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Code of Virginia
Title 38.2. Insurance
Chapter 13. Reports, Reserves and Examinations, Insurance Holding Companies, Reinsurance Intermediaries, and Managing General Agents
11/24/2020

Chapter 13. Reports, Reserves and Examinations, Insurance Holding Companies, Reinsurance Intermediaries, and Managing General Agents.

Article 1. Annual Statements and Other Reports.

§ 38.2-1300. Annual statements.

A. Each domestic, foreign, and alien insurer licensed to transact the business of insurance in this Commonwealth shall file with the Commission annually, on or before March 1, an annual statement showing its financial condition on December 31 of the previous year. The annual statement shall be considered filed on the date the statement was sent by mail as shown by the postmark or on the date it is received electronically by the National Association of Insurance Commissioners (NAIC) in accordance with subsection D. The Commission shall prescribe the type of filing required for each type of insurer. The annual statement shall contain a detailed report of the insurer's assets and liabilities, the investment of its assets, its income and disbursements during the previous year, and all other information which the Commission considers necessary to secure a full and accurate knowledge of the affairs and condition of the insurer. The annual statement of every domestic or foreign insurer shall be signed by at least two of its principal officers subject to § 38.2-1304. No publication of the annual statement shall be required.

B. The annual statement of an alien insurer shall relate only to its transactions and affairs in the United States unless the Commission requires otherwise. The annual statement shall be verified by the alien insurer's United States manager, assistant manager, or by any of its duly authorized officers.

C. The Commission may prescribe the form of the annual statement and supplemental schedules and exhibits to include additional copies in machine-readable format, and may vary the form for different types of insurers. However, as far as practicable, the form for annual statements, supplementary schedules, and exhibits shall be the same as other such forms in general use in the United States. Unless otherwise prescribed by the Commission, such annual statements shall be prepared using an annual statement convention blank developed by the NAIC. The annual statement, and supplementary schedules and exhibits required by this section, shall be prepared in accordance with the appropriate annual statement instructions and the accounting practices and procedures manuals adopted by the NAIC, or any other successor publications.

D. Each insurer that is authorized to transact insurance in this Commonwealth shall annually on or before March 1 of each year, file electronically with the NAIC a copy of its annual statement convention blank, along with such additional filings as prescribed by the Commission for the preceding year. The information filed with the NAIC shall be in the same format and scope as that required by the Commission and shall include any actuarial certification required by the Commission. Any amendments and addenda to the annual statement filing subsequently filed with the Commission shall also be filed with the NAIC. However, an insurer may apply to the Commission for an exemption from this subsection.

E. Foreign insurers that are domiciled in a state, which has a law substantially similar to subsection D of this section, shall be deemed to be in compliance with subsection D of this section.

Code 1950, §§ 38-122, 38-516; 1952, c. 317, § 38.1-159; 1986, c. 562; 1990, c. 240; 1991, c. 312; 1992, c. 588; 1994, c. 308; 2009, c. 602.

§ 38.2-1301. Additional reports.

A. In addition to the annual statement, the Commission may require a licensed insurer to file additional reports, exhibits or statements considered necessary to secure complete information concerning the condition, solvency, experience, transactions or affairs of the insurer. The Commission shall establish deadlines for filing these additional reports, exhibits or statements and may require verification by any officers of the insurer designated by the Commission.

B. The Commission may require a domestic, foreign or alien insurer that is authorized to transact insurance in this Commonwealth to file with the National Association of Insurance Commissioners (NAIC) a copy of the insurer's financial statement required to be filed pursuant to § 38.2-1301, on a quarterly basis. Unless otherwise prescribed by the Commission, all such financial statements, whether filed with the Commission or the NAIC, shall be prepared in accordance with applicable provisions of the annual statement instructions and the accounting practices and procedures manuals adopted by the NAIC, or any successor publications. The Commission may prescribe that additional copies of financial statements and other reports be filed in machine-readable format.

Code 1950, § 38-122; 1952, c. 317, § 38.1-160; 1986, c. 562; 1991, c. 312; 1992, c. 588; 1994, c. 308.

§ 38.2-1301.1. Material transaction disclosures.

A. Every insurer domiciled in this Commonwealth shall file a report with the Commission disclosing material acquisitions and dispositions of assets or material nonrenewals, cancellations or revisions of ceded reinsurance agreements unless such acquisitions and dispositions of assets or material nonrenewals, cancellations or revisions of ceded reinsurance agreements have been submitted to the Commission for review, approval or information purposes pursuant to other provisions of Title 38.2 or the rules and regulations of the Commission.

1. The report required by this subsection is due within fifteen days after the end of the calendar month in which any of the foregoing transactions occur.

2. One complete copy of the report, including any exhibits or other attachments filed as part thereof, shall be filed with the National Association of Insurance Commissioners unless the insurer has applied for and has been granted an exemption from this requirement by the Commission.

B. All reports obtained by or disclosed to the Commission pursuant to this section, shall be given confidential treatment, shall not be subject to subpoena, and shall not be made public by the Commission, the National Association of Insurance Commissioners, or any other person without the prior written consent of the insurer to which it pertains unless the Commission, after giving the insurer which would be affected thereby, notice and an opportunity to be heard, determines that the interest of policyholders, shareholders, or the public will be served by the publication thereof, in which event the Commission may publish all or any part thereof in such manner as it may deem appropriate. Notwithstanding the foregoing, the Commission may at its discretion disclose such reports to (i) a regulatory official of any state or country; (ii) the National Association of Insurance Commissioners, its affiliate or its subsidiary; or (iii) a law-enforcement authority of any state or country. Any such disclosure by the Commission shall not constitute a waiver of confidentiality of any such report.

C. No acquisitions or dispositions of assets need be reported pursuant to subsection A if the acquisitions or dispositions are not material. For purposes of this section, a material acquisition, or the aggregate of any series of related acquisitions during any thirty-day period, or disposition, or the aggregate of any series of related dispositions during any thirty-day period, is one that is nonrecurring and not in the ordinary course of business and involves more than five percent of the reporting insurer's total admitted assets as reported in its most recent statutory statement filed with the Commission.

1. Asset acquisitions subject to this section include every purchase, lease, exchange, merger, consolidation, succession, or other acquisition other than the construction or development of real property by or for the reporting insurer or the acquisition of materials for such purpose.

2. Asset dispositions subject to this section include every sale, lease, exchange, merger, consolidation, mortgage, pledge or hypothecation, assignment, whether for the benefit of creditors or otherwise, abandonment, destruction, or other disposition.

3. The following information is required to be disclosed in any report of a material acquisition or disposition of assets:

a. Date of the transaction;

b. Manner of acquisition or disposition;

c. Description of the assets involved;

d. Nature and amount of the consideration given or received;

e. Purpose of, or reason for, the transaction;

f. Manner by which the amount of consideration was determined;

g. Gain or loss recognized or realized as a result of the transaction; and

h. Name of all persons from whom the assets were acquired or to whom they were disposed.

4. Insurers are required to report material acquisitions and dispositions on a nonconsolidated basis unless the insurer is part of a consolidated group of insurers which utilizes a pooling arrangement or 100 percent reinsurance agreement that affects the solvency and integrity of the insurer's reserves and such insurer ceded substantially all of its direct and assumed business to the pool. An insurer is deemed to have ceded substantially all of its direct and assumed business to a pool if the insurer has less than one million dollars total direct plus assumed written premiums during a calendar year that are not subject to a pooling arrangement and the net income of the business not subject to the pooling arrangement represents less than five percent of the insurer's capital and surplus.

D. No nonrenewals, cancellations or revisions of ceded reinsurance agreements need be reported pursuant to this section if the nonrenewals, cancellations or revisions are not material. For purposes of this section, a material nonrenewal, cancellation or revision is one that affects for property and casualty business, including accident and health business when written as such, more than fifty percent of an insurer's ceded written premium, or for life, annuity and accident and health business, more than fifty percent of the total reserve credit taken for business ceded, on an annualized basis as indicated in the insurer's most recently filed statutory statement; however, no filing is required if the insurer's ceded written premium or the total reserve credit taken for business ceded represents, on an annualized basis, less than ten percent of direct plus assumed written premium or ten percent of the statutory reserve requirement prior to any cession, respectively.

1. Subject to the foregoing criteria, a report is to be filed without regard to which party has initiated the nonrenewal, cancellation or revision of ceded reinsurance whenever one or more of the following conditions exist:

a. The entire cession has been cancelled, nonrenewed or revised and ceded indemnity and loss adjustment expense reserves after any nonrenewal, cancellation or revision represent less than fifty percent of the comparable reserves that would have been ceded had the nonrenewal, cancellation or revision not occurred;

b. An authorized or accredited reinsurer has been replaced on an existing cession by an unauthorizing reinsurer; or

c. Collateral requirements previously established for unauthorized reinsurers have been reduced; e.g., the requirement to collateralize incurred but not reported (IBNR) claim reserves has been waived with respect to one or more unauthorized reinsurers newly participating in an existing cession.

Subject to the materiality criteria, for purposes of the foregoing subdivisions b and c, a report shall be filed if the result of the revision affects more than ten percent of the cession.

2. The following information is required to be disclosed in any report of a material nonrenewal, cancellation or revision of ceded reinsurance agreements:

a. Effective date of the nonrenewal, cancellation or revision;

b. The description of the transaction with an identification of the initiator thereof;

c. Purpose of, or reason for, the transaction; and

d. If applicable, the identity of the replacement reinsurers.

3. Insurers are required to report all material nonrenewals, cancellations or revisions of ceded reinsurance agreements on a nonconsolidated basis unless the insurer is part of a consolidated group of insurers which utilizes a pooling arrangement or 100 percent reinsurance agreement that affects the solvency and integrity of the insurer's reserves and such insurer ceded substantially all of its direct and assumed business to the pool. An insurer is deemed to have ceded substantially all of its direct and assumed business to a pool if the insurer has less than one million dollars total direct plus assumed written premiums during a calendar year that are not subject to a pooling arrangement and the net income of the business not subject to the pooling arrangement represents less than five percent of the insurer's capital and surplus.

1994, c. 308; 2001, c. 519.

§ 38.2-1302. Extension of filing time.

The Commission may extend an insurer's deadline for filing annual statements, other reports or exhibits provided the deadline for annual statements is not extended beyond April 30.

Code 1950, § 38-126; 1952, c. 317, § 38.1-161; 1986, c. 562.

§ 38.2-1303. Printed forms to be filed by insurers; certificates to domestic insurers.

A. The Commission shall be responsible for prescribing the type of blank or may prepare and distribute printed forms or blanks to licensed insurers for statements, reports, schedules or exhibits required by law or order.

B. The Commission shall furnish without charge to domestic insurers any certificates required to entitle them to do business in other states or countries.

Code 1950, § 38-129; 1952, c. 317, § 38.1-162; 1986, c. 562; 1994, c. 316.

§ 38.2-1304. False statements, reports, etc., deemed a Class 5 felony.

Any officer, manager, attorney, agent or employee of any insurer or surplus lines broker who is responsible for making or filing any annual or other statement, report, exhibit or other instrument required by this title and who knowingly or willfully makes or files any false or fraudulent statement, report or other instrument shall be charged with a Class 5 felony. If convicted, such person shall be guilty of a Class 5 felony.

Code 1950, § 38-123; 1952, c. 317, § 38.1-163; 1986, c. 562.

§ 38.2-1305. Voluntary reports.

Any insurer may elect to file with the Commission, in addition to the annual statement required by § 38.2-1300, a statement in condensed form of its financial condition as of the end of any calendar year or as of any other date. Any statement shall be signed by at least two of the principal officers of the insurer subject to § 38.2-1304. No insurer nor anyone on its behalf shall publish in any manner in this Commonwealth a statement purporting to show its financial condition if that statement does not correspond in substance with the verified statement last filed with the Commission by the insurer pursuant to §§ 38.2-1300, 38.2-1301, or this section.

Code 1950, § 38-23; 1952, c. 317, § 38.1-164; 1986, c. 562.

§ 38.2-1306. Reports to be open to public inspection.

The Commission shall keep on file for at least three years all reports required by law and all special reports required by it to be filed by insurers. The Commission shall keep copies of the annual statement convention blanks and the quarterly financial statements filed with the Commission and, pursuant to subsection D of § 38.2-1300 and subsection B of § 38.2-1301 respectively, with the National Association of Insurance Commissioners (NAIC), available for inspection by interested persons at any reasonable time.

For companies not required to file with the NAIC, the Commission shall make available for inspection copies of such comparable financial statements of financial condition as those companies may be required to file routinely with the Commission pursuant to the provisions of this title. Except as provided otherwise by statute, or by order, rule or regulation promulgated by the Commission, no special report shall be open to public inspection.

Code 1950, § 38-124; 1952, c. 317, § 38.1-165; 1986, c. 562; 1994, c. 308.

§ 38.2-1306.1. Insurance companies' analyses confidential.

A. All regulatory or financial analyses, ratios and examination synopses concerning insurance companies or insurance transactions that are submitted to the Commission by the National Association of Insurance Commissioners (NAIC), including information generated by any NAIC databases developed for use by regulators, shall be given confidential treatment, are not subject to subpoena, and may not be made public by the Commission or any other person.

B. Financial analyses and test ratios generated by the Commission, pursuant to the NAIC's Insurance Regulatory Information System (IRIS) or Financial Analysis and Solvency Tracking (FAST) System, any successor program, or any similar program developed by the Commission, shall be given confidential treatment, are not subject to subpoena, and may not be made public by the Commission or any other person.

C. All working papers, recorded information, documents and copies thereof produced by, obtained by, or disclosed to the Commission or any other person pursuant to this article shall be given confidential treatment, are not subject to subpoena, and may not be made public by the Commission or any other person, except to the extent provided in § 38.2-1306.

D. Notwithstanding other provisions to the contrary, nothing contained in this chapter shall prevent or be construed as prohibiting the Commission from disclosing otherwise confidential information, administrative or judicial orders, or the content of any analysis or any matter related thereto, at any time to (i) a regulatory official of any state or country; (ii) the NAIC, its affiliate or its subsidiary; or (iii) a law-enforcement authority of any state or country, provided that those officials are required under their law to maintain its confidentiality. Any such disclosure by the Commission shall not constitute a waiver of confidentiality of any such documents or information. Any parties receiving such papers shall agree in writing prior to receiving the information to provide it the same confidential treatment as required by this section, unless the prior written consent of the company to which it pertains has been obtained.

E. Documents or information received from the insurance regulatory officials of any state or country which are confidential in those jurisdictions are not open to public inspection and shall receive confidential treatment by the Commission.

1987, c. 691; 1994, c. 308; 1996, c. 32; 2001, c. 519; 2007, c. 488.

Article 2. Valuation and Admissibility of Assets.

§ 38.2-1306.2. Valuation of investments and other assets.

The value of investments and other assets, other than those not admitted pursuant to § 38.2-1306.3, and their reporting as admitted or nonadmitted assets shall be determined in accordance with valuations or valuation guidance set forth in the National Association of Insurance Commissioners (NAIC) accounting practices and procedures manuals. The Commission may grant exception to or modification of NAIC accounting practices and procedures otherwise prescribed by this section upon petition from an insurer organized and operating under the laws of this Commonwealth and licensed pursuant to the provisions of Chapter 25 (§ 38.2-2500 et seq.) of this title.

1992, c. 588; 1993, c. 158; 2000, c. 46.

§ 38.2-1306.3. Nonadmitted assets.

A. "Nonadmitted assets" or "not admitted assets" means those assets identified and reported as nonadmitted assets by or in accordance with the National Association of Insurance Commissioners (NAIC) accounting practices and procedures manuals, and any other asset or category of assets identified as nonadmitted in this title or which the Commission by rule or regulation identifies as an asset which shall be reported as a nonadmitted asset.

B. Goodwill, if admitted, may be admitted on or after January 1, 2001, subject to the guidance in the NAIC accounting practices and procedures manuals.

2000, c. 46.

§ 38.2-1307. Repealed.

Repealed by Acts 2000, c. 46, cl. 2, effective January 1, 2001.

§ 38.2-1310. Repealed.

Repealed by Acts 1993, c. 158.

§ 38.2-1310.1. Repealed.

Repealed by Acts 2000, c. 46, cl. 2, effective January 1, 2001.

Article 3. Reserves.

§ 38.2-1311. Valuation reserves.

A. Every insurer licensed to transact the kinds of insurance specified in §§ 38.2-102, 38.2-106 and 38.2-109 and subject to the applicable provisions of this title, shall maintain:

1. Reserves on all of its life insurance policies or certificates and annuity contracts in force, computed according to the applicable tables of mortality and interest rates prescribed in this title;

2. Reserves for both reported and unreported (i) disability benefits, including reserves for disabled lives, and (ii) accidental death benefits; and

3. Any additional reserves prescribed by the Commission as necessary on account of the insurer's policies, certificates and contracts.

B. For all accident and sickness insurance policies the insurer shall maintain an active life reserve that shall (i) place a reasonable value on its liabilities under the policies, (ii) be not less than the reserve according to appropriate standards set forth in any regulations issued by the Commission and, (iii) be not less in the aggregate than the pro rata gross unearned premiums for those policies.

1952, c. 317, § 38.1-170; 1962, c. 562; 1986, c. 562.

§ 38.2-1312. Unearned premium reserves.

A. Except for risks or policies for which reserves are required under §§ 38.2-1311 and 38.2-4610.1, each insurer licensed to transact business in this Commonwealth, subject to the applicable provisions of this title, shall maintain reserves not less than the unearned portions of the gross premiums charged on unexpired or unterminated risks and policies.

B. Premiums charged for bulk assumption reinsurance assumed from other insurers shall be included in gross premiums charged on the basis of the original premiums and the original terms of the policies of the ceding insurer.

C. No deduction shall be made from the gross unearned premiums except for premiums paid or credited for risks reinsured as provided in Article 3.1 (§ 38.2-1316.1 et seq.) of this chapter.

D. Reserves required by this section shall be computed, valued, and reported in conformity with guidance set forth in the National Association of Insurance Commissioners accounting practices and procedures manuals.

Code 1950, § 38-228; 1952, c. 317, § 38.1-171; 1982, c. 430; 1986, c. 562; 2000, c. 46.

§ 38.2-1313. Loss records.

Each insurer licensed to transact business in this Commonwealth shall, except for accident and sickness insurance as defined in § 38.2-109, maintain a complete and itemized record showing all losses and claims for which notice has been given. When necessary, the insurers shall maintain a record of all notices received of the occurrence of any event that may result in a loss.

1952, c. 317, § 38.1-172; 1986, c. 562.

§ 38.2-1314. Loss or claim reserves.

Except as provided in §§ 38.2-1311 and 38.2-4609, each insurer licensed to transact the business of insurance in this Commonwealth shall maintain reserves:

1. In an amount estimated in the aggregate as being sufficient to provide for reported and unreported unpaid losses or claims arising on or prior to the date of any annual or other statement for which the insurer may be liable;

2. In an amount estimated to provide for loss adjustment expenses; and

3. For those classes of insurance specified by the Commission, any additional reserves for unpaid losses, policy obligations, or deficiencies in the unearned premium reserve as required by the Commission. Each insurer authorized to write these classes of insurance shall file with its annual statement, schedules of its experience for such insurance in the form the Commission requires and shall calculate the reserves required by this paragraph in the manner prescribed by the Commission.

Code 1950, §§ 38-229 through 38-232; 1952, c. 317, § 38.1-173; 1982, c. 430; 1986, c. 562; 1994, c. 503.

§ 38.2-1315. Mortgage guaranty insurance contingency reserve.

A. To protect against the effect of adverse economic cycles, each insurer transacting the business of mortgage guaranty insurance in this Commonwealth shall establish and maintain a contingency reserve equal to fifty percent of its earned premium.

B. Allocations to the contingency reserve shall be maintained for 120 months. That portion of the contingency reserve that has been maintained for more than 120 months shall be released and shall no longer constitute part of the contingency reserve and shall be allocated to surplus to policyholders.

C. Upon approval by the Commission, the contingency reserve shall be available for loss payments only when the incurred losses in any one twelve-month period, less any amounts already released from the contingency reserve during that period, exceed thirty-five percent of the corresponding earned premium.

D. In the event of release of the contingency reserve for payment of losses, the contributions required by subsection A of this section shall be treated on a first-in-first-out basis.

E. Whenever the laws of any other state require a greater unearned premium reserve than that set forth in § 38.2-1312, the mortgage guaranty insurance contingency reserve of mortgage guaranty insurers organized under the laws of that state may be an amount that, when added to such unearned premium reserve, will result in a reserve equal to the sum of the unearned premium reserve required by § 38.2-1312 and the contingency reserve required by this section.

F. The authority of the Commission under § 38.2-223 to issue rules and regulations includes the authority to require that a greater reserve be established for mortgage guaranty insurance on liens other than first liens.

1973, c. 250, §§ 38.1-173.1, 38.1-173.2; 1981, c. 209; 1986, c. 562; 1989, c. 236; 2000, c. 46.

§ 38.2-1315.1. Actuarial statements of opinion, reports, memoranda, and summaries.

A. Effective December 31, 2004, and except as otherwise provided by this section or Article 10 (§ 38.2-1365 et seq.) of Chapter 13, every insurer doing business in the Commonwealth shall annually submit an actuarial opinion that has been prepared by an appointed actuary and that satisfies at a minimum the standards set forth in the appropriate National Association of Insurance Commissioners (NAIC) annual statement instructions.

B. Every insurer domiciled in the Commonwealth that is required to submit an actuarial opinion pursuant to subsection A shall annually submit an actuarial opinion summary, also written by the insurer's appointed actuary. Every insurer domiciled in the Commonwealth that is required to submit an actuarial opinion pursuant to subsection A or § 38.2-1367, at the request of the Commission, shall submit underlying work papers and an actuarial report or memorandum that satisfies the minimum standards set forth in the appropriate NAIC annual statement instructions and complies with all additional standards or requirements established by statute or by the Commission in accordance with the provisions of this section or Article 10 (§ 38.2-1365 et seq.) of Chapter 13. A company licensed but not domiciled in the Commonwealth shall provide such summary, work papers, report, and memorandum upon request of the Commission. Any summary, work papers, report, or memorandum filed in accordance with the appropriate NAIC annual statement 13 instructions shall be considered as a document supporting the actuarial opinion required by subsection A or § 38.2-1367.

C. If the insurer fails to provide supporting work papers or a required report or memorandum at the request of the Commission, or the Commission determines that the work papers or report or memorandum are unacceptable, the Commission may engage a qualified actuary at the expense of the insurer to review the opinion and the basis for the opinion and to prepare supporting work papers, or a report or memorandum.

D. The appointed actuary shall not be liable for damages to any person, other than the insurer and the Commission for any act, error, omission, decision, or conduct with respect to the actuary's opinion, except in cases of fraud or willful misconduct on the part of the actuary.

E. An actuarial opinion provided with the annual statement in accordance with the appropriate NAIC annual statement instructions shall be open to public inspection in accordance with § 38.2-1306.

F. Documents, materials, or other information in the possession or control of the Commission that are considered an actuarial report, work papers, an actuarial opinion summary, or an actuarial opinion report or memorandum provided in support of the opinion, and any other material provided by the insurer to the Commission in connection with the report, work papers, or summary, shall be confidential by law and privileged, shall not be subject to inspection or review by the general public, shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any private civil action. However, this provision shall not be construed to limit the Commission's authority to release the documents to any actuarial board established for counseling or discipline so long as the material is required for the purpose of professional disciplinary proceedings and such board establishes procedures satisfactory to the Commission for preserving the confidentiality of the documents. Moreover, the Commission is authorized to use the documents, materials, or other information in furtherance of any regulatory or legal action brought as part of the Commission's official duties.

1. Neither the Commission nor any person who received documents, materials, or other information while acting under the authority of the Commission shall be permitted or required to testify in any private civil action concerning any confidential documents, materials, or information subject to this subsection.

2. In order to assist in the performance of the Commission's duties under this section, the Commission:

a. May share documents, material, or other information, including the confidential and privileged documents, materials, or information subject to this subsection, 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 and privileged status of the document, material, or other information.

b. May receive documents, materials, or information, including otherwise confidential and privileged 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 or privileged any document, material, or information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material, or information.

G. The Commission may waive or modify submission requirements for a foreign insurer that has been exempted by its domiciliary commissioner from filing an actuarial opinion under a substantially similar law in its state of domicile. The Commission may modify requirements in any year for an insurer that makes application, with good cause shown, for exemption due to the nature of business written or the size and volume of business activity, or because the insurer is under supervision or an order of conservation, or if the imposition of an annual filing requirement would create a financial hardship.

2004, c. 315; 2006, c. 320; 2014, c. 571.

§ 38.2-1316. Repealed.

Repealed by Acts 1991, c. 264.

Article 3.1. Reinsurance.

§ 38.2-1316.1. Definitions.

As used in this article unless the context requires another meaning:

"Accredited reinsurer" means an assuming insurer accredited pursuant to the provisions of subdivision C 2 of § 38.2-1316.2.

"Certified reinsurer" means an insurer certified by the Commission pursuant to subsection D of § 38.2-1316.2.

"Covered agreement" means 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 effect or 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 the Commonwealth or for allowing the ceding insurer to recognize credit for reinsurance.

"Credit" includes any credit for reinsurance (i) allowed as an admitted asset or as a deduction from liability and (ii) used to compute the valuation reserves required by § 38.2-1311, unearned premium reserves required by § 38.2-1312 or 38.2-4610.1, or loss or claim reserves required by § 38.2-1314 or 38.2-4609.

"NAIC" means the National Association of Insurance Commissioners.

"Qualified United States financial institution," as used in subdivision 2 c of § 38.2-1316.4, means an institution that:

1. Is organized or, in the case of a United States office of a foreign banking organization, is licensed, under the laws of the United States or any state thereof;

2. Is regulated, supervised, and examined by the United States federal or state authorities having regulatory authority over banks and trust companies; and

3. Has been determined by either the Commission or the Securities Valuation Office of the NAIC to meet such standards of financial condition and standing as are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the Commission.

"Qualified United States financial institution" means, for purposes of those provisions of this article specifying those institutions that are eligible to act as a fiduciary of a trust, an institution that:

1. Is organized or, in the case of a United States branch or agency office of a foreign banking organization, is licensed, under the laws of the United States or any state thereof and has been granted authority to operate with fiduciary powers; and

2. Is regulated, supervised and examined by federal or state authorities having regulatory authority over banks and trust companies.

"Reciprocal jurisdiction" means (i) a non-United States 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; (ii) a United States jurisdiction that meets the requirements for accreditation under the NAIC financial standards and accreditation program; or (iii) a qualified jurisdiction, as determined by the Commission pursuant to subdivision D 3 of § 38.2-1316.2, that is not otherwise described in clause (i) or (ii) and that meets certain additional requirements, consistent with the terms and conditions of in-force covered agreements, as specified by the Commission in regulation.

1991, c. 264; 2012, c. 539; 2017, c. 477; 2020, c. 208.

§ 38.2-1316.2. Credit allowed a domestic ceding insurer.

A. Credit for reinsurance shall be allowed a domestic ceding insurer as either an asset or a reduction from liability on account of reinsurance ceded only when the reinsurer meets the requirements of subsection C, D, or E or § 38.2-1316.4, provided that the Commission may adopt by regulation pursuant to subsection B of § 38.2-1316.7 specific additional requirements relating to or setting forth any one or more of the following: (i) the valuation of assets or reserve credits, (ii) the amount and forms of security supporting reinsurance arrangements described in subsection B of § 38.2-1316.7, and (iii) the circumstances pursuant to which credit will be reduced or eliminated.

B. Credit shall be allowed under subdivisions C 1, 2, and 3 only as respects cessions of those kinds or classes of business that the assuming insurer is licensed or otherwise permitted to write or assume in its state of domicile or, in the case of a U.S. branch of an alien assuming insurer, in the state through which it is entered and licensed to transact insurance or reinsurance. Credit shall be allowed under subdivision C 3 or 4 only if the applicable requirements of subsection B of 14VAC5-300-150 of the Virginia Administrative Code have been satisfied.

C. Credit shall be allowed a domestic ceding insurer for reinsurance ceded only when the assuming insurer meets one of the following criteria:

1. Credit shall be allowed when the assuming insurer is licensed to transact insurance in the Commonwealth.

2. Credit shall be allowed when the assuming insurer is accredited as a reinsurer in the Commonwealth. An accredited reinsurer is one which:

a. Files with the Commission evidence of its submission to the Commission's jurisdiction;

b. Submits to the Commission's authority to examine its books and records;

c. Is licensed to transact insurance or reinsurance in at least one state or, in the case of a United States branch of an alien assuming insurer, is entered through and licensed to transact insurance or reinsurance in at least one state;

d. Files annually with the Commission a copy of its annual statement filed with the insurance department of its state of domicile or entry and a copy of its most recent audited financial statement; and

e. Demonstrates to the satisfaction of the Commission that it has adequate financial capacity to meet its reinsurance obligations and is otherwise qualified to assume reinsurance from domestic insurers. An assuming insurer is deemed to meet this requirement as of the time of its application if it maintains a surplus as regards policyholders in an amount not less than $20 million and its accreditation has not been denied by the Commission within 90 days of its initial submission.

3. Credit shall be allowed when the assuming insurer is domiciled and licensed in or, in the case of a United States branch of an alien insurer, is entered through, a state which employs standards regarding credit for reinsurance substantially similar to those applicable under this statute and the assuming insurer or United States branch of an alien assuming insurer:

a. Submits to the authority of the Commission to examine its books and records; and

b. Maintains a surplus as regards policyholders in an amount not less than $20 million. However, unless specifically required by the Commission, this surplus requirement shall be deemed waived when reinsurance is ceded and assumed pursuant to pooling arrangements among insurers in the same holding company system.

