association or MEWA and can contact the Vermont Office of the Healthcare Advocate for additional information.

D. The insurer shall file its advertising and marketing materials with the Department for prior approval.

E. The insurer shall file policies; certificates; statement of benefits; brochures; Summary of Benefits and Coverage; any endorsement, rider, or application used in conjunction with the health benefit plan; and any other document issued in conjunction with the health benefit plan with the Department for prior approval.

Section 11 Enrollment Periods

An insurer enrolling employers or individuals in an association or MEWA health benefit plan shall comply with all open enrollment and special enrollment periods applicable to the Vermont Health Benefit Exchange.

Section 12 Financial Auditing

A. Each association or MEWA shall file annually with the Commissioner, and with the members of the association or MEWA, within 180 days after the end of the fiscal year, an audited financial statement for the most recently completed fiscal year as supported by an independent certified public accountant's report. If the association or MEWA fails to file such audited financial statement, the Commissioner may perform the audit and the association or MEWA shall reimburse the Commissioner for the cost thereof, including, but not limited to, the cost to hire an independent auditor. An association or MEWA may request, in writing, permission from the Commissioner to submit a compilation statement or financial statement review conducted by a certified public accountant in lieu of an audited financial statement.

B. At a minimum, the audited financial statement shall contain the following exhibits for the current and prior fiscal years:

Balance sheet;

2. Statement of income;

3. Statement of changes in equity;

4. Proof of minimum security, as defined in Section 6 of this rule;

5. Notes to financial statements; and

6. Management and internal control letters.

C. The financial statement shall be prepared in accordance with generally accepted accounting principles, unless the Commissioner finds an exception to generally accepted accounting principles is necessary to preserve the fiscal integrity of the association or MEWA.

D. Each association or MEWA shall file a copy of the fidelity bond, or evidence acceptable to the Commissioner, covering the administrator, the association or MEWA employees and service agents with the audited financial statement.

E. In addition to the annual audited financial statement, the Commissioner may require any association or MEWA to file additional financial information including, but not limited to, interim financial reports, additional financial reports or exhibits, or statements considered necessary to secure complete information concerning the condition, solvency, experience, transactions, or affairs of the association or MEWA. The Commissioner shall establish reasonable deadlines for filing these additional reports, exhibits, or statements. The Commissioner may require verification of any additional required information.

F. An insurer offering a health benefit plan to an association or MEWA with covered lives in Vermont shall comply with all financial reporting requirements applicable to traditional insurance companies doing business in Vermont, including the requirement to file the Health Insurer Annual Statement (Act 152) Spreadsheet, provided for in 18 V.S.A. § 9414a, if it covered 2,000 or more Vermont lives at the end of the preceding calendar year. Instructions for annual filings by traditional insurance companies doing business in Vermont are set forth on the Insurance Division's webpages on the Department's website.

Section 13 Advertising and Marketing

A. Associations, MEWAs, and insurance agents or brokers acting on behalf of an association or MEWA may advertise and market to potential customers using only marketing materials that have been submitted to and approved by the Department pursuant to Section 5 of this rule. Associations, MEWAs, and insurance agents or brokers acting on their behalf are subject to 8 V.S.A. § 4084 and all other applicable provisions of law regarding advertising practices.

B. Using metal levels--bronze, silver, gold, and/or platinum--in the name of an association or MEWA health benefit plan shall be a per se violation of 8 V.S.A. § 4084.

Section 14 Record Retention

An association or MEWA doing business in Vermont shall maintain its books and records in accordance with Department Regulation 99-01.

Section 15 Enforcement Authority

A. To ensure compliance with the provisions of this rule and protect Vermont health care consumers, the Commissioner may, in his or her discretion, examine the business and financial affairs of an association or MEWA doing business in this State utilizing the powers granted by 8 V.S.A. §§ 13, 18, 3368-3390, 3563-3574, 4726, and other provisions of Titles 8 or 18 as may be applicable.

B. The Commissioner may decline to issue or renew a license issued pursuant to this rule if the Commissioner finds that an association or MEWA does not satisfy any standard or requirement of this rule or any provision of other applicable State or federal law or regulation.

C. The Commissioner may impose corrective action or suspend or revoke a license issued pursuant to this rule for a violation of this rule or any provision of applicable State and federal law.

D. Any person or entity that violates any provision of this rule is subject to the penalties provided in Chapters 3, 101, 107, and 129 of Title 8 and such other provisions of Titles 8 or 18 as may be applicable.

E. When the Commissioner believes that an association, MEWA, or any other person is operating in this State without being duly licensed or has violated the law, an administrative rule of the Department, or an Order of the Commissioner, the Commissioner may issue an order to cease and desist such violation or take any other action set forth in 8 V.S.A. § 3661.

Section 16 Notification to the Department by Insurers of Contracts with Associations or MEWAs

A. An insurer shall notify the Department by December 31 of each year of all health insurance contracts it issued, renewed, or had in force at any time during the 12-month period of that calendar year, that covered an association or MEWA with members having employees or subscribers in Vermont.

B. The contract between the insurer and the association or MEWA shall contain a provision requiring that the insurer maintain coverage despite nonpayment of premium for a minimum of 24 days after payment becomes due. The 24-day minimum period of coverage after nonpayment includes a 10-day minimum grace period, pursuant to 8 V.S.A. § 4065(3), after which a notice of termination is permitted, and a 14-day minimum period between notice of termination and cancellation of coverage, pursuant to 8 V.S.A. § 4091c(c). The effective date of termination due to nonpayment of premium shall not be less than 24 days after payment becomes due. The insurer shall notify the Department within five days of any cancellation or termination of a contract that covered an association or MEWA with members having employees or subscribers in Vermont.

C. Reporting Requirement for Fraudulent Association or MEWA Activity.

1. An insurer having knowledge or a reasonable suspicion that an association, MEWA, or entity holding itself out to be an association or MEWA in this State is not in compliance with the requirements of this rule shall immediately report to the Commissioner in writing regarding the identity of the entity, any known contact information or other materials, and the nature of the entity's practices triggering this reporting. This reporting obligation also requires an insurer report to the Commissioner any person, including a licensed or unlicensed agent, broker, or other individual, soliciting, offering, or selling a health benefit plan on behalf of an association, MEWA, or entity holding itself out to be such an association or MEWA in this State without complying with the requirements of this rule.

2. Confidentiality.

a. The documents and evidence provided pursuant to subsection (C) of this Section or obtained by the Commissioner in an investigation of suspected or actual conduct in violation of this rule shall be privileged and confidential, shall not be made public, and shall not be subject to discovery or introduction into evidence in any private civil action pursuant to 1 V.S.A. § 317(c)(26) and 8 V.S.A. § 3574.

b. Subdivision (a) of this subsection does not prohibit release by the Commissioner of documents and evidence obtained in an investigation of suspected or actual conduct in violation of this rule:

i. in administrative or judicial proceedings to enforce laws administered by the Commissioner;

ii. to federal, state, or local law enforcement or regulatory agencies, to an organization established for the purpose of detecting and preventing such conduct; or

iii. at the Commissioner's discretion in the furtherance of legal or regulatory proceedings brought as part of the Commissioner's official duties or to civil or criminal law enforcement authorities for use in the exercise of such authority's duties, in such manner as the Commissioner may deem proper.

c. Release of documents and evidence under subdivision (b) of this subsection does not abrogate or modify the privilege granted in subdivision (a) of this subsection.

Section 17 Insurance Agents and Brokers

A. Any person, including a licensed or unlicensed agent, a broker, or other individual, soliciting, offering, or selling a health benefit plan on behalf of an association or MEWA to a Vermont employer or a Vermont resident shall notify the Commissioner in writing prior to engaging in any conduct in connection with such sale. This written notification shall include, at a minimum, the person's name, address, telephone number, and email address; the name of the association or MEWA; and all materials in the person's possession used for the purposes of soliciting, offering, or selling the health benefit plan, including advertising and marketing materials.

B. Prior to completing a sale, any person, including a licensed or unlicensed agent, a broker, or other individual, soliciting, offering, or selling a health benefit plan on behalf of an association or MEWA to a Vermont employer or a Vermont resident shall disclose to the employer or resident that he/she is being compensated for the sale of the health benefit plan, that the employer or resident has the option of purchasing insurance on the Exchange, that purchasing such a health benefit plan may prevent the employer or individual from accessing premium subsidies and cost sharing reductions, and that purchasing such a health benefit plan may be more expensive than purchasing a plan on the Exchange. Any person, including a licensed or unlicensed agent, a broker, or other individual, soliciting, offering, or selling a health benefit plan on behalf of an association or MEWA to a Vermont employer or a Vermont resident shall also provide the employer or resident with a crosswalk of benefits comparing the association or MEWA health benefit plan with plans offered on the Exchange. As noted in Section 5, this crosswalk of benefits must be submitted to the Department for approval, either through SERFF or as part of the licensure and renewal process.

