Chapter 290. Rules Establishing Standards for Companies Deemed to Be in Hazardous Financial Condition
14VAC5-290-10. Purpose.
The purpose of this chapter is to set forth the standards that the commission may use for identifying insurers found to be in such condition as to render the continuance of their business hazardous to their policyholders, creditors, or the general public.
This chapter shall not be interpreted to limit the powers granted the commission by any laws or provisions of any law of this Commonwealth, nor shall this chapter be interpreted to supersede any laws or parts of laws of this Commonwealth.
Statutory Authority
§§ 12.1-13 and 38.2-223of the Code of Virginia.
Historical Notes
Derived from Regulation 42, Case No. INS910261, § 2, effective January 15, 1992; amended, Virginia Register Volume 26, Issue 6, eff. December 7, 2009.
14VAC5-290-20. Applicability and scope.
This chapter shall apply to every entity that is licensed, approved, registered, or accredited in Virginia under the provisions of Title 38.2 of the Code of Virginia, and also subject to solvency regulation in this Commonwealth pursuant to the provisions of Title 38.2 of the Code of Virginia. All such entities are hereinafter referred to as "insurer."
Statutory Authority
§§ 12.1-13 and 38.2-223 of the Code of Virginia.
Historical Notes
Derived from Regulation 42, Case No. INS910261, § 3, effective January 15, 1992; amended, Virginia Register Volume 26, Issue 6, eff. December 7, 2009.
14VAC5-290-30. Standards.
The following factors and standards, either singly or a combination of two or more, may be considered in determining whether an insurer's financial condition, method of operation, or manner of doing business in this Commonwealth might be deemed to be hazardous to its policyholders, creditors, or the general public:
1. Adverse findings resulting from any financial condition or market conduct examination conducted pursuant to Article 4 (§ 38.2-1317 et seq.) of Chapter 13 of Title 38.2 of the Code of Virginia or any inspection authorized by the general provisions of § 38.2-200, including inspections of financial statements filed pursuant to §§ 38.2-1300, 38.2-1301, 38.2-1316.2, 38.2-4811, or 38.2-5103 of the Code of Virginia, or reported in any examination or other information submitted pursuant to § 38.2-5103 of the Code of Virginia, or reported in any audit report, and actuarial opinions, reports, or summaries submitted pursuant to §§ 38.2-1315.1 and 38.2-3127.1 of the Code of Virginia;
2. The National Association of Insurance Commissioners' ("NAIC") Insurance Regulatory Information System ("IRIS") and its other financial analysis solvency tools and reports;
3. The ratio of the annual premium volume to surplus or of liabilities to surplus in relation to loss experience and/or the kinds of risks insured;
4. Whether the insurer's asset portfolio when viewed in light of current economic conditions and indications of financial or operation leverage is of sufficient value, liquidity, or diversity to assure the company's ability to meet its outstanding obligations as they mature;
5. Whether the insurer has established reserves and related actuarial items that 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 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;
6. The ability of an assuming reinsurer to perform and whether the insurer's reinsurance program provides sufficient protection for the insurer'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;
7. 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 nonadmitted assets, and cash dividends paid to shareholders, is greater than 50% of the insurer's remaining surplus as regards policyholders in excess of the minimum required;
8. 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;
9. Whether the excess of surplus to policyholders over and above an insurer's statutorily required surplus to policyholders has decreased by more than 50% in the preceding 12-month period or any shorter period of time;
10. The age and collectibility of receivables;
11. 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 may affect the solvency of the insurer;
12. Contingent liabilities, pledges or guaranties that either individually or collectively involve a total amount that may affect the solvency of the insurer;
13. Whether any affiliate of an insurer is delinquent in the transmitting to, or payment of, net premiums or other amounts due to such insurer;
14. 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;
15. Whether the 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;
16. Whether the insurer has failed to meet financial and holding company filing requirements in the absence of a reason satisfactory to the commission;
17. Whether the management of an insurer either has filed any false or misleading sworn financial statement, or has released any 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;
18. 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;
19. Whether the insurer has experienced or will experience in the foreseeable future cash flow and/or liquidity problems;
20. Whether management has established reserves and related actuarial values that do not comply with the requirements of Title 38.2 of the Code of Virginia, related rules, regulations, administrative promulgations, and statutory accounting standards, or that are not computed in accordance with presently accepted actuarial standards consistently applied and in accordance with sound actuarial principles and standards of practice;
21. Whether management persistently engages in material under reserving that results in adverse development;
22. 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; or
23. Any other finding determined by the commission to be hazardous to the insurer's policyholders, creditors, or the general public.
Statutory Authority
§§ 12.1-13 and 38.2-223 of the Code of Virginia.
Historical Notes
Derived from Regulation 42, Case No. INS910261, § 4, effective January 15, 1992; amended, Virginia Register Volume 26, Issue 6, eff. December 7, 2009; Volume 30, Issue 1, eff. September 16, 2013.
14VAC5-290-40. Commission's authority.
A. For purposes of making a determination of an insurer's financial condition, the commission may:
1. Disregard any credit or amount receivable resulting from transactions with a reinsurer that 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. For all entities subject to the provisions of § 38.2-1038 of the Code of Virginia, the commission may issue an order regarding corrective action when it finds that (i) the insurer cannot, or there is a reasonable expectation that the insurer will not be able to, meet its obligations to all policyholders, or (ii) the insurer's continued operation in this Commonwealth is hazardous to policyholders, creditors, and the general public in this Commonwealth. Such an order may require the insurer, among other things, to undertake one or more of the following steps:
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 commission 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 commission 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 NAIC or in such format as promulgated by the commission or any other analyses of the insurer's data necessary to secure complete information concerning the condition and affairs of the insurer;
10. Correct corporate governance practice deficiencies, and adopt and utilize governance practices acceptable to the commission;
11. Provide a business plan to the commission in order to continue to transact business in this Commonwealth; or
12. Notwithstanding any other provision of law limiting the frequency or amount of premium rate adjustments, adjust rates for any nonlife insurance product written by the insurer that the commission considers necessary to improve the financial condition of the insurer.
Statutory Authority
§§ 12.1-13 and 38.2-223of the Code of Virginia.
Historical Notes
Derived from Regulation 42, Case No. INS910261, § 5, effective January 15, 1992; amended, Virginia Register Volume 26, Issue 6, eff. December 7, 2009.
14VAC5-290-50. Severability.
If any provision in this chapter or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of the chapter and the application of the provision to other persons or circumstances shall not be affected thereby.
Statutory Authority
§§ 12.1-13 and 38.2-223 of the Code of Virginia.
Historical Notes
Derived from Regulation 42, Case No. INS910261, § 6, effective January 15, 1992; amended, Virginia Register Volume 26, Issue 6, eff. December 7, 2009.