4. Credit shall be allowed when the assuming insurer maintains a trust fund in a qualified United States financial institution for the payment of the valid claims of its United States policyholders and ceding insurers, their assigns and successors in interest. The assuming insurer shall report annually to the Commission information substantially the same as that required to be reported on the NAIC Annual Statement form by licensed insurers to enable the Commission to determine the sufficiency of the trust fund.

a. In the case of a single assuming insurer, the trust shall consist of a trusteed account representing the assuming insurer's liabilities attributable to business written in the United States, and in addition, the assuming insurer shall maintain a trusteed surplus amount not less than $20 million, except as provided in subdivision 4 b.

b. 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 United States 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 the 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 30 percent of the assuming insurer's liabilities attributable to reinsurance ceded by United States ceding insurers covered by the trust.

c. In the case of an association, including incorporated and individual unincorporated underwriters, the trust shall consist of a trusteed account representing the association's liabilities attributable to business written in the United States and in addition, the association shall maintain a trusteed surplus of which $100 million shall be held jointly for the benefit of United States ceding insurers of any member of the association, the incorporated members of which shall not be engaged in any business other than underwriting as a member of the association and shall be subject to the same level of solvency regulation and control by the association's domiciliary regulator as are the unincorporated members; and the association shall make available to the Commission an annual certification of the solvency of each underwriter by the association's domiciliary regulator and its independent public accountants.

d. In the case of an association of incorporated underwriters under common administration that complies with the filing requirements contained in subdivision 4 c, and that has continuously transacted an insurance business outside the United States for at least three years, and submits to the Commission's authority to examine its books and records and bears the expense of the examination, and which has aggregate policyholders' surplus of $10 billion; the trust shall be in an amount equal to the association's several liabilities attributable to business ceded by United States ceding insurers to any member of the association pursuant to reinsurance contracts issued in the name of such association. In addition, the association shall maintain a joint trusteed surplus of which $100 million shall be held jointly for the benefit of United States ceding insurers of any member of the association as additional security for any such liabilities, and each member of the association shall make available to the Commission an annual certification of the member's solvency by the member's domiciliary regulator and its independent public accountant.

D. Credit shall be allowed when the reinsurance is ceded to an assuming insurer that has been certified by the Commission as a reinsurer in the Commonwealth and secures its obligations in accordance with the following:

1. In order to be eligible for certification, the assuming insurer shall:

a. Be domiciled and licensed to transact insurance or reinsurance in a qualified jurisdiction, as determined by the Commission pursuant to subdivision 3;

b. Maintain minimum capital and surplus, or its equivalent, in an amount to be determined by the Commission pursuant to regulation;

c. Maintain financial strength ratings from two or more rating agencies deemed acceptable by the Commission pursuant to regulation;

d. Agree to submit to the jurisdiction of the Commonwealth, appoint the Commission as its agent for service of process in the Commonwealth, and agree to provide security for 100 percent of the assuming insurer's liabilities attributable to reinsurance ceded by United States ceding insurers if it resists enforcement of a final United States judgment;

e. Agree to meet applicable information filing requirements as determined by the Commission, both with respect to an initial application for certification and on an ongoing basis; and

f. Satisfy other requirements for certification deemed relevant by the Commission.

2. In order to be eligible for certification as a certified reinsurer, an association including incorporated and individual unincorporated underwriters, in addition to satisfying requirements of subdivision 1, shall satisfy the following requirements:

a. The association shall satisfy its minimum capital and surplus requirements through the capital and surplus equivalents, net of liabilities, of the association and its members, which shall include a joint central fund that may be applied to any unsatisfied obligation of the association or any of its members, in an amount determined by the Commission to provide adequate protection;

b. The incorporated members of the association shall not be engaged in any business other than underwriting as a member of the association and shall be subject to the same level of regulation and solvency control by the association's domiciliary regulator as are the unincorporated members; and

c. Within 90 days after its financial statements are due to be filed with the association's domiciliary regulator, the association shall provide to the Commission an annual certification by the association's domiciliary regulator of the solvency of each underwriter member; or if a certification is unavailable, financial statements prepared by independent public accountants, of each underwriter member of the association.

3. The Commission shall create and publish a list of qualified jurisdictions, under which an assuming insurer licensed and domiciled in such jurisdiction is eligible to be considered for certification by the Commission as a certified reinsurer. With regard to determinations of qualified jurisdictions:

a. In order to determine whether the domiciliary jurisdiction of a non-United States assuming insurer is eligible to be recognized as a qualified jurisdiction, the Commission shall evaluate the appropriateness and effectiveness of the reinsurance supervisory system of the jurisdiction, both initially and on an ongoing basis, and consider the rights, benefits, and the extent of reciprocal recognition afforded by the non-United States jurisdiction to reinsurers licensed and domiciled in the United States. A qualified jurisdiction must agree to share information and cooperate with the Commission with respect to all certified reinsurers domiciled within that jurisdiction. A jurisdiction may not be recognized as a qualified jurisdiction if the Commission has determined that the jurisdiction does not adequately and promptly enforce final United States judgments and arbitration awards. Additional factors may be considered in the discretion of the Commission;

b. A list of qualified jurisdictions shall be published through the NAIC Committee Process. The Commission shall consider this list in determining qualified jurisdictions. If the Commission approves a jurisdiction as qualified that does not appear on the list of qualified jurisdictions, the Commission shall provide thoroughly documented justification in accordance with criteria to be developed under regulations;

c. United States jurisdictions that meet the requirement for accreditation under the NAIC financial standards and accreditation program shall be recognized as qualified jurisdictions; and

d. If a certified reinsurer's domiciliary jurisdiction ceases to be a qualified jurisdiction, the Commission has the discretion to suspend the reinsurer's certification indefinitely, in lieu of revocation.

4. The Commission shall assign a rating to each certified reinsurer, giving due consideration to the financial strength ratings that have been assigned by rating agencies deemed acceptable to the Commission pursuant to regulation. The Commission shall publish a list of all certified reinsurers and their ratings.

5. A certified reinsurer shall secure obligations assumed from United States ceding insurers under this subsection at a level consistent with its rating, as specified in regulations promulgated by the Commission. With regard to securing obligations:

a. In order for a domestic ceding insurer to qualify for full financial statement credit for reinsurance ceded to a certified reinsurer, the certified reinsurer shall maintain security in a form acceptable to the Commission and consistent with the provisions of § 38.2-1316.4, or in a multibeneficiary trust in accordance with subdivision C 4, except as otherwise provided in this subsection;

b. If a certified reinsurer maintains a trust to fully secure its obligations subject to subdivision C 4, and chooses to secure its obligations incurred as a certified reinsurer in the form of a multibeneficiary trust, the certified reinsurer shall maintain separate trust accounts for its obligations incurred under reinsurance agreements issued or renewed as a certified reinsurer with reduced security as permitted by this subsection or comparable laws of other United States jurisdictions and for its obligations subject to subdivision C 4. It shall be a condition to the grant of certification under this section that the certified reinsurer shall have bound itself, by the language of the trust and agreement with the Commissioner with principal regulatory oversight of each such trust account, to fund, upon termination of any such trust account, out of the remaining surplus of such trust any deficiency of any other such trust account;

c. The minimum trusteed surplus requirements provided in subdivision C 4 are not applicable with respect to a multibeneficiary trust maintained by a certified reinsurer for the purpose of securing obligations incurred under this subsection, except that such trust shall maintain a minimum trusteed surplus of $10 million;

d. With respect to obligations incurred by a certified reinsurer under this subsection, if the security is insufficient, the Commission shall reduce the allowable credit by an amount proportionate to the deficiency and has the discretion to impose further reductions in allowable credit upon finding that there is a material risk that the certified reinsurer's obligations will not be paid in full when due; and

e. For purposes of this subsection, a certified reinsurer whose certification has been terminated for any reason shall be treated as a certified reinsurer required to secure 100 percent of its obligations. As used in this subsection, the term "terminated" means revocation, suspension, voluntary surrender, and inactive status. If the Commission continues to assign a higher rating as permitted by other provisions of this section, this requirement does not apply to a certified reinsurer in inactive status or to a reinsurer whose certification has been suspended.

6. If an applicant for certification has been certified as a reinsurer in an NAIC accredited jurisdiction, the Commission has the discretion to defer to that jurisdiction's certification and has the discretion to defer to the rating assigned by that jurisdiction, and such assuming insurer shall be considered to be a certified reinsurer in the Commonwealth.

7. A certified reinsurer that ceases to assume new business in the Commonwealth may request to maintain its certification in inactive status in order to continue to qualify for a reduction in security for its in-force business. An inactive certified reinsurer shall continue to comply with all applicable requirements of this subsection, and the Commission shall assign a rating that takes into account, if relevant, the reasons why the reinsurer is not assuming new business.

E. Credit shall be allowed when the reinsurance is ceded to an assuming insurer in accordance with the following:

1. The assuming insurer shall:

a. Be domiciled in, or its head office shall be located in, as applicable, a reciprocal jurisdiction identified by the Commission pursuant to this subsection and shall be licensed in such reciprocal jurisdiction;

b. Maintain minimum capital and surplus, or its equivalent, calculated according to the methodology of its domiciliary jurisdiction, in an amount to be determined by the Commission in regulation. If the assuming insurer is an association, including incorporated and individual unincorporated underwriters, it shall maintain minimum capital and surplus equivalents, net of liabilities, calculated according to the methodology applicable in its domiciliary jurisdiction, and a central fund containing a balance in amounts to be determined by the Commission in regulation;

c. Maintain a minimum solvency or capital ratio, as applicable, which will be determined by the Commission in regulation. If the assuming insurer is an association, including incorporated and individual unincorporated underwriters, it shall maintain a minimum solvency or capital ratio in the reciprocal jurisdiction where the assuming insurer is domiciled or its head office is located, as applicable, and is licensed;

d. Agree and provide adequate assurance to the Commission, in a form specified by the Commission pursuant to regulation, as follows:

(1) Provide prompt written notice and explanation to the Commission if it falls below the minimum requirements set forth in subdivision b or c, or if any regulatory action is taken against it for serious noncompliance with applicable law;

(2) Consent in writing to the jurisdiction of the courts of the Commonwealth and to the appointment of the Commission as an agent for service of process. The Commission may require that consent for service of process be provided to the Commission and included in each reinsurance agreement. Nothing in this subdivision 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;

(3) Consent in writing to pay all final judgments, wherever enforcement is sought, obtained by a ceding insurer or its legal successor, that have been declared enforceable in the jurisdiction where the judgment was obtained;

(4) Include, in each reinsurance agreement, a provision requiring the assuming insurer to provide security in an amount equal to 100 percent 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 resolution estate; and

(5) Confirm that it is not presently participating in any solvent scheme of arrangement that involves the Commonwealth's ceding insurers, and agree to notify the ceding insurer and the Commission and to provide security in an amount equal to 100 percent of the assuming insurer's liabilities to the ceding insurer, should the assuming insurer enter into such a solvent scheme of arrangement. Such security shall be in a form consistent with the provisions of subsection D of this section and subdivision 2 of § 38.2-1316.4 and as determined by the Commission in regulation;

e. Provide, or its legal successor shall provide, if requested by the Commission, on behalf of itself and any legal predecessors, certain documentation to the Commission, as specified by the Commission in regulation; and

f. Maintain a practice of prompt payment of claims under reinsurance agreements, pursuant to criteria set forth by regulation.

Nothing in this subdivision 1 precludes an assuming insurer from providing the Commission with information on a voluntary basis.

2. The assuming insurer's supervisory authority shall confirm to the Commission on an annual basis as of the preceding December 31, or at the annual date otherwise statutorily reported to the reciprocal jurisdiction, that the assuming insurer complies with the requirements set forth in subdivisions 1 b and c.

3. The Commission shall create and publish a list of reciprocal jurisdictions. With regard to determinations of reciprocal jurisdictions, the Commission:

a. Shall include (i) any non-United States 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; (ii) any United States jurisdiction that meets the requirements for accreditation under the NAIC financial standards and accreditation program; or (iii) any qualified jurisdiction, as determined by the Commission pursuant to subdivision D 3 of § 38.2-1316.2, that is not otherwise described in clause (i) or (ii) and that meets certain additional requirements, consistent with the terms and conditions of in-force covered agreements, as specified by the Commission in regulation;

b. Shall consider including any other reciprocal jurisdiction included on the NAIC list published through the NAIC Committee Process. The Commission may approve a jurisdiction that does not appear on the NAIC list of reciprocal jurisdictions in accordance with criteria to be developed under regulations issued by the Commission; and

c. May remove a jurisdiction from the list of reciprocal jurisdictions upon a determination that the jurisdiction no longer meets the requirements of a reciprocal jurisdiction, in accordance with a process set forth in regulations issued by the Commission, except that the Commission shall not remove from the list a reciprocal jurisdiction described in clause (i) or (ii) of subdivision a. Upon removal of a reciprocal jurisdiction from this list, credit for reinsurance ceded to an assuming insurer that is domiciled or has its home office in that jurisdiction shall be allowed, if otherwise allowed pursuant to this section.

4. The Commission shall create and publish a list of assuming insurers that have satisfied the conditions set forth in this subsection and to which cessions shall be granted credit in accordance with this subsection. The Commission may add an assuming insurer to such list if an NAIC-accredited jurisdiction has added such assuming insurer to a list of such assuming insurers or if, upon initial eligibility, the assuming insurer submits the information to the Commission as required under subdivision 1 d and complies with any additional requirements that the Commission may impose by regulation, except to the extent that they conflict with an applicable covered agreement.

5. If the Commission determines that an assuming insurer no longer meets one or more of the requirements under this subsection, the Commission may revoke or suspend the eligibility of the assuming insurer for recognition under this subsection in accordance with procedures set forth in regulation.

a. 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 subdivision 2 of § 38.2-1316.4.

b. 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 Commission and consistent with the provisions of subdivision 2 of § 38.2-1316.4.

6. 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 ceded liabilities.

7. Nothing in this subsection shall limit or in any way alter the capacity of parties to a reinsurance agreement to agree on requirements for security or other terms in that reinsurance agreement, except as expressly prohibited by this article or other applicable law or regulation.

8. Credit may be taken under this subsection only for reinsurance agreements entered into, amended, or renewed on or after July 1, 2020, and only with respect to losses incurred and reserves reported on or after the later of (i) the date on which the assuming insurer has met all eligibility requirements pursuant to subdivision 1 and (ii) the effective date of the new reinsurance agreement, amendment, or renewal. This subdivision does not alter or impair a ceding insurer's right to take credit for reinsurance, to the extent that credit is not available under this subsection, as long as the reinsurance qualifies for credit under any other applicable provision of this article.

9. Nothing in this subsection shall authorize an assuming insurer to withdraw or reduce the security provided under any reinsurance agreement except as permitted by the terms of the agreement.

10. Nothing in this subsection shall limit, or in any way alter, the capacity of parties to any reinsurance agreement to renegotiate the agreement.

F. If an accredited or certified reinsurer ceases to meet the requirements for accreditation or certification, the Commission may suspend or revoke the reinsurer's accreditation or certification in accordance with the following:

1. The Commission shall give the reinsurer notice and opportunity for hearing. The suspension or revocation may not take effect until after the Commission's order on hearing, unless:

a. The reinsurer waives its right to hearing;

b. The Commission's order is based on regulatory action by the reinsurer's domiciliary jurisdiction or the voluntary surrender or termination of the reinsurer's eligibility to transact insurance or reinsurance business in its domiciliary jurisdiction or in the primary certifying state of the reinsurer under subdivision D 6; or

c. The Commission finds that an emergency requires immediate action and a court of competent jurisdiction has not stayed the Commission's action.

2. While a reinsurer's accreditation or certification is suspended, no reinsurance contract issued or renewed after the effective date of the suspension qualifies for credit except to the extent that the reinsurer's obligations under the contract are secured in accordance with § 38.2-1316.4. If a reinsurer's accreditation or certification is revoked, no credit for reinsurance may be granted after the effective date of the revocation except to the extent that the reinsurer's obligations under the contract are secured in accordance with subdivision D 5 or § 38.2-1316.4.

G. A ceding insurer shall take steps to manage its concentration risk and diversify its reinsurance program in the following manner:

1. A ceding insurer shall take steps to manage its reinsurance recoverables proportionate to its own book of business. A domestic ceding insurer shall notify the Commission within 30 days after reinsurance recoverables from any single assuming insurer, or group of affiliated assuming insurers, exceeds 50 percent of the domestic ceding insurer's last reported surplus to policyholders, or after it is determined that reinsurance recoverables from any single assuming insurer, or group of affiliated assuming insurers, is likely to exceed this limit. The notification shall demonstrate that the exposure is safely managed by the domestic ceding insurer.

2. A ceding insurer shall take steps to diversify its reinsurance program. A domestic ceding insurer shall notify the Commission within 30 days after ceding to any single assuming insurer, or group of affiliated assuming insurers, more than 20 percent of the ceding insurer's gross written premium in the prior calendar year, or after it has determined that the reinsurance ceded to any single assuming insurer, or group of affiliated assuming insurers, is likely to exceed this limit. The notification shall demonstrate that the exposure is safely managed by the domestic ceding insurer.

H. The trusts described in subdivision C 4 shall be established in a form acceptable to the Commission.

1. The trust instrument shall provide that contested claims shall be valid and enforceable upon the final order of any court of competent jurisdiction in the United States.

2. The trust shall vest legal title to its assets in the trustees of the trust for its United States policyholders and ceding insurers, their assigns and successors in interest.

3. The trust and the assuming insurer shall be subject to examination as determined by the Commission.

4. The trust described herein must remain in effect for as long as the assuming insurer shall have outstanding obligations due under the reinsurance agreements subject to the trust.

5. No later than February 28 of each year the trustees of the trust shall report to the Commission in writing setting forth the balance of the trust and listing the trust's investments at the preceding year end and shall certify the date of termination of the trust, if so planned, or certify that the trust shall not expire prior to the next following December 31.

1991, c. 264; 1994, c. 647; 2012, c. 539; 2017, c. 477; 2020, c. 208.

§ 38.2-1316.3. Repealed.

Repealed by Acts 2012, c. 539, cl. 2.

§ 38.2-1316.4. Credit allowed any ceding insurer.

Credit shall be allowed any ceding insurer under the following conditions:

1. Credit shall be allowed when reinsurance is ceded to an assuming insurer not meeting the requirements of § 38.2-1316.2 but only with respect to the insurance of risks located in jurisdictions where such reinsurance is required by applicable law or regulation of that jurisdiction.

2. Credit, in the form of a reduction from liability for reinsurance ceded to an assuming insurer not meeting the requirements of § 38.2-1316.2, shall be allowed in an amount not exceeding the liabilities carried by the ceding insurer and attributable to the reinsurance, provided that the Commission may adopt by regulation pursuant to subsection B of § 38.2-1316.7 specific additional requirements relating to or setting forth any one or more of the following: (i) the valuation of assets or reserve credits, (ii) the amount and forms of security supporting reinsurance arrangements described in subsection B of § 38.2-1316.7, and (iii) the circumstances pursuant to which credit will be reduced or eliminated. Additionally, such reduction shall not exceed the amount of funds held by or on behalf of the ceding insurer, including funds held in trust for the ceding insurer, under a reinsurance contract with such assuming insurer as security for the payment of obligations thereunder, if such security is (a) held in the United States subject to withdrawal solely by, and under the exclusive control of, the ceding insurer or (b) in the case of a trust, held in a qualified United States financial institution. The required security may be in the form of:

a. Cash.

b. 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 Investment Analysis Office, and qualifying as admitted assets with adequate liquidity and readily determinable market value.

c. Clean, irrevocable, unconditional letters of credit issued or confirmed by a qualified United States financial institution, as defined in this article, no later than December 31 in respect of the year for which filing is being made, and in the possession of the ceding insurer on or before the filing date of its annual statement. Letters of credit meeting applicable standards of insurer 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 insurer acceptability, continue to be acceptable as security until their expiration, extension, renewal, modification or amendment, whichever first occurs.

d. Any other form of security acceptable to the Commission.

1991, c. 264; 2012, c. 539; 2017, c. 477; 2020, c. 208.

§ 38.2-1316.5. Repealed.

Repealed by Acts 2012, c. 539, cl. 2.

§ 38.2-1316.7. Rules and regulations.

A. The Commission may adopt rules and regulations implementing the provisions of this article.

B. The Commission is further authorized to adopt rules and regulations applicable to reinsurance arrangements described in subdivision 1. A regulation adopted pursuant to:

1. This subsection shall apply only to reinsurance relating to:

a. Life insurance policies with guaranteed nonlevel gross premiums or guaranteed nonlevel benefits;

b. 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. Variable annuities with guaranteed death or living benefits;

d. Long-term care insurance policies; or

e. Such other life and health insurance and annuity products as to which the NAIC adopts model regulatory requirements with respect to credit for reinsurance.

2. Subdivision 1 a or 1 b shall apply to any treaty containing (i) policies issued on or after January 1, 2015, and (ii) policies issued prior to January 1, 2015, if risk pertaining to such pre-2015 policies is ceded in connection with the treaty, in whole or in part, on or after January 1, 2015.

3. This subsection may require the ceding insurer, in calculating the amounts or forms of security required to be held under regulations promulgated under this authority, to use the Valuation Manual adopted by the NAIC under subdivision B 1 of § 38.2-1379, including all amendments adopted by the NAIC and in effect on the date as of which the calculation is made, to the extent applicable.

4. This subsection shall not apply to cessions to an assuming insurer that:

a. Is certified in the Commonwealth;

b. Meets the conditions set forth in subsection E of § 38.2-1316.2; or

c. Maintains at least $250 million in capital and surplus when determined in accordance with the NAIC Accounting Practices and Procedures Manual, including all amendments thereto adopted by the NAIC, excluding the impact of any permitted or prescribed practices, and is (i) licensed in at least 26 states or (ii) licensed in at least 10 states and licensed or accredited in a total of at least 35 states.

C. The authority to adopt regulations pursuant to subsection B does not limit the Commission's general authority to adopt regulations pursuant to subsection A.

1991, c. 264; 2017, c. 477; 2020, c. 208.

§ 38.2-1316.8. Reinsurance agreements affected.

The provisions of this article shall apply to all cessions after the effective date of this article under reinsurance agreements which have had an inception, anniversary or renewal date not less than six months after July 1, 2012.

1991, c. 264; 2012, c. 539.

Article 4. Examinations.

§ 38.2-1317. Examinations; when authorized or required.

A. Whenever the Commission considers it expedient for the protection of the interests of the people of this Commonwealth, it may make or direct to be made an examination into the affairs of any person licensed to transact any insurance business in this Commonwealth or any other person subject to the jurisdiction of the Commission pursuant to provisions of this title. The Commission may also make or direct to be made, whenever necessary or advisable an examination into the affairs of:

1. Any person having a contract under which he has the exclusive or dominant right to manage or control any licensed insurer,

2. Any person holding the shares of capital stock or policyholder proxies of any domestic insurer amounting to control as defined in § 38.2-1322 either as voting trustee or otherwise,

3. Any person engaged or assisting in, or proposing or claiming to engage or assist in the promotion or formation of a domestic insurer, or

4. Any person seeking a license to transact any insurance business in this Commonwealth.

B. The Commission shall examine or cause to be examined every domestic insurer at least once in every five years; however, on or after January 1, 1993, the Commission shall examine every insurer licensed in this Commonwealth at least once in every five years.

C. The examination of any foreign or alien insurer or any other foreign or alien person subject to examination shall be made to the extent practicable in cooperation with the insurance departments of other states.

D. Instead of making its own examination, the Commission may accept a full report of the examination of a foreign or alien person, duly authenticated by the insurance supervisory official of the state of domicile or of entry until January 1, 1994. Thereafter, such reports may only be accepted if:

1. The insurance department was at the time of the examination accredited under the National Association of Insurance Commissioners' (NAIC) Financial Regulation Standards and Accreditation Program;

2. The examination is performed under the supervision of such an accredited insurance department or with the participation of one or more examiners who are employed by an accredited insurance department and who, after a review of the examination work papers and report, state under oath that the examination was performed in a manner consistent with the standards and procedures required by their insurance department; or

3. The Commission determines, in its sole discretion, that the examination was performed in a manner consistent with standards and procedures employed by the Commission in the examination of domestic insurers, and the report of examination is duly authenticated by the insurance supervisory official of the insurer's state of domicile or entry.

Code 1950, §§ 38-125, 38-126, 38-216, 38-253.40, 38-253.86, 38-516; 1952, c. 317, § 38.1-174; 1972, c. 836; 1973, c. 504; 1977, c. 321; 1986, c. 562; 1992, c. 588; 1996, c. 47.

§ 38.2-1317.1. Examinations; nature and scope.

A. In scheduling and determining the nature, scope and frequency of examinations, the Commission shall consider such matters as the conduct of business in the marketplace, results of financial statement analyses and ratios, results of market analyses, changes in management or ownership, actuarial opinions, reports of independent certified public accountants and other criteria as set forth in any Examiners' Handbook, or any successor publications, adopted by the NAIC and in effect when the Commission exercises discretion under this article.

Procedures for examinations concerning the conduct of business in the marketplace shall be exclusively subject to the provisions of §§ 38.2-218 through 38.2-222 and §§ 38.2-1318, 38.2-1319, 38.2-1320.5, and 38.2-1321.1.

B. For purposes of completing an examination of any company under this article, the Commission may examine or investigate any person, or the business of any person, in so far as such examination or investigation is, in the sole discretion of the Commission, necessary or material to the examination of the company.

C. The examination of any alien insurer or person shall be limited to its insurance transactions in the United States unless the Commission considers a complete examination of the alien insurer or person to be necessary.

D. As used in this article:

"Company" means any person engaging in or proposing or attempting to engage in any transaction or kind of insurance or surety business and any person or group of persons who, pursuant to the provisions of this title, Title 58.1, or any rule or regulation promulgated by the Commission, may otherwise be subject to the administrative or regulatory authority of the Commission as set forth in the provisions of this title.

"Insurance department" means the supervising regulatory officials of a given state who are responsible for administering the insurance laws of said state.

"Insurer" means an insurance institution as defined by § 38.2-602.

"NAIC" means the National Association of Insurance Commissioners.

"Person" means any association, aggregate of individuals, business, company, corporation, individual, joint-stock company, Lloyds type of organization, organization, partnership, receiver, reciprocal or interinsurance exchange, trustee or society, or any affiliate thereof.

1992, c. 588; 2008, c. 249.

§ 38.2-1317.2. Market analyses confidential.

A. All market analyses concerning companies or insurance transactions that are obtained by the Commission from the NAIC, including information generated by any NAIC databases developed for use by regulators, and all market analyses generated by the Commission based on documents or information submitted to the Commission by a company or person, including its officers, directors, and agents, shall receive confidential treatment by the Commission, shall not be subject to subpoena, and are not public records. All working papers, recorded information, documents and copies thereof produced by, obtained by, or disclosed to the Commission or any other person in the course of a market analysis or market conduct action shall receive confidential treatment by the Commission, shall not be subject to subpoena, and are not public records. Any such disclosure to the Commission shall not constitute a waiver of confidentiality of any such documents or information.

B. Notwithstanding other provisions to the contrary, nothing shall prevent or be construed as prohibiting the Commission from disclosing otherwise confidential information, administrative or judicial orders, or the content of any analysis or any matter related thereto, at any time to (i) a regulatory official of any state or country; (ii) the NAIC, its affiliate or its subsidiary; or (iii) a law-enforcement authority of any state or country, provided that those officials are required under their law to maintain its confidentiality. Any such disclosure by the Commission shall not constitute a waiver of confidentiality of any such documents or information.

C. Documents or information received in the course of a market analysis or market conduct action from the NAIC, a law-enforcement official of any state or country, or regulatory officials of any state or country that are confidential in those jurisdictions shall receive confidential treatment by the Commission, shall not be subject to subpoena, and are not public records.

D. Nothing in this section shall prohibit the Commission from releasing a report containing aggregated findings.

2008, c. 249.

§ 38.2-1318. Examinations; how conducted.

A. Whenever the Commission examines the affairs of any person, as set forth in § 38.2-1317, it may appoint as examiners one or more competent persons.

1. To the extent practicable, the examiners shall be regular employees of the Commission.

2. No examiner may be appointed by the Commission if such examiner, either directly or indirectly, has a conflict of interest or is affiliated with the management of or owns a pecuniary interest in any person subject to examination under this article; however, this section shall not be construed to automatically preclude an examiner from being:

a. A policyholder or claimant under an insurance policy;

b. A grantor of a mortgage or similar instrument on the examiner's residence to a regulated entity if done under customary terms and in the ordinary course of business;

c. An investment owner in shares of regulated diversified investment companies; or

d. A settlor or beneficiary of a "blind trust" into which any otherwise impermissible holdings have been placed.

3. Notwithstanding the requirements of this subsection, the Commission may retain from time to time, on an individual basis, qualified actuaries, certified public accountants, or other similar individuals or firms who are independently practicing their professions, even though said persons may from time to time be similarly employed or retained by persons subject to examination under this article.

B. The examiners shall be instructed as to the scope of the examination, and, in conducting the examination, the examiner shall observe, to the extent practicable, those guidelines and procedures set forth in the Examiners' Handbook, or any successor publications, adopted by the NAIC and such other guidelines or procedures as the Commission may deem appropriate.

C. Every company or person from whom information is sought, its officers, directors, and agents shall provide the examiners convenient access at all reasonable hours to its books, records, files, securities, accounts, papers, documents, and any or all computer or other recordings relating to the property, assets, business and affairs of the company being examined or those of any person, including any affiliates or subsidiaries of the person examined, that are relevant to the examination.

1. The officers, directors, employees and agents of the company or person shall facilitate the examination and aid in the examination so far as it is in their power to do so.

2. The refusal of any company, by its officers, directors, employees or agents, to submit to examination or to comply with any reasonable written request of the examiners shall be grounds for suspension or refusal of, or nonrenewal of, any license or authority held by the company to engage in an insurance or other business subject to the Commission's jurisdiction. Any such proceedings for suspension, revocation or refusal of any license or authority shall be conducted pursuant to § 38.2-1040.

D. For the purpose of any investigation or proceeding under this article, the Commission or any individual designated by it may administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence and require the production of any books, papers, correspondence, memoranda, agreements or other documents or records which the Commission determines are relevant to the examination.

E. In connection with any examination, the Commission may retain attorneys, appraisers, independent actuaries, independent certified public accountants, security analysts or other professionals and specialists as examiners; the cost of which shall be borne by the company which is the subject of the examination.

F. Nothing contained in this article shall be construed to limit the Commission's authority to terminate or suspend any examination in order to pursue other legal or regulatory action pursuant to the provisions of this title.

G. Nothing contained in this article shall be construed to limit the Commission's authority to use and, if appropriate, to make public any final or preliminary examination report, any examiner or company workpapers or other documents, or any other information discovered or developed during the course of any examination in the furtherance of any legal or regulatory action which the Commission may deem appropriate.

H. Whenever the Commission examines the affairs of any person providing benefits pursuant to Title XIX or Title XXI of the Social Security Act, as amended, as set forth in § 38.2-1317, nothing contained in this article shall be construed to limit the Commission's authority to consult with the Department of Medical Assistance Services about such person before taking any action as a result of services the person provides pursuant to Title XIX or Title XXI of the Social Security Act, as amended.