C. A person, including a licensed or unlicensed agent, broker, or other individual, soliciting, offering, or selling a health benefit plan on behalf of an association or MEWA to a Vermont employer or a Vermont resident, prior to engaging in or assisting any person to engage in offering an association or MEWA health benefit plan, shall carry out and document appropriate due diligence to establish, at a minimum, the following:

a. That the insurer is licensed in the State;

b. That the association or MEWA is licensed in the State;

c. That the disclosures listed in subsection (B) are in the policy document; and

d. That the advertising and marketing materials he/she is using have been approved by the Department.

D. Reporting Requirement for Fraudulent Association or MEWA Activity. Any person, including a licensed or unlicensed agent, a broker, or other individual, soliciting, offering, or selling a health benefit plan on behalf of an association, MEWA, or entity holding itself out to be such an association or MEWA, having knowledge or a reasonable suspicion that an association, MEWA, or entity holding itself out to be an association or MEWA in this State is not in compliance with the requirements of this rule shall immediately report to the Commissioner in writing regarding the identity of the entity, any known contact information or other materials, and the nature of the entity's practices triggering this reporting. This reporting obligation also requires such person to report to the Commissioner any person, including a licensed or unlicensed agent, a broker, or other individual, soliciting, offering, or selling a health benefit plan on behalf of an association, MEWA, or entity holding itself out to be such an association or MEWA in this State without complying with the requirements of this rule. The confidentiality provisions of Section 16(C)(2) shall apply to this subsection.

Section 18 Severability

If any provision of this rule, or the application thereof to any person or circumstance, is held invalid, such invalidity shall not affect other provisions or applications of this rule that can be given effect without the invalid provision or application, and to that end the provisions of this rule are severable.

History

• EFFECTIVE DATE:
• January 25, 2019 Secretary of State Rule Log #19-001
• STATUTORY AUTHORITY: 8 V.S.A. §§ 3368(a) (4), 4079a(b)

Chapter 072 RULE I-2018-03 SHORT-TERM, LIMITED-DURATION HEALTH INSURANCE

21-072 Code Vt. R. 21-020-072-X RULE I-2018-03 SHORT-TERM, LIMITED-DURATION HEALTH INSURANCE

Section 1 Purpose

This rule is promulgated pursuant to 8 V.S.A. § 4084a and in response to the publication on August 3, 2018 by the United States Department of Labor, the Department of Health and Human Services, and the Department of the Treasury of a final rule (the "Final Rule") amending the definition of short-term, limited-duration insurance found in 26 C.F.R. pt. 54, 29 C.F.R. pt 2590, and 45 C.F.R. pts. 144, 146, and 148. See Short-Term, Limited-Duration Insurance, 83 Fed. Reg. 38,212 (August 3, 2018) (to be codified at 26 C.F.R. pt. 54, 29 C.F.R. pt. 2590, and 45 C.F.R. pts. 144, 146, and 148). The Final Rule lengthens the maximum duration of short-term, limited-duration insurance from less than three months after the effective date of the contract to up to twelve months after the contract date. It also provides that short-term, limited-duration policies may be renewed or extended to a maximum duration of up to thirty-six months after the initial contract date. The preamble to the Final Rule makes clear that states are free to adopt more restrictive definitions and rules governing short-term, limited-duration health insurance to meet the specific needs of their health insurance markets.

Short-term, limited-duration health insurance is a type of health insurance coverage that is designed to fill temporary coverage gaps that may occur when an individual is transitioning from one plan or coverage to another plan or coverage. It is not intended to function as comprehensive health care coverage. Short-term, limited-duration health insurance is not considered Minimum Essential Coverage ("MEC") under the Affordable Care Act ("ACA") and is not required under federal law to provide essential health benefits or to cover preexisting conditions. Short-term, limited-duration health insurance is not subject to the ACA's requirements of guaranteed availability and guaranteed renewability and may, in contrast to ACA-compliant health coverage, contain annual and lifetime dollar limits.

The purpose of this rule is to set forth rules and procedures governing the filing, sale, marketing, and issuance of short-term, limited-duration health insurance in Vermont. This rule protects Vermont consumers by ensuring that short-term, limited-duration health insurance provides robust benefits and clear disclosure of its limitations compared to ACA-compliant health care policies and other types of MEC. It promotes the stability of Vermont's health insurance markets, including Vermont Health Connect, by ensuring that short-term, limited-duration health insurance is sold only to bridge temporary gaps in coverage and not as comprehensive health care coverage. Pursuant to 8 V.S.A. § 4084a, Vermont limits short-term, limited-duration health insurance to a three-month term and precludes renewal within a 12-month period. Nothing in this rule shall be construed to allow a short-term, limited-duration health insurance policy to be sold in Vermont prior to the effective date hereof.

Section 2 Definitions

The following terms are defined for purposes of this rule as follows:

A. "Short-term, limited-duration insurance" means individual health insurance that provides medical, hospital, or major medical expense benefits coverage pursuant to a policy or contract with an insurer and that has an expiration date specified in the policy or contract that is three months or less after the original effective date of the policy or contract.

B. "Commissioner" means the Commissioner of the Vermont Department of Financial Regulation.

C. "Department" means the Vermont Department of Financial Regulation.

D. "Insurer" means any insurer, nonprofit hospital or medical service corporation, health maintenance organization, or managed care organization offering health insurance as defined in 8 V.S.A. § 3301(a)(2).

Section 3 Authority

This rule is promulgated pursuant to the authority granted the Commissioner under 8 V.S.A. §§ 10, 11, 15, 4084a, and 4724.

Section 4 Scope

This rule shall apply to all short-term, limited-duration health insurance products delivered or issued for delivery in the State of Vermont. Notwithstanding the specificity of the following provisions, nothing in this rule shall be construed as exempting short-term, limited-duration health insurance, its issuers, or its sales agents from any requirement of Title 8 of the Vermont Statutes Annotated that is generally applicable to insurers, insurance products, insurance sales and marketing, and the business of insurance, unless such requirement is inconsistent with the provisions of this rule.

Section 5 Certificate of Authority

An insurer shall not provide short-term, limited-duration health insurance coverage in this State unless the insurer possesses a certificate of authority from the Commissioner to offer health insurance as defined in 8 V.S.A. § 3301(a)(2); is licensed or registered with the Commissioner as a nonprofit hospital or medical service corporation, health maintenance organization, or managed care organization; or is exempted from these requirements by the provisions of 8 V.S.A. § 3368.

Section 6 Filing Requirements

A. No policy of short-term, limited-duration health insurance, unless exempted by 8 V.S.A. § 3368, shall be delivered or issued for delivery in this State, nor shall any endorsement, rider, or application form be used in connection with such policy, until the form, premium rates, and rules for the classification of risks pertaining thereto have been filed with and approved by the Commissioner.

B. Every such filing shall be made at least thirty days in advance of such delivery or issuance for delivery. If not affirmatively approved, at the expiration of such thirty days, the form, rate, or rule so filed shall be deemed approved unless prior thereto it has been disapproved or found to be incomplete. The Commissioner may extend by not more than an additional sixty days the period within which he or she may so affirmatively approve or disapprove any such form or rate, by giving notice to the insurer before the expiration of the initial thirty-day period. If not affirmatively approved at the expiration of any such extended period, the form, rate, or rule so filed shall be deemed approved unless prior thereto it has been disapproved or found to be incomplete.

C. In making his or her determination, the Commissioner shall consider whether a policy form, premium rate, or rule is affordable and is not unjust, unfair, inequitable, misleading, or contrary to the laws of this State. The Commissioner shall notify an insurer in writing if the insurer files any form, rate, or rule containing a provision that does not meet the standards expressed in this subsection. In such notice, the Commissioner shall state that a hearing will be granted within twenty days upon the insurer's written request. Insurers requesting a hearing must do so within thirty days of the date of the Commissioner's notice of disapproval.

D. The Commissioner may at any time withdraw approval of a form, rate, or rule by written notice to the insurer stating the reasons therefore. In any notice withdrawing approval of a previously approved form, rate, or rule, the Commissioner shall state that a hearing will be granted within twenty days of an insurer's request. Insurers requesting a hearing must do so within thirty days of the date of the Commissioner's notice of withdrawal of approval. Any such withdrawal of approval of a previously approved form, rate, or rule shall be effective not less than thirty-one days after the giving of the notice of withdrawal, as the Commissioner shall state the effective date of withdrawal in such notice. Any demand for a hearing relative to the Commissioner's withdrawal of approval of a form which has been received by the Commissioner prior to the effective date of such withdrawal shall stay such action pending the hearing thereon.

E. Each filing of a policy form of short-term, limited-duration health insurance, or other document form, premium rate, or rule submitted pursuant to this section, shall be accompanied by payment to the Commissioner of a nonrefundable fee of $ 150.00, as set forth in 8 V.S.A. § 4062a.

Section 7 Benefit Requirements

A. Every short-term, limited-duration health insurance policy shall, at a minimum, provide the following benefits and protections:

1. Benefits as required in 33 V.S.A. § 1806(b)(1)-(2).

2. Policy provisions that comply with Department Regulation H-2009-03, §§ 2.2 Disclosure of Information; 2.4 Access to and Continuity of Care: Emergency and Urgent Services; and 5.1 Ensuring Adequacy of Access to Providers and Continuity of Services.

