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Introduced by


Introduced by Representatives Keenan of St. Albans City and Young of Orwell

Referred to Committee on


Subject:  Financial and related institutions; insurance; captive insurance; health care administration

Statement of purpose:  This bill proposes to:  (1) specifically require written contracts between reinsurance brokers and insurers; (2) increase financial responsibility requirements of service contract companies; (3) simplify the formation of an association captive by removing the requirement that the association be in business for one year prior to licensing; (4) allow the formation of a sponsored captive insurance company as a nonprofit corporation or a limited liability company; (5) expand the type of companies eligible to sponsor captive insurance companies; (6) standardize the procedure for service of process on HMOs; (7) eliminate redundant filings with the secretary of state by foreign or alien insurers already licensed by the commissioner to do insurance business in the state; and (8) correct errata in the Revised Uniform Securities Act.


It is hereby enacted by the General Assembly of the State of Vermont:

Sec. 1.  8 V.S.A. § 4818 is amended to read:

§ 4818.  Contract required

(a)  No person shall transact business with a managing general agent, a reinsurance intermediary-manager, a reinsurance intermediary‑broker, or a controlling producer as qualified by section 4816 of this title unless there is in force a written contract between the parties which sets forth the respective responsibilities of each party and where both parties share responsibility for a particular function, specifies the division of such responsibilities.  The contract must be approved by the board of directors of a reinsurer represented by a reinsurance intermediary-manager, or reinsurance intermediary‑broker, or the board of directors of a controlled insurer.  At least 30 days before such reinsurer assumes or cedes business through such manager, or reinsurance intermediary, a true copy of the approved contract shall be filed with the commissioner for approval.

(b)  The contract required under subsection (a) of this section shall contain the following minimum provisions:

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(11)  The managing general agent, reinsurance intermediary-manager, reinsurance intermediary‑broker, or controlling producer shall not bind or cede reinsurance on behalf of the insurer, reinsurer or controlled insurer, except for facultative reinsurance contracts pursuant to obligatory facultative agreements if the contract contains reinsurance underwriting guidelines for reinsurance ceded and assumed.  The guidelines must list the reinsurers with which such automatic agreements are in effect, the coverages and amounts or percentages that may be reinsured and commission schedules.

Sec. 2.  8 V.S.A. § 4249 is amended to read: 

§ 4249.  Proof of financial stability

(a)  In order to ensure the performance of a provider’s obligations to its contract holders, each provider shall possess and deposit with the commissioner the following documents as proof of financial stability:

(1)(A)  a surety bond, securities of the type eligible for deposit by an authorized insurer in this state, cash, or letter of credit in a form acceptable to the commissioner, which shall have at all times a value of not less than five percent of the gross annual consideration from all service contracts issued and in force, but in no case to be less than $25,000.00.  Such bond, securities, cash, or letter of credit shall be maintained unimpaired as long as the provider continues to do business in this state.  When the provider ceases to do business in this state and has furnished the commissioner proof that it has discharged all its obligations to its service contract holders in this state, the commissioner shall release said bond, cash or letter of credit; and

(B)  a funded reserve account for its liability under its service contracts issued and outstanding in this state.  Such reserve shall at all times be not less than 40 percent of all consideration received, less claims paid, on in force contracts.  Such reserve accounts shall be subject to examination and review by the commissioner upon a request; or

(2)  evidence that all of its service contracts are insured through the purchase of a service contract reimbursement policy issued by an insurer authorized to do business in this state approved by the commissioner, or by an approved surplus line insurer; or

(3)(2)  a copy of the provider’s financial statement or, if the provider’s financial statement is consolidated with those of a parent company or affiliate, the provider’s parent company or affiliate’s financial statement, for the most recent calendar year which shows a net worth of the provider or its parent company or affiliate of at least $50 million.  The financial statement shall contain information relating to the general financial condition, ownership, and management of the provider and its controlling parent organization, the identity of the controlling entity, if applicable, and any reinsurance agreements covering all or substantially all of the ceded service contracts.  A Form 10-K filed with the Securities and Exchange Commission within the last calendar year may be filed to meet the financial stability filing requirement.

(b)  If the provider’s parent or affiliate company’s financial statement is filed to meet the provider’s financial stability requirement with the commissioner pursuant to subdivision (a)(2) of this section as evidence of a net worth of at least $50 million, then the parent or affiliate company shall agree, on a form prescribed by the commissioner, to guarantee the provider’s obligations relating to service contracts sold by the provider in this state.

(c)  The commissioner may, upon review of the business activities of a provider, determine that the amounts set forth in this section are inadequate for protection of the public, and may require additional assurances of financial stability.

(d)  In the event that the department recovers funds from service contract providers, the commissioner in his or her discretion may distribute such funds in a manner that he or she determines is equitable and cost-effective, giving due consideration to the amount of funds recovered, the estimated amounts due to consumers, and the costs of administering any distribution.  Distributions may be allocated based on claims made, premiums, or the number of consumers affected.  If the commissioner determines that the administrative costs of distribution will exceed the net amounts distributed to consumers, the recovered funds may be remitted to the general fund.