Code 1950, §§ 38-69, 38-125; 1952, c. 317, § 38.1-175; 1986, c. 562; 1992, c. 588; 2006, c. 866.

§ 38.2-1319. Expense of examination.

A. Any person examined shall be liable for the necessary traveling and other expenses reasonably attributable to the examiners or incurred by the Commission on account of its examination. The Commission may require the person to pay either a reasonable living expense allowance or the actual living expenses of an examiner, whichever the Commission determines to be more appropriate. Where the examiner is other than a full-time employee of the Commission, the person may, in addition, be required to pay to the Commission's examiners, upon presentation of an itemized statement, consulting fees or a per diem compensation at a reasonable rate approved by the Commission.

B. Where the examination concerns a person domiciled or having its home office in this Commonwealth, the Commission may, at its discretion and for good cause, waive payment of expenses.

C. If the Commission finds the accounts to be inadequate, or inadequately kept or posted, it may employ experts to rewrite, post or balance them at the expense of the person examined if that person has failed to complete or correct the accounts after notice and reasonable opportunity has been given by the Commission.

Code 1950, §§ 38-70, 38-125; 1952, c. 317, § 38.1-176; 1986, c. 562; 1992, c. 588.

§ 38.2-1320. Examination reports; general description.

The Commission's examiners shall make a true report of every examination. The report shall include only facts appearing upon the books, records or other documents of the person examined or as ascertained from the sworn testimony of its directors, officers, employees, agents or other persons examined concerning its affairs and any conclusions and recommendations reasonably warranted from such facts. Findings of fact and conclusions made pursuant to any examination, and reported in any filed examination report for which the period for appeal has expired, shall be prima facie evidence in any subsequent legal or regulatory action.

Code 1950, §§ 38-127, 38-216; 1952, c. 317, § 38.1-177; 1986, c. 562; 1992, c. 588.

§ 38.2-1320.1. Submission of examination report.

No later than ninety days following completion of any examination, the Commission shall furnish two copies of the report to the person examined and shall notify the person that he may, within thirty days, make a written submission with respect to any facts, conclusions or recommendations contained in the examination report.

1. If the report contains any recommendation for corrective action by or on behalf of the person examined, the person shall make a written submission explaining what procedures have been implemented or are anticipated with respect to each recommendation of corrective action.

2. Any person seeking to take issue with any matter contained in the examination report shall do so by including in its written submission a request for a hearing before the Commission.

1992, c. 588; 1994, c. 308.

§ 38.2-1320.2. Filing of report on examination.

Within thirty days of the end of the period allowed for the receipt of written submissions, the Commission shall fully consider and review the report, together with any written submissions and any relevant portions of the examiner's workpapers and act upon the report by:

1. Certifying that the examination report as initially provided to the person examined, or with modifications or corrections, is the Commission's true examination report and filing such report in the offices of the Commission;

2. Rejecting the examination report with notice to the person examined that the Commission's examiners are being directed to reopen the examination for purposes of obtaining additional data, documentation or information, and resubmission pursuant to § 38.2-1320.1; or

3. Calling for an investigatory hearing before the Commission with no less than ten days' notice to the company for purposes of obtaining additional documentation, data, information and testimony.

1992, c. 588.

§ 38.2-1320.3. Examination reports; orders and procedures.

A. A certified copy of the examination report filed pursuant to subdivision 1 of § 38.2-1320.2 shall be served upon the company by certified mail. Within thirty days of the filing of the report, the company shall file affidavits executed by each of its directors stating under oath that they have received a copy of the filed report and any related orders.

B. If the examination report reveals that the company is operating in violation of any law, regulation or prior order of the Commission, the Commission may order the company to take any action the Commission considers necessary and appropriate to cure such violation.

C. Any hearing conducted by the Commission under subdivision 2 of § 38.2-1320.1 or subdivision 3 of § 38.2-1320.2 shall be conducted as a nonadversarial confidential investigatory proceeding as necessary for the resolution of any inconsistencies, discrepancies or disputed issues apparent upon the face of the examination report or raised by or as a result of the Commission's review of relevant workpapers or by the written submission of the company.

1992, c. 588.

§ 38.2-1320.4. Publication and use of examination reports.

A. Upon the filing of the examination report under subdivision 1 of § 38.2-1320.2, the Commission shall continue to hold the content of the examination report as private and confidential information for a period of ten days except to the extent provided in § 38.2-1320.3. Thereafter, the Commission may open the report for public inspection so long as no court of competent jurisdiction has stayed its publication.

B. Nothing contained in this Code shall prevent or be construed as prohibiting the Commission from disclosing the content of an examination report, preliminary examination report or results, or any matter relating thereto, at any time to (i) a regulatory official of any state or country; (ii) the NAIC, its affiliate or its subsidiary; or (iii) a law-enforcement authority of any state or country, so long as such agency, authority or office receiving the report or matters relating thereto agrees in writing to hold it confidential and in a manner consistent with this article. Any such disclosure by the Commission shall not constitute a waiver of confidentiality of any such reports or any matter relating thereto.

C. In the event the Commission determines that regulatory action is appropriate as a result of any examination, it may initiate any proceedings or actions as provided by law.

1992, c. 588; 2001, c. 519.

§ 38.2-1320.5. Confidentiality of ancillary information.

All working papers, recorded information, documents and copies thereof produced by, obtained by or disclosed to the Commission or any other person in the course of an examination made under this article shall be given confidential treatment, are not subject to subpoena, and may not be made public by the Commission or any other person, except to the extent provided in § 38.2-1320.4. Access may also be granted to (i) a regulatory official of any state or country; (ii) the NAIC, its affiliate or its subsidiary; or (iii) a law-enforcement authority of any state or country, provided that those officials are required under their law to maintain its confidentiality. Any such disclosure by the Commission shall not constitute a waiver of confidentiality of such papers, recorded information, documents or copies thereof. Any parties receiving such papers must agree in writing prior to receiving the information to provide to it the same confidential treatment as required by this section, unless the prior written consent of the company to which it pertains has been obtained.

1992, c. 588; 2001, c. 519; 2007, c. 488.

§ 38.2-1321. Records of examination preserved.

The Commission shall keep and preserve in permanent form the reports of all its official examinations, including all records, orders, exhibits or schedules filed in connection with these reports.

Code 1950, § 38-124; 1952, c. 317, § 38.1-178; 1986, c. 562; 1992, c. 588.

§ 38.2-1321.1. Immunity from liability.

A. No cause of action shall arise nor shall any liability be imposed against the Commission, the Commission's authorized representatives or any examiner appointed by the Commission for any statements made or conduct performed in good faith while carrying out the provisions of this article.

B. No cause of action shall arise, nor shall any liability be imposed against any person for the act of communicating or delivering information or data to the Commission or the Commission's authorized representative or examiner pursuant to an examination made under this article, if such act of communication or delivery was performed in good faith and without fraudulent intent or the intent to deceive.

C. This section does not abrogate or modify in any way any common law or statutory privilege or immunity heretofore enjoyed by any person identified in subsection A of this section.

1992, c. 588.

Article 5. Insurance Holding Companies.

§ 38.2-1322. Definitions.

As used in this article:

"Acquiring person" means any person by whom or on whose behalf acquisition of control of any domestic insurer is to be effected.

"Affiliate" of a specific person or a person "affiliated" with a specific person means a person that directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the person specified.

"Control," including the terms "controlling," "controlled by" and "under common control with," means direct or indirect possession of the power to direct or cause the direction of the management and policies of a person, through (i) the ownership of voting securities, (ii) by contract other than a commercial contract for goods or nonmanagement services, or (iii) 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 collectively 10 percent or more of the voting securities of any other person. This presumption may be rebutted by a showing made in the manner provided by subsection K of § 38.2-1329 that control does not exist. After giving all interested persons notice and opportunity to be heard and making specific findings to support its determination, the Commission may determine that control exists, notwithstanding the absence of a presumption to that effect.

"Enterprise risk" means any activity, circumstance, event, or series of events involving one or more affiliates of an insurer that, if not remedied promptly, is likely to have a material adverse effect upon the financial condition or liquidity of the insurer or its insurance holding company system as a whole, including, but not limited to, anything that would cause the insurer's risk-based capital to fall into company action level as set forth in § 38.2-5503 or would cause the insurer to be in hazardous financial condition pursuant to 14VAC5-290-30 and 14VAC5-290-40 of the Virginia Administrative Code.

"Group-wide supervisor" means the regulatory official authorized to engage in conducting and coordinating group-wide supervision activities who is determined or acknowledged by the Commission under § 38.2-1332.2 to have sufficient significant contacts with the internationally active insurance group.

"Insurance holding company system" means two or more affiliated persons, one or more of which is an insurer.

"Insurer" means an insurance company as defined in § 38.2-100.

"Internationally active insurance group" means an insurance holding company system that includes an insurer registered under § 38.2-1329 and that meets the following criteria: (i) premiums written in at least three countries; (ii) the percentage of gross premiums written outside the United States is at least 10 percent of the insurance holding company system's total gross written premiums; and (iii) based on a three year rolling average, (a) the total assets of the insurance holding company system are at least $50 billion or (b) the total gross written premiums of the insurance holding company system are at least $10 billion.

"Material transaction" means (i) any sale, purchase, exchange, loan or extension of credit, or investment; (ii) any dividend or distribution; (iii) any reinsurance treaty or risk-sharing arrangement; (iv) any management contract, service contract or cost-sharing arrangement; (v) any merger with or acquisition of control of any corporation; or (vi) any other transaction or agreement that the Commission by order, rule or regulation determines to be material. Any series of transactions occurring within a 12-month period that are sufficiently similar in nature as to be reasonably construed as a single transaction and that in the aggregate exceed any minimum limits shall be deemed a material transaction.

"NAIC" means the National Association of Insurance Commissioners.

"SEC" means the U.S. Securities and Exchange Commission.

"Subsidiary" of a specified person means an affiliate directly or indirectly controlled by that person through one or more intermediaries.

"Voting security" means any security that enables the owner to vote for the election of directors. "Voting security" includes any security convertible into or evidencing a right to acquire a voting security.

1973, c. 505, § 38.1-178.1; 1977, c. 414, § 38.1-178.1:2; 1986, c. 562; 1992, c. 588; 1993, c. 158; 1998, c. 42; 2014, c. 309; 2019, c. 692.

§ 38.2-1323. Acquisition of control of insurers.

A. No person other than the issuer shall make a tender offer or a request or invitation for tenders of, or enter into any agreement to exchange securities for, seek to acquire, or acquire, in the open market or otherwise, any voting security of a domestic insurer if, after the consummation thereof, such person would, directly or indirectly (or by conversion or by exercise of any right to acquire) be in control of the insurer. No person shall enter into an agreement to merge with or otherwise to acquire control of a domestic insurer or any person controlling a domestic insurer unless, at the time the offer, request, or invitation is made or the agreement is entered into, or prior to the acquisition of the securities if no offer or agreement is involved, such person has filed with the Commission and has sent to the insurer a statement containing the information required by this section and the offer, request, invitation, agreement, or acquisition has been approved by the Commission pursuant to this article.

B. If the merger or acquisition of an insurer not covered by subsection A causes or tends to cause a substantial lessening of competition in any line of insurance and such lessening of competition is detrimental to policyholders or the public in general, then the Commission may suspend such insurer's license after giving the insurer 10 days' notice and the opportunity to be heard.

C. Any notice issued pursuant to the provisions of subsection B shall be accompanied by a request for such information as required by § 38.2-1324. Any hearing held pursuant to the provisions of this section shall begin, unless waived by the insurer, within 40 days of the receipt by the Commission of all material required by this subsection.

D. For purposes of this section, any controlling person of a domestic insurer seeking to divest its controlling interest in the domestic insurer, in any manner, shall file with the Commission, with a copy to the insurer, confidential notice of its proposed divestiture at least 30 days prior to the cessation of control. The Commission shall determine those instances in which the party or parties seeking to divest or to acquire a controlling interest in an insurer will be required to file for and obtain approval of the transaction. The information shall remain confidential until the conclusion of the transaction unless the Commission, in its discretion, determines that confidential treatment will interfere with enforcement of this section. If the statement referred to in subsection A is otherwise filed, this subsection shall not apply.

E. With respect to a transaction subject to this section, the acquiring person may also be required to file a pre-acquisition notification as established by the Commission.

F. For purposes of this section:

"Domestic insurer" includes any person controlling a domestic insurer unless the person, as determined by the Commission, is either directly or through its affiliates primarily engaged in business other than the business of insurance.

"Person" does not include any securities broker holding, in the usual and customary broker's function, less than 20 percent of the voting securities of an insurance company or of any person that controls an insurance company.

1977, c. 414, § 38.1-178.1:1; 1986, c. 562; 1992, c. 588; 1993, c. 158; 2014, c. 309.

§ 38.2-1324. Contents of application.

A. The application filed with the Commission under § 38.2-1323 shall be made under oath or affirmation and shall contain the following information:

1. The name and address of each acquiring person including:

a. If the acquiring person is a natural person, his principal occupation, all offices and positions held during the past five years, and any conviction of crimes other than minor traffic violations during the past 10 years; and

b. If the acquiring person is not a natural person, (i) a report of the nature of its business operations during the existence of the acquiring person and any of its predecessors, not to exceed five years; (ii) an informative description of the business intended to be done by the person and the person's subsidiaries; and (iii) a list of all individuals who are or who have been selected to become directors or executive officers of the person or who perform or will perform functions appropriate to those positions. The report shall include the information required by subdivision 1 a.

2. The source, nature, and amount of the consideration used or to be used in effecting the acquisition of control, a description of any transaction in which funds were or are to be obtained for that purpose, and the identity of persons furnishing the consideration. However, where a source of the consideration is a loan made in the lender's ordinary course of business, the identity of the lender shall remain confidential if requested by the person filing the application;

3. Fully audited financial information regarding the earnings and financial condition of each acquiring person during the existence of the acquiring person or the predecessors, not to exceed five years, and similar unaudited information as of a date not earlier than 90 days prior to the filing of the application;

4. Any plans or proposals that each acquiring person may have to liquidate the insurer, to sell its assets or merge or consolidate it with any person, or to make any other material change in its business or corporate structure or management;

5. The number of shares of any security of the insurer that each acquiring person proposes to acquire and the terms of the acquisition;

6. The amount of each class of any such security that each acquiring person beneficially owns or has a right to acquire beneficial ownership of;

7. A full description of any contracts, arrangements, or understandings with respect to any security in which an acquiring person is involved, including but not limited to transfer of any of the securities, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or guarantees of profits, division of losses or profits, or the giving or withholding of proxies. The description shall identify the persons with whom the contracts, arrangements, or understandings have been made;

8. A description of any acquiring person's purchase of any such security during the 12 calendar months preceding the filing of the application, including the dates of purchases, names of the purchasers, and consideration paid or agreed to be paid for the security;

9. A description of any recommendations to purchase any such security made by any acquiring person or by any person based upon interviews or at the suggestion of any acquiring person during the 12 calendar months preceding the filing of the application;

10. Copies of all tender offers, requests or invitations for tenders of exchange offers and agreements to acquire or exchange any such security and of additional related soliciting material which has been distributed;

11. The terms of any agreement, contract, or understanding made with any broker-dealer as to solicitation of these securities for tender and the amount of any associated fees, commissions, or other compensation to be paid to broker-dealers;

12. An agreement by the person required to file the statement referred to in subsection A of § 38.2-1323 that it will provide the annual enterprise risk report specified in subsection L of § 38.2-1329, for so long as control exists;

13. An acknowledgment by the person required to file the statement referred to in subsection A of § 38.2-1323 that the person and all subsidiaries within its control in the insurance holding company system will provide information to the Commission upon request as necessary to evaluate enterprise risk to the insurer; and

14. Any additional information the Commission may prescribe as necessary or appropriate for the protection of the policyholders or the public.

B. If the person required to file the application referred to in § 38.2-1323 is a partnership, limited partnership, syndicate, or other group, the Commission may require that the information called for by subsection A be given with respect to (i) each partner of the partnership or limited partnership, (ii) each member of the syndicate or group, and (iii) each person who controls any partner or member. If any partner, member, or person is a corporation, or if the person required to file the application referred to in § 38.2-1323 is a corporation, the Commission may require that information be given for the corporation, each officer and director of the corporation, and each person who is directly or indirectly the beneficial owner of more than 10 percent of the outstanding voting securities of the corporation as required by subsection A.

C. If any material change occurs in the facts set forth in the application filed with the Commission and sent to an insurer pursuant to § 38.2-1323, an amendment setting forth the change, together with copies of all documents and other material relevant to the change, shall be filed with the Commission and sent to the insurer within two business days after the person filing the application learns of the change.

1977, c. 414, § 38.1-178.1:2; 1986, c. 562; 2014, c. 309.

§ 38.2-1325. Alternate filing materials.

If any acquisition referred to in § 38.2-1323 is proposed to be made by means of a registration statement under the Securities Act of 1933 or in circumstances requiring the disclosure of similar information under the Securities Exchange Act of 1934, the person required by § 38.2-1323 to file an application may use these documents in furnishing the required information.

1977, c. 414, § 38.1-178.1:3; 1986, c. 562; 2014, c. 309.

§ 38.2-1326. Approval by Commission.

The Commission shall approve the application required by § 38.2-1323 unless, after giving notice and opportunity to be heard, it determines that:

1. After the change of control, the insurer would not be able to satisfy the requirements for the issuance of a license to write the classes of insurance for which it is presently licensed;

2. The acquisition of control would lessen competition substantially or tend to create a monopoly in insurance in this Commonwealth;

3. The financial condition of any acquiring person might jeopardize the financial stability of the insurer, or prejudice the interest of its policyholders;

4. Any plans or proposals of the acquiring party to liquidate the insurer, sell its assets or consolidate or merge it with any person, or to make any other material change in its business or corporate structure or management, are unfair and unreasonable to policyholders of the insurer and not in the public interest;

5. The competence, experience, and integrity of those persons who would control the operation of the insurer are such that it would not be in the interest of policyholders of the insurer and of the public to permit the acquisition of control;

6. After the change of control, the insurer's surplus as regards policyholders would not be reasonable in relation to its outstanding liabilities or adequate to its financial needs; or

7. The acquisition is likely to be hazardous or prejudicial to the insurance-buying public.

1977, c. 414, § 38.1-178.1:4; 1986, c. 562; 2014, c. 309.

§ 38.2-1327. Time for hearing; order of Commission.

A. Any hearing held pursuant to § 38.2-1326 shall begin within 40 days of the date the application is filed with the Commission. In approving any application filed pursuant to § 38.2-1323, the Commission may include in its order any conditions, stipulations, or provisions that the Commission determines to be necessary to protect the interests of the policyholders of the insurer and the public.

B. The Commission may retain at the acquiring person's expense any attorneys, actuaries, accountants, and other experts not otherwise a part of the Commission's staff as may be reasonably necessary to assist the Commission in reviewing the proposed acquisition of control.

1977, c. 414, § 38.1-178.1:6; 1986, c. 562; 2014, c. 309.

§ 38.2-1328. Exemption.

The provisions of §§ 38.2-1323 through 38.2-1327 shall not apply to any acquisition that the Commission, by order, exempts from those sections. Acquisitions granted exemption shall include those which (i) have not been made or entered into for the purpose of and do not have the effect of changing or influencing the control of a domestic insurer, or (ii) otherwise are not comprehended within these sections.

1977, c. 414, § 38.1-178.1:7; 1986, c. 562.

§ 38.2-1329. Registration of insurers that are members of holding company system.

A. Each insurer licensed to do business in the Commonwealth that is a member of an insurance holding company system shall register with the Commission.

B. 1. This section shall not apply to any foreign insurer subject to disclosure requirements and standards adopted by statute or regulation in the jurisdiction of its domicile that are substantially similar to those contained in this section, subsection A of § 38.2-1330, subsection D of § 38.2-1330, § 38.2-1330.1, and either (i) a provision substantially similar to subsection B of § 38.2-1330 or (ii) a provision such as the following: "Each registered insurer shall keep current the information required to be disclosed in its registration statement by reporting all material changes or additions within 15 days after the end of the month in which it learns of each change or addition."

2. Any insurer that is subject to registration under this section shall register within 15 days after it becomes subject to registration, and annually thereafter by April 30 of each year for the previous calendar year, unless the Commission for good cause shown extends the time for registration, and then within the extended time.

3. Any licensed insurer that is a member of an insurance holding company system but not subject to registration under this section may be required by the Commission to furnish a copy of the registration statement, or other information filed by the insurer, with the insurance regulatory authority of its domiciliary jurisdiction.

C. Each insurer subject to registration under this section shall file a registration statement on a form provided by the Commission. Such statement shall contain current information on:

1. The capital structure, general financial condition, ownership, and management of the insurer and any person controlling the insurer;

2. The identity of every member of the insurance holding company system;

3. The following agreements in force, continuing relationships and transactions currently outstanding between the insurer and its affiliates:

a. Loans, other investments, or purchases, sales or exchanges of securities of the affiliates by the insurer or of the insurer by its affiliates;

b. Purchases, sales, or exchanges of assets;

c. Transactions not in the ordinary course of business;

d. Guarantees or undertakings for the benefit of an affiliate that result in an actual contingent exposure of the insurer's assets to liability, other than insurance contracts entered into in the ordinary course of the insurer's business;

e. All management and service contracts and all cost-sharing arrangements;

f. Reinsurance agreements or other risk-sharing arrangements;

g. Dividends and other distributions to shareholders; and

h. Consolidated tax allocation agreements;

4. Any pledge of the insurer's stock, including stock of any subsidiary or controlling affiliate, for a loan made to any member of the insurance holding company system;

5. If requested by the Commission, financial statements of or within an insurance holding company system, including all affiliates. Financial statements may include but are not limited to annual audited financial statements filed with the SEC pursuant to the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. An insurer required to file financial statements pursuant to this subdivision may satisfy the request by providing the Commission with the most recently filed parent corporation financial statements that have been filed with the SEC;

6. Other matters relating to transactions between registered insurers and any affiliates which may be included from time to time in any registration forms adopted or approved by the Commission;

7. Statements that the corporate governance and internal controls are managed under the direction of the insurer's board of directors in a manner consistent with § 13.1-673 or § 13.1-853 as applicable, and that the insurer's officers or senior management have approved, implemented, and continue to maintain and monitor corporate governance and internal control procedures; and

8. Any other information required by the Commission by rule or regulation.

D. All registration statements shall contain a summary outlining all items in the current registration statement representing changes from the prior registration statement.

E. If information is not material for the purposes of this section, it need not be disclosed on the registration statement filed pursuant to subsection C. Unless the Commission prescribes otherwise, sales, purchases, exchanges, loans or extensions of credit, investments, or guarantees involving one-half of one percent or less of an insurer's admitted assets as of the immediately preceding December 31 shall not be deemed material for purposes of this section.

F. Each registered insurer shall report all additional material transactions with affiliates and any material changes in previously reported material transactions with affiliates on amendment forms provided by the Commission. Each insurer shall make its report within 15 days after the end of the month in which it learns of each additional material transaction or material change in material transaction. Subject to § 38.2-1330.1, each insurer shall report to the Commission all dividends and other distributions to shareholders within five business days following their declaration, and such declaration shall confer no rights upon shareholders until:

1. The Commission has approved the payment of such dividend or distribution; or

2. Thirty days after the Commission has received written notice of the declaration thereof and has not within such period disapproved such payment.

Each registered insurer shall also keep current the information required by subsection C by filing an amendment to its registration statement within 120 days after the end of each fiscal year of the ultimate controlling person of the insurance holding company system.

G. The Commission shall terminate the registration of any insurer that demonstrates it no longer is a member of an insurance holding company system.

H. The Commission may require or allow two or more affiliated insurers subject to registration under this section to file a consolidated registration statement or consolidated reports amending their consolidated registration statement or their individual registration statements.

I. The Commission may allow an insurer that is authorized to do business in this Commonwealth and that is part of an insurance holding company system to register on behalf of any affiliated insurer required to register under subsection A and to file all information and material required to be filed under this section.

J. The provisions of this section shall not apply to any insurer, information, or transaction if and to the extent that the Commission by rule, regulation, or order shall exempt the same from the provisions of this section.

K. Any person may file with the Commission a disclaimer of affiliation with any authorized insurer. The disclaimer shall fully disclose all material relationships and bases for affiliation between the person and the insurer as well as the basis for disclaiming the affiliation. A disclaimer of affiliation shall be deemed to have been granted unless the Commission, within 30 days following receipt of a complete disclaimer, notifies the filing party the disclaimer is disallowed. In the event of disallowance, the disclaiming party may request a hearing. The disclaiming party shall be relieved of its duty to register under this section if approval of the disclaimer has been granted by the Commission or if the disclaimer is deemed to have been approved.

L. The ultimate controlling person of every insurer subject to registration shall also file an annual enterprise risk report. The report shall be appropriate to the nature, scale, and complexity of the operations of the insurance holding company system, and shall, to the best of the ultimate controlling person's knowledge and belief, identify the material risks within the insurance holding company system that could pose enterprise risk to the insurer. The report shall be filed with the insurance commissioner, director, or superintendent of the lead state of the insurance holding company system as determined by the procedures within the Financial Analysis Handbook adopted by the NAIC.

M. The failure to file a registration statement or any summary of the registration statement or enterprise risk filing required by this section within the time specified for filing shall be a violation of this section.

1973, c. 505, § 38.1-178.2; 1977, c. 414; 1986, c. 562; 1992, c. 588; 2000, c. 46; 2006, c. 577; 2009, c. 717; 2014, c. 309.

§ 38.2-1330. Standards for transactions within an insurance holding company system; adequacy of surplus.

A. Transactions within an insurance holding company system to which an insurer subject to registration is a party shall be subject to the following standards:

1. The terms shall be fair and reasonable;

2. Agreements for cost-sharing services and management shall include such provisions as required by rule or regulation promulgated by the Commission;

3. Charges or fees for services performed shall be reasonable;

4. Expenses incurred and payments received shall be allocated to the insurer in conformity with customary insurance accounting practices consistently applied;

5. The books, accounts, and records of each party shall disclose clearly and accurately the precise nature and details of the transactions, including such accounting information as is necessary to support the reasonableness of the charges or fees to the respective parties; and

6. The insurer's surplus as regards policyholders following any dividends or distributions to shareholder affiliates shall be reasonable in relation to the insurer's outstanding liabilities and adequate to meet its financial needs.

B. Transactions described in subdivisions 1 through 7 that involve a domestic insurer and any person in its insurance holding company system, including amendments or modifications of affiliate agreements previously filed pursuant to this section, that are subject to materiality standards contained in such subdivisions may not be entered into unless the insurer has notified the Commission in writing of its intention to enter into the transaction at least 30 days prior thereto, or such shorter period as the Commission may permit, and the Commission has not disapproved it within that period. The notice for amendments or modifications shall include the reasons for the change and the financial impact on the domestic insurer. Informal notice shall be reported, within 30 days after a termination of a previously filed agreement, to the Commission for determination of the type of filing required, if any. Transactions to which this subsection applies, with their materiality standards, are:

1. Sales, purchases, exchanges, loans, extensions of credit, or investments, provided the transactions are equal to or exceed:

a. With respect to nonlife insurers, the lesser of three percent of the insurer's admitted assets or 25 percent of surplus as regards policyholders as of the immediately preceding December 31; or

b. With respect to life insurers, three percent of the insurer's admitted assets as of the immediately preceding December 31;

2. Loans or extensions of credit to any person who is not an affiliate, where the insurer makes loans or extensions of credit with the agreement or understanding that the proceeds of the transactions, in whole or in substantial part, are to be used to make loans or extensions of credit to, to purchase assets of, or to make investments in, any affiliate of the insurer making the loans or extensions of credit, provided the transactions are equal to or exceed:

a. With respect to nonlife insurers, the lesser of three percent of the insurer's admitted assets or 25 percent of surplus as regards policyholders as of the immediately preceding December 31; or

b. With respect to life insurers, three percent of the insurer's admitted assets as of the immediately preceding December 31;

3. Reinsurance agreements or modifications thereto, including:

a. All reinsurance pooling agreements; and

b. Agreements in which the reinsurance premium or a change in the insurer's liabilities, or the projected reinsurance premium or a change in the insurer's liabilities in any of the next three years, equals or exceeds five percent of the insurer's surplus as regards policyholders, as of the immediately preceding December 31, including those agreements that may require as consideration the transfer of assets from an insurer to a nonaffiliate, if an agreement or understanding exists between the insurer and nonaffiliate that any portion of the assets will be transferred to one or more affiliates of the insurer;

4. All management agreements, service contracts, tax allocation agreements, guarantees, and cost-sharing arrangements;

5. Guarantees when made by a domestic insurer, provided, however, that a guarantee that is quantifiable as to amount is not subject to the notice requirements of this subdivision unless it exceeds the lesser of one-half of one percent of the insurer's admitted assets or 10 percent of surplus as regards policyholders as of the immediately preceding December 31. Further, all guarantees that are not quantifiable as to amount are subject to the notice requirements of this subdivision;

6. Direct or indirect acquisitions or investments in a person that controls the insurer or in an affiliate of the insurer in an amount that, together with its present holdings in such investments, exceeds two and one-half percent of the insurer's surplus to policyholders. The Commission may exempt such a transaction by regulation; and

7. Any material transactions that the Commission determines may adversely affect the interests of the insurer's policyholders.

Nothing in this subsection shall be deemed to authorize or permit any transactions that, in the case of an insurer not a member of the same insurance holding company system, would be otherwise contrary to law.

C. In addition:

1. Notwithstanding the control of a domestic insurer by any person, the officers and directors of the insurer shall not thereby be relieved of any obligation or liability to which they would otherwise be subject by law, and the insurer shall be managed so as to assure its separate operating identity consistent with this article;

2. Nothing in this section shall preclude a domestic insurer from having or sharing a common management or cooperative or joint use of personnel, property, or services with one or more other persons under arrangements meeting the standards of subsection A;

3. Not less than one-third of the directors of a domestic insurer, and not less than one-third of the members of each committee of the board of directors of any domestic insurer, shall be persons who are not officers or employees of the insurer or of any entity controlling, controlled by, or under common control with the insurer and who are not beneficial owners of a controlling interest in the voting stock of the insurer or entity. At least one such person shall be included in any quorum for the transaction of business at any meeting of the board of directors or any committee thereof;

4. The board of directors of a domestic insurer shall establish one or more committees composed solely of directors who are not officers or employees of the insurer or of any entity controlling, controlled by, or under common control with the insurer and who are not beneficial owners of a controlling interest in the voting stock of the insurer or any such entity. The committee or committees shall have responsibility for nominating candidates for director for election by shareholders or policyholders, evaluating the performance of officers deemed to be principal officers of the insurer, and recommending to the board of directors the selection and compensation of the principal officers;

5. The provisions of subdivisions 3 and 4 shall not apply to a domestic insurer if the person controlling the insurer, such as an insurer, a mutual insurance holding company, or a publicly held corporation, has a board of directors and committees thereof that meet the requirements of subdivisions 3 and 4 with respect to such controlling entity; and

6. An insurer may make application to the Commission for a waiver from the requirements of this subsection if the insurer's annual direct written and assumed premium, excluding premiums reinsured with the Federal Crop Insurance Corporation and National Flood Insurance Program, is less than $300 million. An insurer may also make application to the Commission for a waiver from the requirements of this subsection based upon unique circumstances. The Commission may consider various factors including the type of business entity, volume of business written, availability of qualified board members, or ownership or organizational structure of the entity.