3. All other insurance requirements and benefit mandates for health insurers as provided in 8 V.S.A. Chapter 107 and 18 V.S.A. Chapter 221, as may be amended from time to time, or as specified by rule by the Commissioner.

4. All other benefits required to comply with applicable federal laws and regulations.

B. An insurer shall not deliver or issue for delivery a short-term, limited-duration health insurance policy covering lives located in this State that contains an exclusion or limitation for pre-existing conditions or a waiting period on the coverage of pre-existing conditions.

Section 8 General Rules

A. A short-term, limited-duration health insurance policy or contract shall be nonrenewable, and an insurer shall not issue a short-term, limited-duration health insurance policy or contract to any person if the insurance would result in the person being covered by short-term, limited-duration health insurance coverage for more than three months in any twelve-month period.

1. Every application for a policy of short-term, limited-duration health insurance shall contain a statement by the applicant attesting that purchase of the policy would not result in any insured being covered by short-term, limited-duration health insurance for more than three months during the preceding twelve-month period.

2. Such attestation shall be witnessed in person and in writing on the application form by the insurer or responsible producer. If the policy or contract is completed online, the attestation must be provided conspicuously, in full, and must be acknowledged electronically by each consumer

Compliance by the insurer or producer with the requirements parts (1) through (3) of this subsection shall create a presumption that the insurer or producer has complied with the obligations set forth in subsection 8(A).

B. Short-term, limited-duration health insurance shall not be sold on a group or blanket basis.

C. Medical Loss Ratio. The rates for a policy of short-term, limited-duration-health insurance shall comply with the medical loss ratio and rebating requirements of 45 C.F.R. §§ 158.210-240. A medical loss ratio of eighty percent is required and shall be calculated consistent with the federal methodology. All expenses incurred by the insurer and payable to a licensed agent, broker, or producer who is not an employee of the insurer shall be incorporated into the medical loss ratio under this subsection and shall be incorporated in the administrative expense portion of an insurer's rate filing.

D. In addition to complying with all insurance requirements and benefit mandates as set forth in 8 V.S.A. Chapter 107 and 18 V.S.A. Chapter 221, and all applicable Department regulations, every policy of short-term, limited-duration health insurance delivered or issued for delivery in this State:

1. shall include a process for subscribers to appeal adverse benefit determinations that complies with the requirements of 8 V.S.A. § 4089f and Department Regulation H-2011-02;

2. may not contain a provision purporting to reserve discretion to the insurer to interpret the terms of the contract or to provide standards of interpretation or review that are inconsistent with the laws of this State. Any such policy, contract, certificate, or agreement shall be null and void to the extent it conflicts with this subsection, pursuant to 8 V.S.A. § 4062f.

3. shall not contain an exclusion or limitation for pre-existing conditions or a waiting period on the coverage of pre-existing conditions.

E. The notice required by the Final Rule shall be included as required by federal law and shall be titled "Federal Law Notice." Additionally, every application form for short-term, limited-duration health insurance and the cover page of every policy and/or contract of short-term, limited-duration health insurance delivered or issued for delivery in this State shall contain the following notice prominently displayed in no less than 15-point boldface type of uniform font. The Vermont Resident Notice shall come immediately before the Federal Law Notice and be displayed in the same font, but a larger size, as the Federal Law Notice:

"VERMONT RESIDENT NOTICE

Vermont residents have greater rights and protections under Vermont law. Despite the language in the Federal Law Notice below, all short-term, limited-duration health insurance marketed, offered, and delivered in Vermont or to a Vermont resident must provide the federal Essential Health Benefits, the state-mandated benefits (including hospitalization, maternity care, preventive care, prescription drugs, and mental health and substance use disorder services), and emergency services, as well as covering pre-existing conditions and prohibiting annual limits.

This is a policy of short-term, limited-duration health insurance and is designed to fill temporary coverage gaps that may occur when an individual is transitioning from one plan to another. This policy is nonrenewable, and you may not be covered by a policy of short-term, limited-duration insurance for more than three months in any twelve-month period. Short-term, limited-duration insurance provides limited benefits and consumer protections compared to comprehensive health care coverage. You should not purchase this policy as comprehensive health care coverage. You may be able to purchase more affordable comprehensive health care coverage on Vermont Health Connect. This is not minimum essential coverage that satisfies the health coverage requirement under Vermont law. If you have questions about this policy or whether it is right for you, you should consult your broker, a Vermont Health Connect Assister, or the Vermont Department of Financial Regulation at __________ ."

Every policy of short-term, limited-duration health insurance shall include the Department's current consumer service telephone number and website in the blank provided in the above notice.

F. Insurers marketing or offering short-term, limited-duration health insurance policies in this State shall provide a plain-language explanation of the general limits of the policy in the application, and the application should have a signature line indicating that the consumer received and understood this explanation.

G. In the footer on every page of a short-term, limited-duration health insurance contract, application, policy, advertising or marketing materials, and outline of coverage the following statement in no less than 12-point boldface type of uniform font shall be included: "Short-term, limited-duration health insurance provides temporary coverage and limited benefits."

Section 9 . Advertising and Marketing

A. An insurer issuing a short-term, limited-duration health insurance policy in this State shall file its advertising and marketing materials with the Department for prior approval.

B. Insurance agents, brokers, and all third parties involved in the marketing or sale of a short-term, limited-duration health insurance policy in this State or to residents of this State shall use only marketing materials that have been submitted to the Department by the issuer of such policy and approved pursuant to subsection (A) above. Insurance agents, brokers, and third parties marketing short-term, limited-duration health insurance policies are subject to Title 8 and all applicable provisions of Vermont law regarding advertising practices.

C. Insurance agents, brokers, and all third parties involved in the marketing or sale of a short-term, limited-duration health insurance policy in this State or to residents of this State shall read aloud the second paragraph of the "Vermont Resident Notice" to all consumers contacted and receive verbal confirmation that each consumer has understood the notice. If the product is advertised or marketed online, the notice must be provided conspicuously, in full, and must be acknowledged electronically by each consumer.

D. Using metal levels--bronze, silver, gold, and/or platinum--in the name of a short-term, limited-duration health insurance policy, or in the advertising or marketing materials therefore, shall be a per se violation of the provisions governing false information and advertising of insurance policies in 8 V.S.A. § 4724 (The Insurance Trade Practices Act).

Section 10 Record Retention

An insurer doing business in Vermont shall maintain its books and records in accordance with Department Regulation 99-01.

Section 11 Enforcement Authority

A. To ensure compliance with the provisions of this rule and protect Vermont health care consumers, the Commissioner may, in his or her discretion, utilize all of the powers granted by 8 V.S.A. §§ 13, 15, 18, 3368-3390, 3563-3574, 3661, 4726, and other provisions of Titles 8 or 18 as may be applicable.

B. Any person or entity that violates any provision of this rule is subject to the penalties provided in Chapters 3, 101, 107, and 129 of Title 8 and such other provisions of Titles 8 or 18 as may be applicable.

Section 12 Notification to the Department

A. An insurer shall notify the Department by March 1 of each year of all short-term, limited-duration health insurance policies it issued or had in force at any time during the preceding calendar year that covered residents of Vermont.

B. Reporting Requirement for Fraudulent Activity.

1. An insurer having knowledge or a reasonable suspicion that a policy of short-term, limited-duration health insurance that is not in compliance with the requirements of this rule is being marketed or sold in this State shall immediately report to the Commissioner in writing regarding the identity and contact information (if known) of the entity or person marketing or selling such policy, as well as providing any relevant documents in its possession.

2. Confidentiality.

a. The documents and evidence provided pursuant to this-subsection (B) or obtained by the Commissioner in an investigation of suspected or actual conduct in violation of this rule shall be privileged and confidential, shall be exempt from public inspection and copying, and shall not be subject to discovery or introduction into evidence in any private civil action pursuant to 1 V.S.A. § 317(c)(26) and 8 V.S.A. § 3574, except as described in subdivision (b) of this subsection.

b. Subdivision (a) of this subsection does not prohibit release by the Commissioner of documents and evidence obtained in an investigation of suspected or actual conduct in violation of this rule:

i. in administrative or judicial proceedings to enforce laws administered by the Commissioner;

ii. to federal, state, or local law enforcement or regulatory agencies, or to an organization established for the purpose of detecting and preventing such conduct or to the National Association of Insurance Commissioners; or

iii. at the Commissioner's discretion in the furtherance of legal or regulatory proceedings brought as part of the Commissioner's official duties or to civil or criminal law enforcement authorities for use in the exercise of such authority's duties, in such manner as the Commissioner may deem proper.

c. Release of documents and evidence under subdivision (b) of this subsection does not abrogate or modify the privileges described in subdivision (a) of this subsection.

