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Criteria for Company Authorization and Application Procedures (revised)

Bulletin
Thursday, October 16, 2008
Insurance Bulletin # 43

BULLETIN 43

(REVISED 02/24/2000)

CRITERIA FOR COMPANY AUTHORIZATION AND APPLICATION PROCEDURES

 

A. Introduction:

The Vermont Department of Banking, Insurance, Securities and Health Care Administration has revised its criteria and application procedures for companies seeking authority to transact business in Vermont. This revision replaces all earlier versions of Bulletin #43 and #97 and is effective immediately. Foreign and alien insurance companies seeking authority from the Commissioner to transact business in Vermont must satisfy the following criteria. As provided by Vermont law, the Commissioner has the authority to waive or impose other criteria as circumstances dictate.

This printing of Bulletin 43 removes the criteria for a Best rating of A+, adds a new criteria concerning reinsurance, and permits the use of the National Association of Insurance Commissioner’s Uniform Certificate of Authority Application (UCAA) and procedure as available on the NAIC’s Website, http://www.naic.org/ucaa/

As an alternative to the format and information required by this bulletin, the applicant should use the Uniform Certificate of Authority Application (UCAA) instructions and forms found at the World Wide Web address of http://www.naic.org/ucaa/. This includes the use of the UCAA primary or expanded applications.

Additional information deemed necessary to evaluate an application for admission might be requested by the Department at any time.

Completed applications must be received by the Department during the six-month period beginning April 1 and ending October 1 of each year.

Please direct any questions to complic@bishca.state.vt.us

B. Criteria for licensing:

1. Capital & Surplus: (as required in item12: Minimum Paid-In Capital and Surplus Requirements, in the UCAA’s Financial Documents):

a. Traditional Stock Companies (pursuant to 8 V.S.A. §3304) traditional Stock companies must have and retain capital of $2,000,000 and Free Surplus of $3,000,000. Capital is defined as all types of stock less any treasury stock. Surplus notes are not generally considered capital. Free surplus is defined as Gross Paid-in or Contributed Surplus and Unassigned Funds.

b. Mutual Insurance Companies

Pursuant to 8 V.S.A. §3309 Mutual Companies must have and retain surplus of $5,000,000.

c. Surplus Lines Companies

Surplus Lines companies must have and retain capital and surplus of $10,000,000 pursuant to 8 V.S.A. §5026(3). The surplus can be in the form of retained capital and free surplus. Capital is defined as all types of stock less any treasury stock. Surplus notes are not generally considered capital. Free surplus is defined as Gross Paid-in or Contributed Surplus and Unassigned Funds.

d. All other types of companies:

This bulletin does not apply to companies seeking to be accredited reinsurers (8 V.S.A. §3634a) or HMO’s (8 VSA Chapter 139). Those types of companies should contact the Department for the specific criteria.

2. Zone Licenses (This information can be provided in item 3: the Company Profile, of the UCAA’s Operational Documents):

The company must be licensed in one or more states in the NAIC's Northeastern Zone (Zone 1). The Department will consider an application from a company not licensed in Zone 1, providing the parent company or an affiliated company is licensed in Vermont.

3. Examination Report (This information is required in item 16: Examination Reports, of the UCAA’s Financial Documents):

The company must have been subject to a financial examination by its domestic state for a reporting year ending within twenty-four months of the application date. The examination must confirm reported surplus and indicate the adequacy of control and operational procedures. The Department will consider an application from a company when through no fault of its own, it cannot supply a current examination report.

4.CPA Reports (see 8 V.S.A. §3578) (This information is required in item 15: Independent CPA-Audited Report, of the UCAA’s Financial Documents):

The company must provide the following:

a. Audited SAP financial statements from a qualified independent CPA firm,

b. A letter regarding the CPA's internal control evaluation; and

The CPA's recommendations regarding potential improvements in the organization, procedures or controls. The related reports must indicate that the company's financial statements are fairly presented and that there are no material internal control weaknesses or major operational recommendations.

5. Seasoning (This information is required in item 4: Seasoning Requirements, of the UCAA’s Operational Documents):

The company must demonstrate five or more recent years of:

a). Profitable (combined underwriting and investment income after tax) experience with the lines of business it intends to write in Vermont (this requirement may be waived if the company's parent is a Vermont licensed carrier writing the lines intended by the applicant and a valid reason for the new company can be demonstrated) and

b). A net gain from all operations (underwriting and investment income).