D. For purposes of this article, in determining whether an insurer's surplus as regards policyholders is reasonable in relation to the insurer's outstanding liabilities and adequate to meet its financial needs, the following factors, among others, shall be considered:

1. The size of the insurer as measured by its assets, capital and surplus, reserves, premium writings, insurance in force, and other appropriate criteria;

2. The extent to which the insurer's business is diversified among different lines of insurance;

3. The number and size of risks insured in each line of business;

4. The extent of the geographical dispersion of the insurer's insured risk;

5. The nature and extent of the insurer's reinsurance program;

6. The quality, diversification, and liquidity of the insurer's investment portfolio;

7. The recent past and projected future trend in the size of the insurer's surplus to policyholders;

8. The recent past and projected future trend in the size of the insurer's investment portfolio;

9. The surplus as regards policyholders maintained by other comparable insurers;

10. The adequacy of the insurer's reserves;

11. The quality of the insurer's earnings and the extent to which the reported earnings of the insurer include extraordinary items; and

12. The quality and liquidity of investments in affiliates. The Commission in its judgment may classify any investment as a nonadmitted asset for the purpose of determining the adequacy of surplus as regards policyholders.

E. No domestic insurer shall enter into transactions that are part of a plan or series of like transactions with persons within the insurance holding company system if the purpose of those separate transactions is to avoid the statutory threshold amount and thus avoid the review that otherwise would be required. If the Commission determines that separate transactions were entered into over any 12-month period for that purpose, the Commission may exercise its authority under § 38.2-1334.2:2.

F. The Commission, in reviewing transactions pursuant to subsection B, shall consider whether the transactions comply with the standards set forth in subsection A and whether they may adversely affect the interests of policyholders.

G. The Commission shall be notified in writing within 30 days of any investment of the domestic insurer in any one corporation if the total investment in such corporation by the insurance holding company system exceeds 10 percent of such corporation's voting securities.

1973, c. 505, § 38.1-178.3; 1986, c. 562; 1987, c. 417; 1992, c. 588; 2006, c. 577; 2014, c. 309.

§ 38.2-1330.1. Dividends and other distributions.

A. Except as otherwise provided by law, a domestic insurer shall not declare or pay a dividend or other distribution from any source other than earned surplus without the Commission's prior written approval. For purposes of this section, "earned surplus" means an amount equal to the unassigned funds (surplus) of an insurer as set forth in the most recent annual statement of the insurer filed with the Commission including all or part of the surplus arising from unrealized capital gains or revaluation of assets. No domestic insurer shall pay an extraordinary dividend or make any other extraordinary distribution to its shareholders until the earlier of:

1. Thirty days after the Commission has received written notice of the declaration thereof and has not within such period disapproved such payment; or

2. The Commission's approval of such payment.

B. For purposes of this section, an extraordinary dividend or distribution includes any dividend or distribution of cash or other property whose fair market value together with that of other dividends or distributions made within the preceding 12 months exceeds the greater of (i) 10 percent of such insurer's surplus as regards policyholders as of the immediately preceding December 31 or (ii) the net gain from operations of such insurer, if such insurer is a life insurer, or the net income, if such insurer is not a life insurer, not including realized capital gains, for the 12-month period ending the immediately preceding December 31, but shall not include pro rata distributions of any class of the insurer's own securities.

C. In determining whether a dividend or distribution is extraordinary, an insurer other than a life insurer may carry forward net income from the previous two calendar years that has not already been paid out as dividends. This carry-forward shall be computed by taking the net income from the second and third preceding calendar years, not including realized capital gains, less dividends paid in the second and immediate preceding calendar years.

D. Notwithstanding any other provision of law, an insurer may declare an extraordinary dividend or distribution that is conditional upon the Commission's approval thereof, and such declaration shall confer no rights upon shareholders until:

1. The Commission has approved the payment of such dividend or distribution; or

2. The Commission has not disapproved such payment within the 30-day period described in subsection A.

E. The Commission may limit or disallow the payment of ordinary dividends by a domestic insurer if the insurer is presently or potentially financially distressed or troubled. The Commission shall set forth the specific reasons for limiting or disallowing the payment of any ordinary dividends.

2006, c. 577; 2014, c. 309.

§ 38.2-1331. Repealed.

Repealed by Acts 2014, c. 309, cl. 2. For applicability, see Editor's note.

§ 38.2-1332. Examinations.

A. In addition to the powers the Commission has under Article 4 (§ 38.2-1317 et seq.), the Commission shall have the power to examine any insurer registered under § 38.2-1329 and its affiliates to ascertain the financial condition of the insurer, including the enterprise risk to the insurer by the ultimate controlling party, or by any entity or combination of entities within the insurance holding company system, or by the insurance holding company system on a consolidated basis.

B. The Commission may order any insurer registered under § 38.2-1329 to produce such records, books, or other information papers in the possession of the insurer or its affiliates as are reasonably necessary to determine compliance with this article.

C. To determine compliance with this article, the Commission may order any insurer registered under § 38.2-1329 to produce information not in the possession of the insurer if the insurer can obtain access to such information pursuant to contractual relationships, statutory obligations, or other method. In the event the insurer cannot obtain the information requested by the Commission, the insurer shall provide the Commission a detailed explanation of the reason that the insurer cannot obtain the information and the identity of the holder of such information. Whenever it appears to the Commission that the detailed explanation is without merit, the Commission may require, after notice and hearing, the insurer to pay a penalty pursuant to § 38.2-218 for each day's delay or may suspend or revoke the insurer's license.

D. The Commission may retain at the registered insurer's expense any attorneys, actuaries, accountants and other experts reasonably necessary to assist in the conduct of the examination under subsection A. Any persons so retained shall be under the direction and control of the Commission and shall act in a purely advisory capacity.

E. Each insurer producing books and papers for examination records pursuant to subsection B shall be liable for and shall pay the expense of the examination in accordance with the provisions of Article 4 (§ 38.2-1317 et seq.).

F. In the event the insurer fails to comply with an order, the Commission shall have the power to examine the affiliates to obtain the information.

1973, c. 505, § 38.1-178.4; 1986, c. 562; 1992, c. 588; 2014, c. 309.

§ 38.2-1332.1. Supervisory colleges.

A. With respect to any insurer registered under § 38.2-1329, and in accordance with subsection C, the Commission shall also have the power to participate in a supervisory college for any domestic insurer that is part of an insurance holding company system with international operations in order to determine compliance by the insurer with this article. The powers of the Commission with respect to supervisory colleges include the following:

1. Initiating the establishment of a supervisory college;

2. Clarifying the membership and participation of other supervisors in the supervisory college;

3. Clarifying the functions of the supervisory college and the role of other regulators, including the establishment of a group-wide supervisor;

4. Coordinating the ongoing activities of the supervisory college, including planning meetings, supervisory activities, and processes for information sharing; and

5. Establishing a crisis management plan.

B. Each registered insurer subject to this section shall be liable for and shall pay the necessary traveling and other expenses reasonably attributable to other regulators or incurred by the Commission for its participation in a supervisory college in accordance with subsection C. For purposes of this section, a supervisory college may be convened as either a temporary or permanent forum for communication and cooperation between the regulators charged with the supervision of the insurer or its affiliates, and the Commission may establish a regular assessment to the insurer for the payment of these expenses. If an assessment is required by this subsection, it shall be collected by the Commission and paid directly into the state treasury and credited to the "Bureau of Insurance Special Fund -- State Corporation Commission" for the maintenance of the Bureau of Insurance as provided in subsection B of § 38.2-400.

C. In order to assess the business strategy, financial position, legal and regulatory position, risk exposure, risk management, and governance processes, and as part of the examination of individual insurers in accordance with § 38.2-1332, the Commission may participate in a supervisory college with other regulators charged with supervision of the insurer or its affiliates, including other state, federal, and international regulatory agencies. The Commission may enter into agreements in accordance with subsection C of § 38.2-1333 providing the basis for cooperation between the Commission and the other regulatory agencies and the activities of the supervisory college. Nothing in this section shall delegate to the supervisory college the authority of the Commission to regulate or supervise the insurer or its affiliates within its jurisdiction.

2014, c. 309.

§ 38.2-1332.2. Group-wide supervision of internationally active insurance groups.

A. The Commission is authorized to act as the group-wide supervisor for any internationally active insurance group in accordance with the provisions of this section. However, the Commission may otherwise acknowledge another regulatory official as the group-wide supervisor where the internationally active insurance group:

1. Does not have substantial insurance operations in the United States;

2. Has substantial insurance operations in the United States but not in the Commonwealth; or

3. Has substantial insurance operations in the United States and the Commonwealth, but the Commission has determined pursuant to the factors set forth in subsections B and F that the other regulatory official is the appropriate group-wide supervisor.

An insurance holding company system that does not otherwise qualify as an internationally active insurance group may request that the Commission make a determination or acknowledgment as to a group-wide supervisor pursuant to this section.

B. In cooperation with other state, federal, and international regulatory agencies, the Commission shall identify a single group-wide supervisor for an internationally active insurance group. The Commission may determine that the Commission is the appropriate group-wide supervisor for an internationally active insurance group that conducts substantial insurance operations concentrated in the Commonwealth. However, the Commission may acknowledge that a regulatory official from another jurisdiction is the appropriate group-wide supervisor for the internationally active insurance group. The Commission shall consider the following factors when making a determination or acknowledgment under this subsection:

1. The place of domicile of the insurers within the internationally active insurance group that holds the largest share of the internationally active insurance group's written premiums, assets, or liabilities;

2. The place of domicile of the top-tiered insurer or insurers in the insurance holding company system of the internationally active insurance group;

3. The location of the executive offices or largest operational offices of the internationally active insurance group;

4. Whether another regulatory official is acting or is seeking to act as the group-wide supervisor under a regulatory system that the Commission determines to be:

a. Substantially similar to the system of regulation provided under the laws of the Commonwealth; or

b. Otherwise sufficient in terms of providing for group-wide supervision, enterprise risk analysis, and cooperation with other regulatory officials; and

5. Whether another regulatory official acting or seeking to act as the group-wide supervisor provides the Commission with reasonably reciprocal recognition and cooperation.

However, a regulatory official identified under this section as the group-wide supervisor may determine that it is appropriate to acknowledge another supervisor to serve as the group-wide supervisor. The acknowledgment of the group-wide supervisor shall be made after consideration of the factors listed in subdivisions 1 through 5, and shall be made in cooperation with and subject to the acknowledgment of other regulatory officials involved with supervision of members of the internationally active insurance group and in consultation with the internationally active insurance group.

C. Notwithstanding any other provision of this section, the Commission's regulatory authority under this section shall not be impaired. To the extent that the Commission acknowledges a regulatory official from another jurisdiction as a group-wide supervisor and in the event of a material change in the internationally active insurance group that results in (i) the internationally active insurance group's insurers domiciled in the Commonwealth holding the largest share of the group's premiums, assets, or liabilities or (ii) the Commonwealth being the place of domicile of the top-tiered insurer or insurers in the insurance holding company system of the internationally active insurance group, the Commission may make a determination or acknowledgment as to the appropriate group-wide supervisor for such an internationally active insurance group pursuant to subsection B.

D. Pursuant to § 38.2-1332, the Commission is authorized to collect from any insurer registered pursuant to § 38.2-1329 all information necessary to determine whether the Commission may act as the group-wide supervisor of an internationally active insurance group or if the Commission may acknowledge another regulatory official to act as the group-wide supervisor. Prior to issuing a determination that an internationally active insurance group is subject to group-wide supervision by the Commission, the Commission shall notify the insurer registered pursuant to § 38.2-1329 and the ultimate controlling person within the internationally active insurance group. The internationally active insurance group shall have not less than 30 days to provide the Commission with additional information pertinent to the pending determination. The Commission shall publish in any manner it considers appropriate and on its website the identity of internationally active insurance groups that the Commission has determined are subject to group-wide supervision by the Commission.

E. If the Commission is the group-wide supervisor for an internationally active insurance group, the Commission is authorized to engage in any of the following group-wide supervision activities:

1. Assess the enterprise risks within the internationally active insurance group to ensure that:

a. The material financial condition and liquidity risks to the members of the internationally active insurance group that are engaged in the business of insurance are identified by management; and

b. Reasonable and effective mitigation measures are in place;

2. Request, from any member of an internationally active insurance group subject to the Commission's supervision, information necessary and appropriate to assess enterprise risk, including information about the members of the internationally active insurance group regarding:

a. Governance, risk assessment, and management;

b. Capital adequacy; and

c. Material intercompany transactions;

3. Coordinate and, through the authority of the regulatory officials of the jurisdictions where members of the internationally active insurance group are domiciled, compel development and implementation of reasonable measures designed to ensure that the internationally active insurance group is able to timely recognize and mitigate enterprise risks to members of such internationally active insurance group that are engaged in the business of insurance;

4. Communicate with other state, federal, and international regulatory agencies for members within the internationally active insurance group and share relevant information, subject to the confidentiality provisions of § 38.2-1333, through supervisory colleges as set forth in § 38.2-1332.1 or otherwise;

5. Enter into agreements with or obtain documentation from any insurer registered under § 38.2-1329, any member of the internationally active insurance group, and any other state, federal, or international regulatory agencies for members of the internationally active insurance group, providing the basis for or otherwise clarifying the Commission's role as group-wide supervisor, including provisions for resolving disputes with other regulatory officials. Such agreements or documentation shall not serve as evidence in any proceeding that any insurer or person within an insurance holding company system not domiciled or incorporated in the Commonwealth is doing business in the Commonwealth or is otherwise subject to jurisdiction in the Commonwealth; and

6. Engage in other group-wide supervision activities, consistent with the authorities and purposes enumerated above, as considered necessary by the Commission.

F. If the Commission acknowledges that another regulatory official from a jurisdiction that is not accredited by the NAIC is the group-wide supervisor, the Commission is authorized to reasonably cooperate, through supervisory colleges or otherwise, with group-wide supervision undertaken by the group-wide supervisor, provided that:

1. The Commission's cooperation is in compliance with the laws of the Commonwealth; and

2. The regulatory official acknowledged as the group-wide supervisor also recognizes and cooperates with the Commission's activities as a group-wide supervisor for other internationally active insurance groups where applicable. Where such recognition and cooperation is not reasonably reciprocal, the Commission is authorized to refuse recognition and cooperation.

G. The Commission is authorized to enter into agreements with or obtain documentation from any insurer registered under § 38.2-1329, any affiliate of the insurer, and other state, federal, or international regulatory agencies for members of the internationally active insurance group that provide the basis for or otherwise clarify a regulatory official's role as group-wide supervisor.

H. Each registered insurer subject to this section shall be liable for and shall pay the necessary traveling and other expenses incurred by the Commission for its participation in the administration of this section. The Commission may retain at the registered insurer's expense any attorneys, actuaries, accountants, and other experts reasonably necessary to assist in the administration of this section. Any persons so retained shall be under the direction and control of the Commission and shall act in a purely advisory capacity. The Commission may establish a regular assessment to the insurer for the payment of these expenses. If an assessment is required by this subsection, it shall be collected by the Commission and paid directly into the state treasury and credited to the "Bureau of Insurance Special Fund — State Corporation Commission" for the maintenance of the Bureau of Insurance as provided in subsection B of § 38.2-400.

2019, c. 692.

§ 38.2-1333. Confidential treatment of information and documents.

A. All documents, materials, or other information obtained by or disclosed to the Commission or any other person in the course of an examination or investigation made pursuant to § 38.2-1332, and all information reported or provided to the Commission pursuant to subdivisions A 12 and 13 of § 38.2-1324 and §§ 38.2-1329, 38.2-1330, 38.2-1330.1, and 38.2-1332.2 shall be confidential by law and privileged, shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any private civil action. However, the Commission is authorized to use the documents, materials, or other information in the furtherance of any regulatory or legal action brought as a part of the Commission's official duties. The Commission shall not otherwise make the documents, materials, or other information public without the prior written consent of the insurer to which they pertain. After an insurer and its affiliates have been given notice and opportunity to be heard, the Commission may publish all or any part of the documents, materials, or other information referred to in this section in any manner it considers appropriate if it determines that the interests of policyholders or the public will be served by the publication.

B. Neither the Commission nor any person who received documents, materials, or other information while acting under the authority of the Commission or with whom such documents, materials, or other information are shared pursuant to this article shall be permitted or required to testify in any private civil action concerning any confidential documents, materials, or information subject to subsection A.

C. In order to assist in the performance of the Commission's duties, the Commission:

1. May share documents, materials, or other information, including the confidential and privileged documents, materials, or information subject to subsection A, with other state, federal, and international regulatory agencies; with the NAIC and its affiliates and subsidiaries; and with state, federal, and international law-enforcement authorities, including members of any supervisory college described in § 38.2-1332.1, provided that the recipient agrees in writing to maintain the confidentiality and privileged status of the document, material, or other information and has verified in writing the legal authority to maintain confidentiality;

2. May, notwithstanding subdivision 1, only share confidential and privileged documents, materials, or information reported pursuant to subsection L of § 38.2-1329 with insurance commissioners in any states that have statutes or regulations substantially similar to subsection A and that have agreed in writing not to disclose such information;

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

4. Shall enter into written agreements with the NAIC governing sharing and use of information provided pursuant to this article consistent with this subsection that shall:

a. Specify procedures and protocols regarding the confidentiality and security of information shared with the NAIC and its affiliates and subsidiaries pursuant to this article, including procedures and protocols for sharing by the NAIC with other state, federal, or international regulators;

b. Specify that ownership of information shared with the NAIC and its affiliates and subsidiaries pursuant to this article remains with the Commission and that the NAIC's use of the information is subject to the direction of the Commission;

c. Require prompt notice to be given to an insurer whose confidential information in the possession of the NAIC pursuant to this article is subject to a request or subpoena to the NAIC for disclosure or production; and

d. Require the NAIC and its affiliates and subsidiaries to consent to intervention by an insurer in any judicial or administrative action in which the NAIC and its affiliates and subsidiaries may be required to disclose confidential information about the insurer shared with the NAIC and its affiliates and subsidiaries pursuant to this article.

D. The sharing of information by the Commission pursuant to this article shall not constitute a delegation of regulatory authority or rulemaking, and the Commission is solely responsible for the administration, execution, and enforcement of the provisions of this article.

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 Commission under this section or as a result of sharing as authorized in subsection C.

F. Documents, materials, or other information in the possession or control of the NAIC pursuant to this article shall be confidential by law and privileged, shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any private civil action.

1973, c. 505, § 38.1-178.5; 1986, c. 562; 2001, c. 519; 2014, c. 309; 2019, c. 692.

§ 38.2-1334. Revocation, suspension, or nonrenewal of insurer's license.

Whenever it appears to the Commission that any person has committed a violation of this article that makes the continued operation of an insurer contrary to the interests of policyholders or the public, the Commission after giving notice and an opportunity to be heard, may suspend, revoke or refuse to renew the insurer's license to transact business in this Commonwealth for whatever period it finds is required for the protection of policyholders or the public. Any such action shall be supported by specific findings of fact and conclusions of law.

1973, c. 505, § 38.1-178.9; 1986, c. 562.

§ 38.2-1334.1. Voting of securities, injunctions, and sequestration of voting securities.

A. No security that is the subject of any agreement or arrangement regarding acquisition, or that is acquired or to be acquired, in contravention of the provisions of this article or of any rule, regulation, or order issued by the Commission hereunder, may be voted at any shareholders' meeting, or may be counted for quorum purposes, and any action of shareholders requiring the affirmative vote of a percentage of shares may be taken as though such securities were not issued and outstanding. However, no action taken at any such meeting shall be invalidated by the voting of such securities, unless the action would materially affect control of an insurer subject to any provision of this article or unless the Commission or other court of the Commonwealth has so ordered. If the insurer or Commissioner of Insurance has reason to believe that any security of the insurer has been or is about to be acquired in contravention of the provisions of this article or of any rule, regulation or order issued by the Commission hereunder, the insurer or Commissioner of Insurance may apply to the Commission to enter an order (i) enjoining any offer, request, invitation, agreement, or acquisition made in contravention of § 38.2-1323; (ii) enforcing any rule, regulation, or order issued by the Commission under the foregoing sections to enjoin the voting of any security so acquired; or (iii) voiding any vote of such security already cast at any meeting of shareholders or providing for such other equitable relief as the nature of the case and the interest of the insurer's policyholders, creditors, and shareholders or the public may require.

B. Whenever it appears to the Commission that any person has committed or is about to commit a violation of this article, the Commission may enter an order enjoining such person from violating or continuing to violate this article or any such rule or order, and for such other equitable relief as the nature of the case and the interests of the domestic insurer's policyholders or the public may require.

C. In any case where a person has acquired or is proposing to acquire any voting securities in violation of this article or any rule, regulation, or order issued by the Commission hereunder, the Commission may, after reasonable notice, upon application of the insurer or application of the Commissioner of Insurance, seize or sequester any voting securities of the insurer owned directly or indirectly by the person, and issue the order with respect thereto as may be appropriate to effectuate the provisions of this article.

Notwithstanding any other provisions of law, for the purposes of this article, the situs of the ownership of the securities of domestic insurers shall be deemed to be in the Commonwealth.

D. The actions authorized by this section are in addition to any remedies provided for by other sections of this title and may be imposed, in addition to or in lieu of any other penalties or actions provided for by law, whenever such actions involve a person that is neither domiciled nor licensed in this Commonwealth.

1993, c. 158; 2014, c. 309.

§ 38.2-1334.2. Recovery.

A. If an order for liquidation or rehabilitation of a domestic insurer has been entered, the receiver appointed under such order shall have a right to recover on behalf of the insurer (i) from any parent corporation or holding company or person or affiliate who otherwise controlled the insurer, the amount of distributions (other than distributions of shares of the same class of stock) paid by the insurer on its capital stock or (ii) any payment in the form of a bonus, termination settlement or extraordinary lump sum salary adjustment made by the insurer or its subsidiary or subsidiaries to a director, officer or employee, where the distribution or payment pursuant to (i) or (ii) is made at any time during the one year preceding the petition for liquidation, conservation or rehabilitation, as the case may be, subject to the limitations of subsections B, C and D of this section.

B. No such distribution shall be recoverable if the parent or affiliate shows that, when paid, such distribution was lawful and reasonable and that the insurer did not know and could not reasonably have known that such distribution might adversely affect the ability of the insurer to fulfill its contractual obligations.

C. Any person who was a parent corporation or holding company or a person who otherwise controlled the insurer or affiliate at the time such distributions were paid shall be liable up to the amount of distributions or payments under subsection A of this section. Any person who otherwise controlled the insurer at the time such distributions were declared shall be liable up to the amount of distributions he would have received if they had been paid immediately. If two or more persons are liable with respect to the same distributions, they shall be jointly and severally liable.

D. The maximum amount recoverable under this section shall be the amount needed in excess of all other available assets of the impaired or insolvent insurer to pay its obligations and to reimburse any guaranty funds.

E. To the extent that any person liable under subsection C of this section is insolvent or otherwise fails to pay claims due from it pursuant to such subsection, its parent corporation, holding company, or person who otherwise controlled it at the time the distribution was paid shall be jointly and severally liable for any resulting deficiency in the amount recovered from such parent corporation, holding company, or person who otherwise controlled it.

1993, c. 158.

§ 38.2-1334.2:1. Rules and regulations.

The Commission may adopt rules and regulations implementing the provisions of this article.

2014, c. 309.

§ 38.2-1334.2:2. Sanctions.

Whenever it appears to the Commission that any person has committed a violation of §§ 38.2-1323 through 38.2-1328 and the violation prevents the full understanding of the enterprise risk to the insurer by affiliates or by the insurance holding company system, the violation may serve as an independent basis for disapproving dividends or distributions and for instituting delinquency proceedings pursuant to § 38.2-1503.

2014, c. 309.

§ 38.2-1334.2:3. Statutory construction and relationship to other laws.

Provisions of this title, insofar as they are not inconsistent with this article, shall be applicable to any insurer subject to registration under this article.

2014, c. 309.

Article 5.1. Risk Management Framework; Own Risk and Solvency Assessments.

§ 38.2-1334.3. Definitions.

As used in this article, unless the context requires a different meaning:

"Insurance group" means those insurers and affiliates included within an insurance holding company system as defined in § 38.2-1322.

"Insurer" means an insurance company as defined in § 38.2-100, except that "insurer" 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.

"NAIC" means the National Association of Insurance Commissioners.

"ORSA Guidance Manual" means the current version of the NAIC Own Risk and Solvency Assessment (ORSA) Guidance Manual developed and adopted by the NAIC and as amended from time to time. A change in the ORSA Guidance Manual shall be effective on the January 1 following the calendar year in which the changes have been adopted by the NAIC.

"ORSA summary report" means a confidential high-level summary of an insurer or insurance group's ORSA.

"Own Risk and Solvency Assessment" or "ORSA" means a confidential internal assessment, appropriate to the nature, scale, and complexity of an insurer or insurance group, conducted by that insurer or insurance group, of the material and relevant risks associated with the insurer or insurance group's current business plan, and the sufficiency of capital resources to support those risks.

2014, c. 248.

§ 38.2-1334.4. Risk management framework.

An insurer shall maintain a risk management framework to assist the insurer with identifying, assessing, monitoring, managing, and reporting on its material and relevant risks. This requirement may be satisfied if the insurance group of which the insurer is a member maintains a risk management framework applicable to the operations of the insurer.

2014, c. 248.

§ 38.2-1334.5. ORSA requirement.

Subject to § 38.2-1334.7, an insurer, or the insurance group of which the insurer is a member, shall regularly conduct an ORSA consistent with a process comparable to the ORSA Guidance Manual. The ORSA shall be conducted no less than annually, but also at any time when there are significant changes to the risk profile of the insurer or the insurance group of which the insurer is a member.

2014, c. 248.

§ 38.2-1334.6. ORSA summary report.

A. Upon the Commission's request, and no more than once each year, an insurer shall submit to the Commission an ORSA summary report or any combination of reports that together contain the information described in the ORSA Guidance Manual, applicable to the insurer or the insurance group of which it is a member, or both. The first filing of an ORSA summary report shall be made in 2015. Notwithstanding any request from the Commission, if the insurer is a member of an insurance group, the insurer shall submit any report required by this subsection if the Commission is the lead state of the insurance group as determined by the procedures within the Financial Analysis Handbook adopted by the NAIC.

B. The report shall include a signature of the insurer or insurance group's chief risk officer or other executive having responsibility for the oversight of the insurer's enterprise risk management process attesting to the best of his belief and knowledge that the insurer has applied the enterprise risk management process described in the ORSA summary report and that a copy of the report has been provided to the insurer's board of directors or the appropriate committee thereof.

C. An insurer may comply with subsection A by providing the most recent and substantially similar report provided by the insurer or another member of an insurance group of which the insurer is a member to the commissioner of another state or to a supervisor or regulator of a foreign jurisdiction, if that report provides information that is comparable to the information described in the ORSA Guidance Manual. Any such report in a language other than English must be accompanied by a translation of that report into the English language.

2014, c. 248.

§ 38.2-1334.7. Scope of article; exemption.

A. The requirements of this article shall apply to all insurers domiciled in the Commonwealth unless exempt pursuant to this section.

B. An insurer shall be exempt from the requirements of this article 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 National Flood Insurance Program, less than $500 million; and

2. The insurance group of which the insurer is a member 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 National Flood Insurance Program, less than $1 billion.

C. If an insurer qualifies for exemption pursuant to subdivision B 1, but the insurance group of which the insurer is a member does not qualify for exemption pursuant to subdivision B 2, then the ORSA summary report that may be required pursuant to § 38.2-1334.6 shall include every insurer within the insurance group. This requirement may be satisfied by the submission of more than one ORSA summary report for any combination of insurers, provided any combination of reports includes every insurer within the insurance group.

D. If an insurer does not qualify for exemption pursuant to subdivision B 1, but the insurance group of which it is a member qualifies for exemption pursuant to subdivision B 2, then the only ORSA summary report that may be required pursuant to § 38.2-1334.6 shall be the report applicable to that insurer.

E. An insurer that does not qualify for exemption pursuant to subsection B may apply to the Commission for a waiver from the requirements of this article based upon unique circumstances. In deciding whether to grant the insurer's request for waiver, the Commission may consider the type and volume of business written, ownership and organizational structure, and any other factor the Commission considers relevant to the insurer or insurance group of which the insurer is a member. If the insurer is part of an insurance group with insurers domiciled in more than one state, the Commission shall coordinate with the lead state commissioner and with the other domiciliary commissioners in considering whether to grant the insurer's request for a waiver.

F. Notwithstanding the exemptions stated in this section:

1. The Commission may require that an insurer maintain a risk management framework, conduct an ORSA, and file an ORSA summary report based on unique circumstances, including the type and volume of business written, ownership and organizational structure, federal agency requests, and international supervisor requests.

2. The Commission may require that an insurer maintain a risk management framework, conduct an ORSA, and file an ORSA summary report if the insurer has risk-based capital for company action level event as set forth in § 38.2-5503, meets one or more of the standards of an insurer deemed to be in hazardous financial condition as defined in 14VAC5-290-30 of the Virginia Administrative Code, or otherwise exhibits qualities of a troubled insurer as determined by the Commission.

G. If an insurer that qualifies for an exemption pursuant to subsection B subsequently no longer qualifies for that exemption due to changes in premium as reflected in the insurer's most recent annual statement or in the most recent annual statements of the insurers within the insurance group of which the insurer is a member, the insurer shall have one year following the year the threshold is exceeded to comply with the requirements of this article.

2014, c. 248.

§ 38.2-1334.8. Contents of ORSA summary report.

A. The ORSA summary report shall be prepared consistent with the ORSA Guidance Manual, subject to the requirements of subsection B. Documentation and supporting information shall be maintained and made available upon examination or upon request of the Commission.