Section 13 Insurance Agents and Brokers

A. Any person, including a licensed or unlicensed agent, broker, or any other individual, soliciting, offering, or selling a policy of short-term, limited-duration health insurance to a Vermont resident shall, prior to engaging in such activity, carry out and document appropriate due diligence to establish, at a minimum, the following:

1. That the insurer issuing the policy of short-term, limited-duration health insurance is licensed in the State;

2. That the policy forms and rates for such policy have been approved by the Department;

3. That the disclosures listed in subsection 8(E) of this rule are in the policy document and application form; and

4. That the advertising and marketing materials he/she is using have been approved by the Department.

B. Reporting Requirement for Fraudulent Activity. Any person, including a licensed or unlicensed agent, a broker, or any other individual, soliciting, offering, or selling a policy of short-term, limited-duration health insurance to a Vermont resident, having knowledge or a reasonable suspicion that such policy or the insurer issuing it, is not in compliance with the requirements of this rule, shall immediately report to the Commissioner in writing the identity of the entity, any known contact information or other materials, and the nature of the entity's practices triggering this reporting. The confidentiality provisions of Section 11(B)(2) shall apply to information submitted to the Commissioner pursuant to this subsection.

Section 14 Severability

If any provision of this rule, or the application thereof to any person or circumstance, is held invalid, such invalidity shall not affect other provisions or applications of this rule that can be given effect without the invalid provision or application, and to that end the provisions of this rule are severable.

History

• EFFECTIVE DATE:
• May 24, 2019 Secretary of State Rule Log #19-021
• Statutory Authority 8 V.S.A. §§ 10, 11, 15 and 4084a

Chapter 073 SELF-INSURED MULTIPLE EMPLOYER WELFARE ARRANGEMENTS AND ASSOCIATION HEALTH PLANS (I-2018-02)

21-073 Code Vt. R. 21-020-073-X SELF-INSURED MULTIPLE EMPLOYER WELFARE ARRANGEMENTS AND ASSOCIATION HEALTH PLANS (I-2018-02)

Section 1 Purpose

This rule is promulgated pursuant to 8 V.S.A. § 4079a and in response to the United States Department of Labor's June 21, 2018 amendment to 29 C.F.R § 2510. See Definition of "Employer" Under Section 3(5) of ERISA--Association Health Plans, 83 Fed. Reg. 28,961 (June 21, 2018) (to be codified at 29 C.F.R. § 2510.3-5). The purpose of this rule is to set forth rules, forms, and procedures regarding self-insured association or MEWA health plans. This rule protects Vermont consumers and promotes the stability of Vermont's health insurance markets, to the extent permitted under federal law, by implementing licensure, solvency, reserve, and rating requirements. This rule shall not apply to association health plans that are fully funded. Nothing in this rule shall be construed to provide a self-insured association or MEWA, created pursuant to the Department of Labor's June 21, 2018 amendment to 29 C.F.R § 2510, authority to operate in the State before January 1, 2019. Preexisting self-insured associations or MEWAs must come into compliance with this rule no later than December 31, 2019.

Section 2 Definitions

The following terms are defined for purposes of this rule as follows:

A. "Association" means any foreign or domestic association that provides a health benefit plan that covers the employees of at least one employer that is either domiciled in Vermont or has its principal headquarters or principal administrative office in Vermont. For purposes of this rule, "association" refers to self-insured associations, unless otherwise stated.

B. "Commissioner" means the Commissioner of the Vermont Department of Financial Regulation.

C. "Department" means the Vermont Department of Financial Regulation.

D. "Employee Welfare Benefit Plan," as used in this rule, has the same meaning as that contained in 29 U.S.C. § 1002(1).

E. "Health Benefit Plan" means a policy, contract, certificate, or agreement offered or issued by a self-insured association or MEWA to provide, deliver, arrange for, pay for, or reimburse any of the costs of health services, as defined in 33 V.S.A § 1802(3).

F. "Multiple employer welfare arrangement (MEWA)," as used in this rule, has the same meaning as that contained in 29 U.S.C. § 1002(40). For purposes of this rule, "multiple employer welfare arrangement (MEWA)" refers to self-insured associations, unless otherwise stated.

G. "Self-Insured" means any association or MEWA offering a health benefit plan that reimburses costs of health services incurred by covered persons pursuant to the benefits and coverages provided by their plan exclusively from association or MEWA assets.

H. "Third-party Administrator" means any person who, on behalf of an association or MEWA, receives or collects charges, contributions, or premiums for, or adjusts or settles claims on or for residents of this State or Vermont health care providers and facilities.

Section 3 Authority

The Department has authority to promulgate rules for domestic and foreign self-insured association health benefit plans pursuant to 8 V.S.A. §§ 3368 and 4079a(b) and 29 U.S.C. § 1144(b)(6)(A)(ii). The Department has authority to regulate any association or MEWA offering a self-insured health benefit plan in this State.

Section 4 Captive

Self-insured associations and MEWAs insured via a captive insurance company are exempt from this rule pursuant to 8 V.S.A. § 6016. Such associations and MEWAs will be regulated by the Department's Captive Insurance Division per 8 V.S.A. Chapter 141.

Section 5 Licensing Requirement

No association or MEWA may offer a self-insured health benefit plan in this State unless duly licensed with the Department. An association or MEWA shall be licensed and regulated as an insurer in accordance with Title 8 V.S.A. Chapter 101, and all applicable regulations. The application for license shall be on a form prescribed by the Department. To be eligible for licensure in the State, all self-insured associations and MEWAs shall meet all of the following requirements in addition to those contained in Title 8 V.S.A. Chapter 101:

A. Be licensed as a nonprofit corporation.

B. Be established and maintained by a trade association, industry association, professional association, or by any other business group or association of any kind that has a constitution or bylaws specifically stating its purpose and have been organized and maintained in good faith for a continuous period of five years, for purposes other than obtaining or providing health care coverage benefits to its members.

C. Have at least 500 covered lives at the time of application.

D. Have been operating in compliance with ERISA on a self-insured basis for a continuous period of five years pursuant to a trust agreement by a board of trustees that shall have complete fiscal control over the association or MEWA, and that shall be responsible for all operations of the association or MEWA. The trustees shall be selected by vote of the participating employers and shall be owners, partners, officers, directors, or employees of one or more employers participating in the association or MEWA. A trustee may not be an owner, officer, or employee of the association, MEWA, or third-party administrator. The trustees shall have authority to approve applications of association members for participation in the association or MEWA and to contract with an authorized administrator or service company to administer the day-to-day affairs of the association or MEWA.

E. Offer benefits only to association or MEWA members.

F. Offer benefits only through licensed producers, as defined in Title 8 V.S.A. Chapter 131.

G. Have within its own organization adequate facilities and competent personnel to serve the association or MEWA or have contracted with a registered third-party administrator to provide those services.

H. Have established a procedure for handling claims for benefits in the event of the dissolution of the association or MEWA.

I. All filings made under this rule shall be submitted to:

Department of Financial Regulation

Insurance Division

Attn: Company Licensing

89 Main Street

Montpelier VT 05620-3101

Section 6 Stop Loss Insurance

The association or MEWA shall at all times maintain a stop-loss insurance policy or contract in compliance with Regulation H-2009-02 (Revised) and shall establish and maintain appropriate loss and loss adjustment reserves determined by sound actuarial principles.

Section 7 Rating Requirements

A. An association or MEWA shall obtain rate approval annually from the Green Mountain Care Board through the rate review process provided in 8 V.S.A. §§ 4062 and 4062a. No self-insured association or MEWA may offer any plan that does not have approved rates.

B. Any association or MEWA providing a health benefit plan shall use a community rating methodology acceptable to the Commissioner as outlined in this subsection. The association or MEWA may be rated based on the collective group experience of its members, provided that each certificate holder and dependent is charged the same community rate. The following risk classification factors are prohibited from use in rating individual employees or employer members, and dependents of such employees or members:

1. demographic rating, including age and gender rating;

geographic area rating;

3. health status rating;

4. industry rating;

5. medical underwriting and screening;

6. experience rating;

7. tier rating (except for tiers related to family structure); and 8. durational rating.

C. The Commissioner may permit an association or MEWA to establish rewards, premium discounts, split benefit designs, rebates, or otherwise waive or modify applicable copayments, deductibles, or other cost-sharing amounts in return for adherence by a member or subscriber to programs of health promotion and disease prevention that are satisfactory to the Commissioner. If such a wellness plan is integrated in the health benefit plan, approval shall occur through the SERFF product approval process, and the provisions of Section 5 shall apply to filing, licensure, and renewal. If the wellness plan is offered as a standalone program, then it must be submitted pursuant to Section 5 for approval in conjunction with licensure and renewal.

D. An association or MEWA shall guarantee acceptance of all persons within the association or MEWA and their dependents.

E. An association or MEWA shall guarantee the rates on all plans for a minimum of 12 months. The calendar year constitutes the plan year for all health benefit plans offered by an association or MEWA.

F. Medical Loss Ratio. A foreign or domestic association or MEWA with covered lives in Vermont shall comply, with respect to those covered lives, with the medical loss ratio and rebating requirements of 45 C.F.R. §§ 158.210-240. Consistent with 45 C.F.R. § 158.210(a), a minimum medical loss ratio of 85 percent is required and shall be calculated consistent with the federal methodology.