The information in the Company's five-year history section of the annual statement can be used to provide this information.

6. IRIS Results (This information is required in the State-Specific Requirements of the UCAA’s Section 5):

The company must be a member of the NAIC and not have had three or more exceptional results on its IRIS tests for the past three years. The applicant cannot be a NAIC first or second priority company in the current or prior year.

7. Management (This information is required in item 7: Business Character Reports, of the UCAA’s Operational Documents and the form can be found in the State Specific Requirements section):

All officers and directors of the company must be of good repute and competent to manage an insurance company and carry out the company's insurance contracts in good faith.

8. Regulatory Actions/Status of Licenses (This information can be provided in item 3: the Company Profile, of the UCAA’s Operational Documents):

Significant regulatory actions taken by any jurisdiction against the company within the last five years will disqualify an applicant.

9. Reinsurance (This information is required in item 23: Reinsurance Arrangements and the related Questionnaire, of the UCAA’s Financial Documents):

The reinsurance companies must be financially sound and able to perform if called upon. No application will be approved unless the commissioner can be assured that the reinsurers will perform on all treaties and contracts.

C. Applications:

Each application for authorization must contain the information and supporting documentation described in the Application Contents section of this Bulletin. All information must be identified in a table of contents (with reference to over-sized documents) and be bound in the order listed in the table of contents in one or more three ring binders. All pages must indicate the applicant's name and must reference the table of contents. As an acceptable alternative, the applicant is encouraged to submit as much information as is practicable in MicrosoftâWord format or as page images (such as PDF) with meaningful file names. The files can be submitted via e-mail to complic@bishca.state.vt.us.

As an alternative to the format and information required by this bulletin, the applicant may use the Uniform Certificate of Authority Application (UCAA) found at the World Wide Web address of http://www.naic.org/ucaa/. This application format may require an applicant to provide more information than required by this bulletin.

Additional information deemed necessary to evaluate an application for admission might be requested by the Department at any time.

Completed applications must be received by the Department during the six-month period beginning April 1 and ending October 1 of each year.

D. Application Contents:

1. Introductory Letter (This information is required in Section Two: Introductory Letter or in item 3: Profile (organization or plan of operation) of the UCAA’s Operational Documents):

The application must contain a letter which:

(a) Identifies the Company

(b) Identifies the contact person and the contact's telephone number

(c) Provides a brief history of the Company and organization

(d) Identifies all affiliates (if any)

(e) Describes the types of coverage to be offered in Vermont

(f) Describes the distribution system to be used

(g) Identifies any unique products or services to be offered in Vermont

(h) Describes the Company's reason for expanding into Vermont

(i) Evaluates the demand for the Company's products and services in Vermont; and

(j) Describes how the Company meets or exceeds the criteria in this Bulletin or explains why the criteria should be waived.

2. Plan of Operation (This information is required in Section Two: Introductory Letter or in item 3: Profile (organization or plan of operation), of the UCAA’s Operational Documents):

The application must contain a proposed plan of operation in Vermont that includes the following:

(a) The lines of business to be offered

(b) Unique products or services to be offered

(c) Underwriting, claim handling and servicing facilities to be used by Vermont agents or policyholders (including policyholder inquiry 800 phone numbers)

(d) A complete description of the planned recruitment, licensing and supervision of agents

(e) The rating procedures and techniques to be utilized

(f) The number and type of policy forms anticipated to be submitted for approval within the first two years

(g) The expected premium volume, which may not be less than $200,000 after two years;

(h) The planned number of licensed agents/brokers in Vermont

(i)The number of persons expected to be employed in Vermont within two years of licensure

3. Underwriting Experience and Profitability (This information is required in item 4: Seasoning Requirements, of the UCAA’s Operational Documents):

The application must describe the Company's experience underwriting the lines of business proposed for Vermont with documentation of their profitability. This is intended to supply information to evaluate the seasoning requirements described in Criteria B.5 of this bulletin. Reliance on an affiliate's experience must be disclosed and explained.

4. Company Organizational Documents (This information is required in items 4 and 5: Articles of Incorporation and By-Laws, of the UCAA’s Operational Documents):

The application must include certified copies of the Company's charter or articles of association and bylaws, including all amendments thereto.

5. Domestic Compliance Certificate (This information is required in item 17: Certificate of Compliance, of the UCAA’s Financial Documents):

The Company must provide an original Certificate of Compliance from its domestic state as of the most recent year-end, indicating the Company is properly incorporated or organized, licensed and authorized to write the kinds of insurance proposed for Vermont.