B. The review of the ORSA summary report, and any additional requests for information, shall be made using similar procedures currently used in the analysis and examination of multistate or global insurers and insurance groups.

2014, c. 248.

§ 38.2-1334.9. Confidentiality.

A. The ORSA summary report is recognized by the Commonwealth as containing confidential and sensitive information related to an insurer or insurance group's identification of risks material and relevant to the insurer or insurance group filing the report. This information includes proprietary and trade secret information that has the potential for harm and competitive disadvantage to the insurer or insurance group if the information is made public. The ORSA summary report shall be a confidential document filed with the Commission, the report may be shared only as stated in this article and to assist the Commission in the performance of its duties, and in no event shall the report be subject to public disclosure.

B. Documents, materials, or other information, including the ORSA summary report, in the possession of or control of the Commission that is obtained by, created by, or disclosed to the Commission or any other person under this article is declared to be proprietary and to contain trade secrets. All such documents, materials, or other information shall be confidential by law and privileged, shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any private civil action. However, the Commission is authorized to use the documents, materials, or other information in the furtherance of any regulatory or legal action brought as a part of the Commission's official duties. The Commission shall not otherwise make the documents, materials, or other information public without the prior written consent of the insurer.

C. Neither the Commission nor any person who received documents, materials, or other ORSA-related information, through examination or otherwise, while acting under the authority of the Commission or with whom such documents, materials, or other information is shared pursuant to this article shall be permitted or required to testify in any private civil action concerning any confidential documents, materials, or information subject to subsections A and B.

D. In order to assist in the performance of the Commission's regulatory duties, the Commission:

1. May, upon request, share documents, materials, or other ORSA-related information, including the confidential and privileged documents, materials, or information subject to subsection A, including proprietary and trade secret documents and materials, with other state, federal, and international financial regulatory agencies, including any forum for cooperation and communication between insurance supervisors, known as a supervisory college, that is established for the purpose of facilitating the effectiveness of supervision of insurers, with the NAIC, and with any third-party consultants designated by the Commission, provided that the recipient agrees in writing to maintain the confidentiality and privileged status of the ORSA-related documents, materials, or other information and has verified in writing the legal authority to maintain confidentiality;

2. May receive documents, materials, or other ORSA-related information, including otherwise confidential and privileged documents, materials, or information, including proprietary and trade-secret information or documents, from regulatory officials of other foreign or domestic jurisdictions, including members of any supervisory college, and from the NAIC and shall maintain as confidential or privileged any documents, materials, or information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material, or information; and

3. Shall enter into a written agreement with the NAIC or a third-party consultant governing the sharing and use of information provided pursuant to this article, consistent with this subsection. The agreement shall:

a. Specify procedures and protocols regarding the confidentiality and security of information shared with the NAIC or a third-party consultant pursuant to this article, including procedures and protocols for sharing by the NAIC with other state regulators from states in which the insurance group has domiciled insurers. The agreement shall provide that the recipient agrees in writing to maintain the confidentiality and privileged status of the ORSA-related documents, materials, or other information and has verified in writing the legal authority to maintain confidentiality;

b. Specify that ownership of information shared with the NAIC or a third-party consultant pursuant to this article remains with the Commission and that the use of information by the NAIC or a third-party consultant is subject to the direction of the Commission;

c. Prohibit the NAIC or third-party consultant from storing the information shared pursuant to this article in a permanent database after the underlying analysis is completed;

d. Require prompt notice to be given to an insurer whose confidential information in the possession of the NAIC or a third-party consultant pursuant to this article is subject to a request or subpoena to the NAIC or a third-party consultant for disclosure or production;

e. Require the NAIC or a third-party consultant to consent to intervention by an insurer in any judicial or administrative action in which the NAIC or a third-party consultant may be required to disclose confidential information about the insurer shared with the NAIC or a third-party consultant pursuant to this article; and

f. In the case of an agreement involving a third-party consultant, provide for the insurer's written consent.

E. The sharing of information and documents by the Commission pursuant to this article shall not constitute a delegation of regulatory authority or rulemaking, and the Commission is solely responsible for the administration, execution, and enforcement of the provisions of this article.

F. No waiver of any applicable privilege or claim of confidentiality in the documents, proprietary and trade-secret materials, or other ORSA-related information shall occur as a result of disclosure of such ORSA-related information or documents to the Commission under this section or as a result of sharing as authorized in this article.

G. Documents, materials, or other information in the possession or control of the NAIC or a third-party consultant pursuant to this article shall be confidential by law and privileged, shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any private civil action.

2014, c. 248.

§ 38.2-1334.10. Sanctions.

Any insurer failing, without just cause, to timely file the ORSA summary report as required in this article shall be subject to the enforcement and penalty provisions set forth in Chapter 2 (§ 38.2-200 et seq.).

2014, c. 248.

Article 5.2. Corporate Governance Annual Disclosures.

§ 38.2-1334.11. Definitions.

As used in this article, unless the context requires a different meaning:

"Commissioner" means the chief insurance regulatory official of a state, however designated.

"Corporate Governance Annual Disclosure" or "CGAD" means a confidential report filed by the insurer or insurance group made in accordance with the requirements of this article.

"Insurance group" means those insurers and affiliates included within an insurance holding company system as defined in § 38.2-1322.

"Insurer" means an insurance company as defined in § 38.2-100, except that "insurer" 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.

"NAIC" means the National Association of Insurance Commissioners.

2017, c. 643.

§ 38.2-1334.12. Disclosure requirement.

A. The requirements of this article shall apply to all insurers domiciled in the Commonwealth. An insurer, or the insurance group of which the insurer is a member, shall, no later than June 1 of each calendar year, submit to the Commission a Corporate Governance Annual Disclosure that contains the information described in subsection B of § 38.2-1334.13. Notwithstanding any request from the Commission made pursuant to subsection C, if the insurer is a member of an insurance group, the insurer shall submit the report required by this section to the Commissioner of the lead state for the insurance group, in accordance with the laws of the lead state, as determined by the procedures outlined in the most recent Financial Analysis Handbook adopted by the NAIC.

B. The CGAD shall include a signature of the insurer or insurance group's chief executive officer or corporate secretary attesting to the best of that individual's belief and knowledge that the insurer has implemented the corporate governance practices and that a copy of the disclosure has been provided to the insurer's board of directors or the appropriate committee thereof.

C. An insurer not required to submit a CGAD under this section shall do so upon the Commission's request.

D. For purposes of completing the CGAD, the insurer or insurance group may provide information regarding corporate governance at one or more of the ultimate controlling parent level, an intermediate holding company level, 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. The review of the CGAD and any additional requests for information shall be made through the lead state as determined by the procedures within the most recent Financial Analysis Handbook referenced in subsection A.

F. Insurers providing information substantially similar to the information required by this article in other documents provided to the Commission, including proxy statements filed in conjunction with the registration requirements pursuant to § 38.2-1329, or other state or federal filings provided to the Commission shall not be required to duplicate that information in the CGAD, but shall only be required to cross-reference the document in which the information is included.

G. Nothing in this article shall be construed to prescribe or impose corporate governance standards and internal procedures beyond that which is required under applicable state corporate law. Notwithstanding the foregoing, nothing in this article shall be construed to limit the Commission's authority, or the rights or obligations of third parties, under § 38.2-1318.

2017, c. 643.

§ 38.2-1334.13. Contents of Corporate Governance Annual Disclosure.

A. The insurer or insurance group shall have discretion over the responses to the CGAD inquiries, provided that the CGAD shall contain the material information necessary to permit the Commission to gain an understanding of the insurer's or insurance group's corporate governance structure, policies, and practices. The Commission may request additional information deemed material and necessary to provide the Commission with a clear understanding of the corporate governance policies, the reporting or information system, or the controls implementing those policies.

B. Notwithstanding subsection A, the CGAD shall be prepared consistent with the rules and regulations promulgated by the Commission to administer the requirements of this article. Documentation and supporting information shall be maintained and made available upon examination or upon request of the Commission.

2017, c. 643.

§ 38.2-1334.14. Confidentiality.

A. The CGAD is recognized by the Commonwealth as containing confidential and sensitive information related to an insurer or insurance group's internal operations. This information includes proprietary and trade secret information that has the potential for harm and competitive disadvantage to the insurer or insurance group if the information is made public. The CGAD shall be a confidential document filed with the Commission, the CGAD may be shared only as stated in this article and to assist the Commission in the performance of its duties, and in no event shall the CGAD be subject to public disclosure.

B. Documents, materials, or other information, including the CGAD, in the possession of or control of the Commission that is obtained by, created by, or disclosed to the Commission or any other person under this article is declared to be proprietary and to contain trade secrets. All such documents, materials, or other information shall be confidential by law and privileged, shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any private civil action. However, the Commission is authorized to use the documents, materials, or other information in the furtherance of any regulatory or legal action brought as a part of the Commission's official duties. The Commission shall not otherwise make the documents, materials, or other information public without the prior written consent of the insurer. Nothing in this section shall be construed to require written consent of the insurer before the Commission may share or receive confidential documents, materials, or other CGAD-related information pursuant to subsection C to assist in the performance of the Commission's regular duties.

C. Neither the Commission nor any person who received documents, materials, or other CGAD-related information, through examination or otherwise, while acting under the authority of the Commission or with whom such documents, materials, or other information are shared pursuant to this article shall be permitted or required to testify in any private civil action concerning any confidential documents, materials, or information subject to subsection A.

D. In order to assist in the performance of the Commission's regulatory duties, the Commission:

1. May, upon request, share documents, materials, or other CGAD-related information, including the confidential and privileged documents, materials, or information subject to subsection A, including proprietary and trade secret documents and materials, with other state, federal, and international financial regulatory agencies, including any forum for cooperation and communication between insurance supervisors, known as a supervisory college, that is established for the purpose of facilitating the effectiveness of supervision of insurers, with the NAIC, and with third-party consultants pursuant to § 38.2-1334.15, provided that the recipient agrees in writing to maintain the confidentiality and privileged status of the CGAD-related documents, materials, or other information and has verified in writing the legal authority to maintain confidentiality; and

2. May receive documents, materials, or other CGAD-related information, including otherwise confidential and privileged documents, materials, or information, including proprietary and trade-secret information or documents, from regulatory officials of other foreign or domestic jurisdictions, including members of any supervisory college, and from the NAIC and shall maintain as confidential or privileged any documents, materials, or information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material, or information.

E. The sharing of information and documents by the Commission pursuant to this article shall not constitute a delegation of regulatory authority or rulemaking, and the Commission is solely responsible for the administration, execution, and enforcement of the provisions of this article.

F. No waiver of any applicable privilege or claim of confidentiality in the documents, proprietary and trade-secret materials, or other CGAD-related information shall occur as a result of disclosure of such CGAD-related information or documents to the Commission under this section or as a result of sharing as authorized in this article.

2017, c. 643.

§ 38.2-1334.15. NAIC and third-party consultants.

A. The Commission may retain, at the insurer's expense, third-party consultants, including attorneys, actuaries, accountants, and other experts not otherwise a part of the Commission's staff as may be reasonably necessary to assist the Commission in reviewing the CGAD and related information or the insurer's compliance with this article.

B. Any persons retained under subsection A shall be under the direction and control of the Commission and shall act in a purely advisory capacity.

C. The NAIC and third-party consultants shall be subject to the same confidentiality standards and requirements as the Commission.

D. As part of the retention process, a third-party consultant shall verify to the Commission, with notice to the insurer, that it is free of a conflict of interest and that it has internal procedures in place to monitor compliance with a conflict and to comply with the confidentiality standards and requirements of this article.

E. A written agreement with the NAIC or a third-party consultant, or both, governing sharing and use of information provided pursuant to this article shall contain the following provisions and expressly require the written consent of the insurer prior to making public information provided under this article:

1. Specific procedures and protocols for maintaining the confidentiality and security of CGAD-related information shared with the NAIC or a third-party consultant pursuant to this article;

2. Procedures and protocols for sharing by the NAIC only with other state regulators from states in which the insurance group has domiciled insurers. The agreement shall provide that the recipient agrees in writing to maintain the confidentiality and privileged status of the CGAD-related documents, materials, or other information and has verified in writing the legal authority to maintain confidentiality;

3. A provision specifying that ownership of the CGAD-related information shared with the NAIC or a third-party consultant remains with the Commission and the NAIC's or third-party consultant's use of the information is subject to the direction of the Commission;

4. A provision that prohibits the NAIC or a third-party consultant from storing the information shared pursuant to this article in a permanent database after the underlying analysis is completed;

5. A provision requiring the NAIC or third-party consultant to provide prompt notice to the Commission and to the insurer or insurance group regarding any subpoena, request for disclosure, or request for production of the insurer's CGAD-related information; and

6. A requirement that the NAIC or a third-party consultant consent to intervention by an insurer in any judicial or administrative action in which the NAIC or a third-party consultant may be required to disclose confidential information about the insurer shared with the NAIC or a third-party consultant pursuant to this article.

2017, c. 643.

§ 38.2-1334.16. Rules and regulations.

The Commission may adopt rules and regulations implementing the provisions of this article.

2017, c. 643.

§ 38.2-1334.17. Sanctions.

Any insurer failing, without just cause, to timely file the CGAD as required in this article shall be subject to the enforcement and penalty provisions set forth in Chapter 2 (§ 38.2-200 et seq.).

2017, c. 643.

Article 6. Subsidiaries of Insurance Companies.

§ 38.2-1335. Definitions.

The terms defined in § 38.2-1322 shall have the same meaning in this article.

1977, c. 414, § 38.1-178.11; 1986, c. 562.

§ 38.2-1336. Subsidiaries of insurers.

Notwithstanding the provisions of any other law, a domestic insurer shall not organize, acquire, or obtain control of any subsidiary, either by itself or in cooperation with one or more persons, unless the subsidiary is engaged in the following kinds of business:

1. Transacting any kind of insurance business authorized by the jurisdiction in which the subsidiary is incorporated;

2. Acting as an insurance broker or as an insurance agent for its parent or for any of its parent's insurer subsidiaries;

3. Investing, reinvesting or trading in securities for its own account, that of its parent, any subsidiary of its parent, or any affiliate or subsidiary;

4. Managing any investment company subject to or registered pursuant to the Investment Company Act of 1940, as amended, including related sales and services;

5. Acting as a broker-dealer subject to or registered pursuant to the Securities Exchange Act of 1934, as amended;

6. Rendering investment advice to governments, governmental agencies, corporations or other organizations or groups;

7. Rendering other services related to the operations of an insurance business including, but not limited to, actuarial, loss prevention, safety engineering, data processing, accounting, claims, appraisal and collection services;

8. Owning and managing assets that the domestic insurer could itself own or manage;

9. Acting as administrative agent for a governmental instrumentality that is performing an insurance function;

10. Financing of insurance premiums or agents;

11. Engaging in any other business activity the Commission determines to be reasonably ancillary to an insurance business; or

12. Owning a corporation or corporations engaged or organized to engage exclusively in one or more of the businesses specified in this section.

1977, c. 414, § 38.1-178.12; 1986, c. 562.

§ 38.2-1337. Disclaimer of control.

1. A domestic insurer may acquire voting securities of any company in an amount sufficient to presume control without the company's being considered a subsidiary if the domestic insurer files a disclaimer of affiliation with the Commission. The disclaimer shall disclose fully (i) the nature and purpose of the investment, (ii) all material transactions and relationships between the domestic insurer and the company, and (iii) the basis for the disclaimer. The Commission may disallow the disclaimer only after giving the domestic insurer and the company notice and an opportunity to be heard. Any disallowance shall be supported by specific findings of fact.

2. If the Commission disallows the disclaimer, the domestic insurer shall immediately take action sufficient to satisfy the Commission that the domestic insurer does not control the company.

1977, c. 414, § 38.1-178.13; 1986, c. 562.

§ 38.2-1338. Applicability.

This article shall not apply to any investment or subsidiary relationship that was in effect prior to June 1, 1977, between a domestic insurer and another company. However, no domestic insurer may increase its investment or ownership of voting securities or otherwise materially increase its control over the affairs of the company without prior approval of the Commission.

1977, c. 414, § 38.1-178.14; 1986, c. 562.

§ 38.2-1339. Exemptions.

Nothing in this article shall exempt any domestic insurer from the provisions of Article 5 (§ 38.2-1322 et seq.), Article 5.1 (§ 38.2-1334.3 et seq.), or Article 5.2 (§ 38.2-1334.11 et seq.).

1977, c. 414, § 38.1-178.15; 1986, c. 562; 2014, c. 248; 2017, c. 643.

§ 38.2-1340. Revocation, suspension, or nonrenewal of insurer's license.

Whenever it appears to the Commission that any person has committed a violation of this article that makes the continued operation of a domestic insurer contrary to the interests of policyholders or the public, the Commission may, after giving notice and an opportunity to be heard, suspend, revoke or refuse to renew the insurer's license to do business in this Commonwealth for whatever period it finds is required for the protection of policyholders or the public. Any such action shall be supported by specific findings of fact and conclusions of law.

1977, c. 414, § 38.1-178.19; 1986, c. 562.

Article 7. Business Transacted with Producer-Controlled Property and Casualty Insurer Act.

§ 38.2-1341. Definitions.

As used in this article:

"Accredited state" means a state in which the insurance department or regulatory agency responsible for administering the insurance laws of said state has qualified as meeting the minimum financial regulatory standards promulgated and established from time to time by the National Association of Insurance Commissioners' (NAIC) Financial Regulation Standards and Accreditation Program.

"Control" or "controlled" has the meaning ascribed in § 38.2-1322.

"Controlled insurer" means a licensed insurer which is controlled, directly or indirectly, by a producer.

"Controlling producer" means a producer who, directly or indirectly, controls an insurer.

"Foreign insurer" means any foreign or alien insurer licensed to transact the business of insurance in this Commonwealth pursuant to § 38.2-1024.

"Licensed insurer," "insurer" or "property and casualty insurer" means any person, firm, association or corporation duly licensed under this title to write policies or agreements providing any form of insurance as defined in §§ 38.2-110 through 38.2-134. The following, inter alia, are not licensed insurers for the purposes of this article:

1. All risk retention groups as defined in the Superfund Amendments Reauthorization Act of 1986, Pub. L. No. 99-499, 100 Stat. 1613 (1986) and the Risk Retention Act, 15 U.S.C. § 3901 et seq. and § 38.2-5101 of this title;

2. All residual market pools and joint underwriting authorities or associations; and

3. Any insurer licensed as a captive insurer under Chapter 11 (§ 38.2-1100 et seq.) and any foreign insurer which is either (i) an association captive or (ii) a pure captive. An "association captive" is an insurer whose exclusive purpose is transacting the business of insurance and reinsurance only on risks, hazards and liabilities of the members of an insurance association comprised of any group of individuals, corporations, partnerships, associations, or governmental units or agencies whose members collectively own, control, or hold with power to vote, all of the outstanding voting securities of the association insurer. A "pure captive" is an insurer whose exclusive purpose is transacting the business of insurance and reinsurance only on risks, hazards, and liabilities of its parent, subsidiary companies of its parent, and associated and affiliated companies.

"Producer" means:

1. Any insurance agent subject to licensure pursuant to the provisions of Chapter 18 (§ 38.2-1800 et seq.) of this title, or any managing general agent or reinsurance intermediary subject to licensure pursuant to the provisions of this chapter; or

2. Any person subject to substantially similar licensure provisions of another state when, for any compensation, commission or other thing of value, such agent, intermediary or person acts on behalf of an insured other than the agent, intermediary or person, or aids in any manner, in selling, soliciting, or negotiating the making of any contract of insurance in which the insured, owner and beneficiary are other than the agent, intermediary or person.

1993, c. 158; 2001, c. 706.

§ 38.2-1342. Applicability.

A. All provisions of this article shall apply to domestic insurers.

B. Effective January 1, 1994, any foreign insurer not domiciled and licensed in an accredited state shall confirm, at least once every five years, as a condition of licensing and licensing renewal, its compliance with the provisions of this article or those of a substantially similar law enacted by an accredited state in which the insurer is licensed. The method of confirmation shall be determined by the Commission and may include examination of such foreign insurer and its controlling producer pursuant to Article 4 (§ 38.2-1317 et seq.) of Chapter 13. Any foreign insurer that is unable to confirm substantial compliance in a manner satisfactory to the Commission shall be subject to all of the provisions of this title.

C. All provisions of Article 5 (§ 38.2-1322 et seq.), Article 5.1 (§ 38.2-1334.3 et seq.), and Article 5.2 (§ 38.2-1334.11 et seq.) of this chapter and Article 2 (§ 38.2-4230 et seq.) of Chapter 42, to the extent they are not superseded by the provisions of this article, shall continue to apply to all parties within holding company systems subject to this article.

1993, c. 158; 2014, c. 248; 2017, c. 643.

§ 38.2-1343. Minimum standards.

A. The provisions of this section shall apply if, in any calendar year, the aggregate amount of gross written premium on business placed with a controlled insurer by a controlling producer is equal to or greater than five percent of the admitted assets of the controlled insurer, as reported in the controlled insurer's quarterly statement filed as of September 30 of the prior year.

B. Notwithstanding the provisions of subsection A of this section, the provisions of subsections A, C, D and E of this section shall not apply if:

1. The controlling producer (i) places insurance only with the controlled insurer, or only with the controlled insurer and a member or members of the controlled insurer's holding company system, or the controlled insurer's parent, affiliate or subsidiary and receives no compensation based upon the amount of premiums written in connection with such insurance and (ii) accepts insurance placements only from nonaffiliated subproducers and not directly from insureds; and

2. The controlled insurer, except for insurance business written through a residual market facility such as the Virginia Automobile Insurance Plan, as set forth in § 38.2-2015, or the Virginia Property Insurance Association, as set forth in Chapter 27 (§ 38.2-2700 et seq.), accepts insurance business only from a controlling producer, a producer controlled by the controlled insurer, or a producer that is a subsidiary of the controlled insurer.

C. A controlled insurer shall not accept business from a controlling producer and a controlling producer shall not place business with a controlled insurer unless there is a written contract between them specifying the responsibilities of each party, which contract has been approved by the board of directors of the insurer and contains the following minimum provisions:

1. The controlled insurer may terminate the contract for cause, upon written notice to the controlling producer. The controlled insurer shall suspend the authority of the controlling producer to write business during the pendency of any dispute regarding the cause for the termination;

2. The controlling producer shall 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;

3. The controlling producer shall remit all funds due under the terms of the contract to the controlled insurer on at least a monthly basis. The due date shall be fixed so that premiums or installments thereof collected shall be remitted no later than ninety days after the effective date of any policy placed with the controlled insurer under this contract;

4. All funds collected for the controlled insurer's account shall be held by the controlling producer in a fiduciary capacity, in one or more appropriately identified bank accounts in banks that are members of the Federal Reserve System, in accordance with the provisions of the insurance law as applicable. However, funds of a controlling producer not required to be licensed in this Commonwealth shall be maintained in compliance with the requirements of the controlling producer's domiciliary jurisdiction;

5. The controlling producer shall maintain separately identifiable records of business written for the controlled insurer;

6. The contract shall not be assigned in whole or in part by the controlling producer;

7. The controlled insurer shall provide the controlling producer with its underwriting standards, rules and procedures, manuals setting forth the rates to be charged, and the conditions for the acceptance or rejection of risks. The controlling producer shall adhere to the standards, rules, procedures, rates and conditions. The standards, rules, procedures, rates and conditions shall be the same as those applicable to comparable business placed with the controlled insurer by a producer other than the controlling producer;

8. The rates and terms of the controlling producer's commissions, charges or other fees and the purposes for those charges or fees shall be specified. The rates of the commissions, charges and other fees shall be no greater than those applicable to comparable business placed with the controlled insurer by producers other than controlling producers. For purposes of this subdivision and subdivision 7 of this subsection, examples of "comparable business" include the same lines of insurance, same kinds of insurance, same kinds of risks, similar policy limits, and similar quality of business;

9. If the contract provides that the controlling producer, on insurance business placed with the insurer, is to be compensated contingent upon the insurer's profits on that business, then such compensation shall not be determined and paid until at least five years after the premiums on liability insurance are earned and at least one year after the premiums are earned on any other insurance. In no event shall the commissions be paid until the adequacy of the controlled insurer's reserves on remaining claims has been independently verified pursuant to subdivision 1 of subsection E of this section;

10. The contract shall place a limit on the controlling producer's writings in relation to the controlled insurer's surplus and total writings. The insurer may establish a different limit for each line or sub-line of business. The controlled insurer shall notify the controlling producer when the applicable limit is approached and shall not accept business from the controlling producer if the limit is reached. The controlling producer shall not place business with the controlled insurer if it has been notified by the controlled insurer that the limit has been reached; and

11. The controlling producer may negotiate but shall not bind reinsurance on behalf of the controlled insurer on business the controlling producer places with the controlled insurer, except that the controlling producer may bind facultative reinsurance contracts pursuant to obligatory facultative agreements if the contract with the controlled insurer contains underwriting guidelines including, for both reinsurance assumed and ceded, a list of reinsurers with which such automatic agreements are in effect, the coverages and amounts or percentages that may be reinsured and commission schedules.

D. Every controlled insurer shall have an Audit Committee of the Board of Directors composed of independent directors. The Audit Committee shall annually meet with management, the insurer's independent certified public accountants, and an independent casualty actuary or other independent loss reserve specialist acceptable to the Commission to review the adequacy of the insurer's loss reserves.

E. The controlled insurer shall obtain annually prior to March 1 of each year the following data and reports:

1. In addition to any other required loss reserve certification, an opinion of an independent casualty actuary reporting loss ratios for each line of business written and attesting to the adequacy of loss reserves established for losses incurred and outstanding as of year's end (including incurred but not reported) on business placed by the producer; and

2. The controlled insurer shall annually report to the Commission the amount of commissions paid to the producer during the preceding calendar year, the percentage such amount represents of the net premiums written and comparable amounts and percentage paid to noncontrolling producers for placements of the same kinds of insurance.

The data and reports required by this subsection shall be retained by the insurer for a period of not less than five years and shall be filed with the Commission upon request.

1993, c. 158.

§ 38.2-1344. Disclosure.

The producer, prior to the effective date of the policy, shall deliver written notice to the prospective insured disclosing the relationship between the producer and the controlled insurer. However, if the business is placed through a subproducer who is not a controlling producer, the controlling producer shall retain in his records a signed commitment from the subproducer that the subproducer is aware of the relationship between the insurer and the producer and that the subproducer has or will notify the insured.

1993, c. 158.

§ 38.2-1345. Penalties.

A. If the Commission finds, after providing an opportunity to be heard, that the controlling producer or any other person has not materially complied with the provisions of this article, or any regulation or order promulgated hereunder, the Commission may order the controlling producer to cease placing business with the controlled insurer.

B. If it is found that because of such material noncompliance that the controlled insurer or any policyholder thereof has suffered any loss or damage, the Commission may order the controlling producer or any other party licensed under this title to make restitution to the controlled insurer or its statutory successor, including any rehabilitator, liquidator or receiver of the insurer, for the net losses or damages incurred by the insurer or its policyholders.

C. Nothing contained in this section shall affect the right of the Commission to impose any other penalties provided for in this title.

D. Nothing contained in this section is intended to or shall in any manner alter or affect the rights of policyholders, claimants, creditors or other third parties.

1993, c. 158.

§ 38.2-1346. Licensure.

A. No person shall act in this Commonwealth as a producer, and no resident of this Commonwealth shall act as a producer, unless such person or resident is licensed as an insurance agent pursuant to the provisions of Chapter 18 (§ 38.2-1800 et seq.) of this title, or as a reinsurance intermediary or managing general agent pursuant to the provisions of this chapter.

B. As used in this section, the terms "resident" and "insurance agent" have the meanings prescribed in § 38.2-1800, and the terms "managing general agent," and "reinsurance intermediary" have the meanings set forth in §§ 38.2-1347 and 38.2-1358.

1993, c. 158; 2001, c. 706.

Article 8. Licensing of Reinsurance Intermediaries.

§ 38.2-1347. Definitions.

As used in this article:

"Actuary" means a person who is a member in good standing of the American Academy of Actuaries.

"Business entity" means a partnership, limited partnership, limited liability company, corporation, or other legal entity that is entitled to hold property in its own name and which is not a sole proprietorship.

"Controlling" shall have the same meaning as set forth in § 38.2-1322.

"Insurer" means any person duly licensed in this Commonwealth pursuant to Chapters 10 (§ 38.2-1000 et seq.), 11 (§ 38.2-1100 et seq.), 12 (§ 38.2-1200 et seq.), 25 (§ 38.2-2500 et seq.), 26 (§ 38.2-2600 et seq.), 38 (§ 38.2-3800 et seq.) through 46 (§ 38.2-4600 et seq.), or 51 (§ 38.2-5100 et seq.) of this title.

"Licensed reinsurance intermediary" means an agent, broker or reinsurance intermediary licensed to act as a reinsurance intermediary pursuant to the applicable provision of this article.

"Qualified United States financial institution" means an institution that:

1. Is organized or (in the case of a United States office of a foreign banking organization) licensed under the laws of the United States or any state thereof;

2. Is regulated, supervised and examined by federal or state authorities having regulatory authority over banks and trust companies; and

3. Has been determined by either the Commission, or the Securities Valuation Office of the National Association of Insurance Commissioners, to meet such standards of financial condition and standing as are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the Commission.

"Reinsurance intermediary" means a reinsurance intermediary broker or a reinsurance intermediary manager as these terms are defined in this article.

"Reinsurance intermediary broker" means any person, other than an officer or employee of the ceding insurer, who, without the power to bind the ceding insurer, solicits, negotiates or places reinsurance cessions or retrocessions on behalf of a ceding insurer or otherwise negotiates with a ceding insurer concerning reinsurance cessions or retrocessions.

"Reinsurance intermediary manager" means any person who (i) has authority to bind reinsurance risks or (ii) manages all or part of the assumed reinsurance business of a reinsurer, including the management of a separate division, department or underwriting office, and acts as an agent for such reinsurer whether known as a reinsurance intermediary manager or other similar term. Notwithstanding the foregoing, the following persons shall not be considered a reinsurance intermediary manager for the purposes of this article, provided such person is acting in the capacity of employee or agent, as described herein, and properly discharging the duties of such employment or agency:

1. An employee of the reinsurer;

2. A United States manager of the United States branch of an alien reinsurer;

3. An underwriting manager who, pursuant to contract, manages all or part of the reinsurance operations of the reinsurer, is under common control with the reinsurer, subject to Article 5 (§ 38.2-1322 et seq.) of this chapter or Article 2 (§ 38.2-4230 et seq.) of Chapter 42 of this title, and whose compensation is not based on the volume of premiums written;

4. The manager of a group, association, pool or organization of insurers that engages in joint underwriting or joint reinsurance and that is subject to examination by the supervising insurance official of the state, as defined in § 38.2-100, in which the manager's principal business office is located; or

5. A licensed managing general agent who binds facultative reinsurance contracts by placing individual risks pursuant to obligatory facultative agreements and subdivision 10 of § 38.2-1360.