G. All expenses incurred by the association or MEWA and payable to a licensed agent, broker, or producer who is not an employee of the association or MEWA shall be incorporated into the medical loss ratio under subsection (F) of this Section and shall be incorporated in the administrative expense portion of the association or MEWA's rate filing. All expenses incurred by the association or MEWA and payable to a licensed agent, broker, or producer--whether an employee of the association or MEWA--shall be reported to the Department with an explanation of how those fees are funded. If the association or MEWA utilizes an agent, broker, or producer for the sale of products including, but not limited to, a health benefit plan, the association or MEWA shall report the portion of the fee as it relates to the advertising, marketing, and sale of the health benefit plan only.

Section 8 Benefit Requirements

A. Each health benefit plan offered by an association or MEWA shall, at a minimum, provide the following benefits:

1. Essential Health Benefits as defined in 42 U.S.C. § 18022(b)(1).

2. Cost sharing requirements of 42 U.S.C. § 18022(c)(1), (c)(3).

3. Lifetime and annual limits as prescribed in 29 C.F.R. § 2590.715-2711.

4. A level of coverage equal to or greater than that designed to provide benefits that are actuarially equivalent to 60 percent of the full actuarial value of the benefits provided under the plan.

5. The requirements of Department Regulation H-2009-03.

All other insurance requirements and benefit mandates as provided in 8 V.S.A. and 18 V.S.A. Chapter 221, as may be amended from time to time, and as specified by rule by the Commissioner.

7. All other benefits required to comply with applicable federal laws and regulations.

8. The requirement of pediatric dental and vision coverage as required in (A)(1) of this Section can be satisfied by either a stand-alone dental or vision plan or as a benefit embedded in the health benefit plan.

B. Every health benefit plan offered by an association or MEWA shall include a process for subscribers to appeal adverse benefit determinations that complies with the requirements of 8 V.S.A. § 4089f and Department Regulation H-2011-02.

C. No health benefit plan or related policy, contract, certificate, or agreement offered or issued in this State may reserve discretion to an association or MEWA to interpret the terms of the contract or to provide standards of interpretation or review that are inconsistent with the laws of this State. Any such policy, contract, certificate, or agreement shall be null and void to the extent it conflicts with this subsection, pursuant to 8 V.S.A. § 4062f.

D. An association or MEWA shall not deliver or issue for delivery a health benefit plan covering lives located in this State that contains an exclusion or limitation for pre-existing conditions or a waiting period on the coverage of pre-existing conditions.

Section 9 Membership Requirements

A. An association or MEWA offering a health benefit plan in the State shall meet the requirements of 83 Fed. Reg. 28,961 (June 21, 2018) (to be codified at 29 C.F.R. § 2510.35(c)), provided these standards are not implemented in a manner that is subterfuge for discrimination as is prohibited under 8 V.S.A. §§ 4062 and 4083 and 83 Fed. Reg. 28,961 (June 21, 2018) (to be codified at 29 C.F.R. § 2510.3-5(d)).

B. An association or MEWA doing business in this State may not restrict membership to employers located within a particular geographic region of the State and shall accept employers with a principal place of business located in any part of the State.

Section 10 Filing Requirements

No policy or certificate of health insurance shall be delivered or issued for delivery in this State until a copy of the form and of the rules for the classification of risks has been filed with and approved by the Department in accordance with 8 V.S.A. §§ 3541, 4062, 4515a, 4587, or 5104.

A. The following notice shall be provided to employers and employees who obtain coverage from an MEWA or association and shall be printed in no less than 14-point boldface type of uniform font in the policy, certificate, and/or a stand-alone notice:

"NOTICE

The association or MEWA is not an insurance company and therefore may subject employers and employees to increased financial risk. If you have questions about an association or MEWA policy or whether such a policy is right for you, you should consult your broker, a Vermont Health Connect Assister, or the Vermont Department of Financial Regulation at________.

The Vermont Life & Health Insurance Guaranty Association does not cover policies issued by associations or MEWAs. In the event of an insolvency or dissolution of the association or MEWA you may be liable for unpaid claims and expenses."

B. Each notice under subsection A of this Section shall include the Department's current consumer service telephone number and website in the blank provided in this notice.

C. The association or MEWA shall include in its policy document the following disclosures:

(1) the Vermont employer has the option of purchasing insurance on Vermont Health Connect (Exchange) and does not have to join an association or MEWA to purchase insurance;

(2) purchasing an association or MEWA health benefit plan may prevent your employees from accessing premium subsidies and cost sharing reductions;

(3) purchasing an association or MEWA health benefit plan may be more expensive than purchasing a plan on Vermont Health Connect (Exchange) and may not be the most cost-effective option for the employer or its employees; and

(4) the Vermont employer should understand all of its purchasing and financing options before electing insurance coverage through an association or MEWA and can contact the Vermont Office of the Healthcare Advocate for additional information.

D. The association or MEWA shall file its advertising and marketing materials with the Department for prior approval. The association or MEWA shall be responsible for any advertising or marketing materials disseminated about its health benefit plan regardless of the source.

E. The association or MEWA shall file policies; certificates; statement of benefits; brochures; Summary of Benefits and Coverage; any endorsement, rider, or application used in conjunction with the health benefit plan; and any other document issued in conjunction with the health benefit plan with the Department for prior approval.

Section 11 Enrollment Periods

An association or MEWA enrolling members in a health benefit plan shall comply with all open enrollment and special enrollment periods. The open enrollment period is defined as November 1 through December 15. The qualified health plan (QHP) market rules allowing for certain enrollment extensions for small groups do not apply to the association health plan (AHP) market since, under federal law, AHPs are functionally treated as large groups. An employer that elects to obtain AHP insurance for its employees will have to do so during open enrollment for the following plan year. Only an employer that comes into the market (i.e. a bona fide new business) can join an association and elect coverage through an AHP outside open enrollment, and it must do so within 60 days of coming into existence. The Department will not consider a business that previously existed but reorganized for the purposes of gaining access to an AHP "new"

Section 12 Financial Auditing

A. Each association or MEWA shall file annually with the Commissioner, and with the members of the association or MEWA, within 180 days after the end of the fiscal year, an audited financial statement for the most recently completed fiscal year as supported by an independent certified public accountant's report. If the MEWA or association fails to file such audited financial statement, the Commissioner may perform the audit and the association or MEWA shall reimburse the Commissioner for the cost thereof, including, but not limited to, the cost to hire an independent auditor. An association or MEWA may request, in writing, permission from the Commissioner to submit a compilation statement or financial statement review conducted by a certified public accountant in lieu of an audited financial statement.

B. At a minimum, the audited financial statement shall contain the following exhibits for the current and prior fiscal years:

Balance sheet;

2. Statement of income;

3. Statement of changes in equity;

4. Proof of minimum capital and surplus, as required pursuant to 8 V.S.A. § 3304;

5. Notes to financial statements; and

6. Management and internal control letters.

C. The financial statement shall be prepared in accordance with statutory accounting practices, unless the Commissioner finds an exception to statutory accounting practices is necessary to preserve the fiscal integrity of the association or MEWA.

D. Each association or MEWA shall file a copy of the fidelity bond, or evidence acceptable to the Commissioner, covering the administrator, the MEWA or association employees, and service agents with the audited financial statement.

E. The Commissioner may require any association or MEWA to file additional financial-information including, but not limited to, interim financial reports, additional financial reports or exhibits, or statements considered necessary to secure complete information concerning the condition, solvency, experience, transactions, or affairs of the association or MEWA. The Commissioner shall establish reasonable deadlines for filing these additional reports, exhibits, or statements. The Commissioner may require verification of any additional required information.

F. An association or MEWA with covered lives in Vermont shall comply with all financial reporting requirements applicable to traditional insurance companies doing business in Vermont, including the requirement to file the Health Insurer Annual Statement (Act 152) Spreadsheet, provided for in 33 V.S.A. § 9414a. Instructions for annual filings by traditional insurance companies doing business in Vermont are set forth on the Insurance Division's webpages on the Department's website.

Section 13 Advertising and Marketing

A. Associations, MEWAs, and insurance agents or brokers acting on behalf of an association or MEWA may advertise and market to potential customers using only marketing materials that have been submitted to and approved by the Department pursuant to Section 10 of this rule. Associations, MEWAs, and insurance agents or brokers acting on their behalf are subject to 8 V.S.A. § 4084 and all other applicable provisions of law regarding advertising and marketing practices.

B. Using metal levels--bronze, silver, gold, and/or platinum--in the name of an association or MEWA health benefit plan, or in advertising or marketing such a plan, shall be a per se violation of 8 V.S.A. § 4084.

Section 14 Record Retention

An association or MEWA doing business in Vermont shall maintain its books and records in accordance with Department Regulation 99-01.

Section 15 Enforcement Authority

A. To ensure compliance with the provisions of this rule and protect Vermont health care consumers, the Commissioner may, in his or her discretion, examine the business and financial affairs of an association or MEWA doing business in this State utilizing the powers granted by 8 V.S.A. §§ 13, 18, 3368-3390, 3563-3574, 4726, and other provisions of Titles 8 or 18 as may be applicable.