Sec. 3.  8 V.S.A. § 6001(2) is amended to read:

§ 6001.  Definitions

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

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(2)  “Association” means any legal association of individuals, corporations, limited liability companies, partnerships, associations, or other entities that has been in continuous existence for at least one year, the member organizations of which or which does itself, whether or not in conjunction with some or all of the member organizations:

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

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

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

Sec. 4.  8 V.S.A. § 6031(b) is amended to read:

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

Sec. 5.  8 V.S.A. § 6035 is amended to read:


A sponsor of a sponsored captive insurance company shall be an insurer licensed under the laws of any state, a reinsurer authorized or approved under the laws of any state, or a captive insurance company formed or licensed under this chapter, a broker-dealer registered with the department pursuant to chapter 150 of Title 9, a financial institution as defined under subdivision 11101(32) of this title, or a financial institution holding company as defined under subdivision 11101(33) of this title, including any affiliate or subsidiary of such financial institution holding company.  A risk retention group shall not be either a sponsor or a participant of a sponsored captive insurance company.

Sec. 6.  8 V.S.A. § 5102(b) is amended to read: 

(b)  Application for a certificate of authority shall be made to the commissioner and include such information and in such form as he the commissioner prescribes, including but not limited to the following:

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(8)  A power of attorney duly executed by such applicant, if not domiciled in this state, appointing the commissioner and his successors in office, and duly authorized deputies, as the true and lawful attorney of such applicant in and for this state upon whom all lawful process in any legal action or proceeding against the health maintenance organization on a cause of action arising in this state may be served;

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Sec. 7.  8 V.S.A. § 3361(c) is amended to read: 

(c)  If the commissioner is satisfied with the copies and statements that such insurer has complied with the provisions of this Part, he or she may grant a license authorizing it to do insurance business by lawfully constituted and licensed agents only, until April 1 thereafter, which license may be renewed.  In granting or renewing such license to do business the commissioner shall consider the criteria established for the approval and certification of domestic insurers hereinabove set forth, within the context of the stated legislative policy.  Notwithstanding the provisions of Title 11A, any insurer licensed by the commissioner under this section may transact insurance business in this state upon the filing of a copy of such license with the secretary of state.  Such corporations shall not be required to make any annual report except as provided in this title.  This section shall not be construed to prohibit residents of this state from procuring insurance at the home office of a foreign insurer.

Sec. 8.  9 V.S.A. § 5102(3)(C), (5)(B)(iii), (17)(B), and (28)(E) are amended to read:

(C)  a bank or savings institution if its activities as a broker-dealer are limited to those specified in subdivisions 3(a)(4)(B)(i) through (vi), (viii) through (x), and (xi) if limited to unsolicited transactions; 3(a)(5)(B); and (C) of the Securities Exchange Act of 1934, 15 U.S.C. § 78c(a)(4) and (5), or a bank that satisfies the conditions described in subdivision 3(a)(4)(E) of the Securities Exchange Act of 1934, 15 U.S.C. § 78c(a)(4);

(iii)  an industrial loan company that is not an “insured depository institution” as defined in Section 3(c)(2) of the Federal Deposit Insurance Act, 12 U.S.C. § 1813(c)(2), or any successor federal statute.

(B)  The issuer of an equipment trust certificate or similar security serving the same purpose is as the person by which the property is or will be used or to which the property or equipment is or will be leased or conditionally sold or that is otherwise contractually responsible for assuring payment of the certificate.

(E)  includes as an “investment contract” among other contracts, an interest in a limited partnership and, a limited liability company and, an investment in a viatical settlement, or similar agreement.

Sec. 9.  9 V.S.A. § 5412(c) is amended to read:

(c)  If the commissioner finds that the order is in the public interest and subdivisions (d)(1) through (6), (8), (9), (10), or (12), and or (13) of this section authorize the action, an order under this chapter may censure, impose a bar on, or impose a civil penalty on a registrant in an amount not more than $15,000.00 for each violation and not more than $1,000,000.00 for more than one violation, and recover the costs of the investigation from the registrant, and, if the registrant is a broker-dealer or investment adviser;, a partner, officer, director, or person having a similar status or performing similar functions;, or a person directly or indirectly in control of the broker-dealer or investment adviser.  The limitations on civil penalties contained in this subsection shall not apply to settlement agreements.

Sec. 10.  18 V.S.A. § 9410(i) is added to read:

(i)  On or before January 15, 2008 and every three years thereafter, the commissioner shall submit a recommendation to the general assembly for conducting a survey of the health insurance status of Vermont residents.


This act shall take effect on July 1, 2006, except that the provisions adding 8 V.S.A. § 4249(d) shall take effect on passage.

Published by:

The Vermont General Assembly
115 State Street
Montpelier, Vermont