"Reinsurer" means any insurer licensed in this Commonwealth with the authority to cede or accept from any insurer reinsurance pursuant to § 38.2-136.

2001, c. 706.

§ 38.2-1348. License requirements.

A. No insurer shall permit a person to act, and no person shall act, as a reinsurance intermediary broker in this Commonwealth if the reinsurance intermediary broker maintains an office either directly or as a member or employee of a firm or association, or an officer, director or employee of a corporation:

1. In this Commonwealth, unless such reinsurance intermediary broker is a licensed reinsurance intermediary in this Commonwealth; or

2. In another state, unless such reinsurance intermediary broker is a licensed reinsurance intermediary in this Commonwealth or in another state having a law substantially similar to this law.

B. No insurer shall permit a person to act, and no person shall act, as a reinsurance intermediary manager:

1. For a reinsurer domiciled in this Commonwealth, unless such reinsurance intermediary manager is a licensed reinsurance intermediary in this Commonwealth;

2. In this Commonwealth, if the reinsurance intermediary manager maintains an office either directly or as a member or employee of a firm or association, or an officer, director or employee of a corporation in this Commonwealth, unless such reinsurance intermediary manager is a licensed reinsurance intermediary in this Commonwealth; or

3. In another state for an insurer not domiciled in this Commonwealth, unless such reinsurance intermediary manager is a licensed reinsurance intermediary in this Commonwealth or in another state having a law substantially similar to this law.

C. The Commission may require a reinsurance intermediary manager to:

1. Be bonded in a manner acceptable to the Commission for the protection of the reinsurer and to provide a certification or attestation that such bond is in effect as a prerequisite to license issuance or renewal; and

2. Maintain an errors and omissions policy that is acceptable to the Commission and to provide a certification or attestation that such policy is in effect as a prerequisite to license issuance or renewal.

D. The Commission may issue a reinsurance intermediary license to any individual or business entity who has complied with the requirements of this article. Any such license issued to a business entity will authorize all the members of such business entity and any designated officers, directors or employees to act as reinsurance intermediaries under the license, and all such persons shall be named in the application and any supplements thereto.

E. Except where prohibited by state or federal law, by submitting an application for license, the applicant shall be deemed to have appointed the clerk of the Commission as the agent for service of process on the applicant in any action or proceeding arising in this Commonwealth out of or in connection with the exercise of the license. Such appointment of the clerk of the Commission as agent for service of process shall be irrevocable during the period within which a cause of action against the applicant may arise out of transactions with respect to subjects of insurance in this Commonwealth. Service of process on the clerk of the Commission shall conform to the provisions of Chapter 8 (§ 38.2-800 et seq.) of this title. An applicant for a reinsurance intermediary license also shall furnish the clerk of the Commission with the name and address of a resident of this Commonwealth upon whom notices or orders of the Commission or process affecting such reinsurance intermediary may be served. Such licensee shall promptly notify the clerk of the Commission in writing of every change in its designated agent for service of process, and such change shall not become effective until acknowledged by the Commission.

F. The Commission may refuse to issue a reinsurance intermediary license, subject to the right of the applicant to demand a hearing on the application, if the Commission believes the applicant, any person named on the application, or any member, principal, officer or director of the applicant, is not trustworthy; that any controlling person of such applicant is not trustworthy to act as a reinsurance intermediary; or that any of the foregoing has given cause for revocation or suspension of such license or has failed to comply with any prerequisite for the issuance of such license.

G. Residents of Virginia who are members of the Virginia State Bar when acting in their professional capacity as such shall be exempt from the requirements of this section.

H. Any person seeking to be licensed as a reinsurance intermediary in this Commonwealth shall apply for such license in a form acceptable to the Commission, and shall pay to the Commission a nonrefundable application fee in an amount prescribed by the Commission. Such fee shall be not less than $500 and not more than $1,000. Every licensed reinsurance intermediary shall pay to the Commission a nonrefundable biennial renewal fee in an amount prescribed by the Commission. Such fee shall be not less than $500 and not more than $1,000. Between May 1 and June 1 of the renewal year, each licensed reinsurance intermediary shall submit to the Commission a renewal application and fee in the manner and form prescribed by the Commission. All fees shall be collected by the Commission and paid into the state treasury and placed to the credit of the fund for the maintenance of the Bureau of Insurance as provided in subsection B of § 38.2-400. Each license and renewed license shall expire on June 30 of the appropriate year.

I. Any person seeking to be licensed as a reinsurance intermediary in this Commonwealth shall observe and abide by the laws of this Commonwealth and submit with its license application the following:

1. A statement identifying its principal place of business, organizational structure, and other such information as the Commission may require to verify that the reinsurance intermediary is qualified under the definition of this article;

2. A copy of its plan of operations;

3. A copy of its current financial statement, which shall be certified by an independent public accountant and in a form acceptable to the Commission; and

4. Such information or reports as may be required to verify its continuing qualification as a reinsurance intermediary.

2001, c. 706.

§ 38.2-1349. Required contract provisions; reinsurance intermediary brokers.

Transactions between a reinsurance intermediary broker and the insurer it represents in such capacity shall only be entered into pursuant to a written authorization, specifying the responsibilities of each party. The authorization shall, at a minimum, provide that:

1. The insurer may terminate the reinsurance intermediary broker's authority at any time;

2. The reinsurance intermediary broker will 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 calendar days of receipt;

3. All funds collected for the insurer's account will be held by the reinsurance intermediary broker in a fiduciary capacity in a bank that is a qualified United States financial institution as defined in § 38.2-1347;

4. The reinsurance intermediary broker will comply with § 38.2-1350;

5. The reinsurance intermediary broker will comply with the written standards established by the insurer for the cession or retrocession of all risks; and

6. The reinsurance intermediary broker will disclose to the insurer any relationship with any reinsurer to which business will be ceded or retroceded.

2001, c. 706.

§ 38.2-1350. Books and records; reinsurance intermediary brokers.

A. For at least ten years after expiration of each contract of reinsurance transacted by the reinsurance intermediary broker, the reinsurance intermediary broker will keep a complete record for each transaction showing:

1. The type of contract, limits, underwriting restrictions, classes or risks and territory;

2. Period of coverage, including effective and expiration dates, cancellation provisions and notice required of cancellation;

3. Reporting and settlement requirements of balances;

4. Rate used to compute the reinsurance premium;

5. Names and addresses of assuming reinsurers;

6. Rates of all reinsurance commissions, including the commissions on any retrocessions handled by the reinsurance intermediary broker;

7. Related correspondence and memoranda;

8. Proof of placement;

9. Details regarding retrocessions handled by the reinsurance intermediary broker including the identity of retrocessionaires and percentage of each contract assumed or ceded;

10. Financial records, including but not limited to, premium and loss accounts; and

11. When the reinsurance intermediary broker procures a reinsurance contract on behalf of a licensed ceding insurer:

a. Directly from any assuming reinsurer, written evidence that the assuming reinsurer has agreed to assume the risk; or

b. If placed through a representative of the assuming reinsurer, other than an employee, written evidence that such reinsurer has delegated binding authority to the representative.

B. The insurer will have reasonable access to and the right to copy and audit all accounts and records maintained by the reinsurance intermediary broker related to its business in a form usable by the Commission.

2001, c. 706.

§ 38.2-1351. Duties of insurers utilizing the services of a reinsurance intermediary broker.

A. An insurer shall not engage the services of any individual or business entity to act as a reinsurance intermediary broker on its behalf unless such person is licensed as required by § 38.2-1348.

B. An insurer may not employ an individual who is employed by a reinsurance intermediary broker with which it transacts business, unless such reinsurance intermediary broker is under common control with the insurer and subject to Article 5 (§ 38.2-1322 et seq.) of this chapter or Article 2 (§ 38.2-4230 et seq.) of Chapter 42 of this title.

C. The insurer shall annually obtain a copy of the current financial statement of each reinsurance intermediary broker with which it transacts business. Such statement shall be certified by an independent public accountant and in a form acceptable to the Commission.

2001, c. 706.

§ 38.2-1352. Required contract provisions; reinsurance intermediary managers.

Transactions between a reinsurance intermediary manager and the reinsurer it represents in such capacity shall only be entered into pursuant to a written contract, specifying the responsibilities of each party, which shall be approved by the reinsurer's board of directors. At least thirty calendar days before such reinsurer assumes or cedes business through such reinsurance intermediary manager, a true copy of the approved contract shall be filed with the Commission for approval. The contract shall, at a minimum, provide that:

1. The reinsurer may terminate the contract for cause upon written notice to the reinsurance intermediary manager. The reinsurer may immediately suspend the authority of the reinsurance intermediary manager to assume or cede business during the pendency of any dispute regarding the cause for termination.

2. The reinsurance intermediary manager will render timely accounts to the reinsurer accurately detailing all material transactions, including information necessary to support all commissions, charges and other fees received by, or owing to the reinsurance intermediary manager, and remit all funds due under the contract to the reinsurer on not less than a monthly basis.

3. All funds collected for the reinsurer's account will be held by the reinsurance intermediary manager in a fiduciary capacity in a bank that is a qualified United States financial institution as defined in § 38.2-1347. The reinsurance intermediary manager may retain no more than three months' estimated claims payments and allocated loss adjustment expenses. The reinsurance intermediary manager shall maintain a separate bank account for each reinsurer that it represents.

4. For at least ten years after expiration of each contract of reinsurance transacted by the reinsurance intermediary manager, the reinsurance intermediary manager will keep a complete record for each transaction showing:

a. The type of contract, limits, underwriting restrictions, classes or risks and territory;

b. Period of coverage, including effective and expiration dates, cancellation provisions and notice required of cancellation, and disposition of outstanding reserves on covered risks;

c. Reporting and settlement requirements of balances;

d. Rate used to compute the reinsurance premium;

e. Names and addresses of assuming reinsurers;

f. Rates of all reinsurance commissions, including the commissions on any retrocessions handled by the reinsurance manager;

g. Related correspondence and memoranda;

h. Proof of placement;

i. Details regarding retrocessions handled by the reinsurance intermediary manager, as permitted by subsection D of § 38.2-1354, including the identity of retrocessionaires and percentage of each contract assumed or ceded;

j. Financial records, including but not limited to, premium and loss accounts; and

k. When the reinsurance intermediary manager places a reinsurance contract on behalf of a ceding insurer:

(1) Directly from any assuming reinsurer, written evidence that the assuming reinsurer has agreed to assume the risk; or

(2) If placed through a representative of the assuming reinsurer, other than an employee, written evidence that such reinsurer has delegated binding authority to the representative.

5. The reinsurer will have reasonable access to and the right to copy all accounts and records maintained by the reinsurance intermediary manager related to its business in a form usable by the reinsurer.

6. The contract cannot be assigned in whole or in part by the reinsurance intermediary manager.

7. The reinsurance intermediary manager will comply with the written underwriting and rating standards established by the insurer for the acceptance, rejection or cession of all risks.

8. Sets forth the rates, terms and purposes of commissions, charges and other fees that the reinsurance intermediary manager may levy against the reinsurer.

9. If the contract permits the reinsurance intermediary manager to settle claims on behalf of the reinsurer:

a. All claims will 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:

(1) Has the potential to exceed one percent of the insurer's surplus to policyholders as of December 31 of the last completed calendar year, an amount set by the reinsurer, or any other amount deemed appropriate by the Commission, whichever is less;

(2) Involves a coverage dispute;

(3) May exceed the reinsurance intermediary manager's claims settlement authority;

(4) Is open for more than six months; or

(5) Is closed by payment of an amount exceeding one percent of the insurer's surplus to policyholders as of December 31 of the last completed calendar year, an amount set by the reinsurer, or any other amount deemed appropriate by the Commission, whichever is less;

c. All claim files will be the joint property of the reinsurer and reinsurance intermediary manager. However, upon entry of order of liquidation or the appointment of a receiver for the liquidation of the reinsurer, such files shall become the sole property of the reinsurer or its estate; the reinsurance intermediary manager shall have reasonable access to and the right to copy the files on a timely basis;

d. Any settlement authority granted to the reinsurance intermediary manager may be terminated for cause upon the reinsurer's written notice to the reinsurance intermediary manager or upon the termination of the contract. The reinsurer may suspend the settlement authority during the pendency of the dispute regarding the cause of termination.

10. Where electronic claims files are in existence, the contract must address the timely transmission of the data.

11. If the contract provides for a sharing of interim profits by the reinsurance intermediary manager, such interim profits will not be paid until one year after the end of each underwriting period for property business and five years after the end of each underwriting period for casualty business, or a later period set by the Commission for specified lines of insurance, and not until the adequacy of reserves on remaining claims has been verified pursuant to subsection C of § 38.2-1354.

12. The reinsurance intermediary manager will annually provide the reinsurer with a current financial statement prepared by an independent certified accountant in a form acceptable to the Commission.

13. The reinsurer shall, at least semiannually, conduct an on-site review of the underwriting and claims processing operations of the reinsurance intermediary manager.

14. The reinsurance intermediary manager will disclose to the reinsurer any relationship it has with any insurer prior to negotiating any business with such insurer pursuant to this contract.

15. Within the scope of its actual or apparent authority, the acts of the reinsurance intermediary manager shall be deemed to be the acts of the reinsurer on whose behalf it is acting.

2001, c. 706.

§ 38.2-1353. Prohibited acts.

No insurer shall authorize its reinsurance intermediary manager to, and no reinsurance intermediary manager shall:

1. Cede retrocessions on behalf of the reinsurer, except that the reinsurance intermediary manager may cede facultative retrocessions pursuant to obligatory facultative agreements if the contract between the reinsurance intermediary manager and the reinsurer contains reinsurance underwriting guidelines for such retrocessions. Such guidelines shall include a list of reinsurers with which such automatic agreements are in effect, and for each such reinsurer, the coverages and amounts or percentages that may be reinsured, and commission schedules.

2. Commit the reinsurer to participate in reinsurance syndicates.

3. Permit any agent or reinsurance intermediary to represent the reinsurer without assuring that the agent or reinsurance intermediary is lawfully licensed.

4. Without prior approval of the reinsurer, pay or commit the reinsurer to pay a claim, net of retrocessions, that exceeds the lesser of an amount specified by the reinsurer or one percent of the reinsurer's surplus to policyholders as of December 31 of the last completed calendar year.

5. Collect any payment from a retrocessionaire or commit the reinsurer to any claim settlement with a retrocessionaire without prior approval of the reinsurer. If prior approval is given, a report must be promptly forwarded to the reinsurer.

6. Jointly employ an individual who is employed by the reinsurer unless such reinsurance manager is under common control with the reinsurer subject to Article 5 (§ 38.2-1322 et seq.) of this chapter or Article 2 (§ 38.2-4230 et seq.) of Chapter 42 of this title.

7. Appoint a sub-reinsurance intermediary manager.

2001, c. 706.

§ 38.2-1354. Duties of reinsurers utilizing the services of a reinsurance intermediary manager.

A. A reinsurer shall not engage the services of any individual or business entity to act as a reinsurance intermediary manager on its behalf unless such individual or business entity is licensed as required by § 38.2-1348.

B. The reinsurer shall annually obtain a copy of the current financial statement of each reinsurance intermediary manager that such reinsurer has engaged. Such statements shall be prepared by an independent certified accountant in a form acceptable to the Commission.

C. If a reinsurance intermediary manager establishes loss reserves, the reinsurer shall annually obtain the opinion of an actuary attesting to the adequacy of loss reserves established for losses incurred and outstanding on business produced by the reinsurance intermediary manager. This opinion shall be in addition to any other required loss reserve certification.

D. Binding authority for all retrocessional contracts or participation in reinsurance syndicates shall rest with an officer of the reinsurer who shall not be affiliated with the reinsurance intermediary manager.

E. Within thirty calendar days of termination of a contract with a reinsurance intermediary manager, the reinsurer shall provide written notification of such termination in a form acceptable to the Commission.

F. A reinsurer shall not appoint to its board of directors, any officer, director, employee, controlling shareholder or subproducer of its reinsurance intermediary manager. This subsection shall not apply to relationships governed by Article 5 (§ 38.2-1322 et seq.) of this chapter or Article 2 (§ 38.2-4230 et seq.) of Chapter 42 of this title.

G. An insurer shall not delegate to any person, other than one of its officers, the authority to enter into or bind any reinsurance agreement by which the insurer agrees to cede or retrocede any risk to a reinsurer, except that an insurer may delegate the specific authority to bind facultative reinsurance contracts by placing individual risks pursuant to the provisions of subdivision 1 of § 38.2-1353 or subdivision 10 of § 38.2-1360.

1. The officer shall be a regular salaried employee of such insurer and shall not be affiliated with the reinsurance intermediary.

2. The insurer is not prohibited by the provisions of this subsection from delegating the authority to enter into or bind an agreement to assume a risk to a licensed reinsurance intermediary manager pursuant to the provisions of this article, provided the authority to cede and assume a given risk is not simultaneously vested in the same intermediary.

2001, c. 706.

§ 38.2-1355. Examination authority.

A. A reinsurance intermediary shall be subject to examination by the Commission. The Commission shall have reasonable access to all books, bank accounts and records of the reinsurance intermediary in a form usable to the Commission.

B. A reinsurance intermediary manager may be examined, pursuant to Article 4 (§ 38.2-1317 et seq.) of this chapter, as if it were the reinsurer. In addition, the reinsurance intermediary shall be subject to examination pursuant to § 38.2-1809 if it or any of its officers, directors, agents, or employees is licensed as a producer under Chapter 18 (§ 38.2-1800 et seq.) of this title.

2001, c. 706.

§ 38.2-1356. Penalties and liabilities; grounds for placing on probation, refusal to issue or renew, revocation, or suspension of license.

A. If the Commission finds, after providing an opportunity to be heard, that any person has violated any provisions of this article, the Commission may, in addition to any other remedies authorized by this title, order the reinsurance intermediary to make restitution to the insurer, reinsurer, rehabilitator or liquidator or receiver of the insurer or reinsurer for the net losses incurred by the insurer or reinsurer attributable to such violation.

B. The Commission may, in addition to or in lieu of a penalty under § 38.2-218, place on probation, suspend, revoke, or refuse to issue or renew a reinsurance intermediary's license for any one or more of the following causes:

1. Providing materially incorrect, misleading, incomplete, or untrue information in the license application or any other document filed with the Commission;

2. Violating any insurance or reinsurance laws or violating any regulation, subpoena or order of the Commission or of another state's insurance regulatory authority;

3. Obtaining or attempting to obtain a license through misrepresentation or fraud;

4. Improperly withholding, misappropriating or converting any moneys or properties received in the course of doing business;

5. Intentionally misrepresenting the terms of an actual or proposed insurance or reinsurance contract;

6. Having been convicted of a felony;

7. Having admitted or been found to have committed any insurance unfair trade practice or fraud;

8. Using fraudulent, coercive, or dishonest practices, or demonstrating incompetence, or untrustworthiness in the conduct of business in this Commonwealth or elsewhere, or demonstrating financial irresponsibility in the handling of applicant, policyholder, agency, or insurance company funds;

9. Having an insurance producer license, or its equivalent, denied, suspended or revoked in any other state, province, or territory;

10. Forging another's name to an application for insurance or reinsurance, or to any document related to an insurance or reinsurance transaction;

11. Knowingly accepting insurance business from an individual who is not licensed;

12. Failing to comply with an administrative or court order imposing a child support obligation;

13. Failing to pay state income tax or comply with any administrative or court order directing payment of state income tax; or

14. If the reinsurance intermediary is a business entity, having its corporate existence terminated, its certificate of organization, trust, limited liability company, or limited partnership canceled, or its certificate of authority or registration to transact business in the Commonwealth revoked or canceled, as the case may be.

C. If the Commission believes that any applicant for licensing pursuant to this article is not of good character or does not have a good reputation for honesty, it may refuse to issue the license, subject to the right of the applicant to demand a hearing on the application. The Commission shall not revoke or suspend an existing license until the licensee is given an opportunity to be heard before the Commission. If the Commission refuses to issue a new license or proposes to revoke or suspend an existing license, it shall give the applicant or licensee at least 10 calendar days' notice in writing of the time and place of the hearing, if a hearing is requested. The notice shall contain a statement of the objections to the issuance of the license, or the reason for its proposed revocation or suspension as the case may be. The notice may be given to the applicant or licensee by registered or certified mail, sent to the last known address of record pursuant to § 38.2-1357, or the last known business address if the address of record is incorrect, or in any other lawful manner the Commission prescribes. The Commission may summon witnesses to testify with respect to the applicant or licensee, and the applicant or licensee may introduce evidence in his or its behalf. No applicant to whom a license is refused after a hearing, nor any licensee whose license is revoked, shall again apply for a license until the expiration of a period of five years from the date of the Commission's order, or such other period of time as the Commission prescribes in its order.

D. Nothing contained in this article is intended to or shall in any manner limit or restrict the rights of policyholders, claimants, creditors or other third parties or confer any rights to such persons.

E. If an order of rehabilitation or liquidation of the insurer has been entered pursuant to Chapter 15 (§ 38.2-1500 et seq.) of this title or the rehabilitation and liquidation statutes of a reciprocal state, and the receiver appointed under that order determines that the reinsurance intermediary or any other person has not materially complied with the provisions of this article, or any rule, regulation or order promulgated thereunder, and the insurer suffered any loss or damage therefrom, the receiver may maintain a civil action for recovery of damages or other appropriate sanctions for the benefit of the insurer.

2001, c. 706; 2006, c. 762.

§ 38.2-1357. Requirement to report to Commission.

A. Each licensed reinsurance intermediary shall report any change in business or residence address or name within thirty calendar days to the Commission and to any contracted insurer.

B. In addition to the requirements of §§ 59.1-69 and 59.1-70, any individual or business entity licensed as a reinsurance intermediary in this Commonwealth and operating under an assumed or fictitious name shall notify the Commission, at the earlier of the time the application for a reinsurance intermediary license is filed or within thirty calendar days from the date the assumed or fictitious name is adopted, setting forth the name under which the reinsurance intermediary intends to operate in Virginia. The Commission shall also be notified within thirty calendar days from the date of cessation of the use of such assumed or fictitious name.

C. Each licensed reinsurance intermediary convicted of a felony shall report within thirty calendar days to the Commission the facts and circumstances regarding the criminal conviction.

2001, c. 706.

Article 9. Licensing of Managing General Agents.

§ 38.2-1358. Definitions.

As used in this article:

"Actuary" means a person who is a member in good standing of the American Academy of Actuaries.

"Business entity" means a partnership, limited partnership, limited liability company, corporation, or other legal entity that is entitled to hold property in its own name and which is not a sole proprietorship.

"Insurer" means any person, duly licensed in the Commonwealth pursuant to Chapters 10 (§ 38.2-1000 et seq.), 11 (§ 38.2-1100 et seq.), 12 (§ 38.2-1200 et seq.), 25 (§ 38.2-2500 et seq.), 26 (§ 38.2-2600 et seq.), 38 (§ 38.2-3800 et seq.) through 46 (§ 38.2-4600 et seq.), or 51 (§ 38.2-5100 et seq.) of this title.

"Managing general agent" means any person who manages all or part of the insurance business of an insurer, including the management of a separate division, department or underwriting office; and who acts as an agent for such insurer whether known as a managing general agent, manager or other similar term, who, with or without the authority, either separately or together with affiliates, produces, directly or indirectly, and underwrites an amount of gross direct written premium equal to or exceeding five percent of the surplus to policyholders of the insurer as reported in the last annual statement of the insurer in any one quarter or year together with one or more of the following: (i) adjusts or pays claims in excess of an amount determined by the Commission or (ii) negotiates reinsurance on behalf of the insurer.

Notwithstanding the above, the following persons shall not be considered as managing general agents for the purposes of this article:

1. An employee of the insurer;

2. A United States manager of the United States branch of an alien insurer;

3. An underwriting manager who, pursuant to contract, manages all or part of the insurance operations of the insurer, is under common control with the insurer, subject to Article 5 (§ 38.2-1322 et seq.) of this chapter or Article 2 (§ 38.2-4230 et seq.) of Chapter 42 of this title, and whose compensation is not based on the volume of premiums written; or

4. The attorney-in-fact authorized by and acting for the subscribers of a reciprocal insurer.

"Qualified United States financial institution" means an institution that:

1. Is organized or, in the case of a United States office of a foreign banking organization, licensed, under the laws of the United States or any state thereof;

2. Is regulated, supervised and examined by United States federal or state authorities having regulatory authority over banks and trust companies; and

3. Has been determined by either the Commission, or the Securities Valuation Office of the National Association of Insurance Commissioners, to meet such standards of financial condition and standing as are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the Commission.

"Underwrite" means the authority to accept or reject risk on behalf of the insurer.

2001, c. 706.

§ 38.2-1359. Licensure.

A. No domestic insurer shall permit a person to act, and no person shall act, in the capacity of a managing general agent for an insurer domiciled in this Commonwealth unless such person is licensed in this Commonwealth to act as a managing general agent.

B. No foreign or alien insurer shall permit a person to act, and no person shall act, in the capacity of a managing general agent representing such an insurer unless such person is licensed (i) in this Commonwealth to act as a managing general agent or (ii) in another state under laws that are substantially similar to the provisions of this article.

C. The Commission may license as a managing general agent any individual or business entity that has complied with the requirements of this article and any regulations concerning licensure that may be promulgated by the Commission. The Commission may refuse to issue a license, subject to the right of the applicant to demand a hearing on the application, if the Commission believes the applicant, any person named on the application, or any member, principal, officer or director of the applicant is not trustworthy to act as a managing general agent, or that any of the foregoing has given cause for revocation or suspension of such license, or has failed to comply with any prerequisite for issuance of such license.

D. Any person seeking a license pursuant to subsection A or clause (i) of subsection B of this section shall apply for such license in a form acceptable to the Commission, and shall pay to the Commission a nonrefundable application fee in an amount prescribed by the Commission. Such fee shall be not less than $500 and not more than $1,000. Every licensed managing general agent shall pay to the Commission a nonrefundable biennial renewal fee in an amount prescribed by the Commission. Such fee shall be not less than $500 and not more than $1,000. Between May 1 and June 1 of the renewal year, each licensed managing general agent shall submit to the Commission a renewal application form and fee in the manner and form prescribed by the Commission. All fees shall be collected by the Commission, paid into the state treasury, and placed to the credit of the fund for maintenance of the Bureau of Insurance as provided in subsection B of § 38.2-400. Each license and renewed license shall expire on June 30 of the appropriate year.

E. The Commission may require that the managing general agent be bonded in a manner acceptable to the Commission for the protection of the insurer, and shall require, as a prerequisite to licensure or license renewal, a certification or attestation from the applicant that such bond is in effect.

F. The Commission may require a managing general agent to maintain an errors and omissions policy that is acceptable to the Commission, and shall require, as a prerequisite to licensure or license renewal, a certification or attestation from the applicant that such policy is in effect.

G. Except where prohibited by state or federal law, by submitting an application for license, the applicant shall be deemed to have appointed the clerk of the Commission as the agent for service of process on the applicant in any action or proceeding arising in this Commonwealth out of or in connection with the exercise of the license. Such appointment of the clerk of the Commission as agent for service of process shall be irrevocable during the period within which a cause of action against the applicant may arise out of transactions with respect to subjects of insurance in this Commonwealth. Service of process on the clerk of the Commission shall conform to the provisions of Chapter 8 (§ 38.2-800 et seq.) of this title.

H. A person seeking licensure shall provide evidence, in a form acceptable to the Commission, of its appointments or contracts as a managing general agent. The Commission may refuse to renew the license of a person that has not been appointed by, or otherwise authorized to act for, an insurer as a managing general agent.

2001, c. 706.

§ 38.2-1360. Required contract provisions.

No insurer shall retain or act through a managing general agent unless there is in force a written contract between said insurer and its managing general agent that sets forth the responsibilities of each party and where both parties share responsibility for a particular function, specifies the division of such responsibilities, and that contains the following minimum provisions:

1. The insurer may terminate the contract for cause upon written notice to the managing general agent. The insurer may suspend the underwriting authority of the managing general agent during the pendency of any dispute regarding the cause for termination.

2. The managing general agent will render accounts to the insurer detailing all transactions and remit all funds due under the contract to the insurer on not less than a monthly basis.

3. All funds collected for the account of an insurer will be held by the managing general agent in a fiduciary capacity in a bank that is a qualified United States financial institution. This account shall be used for all payments on behalf of the insurer. The managing general agent may retain no more than three months' estimated claims payments and allocated loss adjustment expenses. The managing general agent shall maintain a separate bank account for each insurer it represents.

4. Separate records of business written by the managing general agent will be maintained. The insurer shall have reasonable access to and the right to copy all accounts and records related to its business in a form usable by the insurer, and the Commission shall have access to all books, bank accounts and records of the managing general agent in a form usable by the Commission. Such records shall be retained in order to accomplish the purpose of subdivision 9 of this section but in no case for a period of less than five years.

5. The contract may not be assigned in whole or part by the managing general agent.

6. Appropriate underwriting guidelines including:

a. The maximum annual premium volume;

b. The basis of the rates to be charged;

c. The types of risks that may be written;

d. Maximum limits of liability;

e. Applicable exclusions;

f. Territorial limitations;

g. Policy cancellation provisions; and

h. The maximum policy period.

The insurer shall have the right to cancel or nonrenew any policy of insurance subject to the applicable laws and regulations.

7. If the contract permits the managing general agent to settle claims on behalf of the insurer:

a. All claims must be reported to the insurer in a timely manner.

b. A copy of the claim file will be sent to the insurer at its request or as soon as it becomes known that the claim:

(1) Has the potential to exceed one percent of the insurer's surplus to policyholders as of December 31 of the last completed calendar year, an amount set by the company, or any other amount deemed appropriate by the Commission, whichever is less;

(2) Involves a coverage dispute;

(3) May exceed the managing general agent's claims settlement authority;

(4) Is open for more than six months; or

(5) Is closed by payment of an amount exceeding one percent of the insurer's surplus to policyholders as of December 31 of the last completed calendar year, an amount set by the company, or any other amount deemed appropriate by the Commission, whichever is less.

c. All claim files will be the joint property of the insurer and the managing general agent. However, upon entry of an order of liquidation or the appointment of a receiver for the liquidation of an insurer, such files shall become the sole property of the insurer or its estate; the managing general agent shall have reasonable access to and the right to copy the files on a timely basis.

d. Any settlement authority granted to the managing general agent may be terminated for cause upon the insurer's written notice to the managing general agent or upon the termination of the contract. The insurer may suspend the settlement authority during the pendency of any dispute regarding the cause for termination.