B. The Commissioner may decline to issue or renew a license issued pursuant to this rule if the Commissioner finds that an association or MEWA does not satisfy any standard or requirement of this rule or any provision of other applicable State or federal law or regulation.

C. The Commissioner may impose corrective action or suspend or revoke a license issued pursuant to this rule for a violation of this rule or any provision of applicable State and federal law.

D. Any person or entity that violates any provision of this rule is subject to the penalties provided in Chapters 3, 101, 107, and 129 of Title 8 and such other provisions of Titles 8 or 18 as may be applicable.

E. When the Commissioner believes that an association, MEWA, or any other person is operating in this State without being duly licensed or has violated the law, an administrative rule of the Department, or an Order of the Commissioner, the Commissioner may issue an order to cease and desist such violation or take any other action set forth in 8 V.S.A. § 3661.

Section 16 Notification to the Department by Third-Party Administrators of Contracts with Associations or MEWAs

A. A third-party administrator shall notify the Department by December 31 of each year of all contracts it had in force at any time during the 12-month period of that calendar year that covered an association or MEWA with members having employees or subscribers in Vermont.

B. The third-party administrator shall notify the Department within five days of any cancellation or termination of a contract that covered an association or MEWA with members having employees or subscribers in Vermont.

C. Reporting Requirement for Fraudulent Association or MEWA Activity.

1. A third-party administrator having knowledge or a reasonable suspicion that an association, MEWA, or entity holding itself out to be an association or MEWA in this State is not in compliance with the requirements of this rule shall immediately report to the Commissioner in writing regarding the identity of the entity, any known contact information and other materials, and the nature of the entity's practices triggering this reporting. This reporting obligation also requires a third-party administrator to report to the Commissioner any person, including a licensed or unlicensed agent, broker, or other individual, soliciting, offering, or selling a health benefit plan on behalf of an association, MEWA, or entity holding itself out to be an association or MEWA in this State without complying with the requirements of this rule.

2. Confidentiality.

a. The documents and evidence provided pursuant to subsection (C) of this Section or obtained by the Commissioner in an investigation of suspected or actual conduct in violation of this rule shall be privileged and confidential, shall not be made public, and shall not be subject to discovery or introduction into evidence in any private civil action pursuant to 1 V.S.A. § 317(c)(26) and 8 V.S.A. § 3574.

b. Subdivision (a) of this subsection does not prohibit release by the Commissioner of documents and evidence obtained in an investigation of suspected or actual conduct in violation of this rule:

i. in administrative or judicial proceedings to enforce laws administered by the Commissioner;

ii. to federal, state, or local law enforcement or regulatory agencies, to an organization established for the purpose of detecting and preventing such conduct; or

iii. at the Commissioner's discretion in the furtherance of legal or regulatory proceedings brought as part of the Commissioner's official duties or to civil or criminal law enforcement authorities for use in the exercise of such authority's duties, in such manner as the Commissioner may deem proper.

c. Release of documents and evidence under subdivision (b) of this subsection does not abrogate or modify the privilege granted in subdivision (a) of this subsection.

Section 17 Insurance Agents and Brokers

A. Any person, including a licensed or unlicensed agent, a broker, or other individual, soliciting, offering, or selling a health benefit plan on behalf of an association or MEWA to a Vermont employer or a Vermont resident shall notify the Commissioner in writing prior to engaging in any conduct in connection with such sale. This written notification shall include, at a minimum, the person's name, address, telephone number, and email address; the name of the association or MEWA; and all materials in the person's possession used for the purposes of soliciting, offering, or selling the health benefit plan, including advertising and marketing materials.

B. Prior to completing a sale, any person, including a licensed or unlicensed agent, a broker, or other individual, soliciting, offering, or selling a health benefit plan on behalf of an association or MEWA to a Vermont employer or a Vermont resident shall disclose to the employer or resident that he/she is being compensated for the sale of the health benefit plan, that the employer or resident has the option of purchasing insurance on the Exchange, that purchasing such a health benefit plan may prevent the employer or individual from accessing premium subsidies and cost sharing reductions, and that purchasing such a health benefit plan may be more expensive than purchasing a plan on the Vermont Health Connect (Exchange). Any person, including a licensed or unlicensed agent, a broker, or other individual, soliciting, offering, or selling a health benefit plan on behalf of an association or MEWA to a Vermont employer or a Vermont resident shall also provide the employer or resident with a crosswalk of benefits comparing the association or MEWA health benefit plan with plans offered on the Vermont Health Connect (Exchange). As noted in Section 5, this crosswalk of benefits must be submitted to the Department for approval, either through SERFF or as part of the licensure and renewal process.

C. A person, including a licensed agent, broker, or other individual, soliciting, offering, or selling a health benefit plan on behalf of an association or MEWA to a Vermont employer or a Vermont resident, prior to engaging in or assisting any person to engage in offering an association or MEWA health benefit plan, shall carry out and document appropriate due diligence to establish, at a minimum, the following:

a. That the association or MEWA is licensed in the State;

b. That the disclosures listed in subsection (B) are in the policy document; and

c. That the advertising and marketing materials he/she is using have been approved by the Department.

D. Reporting Requirement for Fraudulent Association or MEWA Activity. Any person, including a licensed or unlicensed agent, a broker, or other individual, soliciting, offering, or selling a health benefit plan on behalf of an association, MEWA, or entity holding itself out to be an association or MEWA, having knowledge or a reasonable suspicion that an association, MEWA, or entity holding itself out to be an association or MEWA in this State is not in compliance with the requirements of this rule shall immediately report to the Commissioner in writing regarding the identity of the entity, any known contact information or other materials, and the nature of the entity's practices triggering this reporting. This reporting obligation also requires such person to report to the Commissioner any person, including a licensed or unlicensed agent, a broker, or other individual, soliciting, offering, or selling a health benefit plan on behalf of an association, MEWA, or entity holding itself out to be an association or MEWA in this State without complying with the requirements of this rule. The confidentiality provisions of Section 16(C)(2) shall apply to this subsection.

Section 18 Severability

If any provision of this rule, or the application thereof to any person or circumstance, is held invalid, such invalidity shall not affect other provisions or applications of this rule that can be given effect without the invalid provision or application, and to that end the provisions of this rule are severable.

History

• EFFECTIVE DATE:
• September 13, 2019 Secretary of State Rule Log #19-039
• STATUTORY AUTHORITY: 8 V.S.A. §§ 10, 11, 3368, 4079a

Chapter 074 INSURANCE REGULATORY SANDBOX; INNOVATION WAIVER REGULATION (REG. I-2019-03)

21-074 Code Vt. R. 21-020-074-X INSURANCE REGULATORY SANDBOX; INNOVATION WAIVER REGULATION (REG. I-2019-03)

Section 1 Purpose

The purpose of this regulation is to set forth the requirements and standards for the submission, granting, denying, monitoring, and revocation of innovation waivers, and the monitoring, examination, and supervision of, and reporting by, persons applying for or granted innovation waivers (collectively, "participants"), in each case pursuant to 8 V.S.A. § 15a.

Section 2 Authority

This regulation is promulgated under the authority granted to the Commissioner by 8 V.S.A. § 15 a.

Section 3 Applications for innovation waivers

A. An application for an innovation waiver shall be submitted in writing to the Commissioner at least 60 days prior to the proposed effective date of the waiver. An application shall be in a form acceptable to the Commissioner and include the following:

1. The specific waiver requested, including the precise scope and duration requested.

2. The relevant facts the participant believes would justify a waiver under each of the criteria described in 8 V.S.A. § 15a(a).

3. All information required by 8 V.S.A. § 15a(b).

4. If the product or service proposed to be offered pursuant to the waiver involves the use of software, hardware, or other technology developed for the purpose of implementing or operating it, a detailed description of the operation and general content of technology to be utilized, including (a) the problem addressed by that technology and (b) the interaction between the technology and its users.

5. A description of the participant's personnel and technical expertise and whether any person substantially involved in the development, operation, management, or implementation of the product or service proposed to be offered pursuant to the waiver has been convicted of any state or federal criminal offense, or, if known to the participant, is currently under investigation for fraud, state or federal securities violations, any property-based offense, or any conduct for which a producer's license could be denied, revoked, or non-renewed under the provisions of 8 V.S.A. §

7. A sufficient plan to test, monitor, and assess the product or service proposed to be offered pursuant to the waiver and to winddown the offering of the product or service at the end of the waiver period or if the waiver is withdrawn, canceled, modified, or revoked by the Commissioner.

8. The proposed metrics by which the Commissioner may reasonably test the utility of the product or service proposed to be offered pursuant to the waiver.

9. A copy of the disclosures required under 8 V.S.A. § 15a(e).

B. Materials included in the application are public records pursuant to 1 V.S.A. § 317 and are subject to public inspection unless specifically exempted. In the event a participant or other person submitting materials into the record believes them to be exempt from public inspection:

1. Such person shall request a preliminary determination from the Department as to whether the materials are exempt from public inspection;

2. The request shall include a detailed description of the material at issue and a detailed legal justification for the requested exemption;

3. The participant shall bear the burden of establishing the exemption; and

4. If the Department preliminarily determines that the materials are exempt, it will so inform the participant.

C. The Commissioner may request additional information from the participant relative to the application and surrounding circumstances and may schedule a telephonic or in-person meeting between the participant and the Commissioner and/or his or her representatives.