8. Where electronic claims files are in existence, the contract must address the timely transmission of the data.

9. If the contract provides for a sharing of interim profits by the managing general agent, and the managing general agent has the authority to determine the amount of the interim profits by establishing loss reserves or controlling claim payments, or in any other manner, interim profits will not be paid to the managing general agent until the profits have been verified pursuant to subsection B of § 38.2-1361 (i) one year after they are earned for property insurance business and health insurance business and (ii) five years after they are earned on casualty insurance business.

10. The managing general agent shall not:

a. Bind reinsurance contracts or similar risk sharing arrangements, except that a managing general agent who acts on behalf of a ceding insurer may bind facultative reinsurance contracts by placing individual risks pursuant to obligatory facultative agreements provided that the contract between the insurer and the managing general agent contains reinsurance underwriting guidelines including, for both reinsurance assumed and ceded, a list of reinsurers with which such automatic agreements are in effect, the coverages and amounts or percentages that may be reinsured and commission schedules;

b. Commit the insurer to participate in insurance or reinsurance syndicates;

c. Appoint any agent unless (i) the agent is lawfully licensed to transact the type of insurance for which he is appointed and (ii) the insurer has notified the Commission of the managing general agent's authorization to appoint agents on its behalf;

d. Without prior approval of the insurer, pay or commit the insurer to pay a claim over a specified amount, net of reinsurance, which amount shall not exceed one percent of the insurer's surplus to policyholders as of December 31 of the last completed calendar year;

e. Collect any payment from a reinsurer or commit the insurer to any claim settlement with a reinsurer, without prior approval of the insurer. If prior approval is given, a report must be promptly forwarded to the insurer;

f. Permit any agent appointed by the managing general agent to serve on the insurer's board of directors;

g. Jointly employ an individual who is employed with the insurer; or

h. Utilize or engage a submanaging general agent.

2001, c. 706.

§ 38.2-1361. Duties of insurers utilizing managing general agents.

A. The insurer shall annually obtain a copy of the current financial statement, which shall be certified by an independent public accountant and in a form acceptable to the Commission, of each managing general agent with which it transacts business.

B. If the managing general agent establishes loss reserves, the insurer shall annually obtain the opinion of an actuary attesting to the adequacy of loss reserves established for losses incurred and outstanding on business produced by the managing general agent. This is in addition to any other required loss reserve certification.

C. The insurer shall conduct, at least semiannually, an on-site review of the underwriting and claims processing operations of the managing general agent.

D. Binding authority for participation in insurance syndicates or reinsurance syndicates shall rest with an officer of the insurer, who shall not be affiliated with the managing general agent.

E. At least annually and more frequently if requested by the Commission, the insurer shall report to the Commission, in a form acceptable to the Commission, concerning its transactions with a managing general agent. The report shall identify the managing general agent through which the insurer has transacted business, and for each managing general agent shall report the nature of the contract, the types of authority granted, the types of business written, the amount of premium written, and any other information the Commission may request.

F. An insurer shall review its books and records each quarter to determine if any agent as defined by § 38.2-1800 has become a managing general agent as defined in § 38.2-1358. If the insurer determines that an agent has become a managing general agent pursuant to the above, the insurer shall promptly notify the agent and the Commission of such determination, and the insurer and agent must fully comply with the provisions of this article within thirty calendar days.

G. An insurer shall not appoint to its board of directors an officer, director, employee, agent or controlling shareholder of its managing general agent. This subsection shall not apply to relationships governed by Article 5 (§ 38.2-1322 et seq.) of this chapter or Article 2 (§ 38.2-4230 et seq.) of Chapter 42 of this title.

H. The insurer shall not delegate to any person, other than one of its officers, the authority to enter into or bind any reinsurance agreement by which the insurer agrees to cede any risk to a reinsurer, except that an insurer may delegate the specific authority to bind facultative reinsurance contracts by placing individual risks pursuant to the provisions of subdivision 1 of § 38.2-1353 or subdivision 10 of § 38.2-1360. The officer shall be a regular salaried employee of the insurer and shall not be affiliated with the managing general agent. The insurer is not prohibited by the provisions of this subsection from delegating to its managing general agent the authority to enter into or bind an agreement to assume a risk provided the managing general agent is licensed to act as a reinsurance intermediary manager under the provisions of Article 8 (§ 38.2-1347 et seq.) of this chapter and the authority to both cede and assume a given risk is not simultaneously vested in the same intermediary.

2001, c. 706.

§ 38.2-1362. Examination authority.

The acts of a managing general agent are considered to be the acts of the insurer on whose behalf it is acting. A managing general agent may be examined pursuant to Article 4 (§ 38.2-1317 et seq.) of this chapter as if it were the insurer. In addition, the managing general agent shall be subject to examination pursuant to § 38.2-1809 if it or any of its officers, directors, agents, or employees is licensed as a producer under Chapter 18 (§ 38.2-1800 et seq.) of this title.

2001, c. 706.

§ 38.2-1363. Penalties and liabilities; grounds for placing on probation, refusal to issue or renew, revocation, or suspension of license.

A. If the Commission finds, after providing an opportunity to be heard, that any person under its jurisdiction has violated any provision of this article, the Commission may, in addition to any other remedies authorized by this title, order the managing general agent to reimburse the insurer, the rehabilitator or liquidator, or the receiver of the insurer for any losses incurred by the insurer caused by a violation of this article committed by the managing general agent.

B. The Commission may, in addition to or in lieu of a penalty imposed under § 38.2-218, place on probation, suspend, revoke or refuse to issue or renew any person's license as a managing general agent for any one or more of the following causes:

1. Providing materially incorrect, misleading, incomplete or untrue information in the license application or any other document filed with the Commission;

2. Violating any insurance laws or violating any regulation, subpoena, or order of the Commission or of another state's insurance regulatory authority;

3. Obtaining or attempting to obtain a license through misrepresentation or fraud;

4. Improperly withholding, misappropriating, or converting any moneys or properties received in the course of doing business;

5. Engaging in the practice of rebating;

6. Engaging in twisting or any form thereof, where "twisting" means inducing an insured to terminate an existing policy and purchase a new policy through misrepresentation;

7. Intentionally misrepresenting the terms of an actual or proposed insurance contract;

8. Having been convicted of a felony;

9. Having admitted or been found to have committed any insurance unfair trade practice or fraud;

10. Using fraudulent, coercive, or dishonest practices, or demonstrating incompetence, or untrustworthiness in the conduct of business in this Commonwealth or elsewhere, or demonstrating financial irresponsibility in the handling of applicant, policyholder, agency, or insurance company funds;

11. Having an insurance producer license, or its equivalent, denied, suspended or revoked in any other state, province, or territory;

12. Forging another's name to an application for insurance or reinsurance, or to any document related to an insurance transaction;

13. Knowingly accepting insurance business from an individual who is not licensed;

14. Failing to comply with an administrative or court order imposing a child support obligation;

15. Failing to pay state income tax or comply with any administrative or court order directing payment of state income tax; or

16. If the managing general agent is a business entity, having its corporate existence terminated, its certificate of organization, trust, limited liability company, or limited partnership canceled, or its certificate of authority or registration to transact business in the Commonwealth revoked or canceled, as the case may be.

C. If the Commission believes that any applicant for a managing general agent's license is not of good character or does not have a good reputation for honesty, it may refuse to issue the license, subject to the right of the applicant to demand a hearing on the application. The Commission shall not revoke or suspend an existing license until the licensee is given an opportunity to be heard before the Commission. If the Commission refuses to issue a new license or proposes to revoke or suspend an existing license, it shall give the applicant or licensee at least 10 calendar days' notice in writing of the time and place of the hearing, if a hearing is requested. The notice shall contain a statement of the objections to the issuance of the license, or the reason for its proposed revocation or suspension as the case may be. The notice may be given to the applicant or licensee by registered or certified mail, sent to the last known address of record pursuant to § 38.2-1364, or the last known business address if the address of record is incorrect, or in any other lawful manner the Commission prescribes. The Commission may summon witnesses to testify with respect to the applicant or licensee, and the applicant or licensee may introduce evidence in his or its behalf. No applicant to whom a license is refused after a hearing, nor any licensee whose license is revoked, shall again apply for a license until after the expiration of a period of five years from the date of the Commission's order, or such other period of time as the Commission prescribes in its order.

D. Nothing contained in this article is intended to or shall in any manner limit or restrict the rights of policyholders, claimants, and auditors.

E. If an order of rehabilitation or liquidation of the insurer has been entered pursuant to Chapter 15 (§ 38.2-1500 et seq.) of this title or the rehabilitation and liquidation statutes of a reciprocal state, and the receiver appointed under that order determines that the managing general agent or any other person has not materially complied with the provisions of this article, or any rule, regulation or order promulgated thereunder, and the insurer suffered any loss or damage therefrom, the receiver may maintain a civil action for recovery of damages or other appropriate sanctions for the benefit of the insurer.

2001, c. 706; 2006, c. 762.

§ 38.2-1364. Requirement to report to Commission.

A. Each licensed managing general agent shall report within thirty calendar days to the Commission and to any contracted insurer any change in business or residence address or name.

B. In addition to the requirements of §§ 59.1-69 and 59.1-70, any individual or business entity licensed as a managing general agent in this Commonwealth and operating under an assumed or fictitious name shall notify the Commission, at the earlier of the time the application for a managing general agent license is filed or within thirty calendar days from the date the assumed or fictitious name is adopted, setting forth the name under which the managing general agent intends to operate in Virginia. The Commission shall also be notified within thirty calendar days from the date of cessation of the use of such assumed or fictitious name.

C. Each licensed managing general agent convicted of a felony shall report within thirty calendar days to the Commission the facts and circumstances regarding the criminal conviction.

2001, c. 706.

Article 10. Standard Valuation.

§ 38.2-1365. Definitions.

As used in this article, unless the context requires a different meaning:

"Accident and health insurance" means contracts that incorporate morbidity risk and provide protection against economic loss resulting from accident, sickness, or medical conditions and as may be specified in the valuation manual.

"Appointed actuary" means a qualified actuary who is appointed in accordance with the valuation manual to prepare the actuarial opinion required in subsection B of § 38.2-1367.

"Deposit-type contract" means contracts that do not incorporate mortality or morbidity risks and as may be specified in the valuation manual.

"Insurance company" or "insurer" means an entity that (i) has written, issued, or reinsured life insurance contracts, accident and health insurance contracts, or deposit-type contracts in the Commonwealth and has at least one such policy in force or on claim or (ii) has written, issued, or reinsured life insurance contracts, accident and health insurance contracts, or deposit-type contracts in any state and is required to hold a certificate of authority to write life insurance, accident and health insurance, or deposit-type contracts in the Commonwealth.

"Life insurance" means contracts that incorporate mortality risk, including annuity and pure endowment contracts, and as may be specified in the valuation manual.

"NAIC" means the National Association of Insurance Commissioners.

"Policyholder behavior" means any action a policyholder, contract holder or any other person with the right to elect options, such as a certificate holder, may take under a policy or contract subject to this article, including, but not limited to, lapse, withdrawal, transfer, deposit, premium payment, loan, annuitization, or benefit elections prescribed by the policy or contract but excluding events of mortality or morbidity that result in benefits prescribed in their essential aspects by the terms of the policy or contract.

"Principle-based valuation" means a reserve valuation that uses one or more methods or one or more assumptions determined by the insurer and is required to comply with § 38.2-1380 as specified in the valuation manual.

"Qualified actuary" means an individual who 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 and who meets the requirements specified in the valuation manual.

"Tail risk" means a risk that occurs either where the frequency of low probability events is higher than expected under a normal probability distribution or where there are observed events of very significant size or magnitude.

"Valuation manual" means the manual of valuation instructions adopted by the NAIC as specified in this article or as subsequently amended.

2014, c. 571.

§ 38.2-1366. Reserve valuation.

A. For policies and contracts issued prior to the operative date of the valuation manual:

1. The Commission shall annually value, or cause to be valued, the reserve liabilities (hereinafter called reserves) for all outstanding life insurance policies and annuity and pure endowment contracts of every life insurance company doing business in the Commonwealth issued prior to the operative date of the valuation manual. In calculating reserves, the Commission may use group methods and approximate averages for fractions of a year or otherwise. In lieu of the valuation of the reserves required of a foreign or alien company, the Commission may accept a valuation made, or caused to be made, by the insurance supervisory official of any state or other jurisdiction when the valuation complies with the minimum standard provided in this article.

2. The provisions set forth in §§ 38.2-1368 through 38.2-1378 shall apply to all policies and contracts, as appropriate, subject to this article issued prior to the operative date of the valuation manual and the provisions set forth in §§ 38.2-1379 and 38.2-1380 shall not apply to any such policies and contracts.

B. For policies and contracts issued on or after the operative date of the valuation manual:

1. The Commission shall annually value, or cause to be valued, the reserve liabilities (hereinafter called reserves) for all outstanding life insurance contracts, annuity and pure endowment contracts, accident and health contracts, and deposit-type contracts of every insurance company issued on or after the operative date of the valuation manual. In lieu of the valuation of the reserves required of a foreign or alien company, the Commission may accept a valuation made, or caused to be made, by the insurance supervisory official of any state or other jurisdiction when the valuation complies with the minimum standard provided in this article.

2. The provisions set forth in §§ 38.2-1379 and 38.2-1380 shall apply to all policies and contracts issued on or after the operative date of the valuation manual.

C. On or before the last day of February of each year, every domestic incorporated life insurer shall furnish the Commission the necessary data for determining the valuation of all of its policies outstanding on the last preceding December 31. For good cause shown, the Commission may extend an insurer's deadline for submitting this data.

2014, c. 571.

§ 38.2-1367. Actuarial opinion of reserves.

A. The actuarial opinion prior to the operative date of the valuation manual shall require:

1. Every life insurance company doing business in the Commonwealth to annually submit the opinion of a qualified actuary as to whether the reserves and related actuarial items held in support of the policies and contracts specified by the Commission by regulation are computed appropriately, are based on assumptions that satisfy contractual provisions, are consistent with prior reported amounts, and comply with applicable laws of the Commonwealth. The Commission shall define by regulation the specifics of this opinion and add any other items deemed to be necessary to its scope.

2. Every life insurance company, except as exempted by regulation, to annually include in the opinion required by subdivision 1, an opinion of the same qualified actuary as to whether the reserves and related actuarial items held in support of the policies and contracts specified by the Commission by regulation, when considered in light of the assets held by the insurer with respect to the reserves and related actuarial items, including but not limited to the investment earnings on the assets and the considerations anticipated to be received and retained under the policies and contracts, make adequate provision for the insurer's obligations under the policies and contracts, including but not limited to the benefits under and expenses associated with the policies and contracts. The Commission shall specify by regulation the types of reserves and related actuarial items on which the opinion is to be expressed.

The Commission may provide by regulation for a transition period for establishing any higher reserves that the qualified actuary may deem necessary in order to render the opinion required by this section.

3. Each opinion required by subdivision 2 to be governed by the following provisions:

a. A memorandum, in form and substance acceptable to the Commission as specified by regulation, shall be prepared to support each actuarial opinion; and

b. If the insurance company fails to provide a supporting memorandum at the request of the Commission within a period specified by regulation or the Commission determines that the supporting memorandum provided by the insurance company fails to meet the standards prescribed by the regulations or is otherwise unacceptable to the Commission, the Commission may engage a qualified actuary at the expense of the insurance company to review the opinion and the basis for the opinion and prepare the supporting memorandum required by the Commission.

4. Every opinion required by this subsection to be governed by the following provisions:

a. The opinion shall be submitted with the annual statement filed pursuant to § 38.2-1300 and shall reflect the valuation of such reserve liabilities for each year ending on or after December 31, 1992.

b. The opinion shall apply to all business in force including individual and group health insurance plans, in form and substance acceptable to the Commission as specified by regulation.

c. The opinion shall be based on standards adopted from time to time by the Actuarial Standards Board and on such additional standards as the Commission may by regulation prescribe.

d. In the case of an opinion required to be submitted by a foreign or alien insurer, the Commission may accept the opinion filed by that insurer with the insurance supervisory official of another state if the Commission determines that the opinion reasonably meets the requirements applicable to an insurer domiciled in the Commonwealth.

e. For the purposes of this section, "qualified actuary" means a member in good standing of the American Academy of Actuaries who meets the requirements set forth in regulations adopted by the Commission.

f. Except in cases of fraud or willful misconduct, the qualified actuary shall not be liable for damages to any person, other than the insurer and the Commission, for any act, error, omission, decision, or conduct with respect to the actuary's opinion.

g. Disciplinary action by the Commission against the insurer or the qualified actuary shall be defined in regulations adopted by the Commission.

h. Except as provided in subdivisions 4 l, m, and n, documents, materials, or other information in the possession or control of the Commission that is a memorandum in support of the opinion, and any other material provided by the insurer to the Commission in connection with the memorandum, shall be confidential by law and privileged, shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any private civil action. However, the Commission is authorized to use the documents, materials, or other information in the furtherance of any regulatory or legal action brought as a part of the Commission's official duties.

i. Neither the Commission nor any person who received documents, materials, or other information while acting under the authority of the Commission shall be permitted or required to testify in any private civil action concerning any confidential documents, materials, or information subject to subdivision 4 h.

j. In order to assist in the performance of the Commission's duties, the Commission:

(1) May share documents, materials, or other information, including the confidential and privileged documents, materials, or information subject to subdivision 4 h, with other state, federal, and international regulatory agencies, with the NAIC and its affiliates and subsidiaries, and with state, federal, and international law-enforcement authorities, provided that the recipient agrees to maintain the confidentiality and privileged status of the document, material, or other information;

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

(3) May enter into agreements governing sharing and use of information consistent with subdivisions 4 h, i, and j.

k. 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 Commission under this section or as a result of sharing as authorized in subdivision 4 j.

l. A memorandum in support of the opinion, and any other material provided by the insurer to the Commission in connection with the memorandum, may be subject to subpoena for the purpose of defending an action seeking damages from the actuary submitting the memorandum by reason of an action required by this section or by regulations adopted hereunder.

m. The memorandum or other material may otherwise be released by the Commission with the written consent of the insurer or to the American Academy of Actuaries upon request stating that the memorandum or other material is required for the purpose of professional disciplinary proceedings and setting forth procedures satisfactory to the Commission for preserving the confidentiality of the memorandum or other material.

n. Once any portion of the confidential memorandum is cited by the insurer in its marketing, is cited before a governmental agency other than a state insurance department, or is released by the insurer to the news media, all portions of the confidential memorandum shall be no longer confidential.

B. The actuarial opinion of reserves after the operative date of the valuation manual shall require:

1. Every insurer with outstanding life insurance contracts, accident and health insurance contracts, or deposit-type contracts in the Commonwealth and subject to regulation by the Commission to annually submit the opinion of the appointed actuary as to whether the reserves and related actuarial items held in support of the policies and contracts are computed appropriately, are based on assumptions that satisfy contractual provisions, are consistent with prior reported amounts, and comply with applicable laws of the Commonwealth. The valuation manual will prescribe the specifics of this opinion, including any items deemed to be necessary to its scope.

2. Every insurer with outstanding life insurance contracts, accident and health insurance contracts, or deposit-type contracts in the Commonwealth and subject to regulation by the Commission, except as exempted in the valuation manual, to annually include in the opinion required by subdivision 1 an opinion of the same appointed actuary as to whether the reserves and related actuarial items held in support of the policies and contracts specified in the valuation manual, when considered in light of the assets held by the insurer with respect to the reserves and related actuarial items, including but not limited to the investment earnings on the assets and the considerations anticipated to be received and retained under the policies and contracts, make adequate provision for the insurer's obligations under the policies and contracts, including but not limited to the benefits under and expenses associated with the policies and contracts.

3. Each opinion required by subdivision 2 to be governed by the following provisions:

a. A memorandum, in form and substance as specified in the valuation manual, and acceptable to the Commission, shall be prepared to support each actuarial opinion.

b. If the insurance company fails to provide a supporting memorandum at the request of the Commission within a period specified in the valuation manual or the Commission determines that the supporting memorandum provided by the insurance company fails to meet the standards prescribed by the valuation manual or is otherwise unacceptable to the Commission, the Commission may engage a qualified actuary at the expense of the insurer to review the opinion and the basis for the opinion and prepare the supporting memorandum required by the Commission.

4. Every opinion required by this subsection to be governed by the following provisions:

a. The opinion shall be in form and substance as specified in the valuation manual and acceptable to the Commission;

b. The opinion shall be submitted with the annual statement reflecting the valuation of such reserve liabilities for each year ending on or after the operative date of the valuation manual;

c. The opinion shall apply to all policies and contracts subject to subdivision 2, plus other actuarial liabilities as may be specified in the valuation manual;

d. The opinion shall be based on standards adopted from time to time by the Actuarial Standards Board or its successor, and on such additional standards as may be prescribed in the valuation manual;

e. In the case of an opinion required to be submitted by a foreign or alien insurer, the Commission may accept the opinion filed by that insurer with the insurance supervisory official of another state if the Commission determines that the opinion reasonably meets the requirements applicable to an insurer domiciled in the Commonwealth;

f. Except in cases of fraud or willful misconduct, the appointed actuary shall not be liable for damages to any person, other than the insurance company and the Commission, for any act, error, omission, decision, or conduct with respect to the appointed actuary's opinion; and

g. Disciplinary action by the Commission against the insurer or the appointed actuary shall be defined in regulations adopted by the Commission.

2014, c. 571.

§ 38.2-1368. Minimum valuation standard for policies issued prior to certain dates.

The following provisions of this section shall apply only to those policies and contracts issued prior to the operative date stated in § 38.2-3214:

1. The legal minimum standard for the valuation of life insurance contracts issued prior to January 1, 1937, shall be on the basis of the American Experience Table of Mortality, with interest at four percent per year, and strictly in accordance with the terms and conditions of such contracts, and for life insurance contracts issued on and after that date shall be the one-year preliminary term method of valuation, as hereinafter modified, on the basis of the American Experience Table of Mortality or, at the option of the insurer, the American Men Ultimate Table of Mortality with interest at three and one-half percent per year.

2. If the net renewal premium under a limited payment life preliminary term policy providing for the payment of less than 20 annual premiums under the policy, or under an endowment preliminary term policy, exceeds that under a 20-payment life preliminary term policy, the reserve for that policy at the end of any year, including the first, shall be at least the reserve on a 20-payment life preliminary term policy issued in the same year and at the same age, together with an amount equivalent to the accumulation of a net level premium sufficient to provide for a pure endowment maturing one year after the date on which the last annual premium is due, or at the end of 20 years if the policy provides for the payment of premiums for more than 20 years, equal to the difference between the value on the maturity date of a 20-payment life preliminary term policy and the full net level premium reserve at such time of such a limited payment life or endowment policy. Policies valued by the above method shall contain a clause specifying either that the reserve of the policies shall be computed in accordance with the 20-payment life modification of the preliminary term method of valuation or that the first year's insurance is term insurance.

3. Except as otherwise provided in § 38.2-1370 for group annuity and pure endowment contracts, the legal minimum standard for the valuation of annuities issued on and after January 1, 1937, shall be the Combined Annuity Table, with interest at four percent per year, but annuities deferred 10 or more years and written in connection with life insurance shall be valued on the same basis as that used in computing the consideration or premium for the life insurance, or upon any higher standard, at the insurer's option.

4. The legal minimum standard for the calculation of the reserve liability for insurance against disability incorporated in life insurance policies issued on and after January 1, 1937, shall be on the basis of any table adopted by the insurer and approved by the Commission, with interest at three and one-half percent per year. However, in no case shall such liability be less than one-half of the net annual premium for the disability benefit computed by the table.

5. The legal standard for the valuation of group insurance written as yearly renewable term insurance issued on and after January 1, 1937, shall be on the basis of the American Men Ultimate Table of Mortality with interest at three and one-half percent per year.

6. The legal minimum standard for the valuation of industrial policies issued on and after January 1, 1937, shall be the American Experience Table of Mortality, with interest at three and one-half percent per year; however, any insurer may voluntarily value its industrial policies on the basis of the standard industrial mortality table or the substandard industrial mortality table, and by the level net premium method or in accordance with their terms by the modified preliminary term method as described in subdivision 2, or the full preliminary term method.

All industrial policies issued on and after January 1, 1937, shall be valued under the rules set forth in this section, whether or not the policies provide for surrender values, either in cash, paid-up insurance, or extended insurance.

7. The Commission may vary the standards of interest and mortality in the case of alien insurers as to contracts issued by those insurers in countries other than the United States, and in particular cases of invalid lives and other extra hazards.

8. If the actual annual premium charged for insurance is less than the net annual premium for the insurance, computed as specified in this section, the insurer shall set up an additional reserve equal to the value of an annuity of the difference between the actual premium charged and the net premium required by this section, and the term of which at the date of the valuation shall equal the period during which future premium payments are to become due on the insurance. The annuity shall be valued according to the table of mortality with the rate of interest at which the net annual premium is calculated.

9. Reserves for all of these policies and contracts, or all of any class of these policies and contracts, may be calculated, at the insurer's option, according to any standards that produce greater aggregate reserves for all the policies and contracts, or all of the class of the policies and contracts so valued, than the minimum reserves required by this section; and in each case the insurer shall report to the Commission in its annual statement the standards it used in making the valuation.

2014, c. 571.

§ 38.2-1369. Computation of minimum standard.

Except as otherwise provided in §§ 38.2-1370, 38.2-1371, and 38.2-1378, the minimum standard for the valuation of all policies and contracts issued on or after the operative date stated in § 38.2-3214 shall be the Commissioners reserve valuation methods defined in §§ 38.2-1372, 38.2-1373, 38.2-1376, and 38.2-1378, three and one-half percent interest, or in the case of life insurance policies and contracts, other than annuity and pure endowment contracts, issued on or after July 1, 1975, four percent interest for policies issued prior to July 1, 1979, five and one-half percent interest for single premium life insurance policies and four and one-half percent interest for all other policies issued on and after July 1, 1979, and the following tables:

1. For ordinary policies of life insurance issued on the standard basis, excluding any disability and accidental death benefits in the policies: The Commissioners 1941 Standard Ordinary Mortality Table for policies issued prior to the operative date of § 38.2-3215; the Commissioners 1958 Standard Ordinary Mortality Table for policies issued on or after the operative date of § 38.2-3215 and prior to the operative date of § 38.2-3209, provided that for any category of policies issued on female risks, all modified net premiums and present values referred to in this article may be calculated according to an age not more than six years younger than the actual age of the insured; and for policies issued on or after the operative date of § 38.2-3209:

a. The Commissioners 1980 Standard Ordinary Mortality Table;

b. At the election of the insurer for any one or more specified plans of life insurance, the Commissioners 1980 Standard Ordinary Mortality Table with Ten-Year Select Mortality Factors; or

c. Any ordinary mortality table, adopted after 1980 by the NAIC, that is approved by regulation adopted by the Commission for use in determining the minimum standard of valuation for those policies;

2. For industrial life insurance policies issued on the standard basis, excluding any disability and accidental death benefits in those policies: The 1941 Standard Industrial Mortality Table for policies issued prior to the operative date of § 38.2-3216, and for policies issued on or after the operative date of § 38.2-3216, the Commissioners 1961 Standard Industrial Mortality Table or any industrial mortality table adopted after 1980 by the NAIC and approved by regulation adopted by the Commission for use in determining the minimum standard of valuation for the policies;

3. For individual annuity and pure endowment contracts, excluding any disability and accidental death benefits in those contracts: The 1937 Standard Annuity Mortality Table or, at the insurer's option, the Annuity Mortality Table for 1949 Ultimate, or any modification of either of these tables approved by the Commission;

4. For group annuity and pure endowment contracts, excluding any disability and accidental death benefits in those contracts: The Group Annuity Mortality Table for 1951, any modification of that table approved by the Commission, or, at the insurer's option, any of the tables or modifications of tables specified for individual annuity and pure endowment contracts;

5. For total and permanent disability benefits in or supplementary to ordinary policies or contracts: For policies or contracts issued on or after January 1, 1966, the tables of Period 2 disablement rates and the 1930 to 1950 termination rates of the 1952 Disability Study of the Society of Actuaries, with due regard to the type of benefit or any tables of disablement rates and termination rates adopted after 1980 by the NAIC, and approved by regulation adopted by the Commission for use in determining the minimum standard of valuation for those policies; for policies or contracts issued on or after January 1, 1961, and prior to January 1, 1966, either those tables or, at the insurer's option, the Class (3) Disability Table (1926); and for policies issued prior to January 1, 1961, the Class (3) Disability Table (1926). Any such table shall, for active lives, be combined with a mortality table permitted for calculating the reserves for life insurance policies;

6. For accidental death benefits in or supplementary to policies issued on or after January 1, 1966: The 1959 Accidental Death Benefits Table or any accidental death benefits table adopted after 1980 by the NAIC and approved by regulation adopted by the Commission for use in determining the minimum standard of valuation for those policies; for policies issued on or after January 1, 1961, and prior to January 1, 1966, either that table or, at the insurer's option, the Inter-Company Double Indemnity Mortality Table; and for policies issued prior to January 1, 1961, the Inter-Company Double Indemnity Mortality Table. Either table shall be combined with a mortality table for calculating the reserves for life insurance policies; and

7. For group life insurance, life insurance issued on the substandard basis, and other special benefits: Any table approved by the Commission.

2014, c. 571.

§ 38.2-1370. Computation of minimum standard for annuities.