D. The burden of persuasion rests with the participant to demonstrate that the Commissioner should exercise his or her discretion to grant an innovation waiver.

E. At least 30 days prior to granting an innovation waiver, the Commissioner shall provide public notice of the draft waiver on the Department's website. In making a determination as to whether to grant or deny a waiver, the Commissioner shall give due consideration to any public comment received about such application via mail, telephone, or electronic communication within 21 days of public notice being posted on the Department's website.

F. An expedited application process shall be available to a participant who demonstrates, to the Commissioner's satisfaction, that the product or service proposed to be subject to a waiver is substantially similar to one for which a waiver has previously been granted by the Commissioner. The burden of persuasion rests with the participant to demonstrate substantial similarity. Upon receipt of an expedited application request, the Commissioner shall determine, within five business days, whether the product or service qualifies for an expedited application process. If the Commissioner so determines, then the Commissioner shall provide, within five business days, public notice of the application pursuant to 8 V.S.A. § 15a.

G. Unless extended as provided in subsection Hof this section, the Commissioner shall issue an order granting or denying a waiver within 60 days of receipt of a completed application. Failure of the Commissioner to grant or deny a waiver within the required time period shall be deemed a denial

H. The Commissioner may extend by not more than 30 days the period provided in subsection G of this section if he or she notifies the application before expiration of the initial 60-day period.

I. An order granting a waiver shall be in writing and shall contain a reference to the particular person, product or service, and statute, regulation, or bulletin to which the order pertains, a statement of the relevant facts and reasons upon which the order is based, and a description of the precise scope and duration of the waiver.

J. The final decision on whether the circumstances justify the granting of a waiver shall be made at the sole discretion of the Commissioner. Each application for a waiver shall be evaluated by the Commissioner based on the unique, individual circumstances set out in the application or otherwise communicated to the Commissioner.

K. A waiver, if granted, shall provide the narrowest exception possible to the provisions of a statute, regulation, or bulletin.

L. The Commissioner may place any condition on a waiver that he or she finds desirable to protect the public safety, health, and welfare.

Section 4 Statutory deposit required

A. If a waiver is granted, the participant shall make a deposit of cash or marketable securities with the State Treasurer in an amount, subject to such conditions, and for such purposes as the Commissioner determines necessary for the protection of Vermont consumers. The Commissioner shall determine a deposit amount that is commensurate with the risk profile of the product or service being offered pursuant to the waiver.

B. To enable the Commissioner to determine the appropriate amount of statutory deposit required, a participant shall provide to the Commissioner, at least 60 days prior to the proposed effective date of the waiver, an actuarially determined estimate of total premium to be written and total claims to be paid during the waiver period.

C. In no event shall the amount of a required statutory deposit be less than $ 10,000. The amount may be increased or decreased by the Commissioner at any time during the waiver period based on risk profile.

D. Except to the extent it would contravene applicable provisions of 9A V.S.A. Article 9, the State of Vermont shall be deemed to control the funds on deposit and to have a lien on the funds for the benefit of Vermont policyholders. The lien so created shall be superior to any lien filed by a general creditor of the participant.

E. A statutory deposit may be used by the Commissioner at any time during the waiver period for the protection of Vermont consumers.

F. Interest on the deposit shall inure to the benefit of the participant until such time as the Commissioner determines the deposit shall be used for the benefit of Vermont consumers.

Section 5 Monitoring, examination, and supervision of, and reporting by, participants

A. Quarterly, a participant shall submit a report to the Commissioner containing the following information:

1. The total number of policies written for the product or service for which the waiver has been granted for (a) the period since the waiver was granted and (b) the period since the date of the previous report submitted pursuant to this section.

2. The total amount of premium collected with respect to the product or service for which the waiver has been granted for (a) the period since the waiver was granted and (b) the period since the date of the previous report submitted pursuant to this section.

3. The total number and dollar amount of claims made with respect to the product or service for which the waiver has been granted for (a) the period since the waiver was granted and (b) the period since the date of the previous report submitted pursuant to this section.

4. The total number and dollar amount of claims paid with respect to the product or service for which the waiver has been granted for (a) the period since the waiver was granted and (b) the period since the date of the previous report submitted pursuant to this section.

5. Material changes in the business plan, underwriting or claims practices for the product or service for which the waiver was granted.

Any other information the Commissioner reasonably requires.

B. In order to evaluate compliance with the conditions of the waiver, the Commissioner may examine the affairs, transactions, accounts, records, and any other matters deemed necessary of the participant or its independent account, including workpapers and assets of the participant, as often as the Commissioner deems necessary. In accordance with 8 V.S.A. § 18, the reasonable cost of any such examination shall be borne by the participant.

C. Upon reasonable notice, except in such case as the Commissioner determines warrant immediate action, the Commissioner may withdraw, cancel, modify, or revoke an innovation waiver if he or she finds any of the following:

1. The participant withheld or misrepresented material facts relevant to the of the waiver.

2. Alternate means for ensuring the public policy goals of any waived law, regulation, or bulletin have been demonstrated to be insufficient.

3. The participant or any agent or employee of the participant has failed to comply with any of the conditions contained in the waiver order.

4. The waiver is contrary to the public health, safety, or welfare in light of newly discovered evidence or changed circumstances.

5. Any other information that would have warranted denial of the waiver application.

Section 6 Effective Date

This regulation shall become effective January 1, 2020.

History

• EFFECTIVE DATE:
• January 1, 2020 Secretary of State Rule Log #19-068
• STATUTORY AUTHORITY: 8 V.S.A. §§ 15, 15a

Chapter 075 BUSINESS ENTITY LIMITED LINES PRODUCER FOR SELF-STORAGE INSURANCE LICENSE (REG. I-2019-02)

21-075 Code Vt. R. 21-020-075-X BUSINESS ENTITY LIMITED LINES PRODUCER FOR SELF-STORAGE INSURANCE LICENSE (REG. I-2019-02)

Section 1 Authority

This rule is promulgated under the authority granted to the Commissioner by 8 V.S.A. §§ 15, 4813a(6) and 4813f(b).

Section 2 Purpose

The purpose of this rule is to establish a business entity limited lines producer license for the sale of self-storage insurance and to set forth requirements for the sale of self-storage insurance by an owner and its employees and authorized representatives.

Section 3 Scope

This rule governs the sale of self-storage insurance by an owner and its employees and authorized representatives.

Section 4 Definitions

(1) "Designated Responsible Licensed Producer" or "DRLP" means a licensed insurance producer who is a natural person appointed by the insurer as described in Section 6(A)(4) of this rule, to be responsible for the business entity's compliance with the insurance laws, rules, and regulations of the State, pursuant to 8 V.S.A. § 4813f(b)(2).

(2) "Occupant" means a person, successor, assignee, agent, or representative entitled to the use of storage space in a self-storage facility under a rental agreement to the exclusion of others, as defined in 9 V.S.A. § 3901(2).

(3) "Offer and disseminate" means providing general information, including a description of the coverage and price, as well as processing the application, collecting premiums, and performing other non-licensable activities permitted by the Department of Financial Regulation.

(4) "Owner" means the owner, operator, lessor, or sublessor of a self-storage facility, an agent, or any other person authorized by the owner to manage the facility or to receive rent from an occupant under a rental agreement, as defined in 9 V.S.A. § 3901(3).

(5) "Negotiate" means the act of conferring directly with or offering advice directly to a purchaser or prospective purchaser of a particular contract of insurance concerning any of the substantive benefits, terms, or conditions of the contract, provided the person engaged in that act either sells insurance or obtains insurance from insurers for purchasers, as defined in 8 V.S.A. § 4813a.

(6) "Personal property" means movable property not affixed to land, and includes goods, merchandise, and household items, as defined in 9 V.S.A. § 3901(4).

(7) "Rental agreement" means any written agreement that establishes or modifies the terms, conditions, rules, or any other provision concerning the use and occupancy of a self-storage facility, as defined in 9 V.S.A. § 3901(5).

(8) "Self-storage facility" means any real property designed and used for the purpose of renting or leasing individual storage space to occupants who are to have access to such space for the purpose of storing and removing personal property, as defined in 9 V.S.A. § 3901(6).

(9) "Self-storage insurance" means personal property insurance offered and disseminated in connection with and incidental to the rental of storage space at a self-storage facility and that provides coverage to occupants at the self-storage facility where the insurance is transacted for the loss of or damage to personal property that occurs at that facility or when such property is in transit to or from that facility during the period of the rental agreement.

(10) "Self-storage insurance producer" means an owner that is licensed to sell, solicit, or negotiate self-storage insurance pursuant to this rule.

(11) "Supervising entity" means a business entity that is a licensed insurer or insurance producer that is appointed by an insurer to supervise the administration of a self-storage insurance program.

Section 5 General Rules

(A) No owner, and no officer, director, employee, or authorized representative of an owner, may offer and disseminate, sell, solicit, or negotiate the purchase of self-storage insurance unless that owner is licensed in compliance with the requirements of this rule. Notwithstanding the foregoing, an owner is not required to be licensed solely to display and make available to occupants and prospective occupants brochures and other promotional materials created by or on behalf of an authorized insurer or surplus lines insurer.

(B) The Commissioner may issue to an owner that has complied with the requirements of this rule, a business entity limited lines producer license for self-storage insurance that authorizes the self-storage insurance producer to offer and disseminate, sell, solicit, or negotiate self-storage insurance through a licensed insurer to occupants at each self-storage facility at which the owner conducts business.

(C) Self-storage insurance may be provided under an individual policy or under a commercial, corporate, group, or master policy.

Section 6 Licensing

(A) In order for an owner to obtain a business entity limited lines producer license for the sale of self-storage insurance, it must:

(1) Submit an application and fees for licensure as required under Title 8 V.S.A. Chapter 131. Such application must provide the name, residence address, and other information required by the Commissioner for an employee or officer of the owner or supervising entity that is designated by the applicant as the person responsible for the owner's compliance with the requirements of this rule;

(2) State in the application or as otherwise required by the Commissioner that, before employees and authorized representatives of the owner directly engage in the activity of offering and disseminating, selling, soliciting, or negotiating self-storage insurance, such employees and authorized representatives shall receive the training required by this rule;

(3) Appoint a Designated Responsible Licensed Producer. The DRLP designated by an owner pursuant to this subsection shall not be required to be an officer, director, or employee of the owner;

(4) Submit on a form prescribed by the Commissioner a certificate by an appointing insurer, stating that the insurer has satisfied itself that the named applicant is trustworthy and competent to act as its self-storage insurance producer; that the insurer has reviewed the training materials for conformity with the requirements set forth in Section 7(A)(3). of this rule, and that the insurer will appoint the applicant to act as its self-storage insurance producer. An officer of the insurer shall execute the certification; and

(5) Be appointed by an insurer to act as its self-storage insurance producer.

(B) Owners applying for licensure pursuant to this rule shall be exempt from any written examination requirement under Title 8 V.S.A. Chapter 131. Self-storage insurance producers shall be exempt from continuing education requirements under 8 V.S.A. § 4800a.

Section 7 Self-Storage Insurance Producer Employees and Authorized Representatives

(A) The employees and authorized representatives of self-storage insurance producers may offer and disseminate, sell, or solicit self-storage insurance to occupants; may provide general information about the insurance offered and disseminated by the self-storage facility, including a description of the coverage and price; and shall not be subject to licensure as an insurance producer provided that:

(1) The owner obtains a limited lines license to authorize its employees and authorized representatives to offer and disseminate, sell, solicit, or negotiate self-storage insurance pursuant to this rule;

(2) The insurer issuing the self-storage insurance either directly supervises or appoints a supervising entity to supervise the administration of the self-storage insurance program including development of a training program for employees and authorized representatives of the self-storage insurance producer; and,

(3) The training required by this subdivision shall comply with the following:

(i) The training shall be delivered to employees and authorized representatives of a self-storage insurance producer who are directly engaged in the activity of offering and disseminating, selling, soliciting, or negotiating self-storage insurance. Such training shall be delivered before the employees and authorized representatives directly engage in the activity of offering and disseminating, selling, soliciting, or negotiating self-storage insurance;

(ii) The training may be provided in electronic form. However, if provided in an electronic form, the insurer or supervising entity shall implement a supplemental education program for employees and authorized representatives of the self-storage insurance producer who are directly engaged in the activity of offering and disseminating, selling, soliciting, or negotiating self-storage insurance and that is provided and overseen by licensed employees of the insurer or supervising entity;

(iii) Each employee and authorized representative shall receive basic instruction about the self-storage insurance offered and disseminated to occupants, the disclosures required under section 8 of this rule, and ethical sales practices; and,

(iv) All training materials used shall be made available to the Commissioner upon request.

(B) A self-storage facility's employee or authorized representative who is not licensed as an insurance producer may not:

(1) Evaluate or interpret the technical terms, benefits, and conditions of the offered and disseminated self-storage insurance coverage;

(2) Evaluate or provide advice concerning a prospective purchaser's existing insurance coverage; and

(3) Hold himself or herself out as a licensed insurer, licensed producer, or insurance expert.

(C) Notwithstanding any other provision of law, a self-storage insurance producer that meets the conditions of this rule is authorized to receive compensation.

Section 8 Requirements for the Sale of Self-Storage Insurance

(A) At every location where self-storage insurance is offered and disseminated to occupants, brochures or other written or electronic materials must be made available which:

(1) Disclose that self-storage insurance may provide a duplication of coverage already provided by an occupant's homeowner's insurance policy or renter's insurance policy, or by another source of coverage;

(2) State that the purchase by the occupant of the self-storage insurance offered and disseminated by the self-storage insurance producer is not required in order to lease storage space at the self-storage facility;

(3) Provide the material terms of the self-storage insurance coverage, or summarize the material terms of the self-storage insurance coverage, including:

(i) The identity and contact information of the insurer and the self-storage insurance producer;

(ii) The identity and contact information of the supervising entity, if any;

(iii) The amount of any applicable deductible and how it is to be paid;

(iv) Benefits of the coverage; and

(v) Key terms and conditions of coverage.

(4) Summarize the process for filing a claim.

(5) State that an occupant that purchases the self-storage insurance may cancel enrollment for the coverage under the self-storage insurance policy at any time and the person paying the premium shall receive a refund or credit of any applicable unearned premium.

(6) Explain that an unlicensed employee or authorized representative of the owner is permitted to provide general information about the insurance offered and disseminated by the self-storage facility, including a description of the coverage and price, but is not qualified or authorized to answer technical questions about the terms and conditions of the insurance offered and disseminated by the self-storage facility or to evaluate the adequacy of the customer's existing insurance coverage.

(B) Eligibility and underwriting standards for customers electing to enroll in the self-storage insurance coverage shall be established for the self-storage insurance program.

(C) At the time of licensure, the self-storage insurance producer shall establish and maintain a register on a form prescribed by the Commissioner of each self-storage facility that offers and disseminates self-storage insurance on behalf of the self-storage insurance producer. The register shall be maintained and updated annually by the self-storage insurance producer and shall include the name, address, and contact information of the self-storage facility and an officer or person who directs or controls the self-storage facility's operations, and the self-storage insurance producer's Federal Tax Identification Number. The self-storage insurance producer shall submit such register within 30 days upon request by the Department of Financial Regulation. The self-storage insurance producer shall also certify that the individuals listed on the self-storage facility register are in compliance with 18 U.S.C. § 1033.

Section 9 Self-Storage Insurance Producer Prohibitions

A self-storage insurance producer shall not:

(A) Offer and disseminate, sell, solicit, or negotiate the purchase of self-storage insurance except in conjunction with and incidental to the rental of storage space at a self-storage facility;

(B) Advertise, represent, or otherwise portray itself or any of its employees or authorized representatives as non-limited lines licensed producers, unless so licensed;

(C) Make any statement or engage in any conduct, express or implied, that would lead an occupant to believe:

(1) That the self-storage insurance coverage offered and disseminated by the self-storage insurance producer does not provide a duplication of coverage already provided by an occupant's personal homeowner's insurance policy, renter's insurance policy, or by another source of coverage;

(2) That the purchase by the occupant of the self-storage insurance offered and disseminated by the self-storage insurance producer is required in order to lease storage space at the self-storage facility; or

(3) That the self-storage insurance producer or the self-storage insurance producer's employees or authorized representatives are qualified to evaluate the adequacy of the occupant's existing insurance coverage.

Section 10 Premium Funds

Notwithstanding any other provision of law, rule, or regulation, a self-storage insurance producer that has the express written consent of the insurer to mingle premium funds with the producer's own funds may do so if the following conditions are met:

(A) The premiums funds are held in a fiduciary capacity and are reasonably ascertainable from the books of accounts and records of the self-storage insurance producer; and

(B) The amounts due to the insurer are equal to or less than the combined accounts receivable and current bank balances of the self-storage insurance producer.

If these conditions are met, the self-storage insurance producer need not hold the premiums funds in a trust account.

Section 11 Enforcement

The self-storage insurance producer and any self-storage facility offering and disseminating self-storage insurance under the business entity limited lines producer license for self-storage insurance shall be subject to the provisions of 8 V.S.A. § 13, 8 V.S.A. Chapter 129, and 8 V.S.A. § 4804.

Section 12 Severability

If any provision of this rule, or the application thereof to any person or circumstance, is held invalid, such invalidity shall not affect other provisions or applications of this rule that can be given effect without the invalid provision or application, and to that end the provisions of this rule are severable.

History

• EFFECTIVE DATE:
• March 1, 2020 Secretary of State Rule Log #20-019
• STATUTORY AUTHORITY: 8 V.S.A. §§ 15, 4813a(6), and 4813f(b)