A. Except as provided in § 38.2-1371, the minimum standard of valuation for individual annuity and pure endowment contracts issued on or after the operative date of this section and for annuities and pure endowments purchased on or after the operative date under group annuity and pure endowment contracts shall be the Commissioners reserve valuation methods defined in §§ 38.2-1372 and 38.2-1373 and the following tables and interest rates:

1. For individual annuity and pure endowment contracts issued prior to July 1, 1979, excluding any disability and accidental death benefits in those contracts: The 1971 Individual Annuity Mortality Table, or any modification of that table approved by the Commission, and six percent interest for single premium immediate annuity contracts and four percent interest for all other individual annuity and pure endowment contracts;

2. For individual single premium immediate annuity contracts issued on or after July 1, 1979, excluding any disability and accidental death benefits in those contracts: The 1971 Individual Annuity Mortality Table or any individual annuity mortality table adopted after 1980 by the NAIC and approved by regulation adopted by the Commission for use in determining the minimum standard of valuation for these contracts, or any modification of those tables approved by the Commission, and seven and one-half percent interest;

3. For individual annuity and pure endowment contracts issued on or after July 1, 1979, other than single premium immediate annuity contracts, excluding any disability and accidental death benefits in those contracts: The 1971 Individual Annuity Mortality Table or any individual annuity mortality table adopted after 1980 by the NAIC and approved by regulation adopted by the Commission for use in determining the minimum standard of valuation for those contracts, or any modification of those tables approved by the Commission, and five and one-half percent interest for single premium deferred annuity and pure endowment contracts and four and one-half percent interest for all other individual annuity and pure endowment contracts;

4. For annuities and pure endowments purchased prior to July 1, 1979, under group annuity and pure endowment contracts, excluding any disability and accidental death benefits purchased under those contracts: The 1971 Group Annuity Mortality Table or any modification of that table approved by the Commission, and six percent interest; and

5. For annuities and pure endowments purchased on or after July 1, 1979, under group annuity and pure endowment contracts, excluding any disability and accidental death benefits purchased under those contracts: The 1971 Group Annuity Mortality Table, or any group annuity mortality table adopted after 1980 by the NAIC and approved by regulation adopted by the Commission for use in determining the minimum standard of valuation for those annuities and pure endowments, or any modification of those tables approved by the Commission, and seven and one-half percent interest.

B. After July 1, 1975, any insurer may file with the Commission a written notice of its election to comply with the provisions of this section after a specified date before January 1, 1979, which shall be the operative date of this section for that insurer. However, an insurer may elect a different operative date for individual annuity and pure endowment contracts from that elected for group annuity and pure endowment contracts. If an insurer makes no election, the operative date of this section for that insurer shall be January 1, 1979.

2014, c. 571.

§ 38.2-1371. Computation of minimum standard by calendar year of issue.

A. The interest rates used in determining the minimum standard for the valuation of the following shall be the calendar year statutory valuation interest rates determined as provided in subsection B:

1. Life insurance policies issued in a particular calendar year on or after the operative date of § 38.2-3209;

2. Individual annuity and pure endowment contracts issued in a particular calendar year on or after January 1, 1983, except that an insurer may elect for this to apply to all individual annuity and pure endowment contracts issued after July 1, 1982;

3. Annuities and pure endowments purchased in a particular calendar year on or after January 1, 1983, under group annuity and pure endowment contracts; and

4. The net increase, if any, in a particular calendar year after January 1, 1983, in amounts held under guaranteed interest contracts.

B. The calendar year statutory valuation interest rates, referred to in this section as "I," shall be determined as follows and the results rounded to the nearer one-quarter of one percent:

1. For life insurance:

I =.03 + W(R1 -.03) + (W/2)(R2 -.09);

2. For single premium immediate annuities and for annuity benefits involving life contingencies arising from other annuities with cash settlement options and from guaranteed interest contracts with cash settlement options:

I =.03 + W(R -.03).

For purposes of subdivisions 1 and 2:

R1 is the lesser of R and.09;

R2 is the greater of R and.09;

R is the reference interest rate defined in this section; and

W is the weighting factor defined in this section;

3. For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on an issue year basis, except as stated in subdivision 2, the formula for life insurance stated in subdivision 1 shall apply to annuities and guaranteed interest contracts with guarantee durations in excess of 10 years, and the formula for single premium immediate annuities stated in subdivision 2 shall apply to annuities and guaranteed interest contracts with guarantee duration of 10 years or less;

4. For other annuities with no cash settlement options and for guaranteed interest contracts with no cash settlement options, the formula for single premium immediate annuities stated in subdivision 2 shall apply; and

5. For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a change in fund basis, the formula for single premium immediate annuities stated in subdivision 2 shall apply.

However, if the calendar year statutory valuation interest rate for a life insurance policy issued in any calendar year determined without reference to this sentence differs from the corresponding actual rate for similar policies issued in the immediately preceding calendar year by less than one-half of one percent, the calendar year statutory valuation interest rate for the life insurance policies shall be equal to the corresponding actual rate for the immediately preceding calendar year. For purposes of applying the immediately preceding sentence, the calendar year statutory valuation interest rate for life insurance policies issued in a calendar year shall be determined for 1980, using the reference interest rate defined in 1979, and shall be determined for each subsequent calendar year regardless of when § 38.2-3209 becomes operative.

C. The weighting factors referred to in the formulas stated in subsection B are given in the following tables:

1. Weighting factors for life insurance:

aGuarantee Duration (Years)Weighting Factors
b10 or less.50
cMore than 10, but not more than 20.45
dMore than 20.35

For life insurance, the guarantee duration is the maximum number of years the life insurance can remain in force on a basis guaranteed in the policy or under options to convert to plans of life insurance with premium rates or nonforfeiture values, or both, that are guaranteed in the original policy.

2. Weighting factor for single premium immediate annuities and for annuity benefits involving life contingencies arising from other annuities with cash settlement options and guaranteed interest contracts with cash settlement options:

a.80

3. Weighting factors for other annuities and for guaranteed interest contracts, except as stated in subdivision 2, shall be as specified in tables a, b, and c of this subdivision, according to the rules and definitions in subdivisions d, e, and f of this subdivision:

a. For annuities and guaranteed interest contracts valued on an issue year basis:

aGuarantee DurationWeighting Factor
For Plan Type
b(Years)ABC
c5 or less:.80.60.50
dMore than 5, but not more than 10:.75.60.50
eMore than 10, but not more than 20:.65.50.45
fMore than 20:.45.35.35

b. For annuities and guaranteed interest contracts valued on a change in fund basis, the factors shown in table a increased by:

aPlan Type
b

 

ABC
c

 

.15.25.05

c. For annuities and guaranteed interest contracts valued on an issue year basis, other than those with no cash settlement options, that do not guarantee interest on considerations received more than one year after issue or purchase and for annuities and guaranteed interest contracts valued on a change in fund basis that do not guarantee interest rates on considerations received more than 12 months beyond the valuation date, the factors shown in table a or derived in table b increased by:

aPlan Type
b

 

ABC
c

 

.05.05.05

d. For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, the guarantee duration is the number of years for which the contract guarantees interest rates in excess of the calendar year statutory valuation interest rate for life insurance policies with guarantee duration in excess of 20 years. For other annuities with no cash settlement options and for guaranteed interest contracts with no cash settlement options, the guaranteed duration is the number of years from the date of issue or date of purchase to the date annuity benefits are scheduled to commence.

e. "Plan Type" as used in tables a, b, and c is defined as follows:

Plan Type A: At any time policyholder (i) may withdraw funds only with an adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurance company, (ii) may withdraw funds without an adjustment but in installments over five years or more, (iii) may withdraw funds as an immediate life annuity, or (iv) is not permitted to withdraw funds.

Plan Type B: Before expiration of the interest rate guarantee, policyholder may withdraw funds only (i) with an adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurance company, (ii) without an adjustment but in installments over five years or more, or (iii) no withdrawal permitted. At the end of interest rate guarantee, funds may be withdrawn without an adjustment in a single sum or installments over less than five years.

Plan Type C: Policyholder may withdraw funds before expiration of interest rate guarantee in a single sum or installments over less than five years either (i) without adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurance company or (ii) subject only to a fixed surrender charge stipulated in the contract as a percentage of the fund.

f. An insurer may elect to value guaranteed interest contracts with cash settlement options and annuities with cash settlement options on either an issue year basis or on a change-in-fund basis. Guaranteed interest contracts with no cash settlement options and other annuities with no cash settlement options must be valued on an issue year basis. As used in this section, an issue year basis of valuation refers to a valuation basis under which the interest rate used to determine the minimum valuation standard for the entire duration of the annuity or guaranteed interest contract is the calendar year valuation interest rate for the year of issue or year of purchase of the annuity or guaranteed interest contract, and the change-in-fund basis of valuation refers to a valuation basis under which the interest rate used to determine the minimum valuation standard applicable to each change in the fund held under the annuity or guaranteed interest contract is the calendar year valuation interest rate for the year of the change in the fund.

D. The reference interest rate referred to in subsection B shall be defined as follows:

1. For life insurance, the lesser of the average over a period of 36 months and the average over a period of 12 months, ending on June 30 of the calendar year preceding the year of issue, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody's Investors Service, Inc.

2. For single premium immediate annuities and for annuity benefits involving life contingencies arising from other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, the average over a period of 12 months, ending on June 30 of the calendar year of issue or year of purchase, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody's Investors Service, Inc.

3. For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a year-of-issue basis, except as stated in subdivision 2, with guarantee duration in excess of 10 years, the lesser of the average over a period of 36 months and the average over a period of 12 months, ending on June 30 of the calendar year of issue or purchase, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody's Investors Service, Inc.

4. For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a year of issue basis, except as stated in subdivision 2, with guarantee duration of 10 years or less, the average over a period of 12 months, ending on June 30 of the calendar year of issue or purchase, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody's Investors Service, Inc.

5. For other annuities with no cash settlement options and for guaranteed interest contracts with no cash settlement options, the average over a period of 12 months, ending on June 30 of the calendar year of issue or purchase, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody's Investors Service, Inc.

6. For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a change-in-fund basis, except as stated in subdivision 2, the average over a period of 12 months, ending on June 30 of the calendar year of the change in the fund, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody's Investors Service, Inc.

E. In the event that the monthly average of the composite yield on seasoned corporate bonds is no longer published by Moody's Investors Service, Inc., or in the event that the NAIC determines that the monthly average of the composite yield on seasoned corporate bonds as published by Moody's Investors Service, Inc., is no longer appropriate for the determination of the reference interest rate, then an alternative method for determination of the reference interest rate adopted by the NAIC and approved by regulation adopted by the Commission may be substituted.

2014, c. 571.

§ 38.2-1372. Reserve valuation method; life insurance and endowment benefits.

A. Except as otherwise provided in §§ 38.2-1373, 38.2-1376, and 38.2-1378, reserves according to the Commissioners reserve valuation method for the life insurance and endowment benefits of policies providing for a uniform amount of insurance and requiring the payment of uniform premiums shall be the excess, if any, of the present value, at the date of valuation, of the future guaranteed benefits provided for by those policies, over the then-present value of any future modified net premiums for those policies. The modified net premiums for a policy shall be the uniform percentage of the respective contract premiums for the benefits, excluding any extra premiums charged because of impairments or special hazards, such that the present value, at the date of issue of the policy, of all modified net premiums shall be equal to the sum of the then-present value of the benefits provided for by the policy and the excess of subdivision 1 over subdivision 2, as follows:

1. 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 annum 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 for insurance of the same amount at an age one year higher than the age at issue of the policy.

2. A net one-year term premium for the benefits provided for in the first policy year.

B. For a life insurance policy issued on or after January 1, 1986, for which the contract premium in the first policy year exceeds that of the second year and for which no comparable additional benefit is provided in the first year for the excess, and that provides an endowment benefit or a cash surrender value or a combination in an amount greater than the excess premium, the reserve according to the Commissioners reserve valuation method as of any policy anniversary occurring on or before the assumed ending date, defined herein as the first policy anniversary on which the sum of any endowment benefit and any cash surrender value then available is greater than the excess premium, shall, except as otherwise provided in § 38.2-1376, be the greater of the reserve as of the policy anniversary calculated as described in subsection A and the reserve as of the policy anniversary calculated as described in that subsection but with (i) the value defined in subdivision A 1 being reduced by 15 percent of the amount of such excess first-year premium, (ii) all present values of benefits and premiums being determined without reference to premiums or benefits provided for by the policy after the assumed ending date, (iii) the policy being assumed to mature on that date as an endowment, and (iv) the cash surrender value provided on that date being considered as an endowment benefit. In making the above comparison, the mortality and interest bases stated in §§ 38.2-1369 and 38.2-1371 shall be used.

C. Reserves according to the Commissioners reserve valuation method shall be calculated by a method consistent with the principles of the preceding subsections for:

1. Life insurance policies providing for a varying amount of insurance or requiring the payment of varying premiums;

2. Group annuity and pure endowment contracts purchased under a retirement plan or plan of deferred compensation, established or maintained by an employer, including a partnership or sole proprietorship, or by an employee organization, or by both, other than a plan providing individual retirement accounts or individual retirement annuities under § 408 of the Internal Revenue Code, as now or hereafter amended;

3. Disability and accidental death benefits in all policies and contracts; and

4. All other benefits, except life insurance and endowment benefits in life insurance policies and benefits provided by all other annuity and pure endowment contracts.

2014, c. 571.

§ 38.2-1373. Reserve valuation method; annuity and pure endowment benefits.

A. This section shall apply to all annuity and pure endowment contracts other than group annuity and pure endowment contracts purchased under a retirement plan or plan of deferred compensation, established or maintained by an employer, including a partnership or sole proprietorship, or by an employee organization, or both, other than a plan providing individual retirement accounts or individual retirement annuities under § 408 of the Internal Revenue Code, as now or hereafter amended.

B. Reserves according to the Commissioners annuity reserve method for benefits under annuity or pure endowment contracts, excluding any disability and accidental death benefits in the contracts, shall be the greatest of the respective excesses of the present values, at the date of valuation, of the future guaranteed benefits, including guaranteed nonforfeiture benefits, provided for by the contracts at the end of each respective contract year, over the present value, at the date of valuation, of any future valuation considerations derived from future gross considerations, required by the terms of the contract, that become payable prior to the end of the respective contract year. The future guaranteed benefits shall be determined by using the mortality table, if any, and the interest rate, or rates, specified in those contracts for determining guaranteed benefits. The valuation considerations are the portions of the respective gross considerations applied under the terms of those contracts to determine nonforfeiture values.

2014, c. 571.

§ 38.2-1374. Minimum reserves.

A. In no event shall an insurer's aggregate reserves for all life insurance policies, excluding disability and accidental death benefits, be less than the aggregate reserves calculated in accordance with the methods set forth in §§ 38.2-1372, 38.2-1373, 38.2-1376, and 38.2-1377 and the mortality table or tables and rate or rates of interest used in calculating nonforfeiture benefits for those policies.

B. In no event shall the aggregate reserves for all policies, contracts, and benefits be less than the aggregate reserves determined by the appointed actuary to be necessary to render the opinion required by § 38.2-1367.

2014, c. 571.

§ 38.2-1375. Optional reserve calculation.

A. Reserves for any category of policies, contracts, or benefits as established by the Commission may be calculated, at the insurer's option, according to any standards that produce greater aggregate reserves for the category than those calculated according to the minimum standard provided in this article, but the rate or rates of interest used for policies and contracts other than annuity and pure endowment contracts shall not be higher than the corresponding rate or rates of interest used in calculating any nonforfeiture benefits provided for in those policies and contracts.

B. An insurer that adopts at any time a standard of valuation producing greater aggregate reserves than those calculated according to the minimum standard provided under this article may adopt a lower standard of valuation with the approval of the Commission, but not lower than the minimum provided herein, provided that, for the purposes of this section, the holding of additional reserves previously determined by the appointed actuary to be necessary to render the opinion required by § 38.2-1367 shall not be deemed to be the adoption of a higher standard of valuation.

2014, c. 571.

§ 38.2-1376. Reserve calculation; valuation net premium exceeding the gross premium charged.

A. If in any contract year the gross premium charged by an insurer on a policy or contract is less than the valuation net premium for the policy or contract calculated by the method used in calculating the reserve but using the minimum valuation standards of mortality and rate of interest, the minimum reserve required for the policy or contract shall be the greater of either the reserve calculated according to the mortality table, rate of interest, and method actually used for the policy or contract or the reserve calculated by the method actually used for the policy or contract but using the minimum valuation standards of mortality and rate of interest and replacing the valuation net premium by the actual gross premium in each contract year for which the valuation net premium exceeds the actual gross premium. The minimum valuation standards of mortality and rate of interest referred to in this section are those standards stated in §§ 38.2-1369 and 38.2-1371.

B. For a life insurance policy issued on or after January 1, 1986, for which the gross premium in the first policy year exceeds that of the second year and for which no comparable additional benefit is provided in the first year for the excess and which provides an endowment benefit or a cash surrender value or a combination in an amount greater than the excess premium, the provisions of this section shall be applied as if the method actually used in calculating the reserve for the policy were the method described in § 38.2-1372, ignoring subsection B of § 38.2-1372. The minimum reserve at each policy anniversary of such a policy shall be the greater of the minimum reserve calculated in accordance with § 38.2-1372, including subsection B of that section, and the minimum reserve calculated in accordance with this section.

2014, c. 571.

§ 38.2-1377. Reserve calculation; indeterminate premium plans.

In the case of a plan of life insurance that provides for future premium determination, the amounts of which are to be determined by the insurance company based on then estimates of future experience, or in the case of a plan of life insurance or annuity that is of such a nature that the minimum reserves cannot be determined by the methods described in §§ 38.2-1372, 38.2-1373, and 38.2-1376, the reserves that are held under the plan shall:

1. Be appropriate in relation to the benefits and the pattern of premiums for that plan; and

2. Be computed by a method that is consistent with the principles of this article, as determined by regulations adopted by the Commission.

2014, c. 571.

§ 38.2-1378. Minimum standard for accident and health insurance contracts.

For accident and health insurance contracts issued on or after the operative date of the valuation manual, the standard prescribed in the valuation manual is the minimum standard of valuation required under subsection B of § 38.2-1366. For disability and accident and sickness insurance contracts issued on or after January 1, 1937, and prior to the operative date of the valuation manual, the minimum standard of valuation is the standard adopted by the Commission by regulation.

2014, c. 571.

§ 38.2-1379. Valuation manual for policies issued on or after the operative date of the valuation manual.

A. For policies issued on or after the operative date of the valuation manual, the standard prescribed in the valuation manual is the minimum standard of valuation required under subsection B of § 38.2-1366, except as provided under subsection E or subsection G.

B. The operative date of the valuation manual is January 1 of the first calendar year following the first July 1 as of which all of the following have occurred:

1. The valuation manual has been adopted by the NAIC by an affirmative vote of at least 42 members, or three-fourths of the members voting, whichever is greater.

2. The Standard Valuation Law, as amended by the NAIC in 2009, or legislation including substantially similar terms and provisions, has been enacted by states representing greater than 75 percent of the direct premiums written as reported in the following annual statements submitted for 2008: life, accident and health annual statements; health annual statements; or fraternal annual statements.

3. The Standard Valuation Law, as amended by the NAIC in 2009, or legislation including substantially similar terms and provisions, has been enacted by at least 42 of the following 55 jurisdictions: The 50 states of the United States, American Samoa, the American Virgin Islands, the District of Columbia, Guam, and Puerto Rico.

C. Unless a change in the valuation manual specifies a later effective date, changes to the valuation manual shall be effective on January 1 following the date when the following have occurred:

1. The change to the valuation manual has been adopted by the NAIC by an affirmative vote representing:

a. At least three-quarters of the members of the NAIC voting, but not less than a majority of the total membership; and

b. Members of the NAIC representing jurisdictions totaling greater than 75 percent of the direct premiums written as reported in the following annual statements most recently available prior to the vote in subdivision C 1 a: life, accident and health annual statements, health annual statements, or fraternal annual statements; or

2. The valuation manual becomes effective pursuant to an order of regulation adopted by the Commission.

D. The valuation manual shall specify all of the following:

1. Minimum valuation standards for and definitions of the policies or contracts subject to subsection B of § 38.2-1366. Such minimum valuation standards shall be:

a. The Commissioners reserve valuation method for life insurance contracts, other than annuity contracts, subject to subsection B of § 38.2-1366;

b. The Commissioners annuity reserve valuation method for annuity contracts subject to subsection B of § 38.2-1366; and

c. Minimum reserves for all other policies or contracts subject to subsection B of § 38.2-1366.

2. Which policies or contracts or types of policies or contracts are subject to the requirements of a principle-based valuation in subsection A of § 38.2-1380 and the minimum valuation standards consistent with those requirements;

3. For policies and contracts subject to a principle-based valuation under § 38.2-1380:

a. Requirements for the format of reports to the commissioner under subdivision B 3 of § 38.2-1380 and which reports shall include information necessary to determine if the valuation is appropriate and in compliance with this article.

b. Assumptions shall be prescribed for risks over which the company does not have significant control or influence.

c. Procedures for corporate governance and oversight of the actuarial function, and a process for appropriate waiver or modification of such procedures.

4. For policies not subject to a principle-based valuation under § 38.2-1380, the minimum valuation standard shall either:

a. Be consistent with the minimum standard of valuation prior to the operative date of the valuation manual; or

b. Develop reserves that quantify the benefits and guarantees, and the funding, associated with the contracts and their risks at a level of conservatism that reflects conditions that include unfavorable events that have a reasonable probability of occurring.

5. Other requirements, including those relating to reserve methods, models for measuring risk, generation of economic scenarios, assumptions, margins, use of company experience, risk measurement, disclosure, certifications, reports, actuarial opinions and memorandums, transition rules, and internal controls; and

6. The data and form of the data required under § 38.2-1381 and to whom the data is required to be submitted.

The valuation manual may specify other requirements, including those for data analyses and reporting of analyses.

E. If a specific valuation requirement is absent or if a specific valuation requirement in the valuation manual is not, in the opinion of the Commission, in compliance with this article, then the insurer shall, with respect to such requirements, comply with minimum valuation standards prescribed by the Commission by regulation.

F. The Commission may engage a qualified actuary, at the expense of the insurer, to perform an actuarial examination of the insurer and opine on the appropriateness of any reserve assumption or method used by the insurer, or to review and opine on an insurer's compliance with any requirement set forth in this article. The Commission may rely upon the opinion, regarding provisions contained within this article, of a qualified actuary engaged by the Commissioner of another state, district, or territory of the United States. As used in this subsection, the term "engage" includes employment and contracting.

G. The Commission may require an insurer to change any assumption or method that in the opinion of the Commission is necessary in order to comply with the requirements of the valuation manual or this article; and the insurer shall adjust the reserves as required by the Commission. The Commission may take other disciplinary action as permitted pursuant to § 38.2-219.

2014, c. 571.

§ 38.2-1380. Requirements of a principle-based valuation.

A. An insurer shall establish reserves using a principle-based valuation that meets the following conditions for policies or contracts as specified in the valuation manual:

1. Quantify the benefits and guarantees, and the funding, associated with the contracts and their risks at a level of conservatism that reflects conditions that include unfavorable events that have a reasonable probability of occurring during the lifetime of the contracts. For policies or contracts with significant tail risk, reflects conditions appropriately adverse to quantify the tail risk;

2. Incorporate assumptions, risk analysis methods and financial models, and management techniques that are consistent with, but not necessarily identical to, those utilized within the insurer's overall risk assessment process, while recognizing potential differences in financial reporting structures and any prescribed assumptions or methods;

3. Incorporate assumptions that are derived in one of the following manners:

a. The assumption is prescribed in the valuation manual.

b. For assumptions that are not prescribed, the assumptions shall:

(1) Be established utilizing the insurer's available experience, to the extent it is relevant and statistically credible; or

(2) To the extent that insurer data is not available, relevant, or statistically credible, be established utilizing other relevant, statistically credible experience; and

4. Provide margins for uncertainty, including adverse deviation and estimation error, such that the greater the uncertainty the larger the margin and resulting reserve.

B. An insurer using a principle-based valuation for one or more policies or contracts subject to this section as specified in the valuation manual shall:

1. Establish procedures for corporate governance and oversight of the actuarial valuation function consistent with those described in the valuation manual.

2. Provide to the Commission and the board of directors an annual certification of the effectiveness of the internal controls with respect to the principle-based valuation. Such controls shall be designed to assure that all material risks inherent in the liabilities and associated assets subject to such valuation are included in the valuation, and that valuations are made in accordance with the valuation manual. The certification shall be based on the controls in place as of the end of the preceding calendar year.

3. Develop, and file with the Commission upon request, a principle-based valuation report that complies with standards prescribed in the valuation manual.

C. A principle-based valuation may include a prescribed formulaic reserve component.

2014, c. 571.

§ 38.2-1381. Experience reporting for policies in force on or after the operative date of the valuation manual.

An insurer shall submit mortality, morbidity, policyholder behavior, or expense experience and other data as prescribed in the valuation manual.

2014, c. 571.

§ 38.2-1382. Confidentiality.

A. For purposes of this section, "confidential information" means:

1. A memorandum in support of an opinion submitted under § 38.2-1367 and any other documents, materials, and other information, including all working papers, and copies thereof, created, produced, or obtained by or disclosed to the Commission or any other person in connection with such memorandum;

2. All documents, materials, and other information, including all working papers and copies thereof created, produced, or obtained by or disclosed to the Commission or any other person in the course of an examination made under subsection F of § 38.2-1379, provided, however, that if an examination report or other material prepared in connection with an examination made under Article 4 (§ 38.2-1317 et seq.) of Chapter 13 is not held as private and confidential information under Article 4, an examination report or other material prepared in connection with an examination made under subsection F of § 38.2-1379 shall not be "confidential information" to the same extent as if such examination report or other material had been prepared under Article 4;

3. Any reports, documents, materials, and other information developed by an insurer in support of, or in connection with, an annual certification by the insurer under subdivision B 2 of § 38.2-1380 evaluating the effectiveness of the insurer's internal controls with respect to a principle-based valuation and any other documents, materials, and other information, including all working papers and copies thereof created, produced, or obtained by or disclosed to the Commission or any other person in connection with such reports, documents, materials, and other information;

4. Any principle-based valuation report developed under subdivision B 3 of § 38.2-1380 and any other documents, materials, and other information, including all working papers and copies thereof created, produced, or obtained by or disclosed to the Commission or any other person in connection with such report; and

5. Any documents, materials, data, and other information submitted by an insurer under § 38.2-1381 (which are collectively referred to in this section as "experience data") and any other documents, materials, data, and other information, including all working papers and copies thereof created or produced in connection with such experience data, in each case that includes any potentially company-identifying or personally identifiable information, that is provided to or obtained by the Commission (which, together with any experience data, are referred to in this section as the "experience materials"), and any other documents, materials, data, and other information, including all working papers and copies thereof created, produced, or obtained by or disclosed to the Commission or any other person in connection with such experience materials.

B. Privilege for, and confidentiality of, confidential information shall be governed by the following provisions:

1. Except as provided in this section, an insurer's confidential information is confidential by law and privileged, and shall not be subject to subpoena and shall not be subject to discovery or admissible in evidence in any private civil action, provided, however, that the Commission is authorized to use the confidential information in the furtherance of any regulatory or legal action brought against an insurer as a part of the Commission's official duties;

2. Neither the Commission nor any person who received confidential information while acting under the authority of the Commission shall be permitted or required to testify in any private civil action concerning any confidential information;

3. In order to assist in the performance of the Commission's duties, the Commission may share confidential information (i) with other state, federal, and international regulatory agencies and with the NAIC and its affiliates and subsidiaries and (ii) in the case of confidential information specified in subdivisions A 1 and A 4 only, with the Actuarial Board for Counseling and Discipline or its successor upon request stating that the confidential information is required for the purpose of professional disciplinary proceedings and with state, federal, and international law-enforcement officials; in the case of clauses (i) and (ii), provided that such recipient agrees, and has the legal authority to agree, to maintain the confidentiality and privileged status of such documents, materials, data, and other information in the same manner and to the same extent as required for the Commission;

4. The Commission may receive documents, materials, data, and other information, including otherwise confidential and privileged documents, materials, data, or information, from the NAIC and its affiliates and subsidiaries, from regulatory or law-enforcement officials of other foreign or domestic jurisdictions, and from the Actuarial Board for Counseling and Discipline or its successor and shall maintain as confidential or privileged any document, material, data, or other information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material, or other information;

5. The Commission may enter into agreements governing sharing and use of information consistent with this subsection;

6. No waiver of any applicable privilege or claim of confidentiality in the confidential information shall occur as a result of disclosure to the Commission under this section or as a result of sharing as authorized in subdivision 3;

7. A privilege established under the law of any state or jurisdiction that is substantially similar to the privilege established under this subsection shall be available and enforced in any proceeding in, and in any court of, the Commonwealth; and

8. As used in this section, "regulatory agency," "law-enforcement agency," and "NAIC" include their employees, agents, consultants, and contractors.

C. Notwithstanding subsection B, any confidential information specified in subdivisions A 1 and A 4:

1. May be subject to subpoena for the purpose of defending an action seeking damages from the appointed actuary submitting the related memorandum in support of an opinion submitted under § 38.2-1367 or principle-based valuation report developed under subdivision B 3 § 38.2-1380 by reason of an action required by this article or by regulations adopted hereunder;

2. May otherwise be released by the Commission with the written consent of the insurer; and

3. Once any portion of a memorandum in support of an opinion submitted under § 38.2-1367 or a principle-based valuation report developed under subdivision B 3 § 38.2-1380 is cited by an insurer in its marketing or is publicly volunteered to or before a governmental agency other than a state insurance department or is released by an insurer to the news media, all portions of such memorandum or report shall no longer be confidential.

2014, c. 571.

§ 38.2-1383. Single state exemption.

A. The Commission may exempt specific product forms or product lines of a domestic insurer that is licensed and doing business only in the Commonwealth from the requirements of § 38.2-1379 provided:

1. The Commission has issued an exemption in writing to the insurer and has not subsequently revoked the exemption in writing; and

2. The insurer computes reserves using assumptions and methods used prior to the operative date of the valuation manual in addition to any requirements established by the Commission and adopted by regulation.

B. For any insurance company granted an exemption under this section, §§ 38.2-1367 through 38.2-1378 shall be applicable. With respect to any insurance company applying this exemption, any reference to § 38.2-1379 found in §§ 38.2-1367 through 38.2-1378 shall not be applicable.

2014, c. 571.

§ 38.2-1384. Assessment against insurers whose policies are valued.

The Commission is hereby authorized to assess against every insurer whose policies are valued a sum equal to the cost of valuation, which shall be collected by the Commission and paid directly into the state treasury and credited to the "Bureau of Insurance Special Fund -- State Corporation Commission" for the maintenance of the Bureau of Insurance as provided in subsection B of § 38.2-400.

2014, c. 571.

§ 38.2-1385. Article not applicable in certain cases.

Nothing in this article shall be construed to apply to any insurer in the transaction of industrial sick benefit insurance as defined in § 38.2-3544, nor to fraternal benefit societies, except for § 38.2-1367.

2014, c. 571.