6.Securities on Deposit (This information is a State-Specific Requirements found in the UCAA’s Section 5):

The Company must provide a Certificate of Securities on Deposit held by the domestic state at the most recent year-end (if any).

7. Reciprocity Letter (This information is required in item 10:Retaliatory Statement or Certificate, of the UCAA’s Operational Documents):

The Company must provide a letter from the insurance department of its state of domicile setting forth all deposits, taxes and fees required of a Vermont domestic insurer seeking authority to do a like business in the applicant’s domestic state, together with any special requirements regarding licensing.

8. Best Reports (This information is a State Specific Requirement found in the UCAA’s Section 5):

The Company must provide copies of its four most recent Best rating reports or state the reason for their lack of availability.

9. Pending Applications (This information is required in item 5 of Section Two: Introductory Letter, of the UCAA):

The Company must disclose the existence of all applications pending in other states including the filing date and any denials or deferred action by other jurisdictions with an appropriate explanation.

10. Examination Reports (This information is required in items 16 and 21: Examination Reports, of the UCAA’s Financial Documents) :

The Company must provide certified copies of:

(a) The most recent financial condition Report on Examination with a financial statement date within twenty-four months of the application date and

(b) Any reports from market conduct examinations performed by any regulatory agency issued in the last three years and the Company's responses to the comments in the reports.

11. IRIS (This information is a State Specific Requirement found in the UCAA’s Section 5):

The Company must provide NAIC IRIS test results from the last three years, including the Company's explanations of all exceptional results.

12.Annual and SEC Reports (This information is required in item 18: SEC Filings and Consolidated GAAP Financial Statement, of the UCAA’s Financial Documents):

The Company must provide its annual report to the stockholders or policyholders for the most recently ended calendar year. SEC Form 10K must to submitted if available for the Company, its parent or any affiliate for the current year.

13. Biographies (This information is required in item 7: Business Character Reports, of the UCAA’s Operational Documents. However, Vermont’s form, referred to in Section 5, can be used):

The Company must provide, on the standard NAIC form, biographical affidavits of officers, directors and key managers and any individual controlling, whether directly or indirectly, 10 percent or more of the Company's outstanding stock. Please refer to the Biographical Affidavit attached to this bulletin.

14. Regulatory Actions/Status of Licenses (This information is a State Specific Requirement found in the UCAA’s Section 5) :

The Company must disclose all formal and informal regulatory actions pending or taken against the Company by any jurisdiction. The Company must provide:

(a) A description of the action

(b) The related fine or penalty amount

(c) The Company's response

(d) The current status of the situation that caused the action

(e) A description of any restrictions (cease and desist orders, marketing limitations, etc.) placed on any license by any jurisdiction.

The Company must certify that no actions or restrictions exist or are pending if none are disclosed.

15. Domestic State Recommendation (This information is a State Specific Requirement and can be found in the UCAA’s Section 5):

The Company must obtain a recommendation on its admission to this state from its state of domicile.

16. Holding Company Information (This information is required in item 11: Holding Company Form “B” Registration Statement, of the UCAA’s Operational Documents):

The Company must provide the most recent holding Company information required by its domestic state or certify that none is required. If the domestic state's requirements are not substantially similar to the Vermont Holding Company Act and Vermont Regulation 71-2, the application should include the appropriate additional information required by Vermont law and regulations.

17. CPA Information (This information is required in item 15: Independent CPA-Audited Report, of the UCAA’s Financial Documents):

The Company must file copies of all reports and letters prepared by the Company's independent auditors pertaining to (a) financial statements covering the two most recently ended calendar years; (b) internal controls for the two most recent years and management's responses; and (c) recommendations for improvement (if none, so state) for the two most recent years and management's responses.

18. Annual Statements (This information is required in items 13,14,19 and 24: Annual and Quarterly Statements, MD&A, Actuarial Certification, of the UCAA’s Financial Documents):

The Company must provide copies of the Company's NAIC Annual Statement, as filed with the domestic state, for the two most recently ended calendar years (9" x 14" size). A corresponding Certificate of Valuation should be attached in life Company applications.

19. Consolidated Statements (This information is required in item 13: Annual Statement, of the UCAA’s Financial Documents) :

If the Company has filed consolidated financial statements in its domestic state, it must provide copies for the two most recently ended calendar years.

20. Power of Attorney (This information is a State Specific Requirement found in the UCAA’s Section 5):

Traditional stock companies, mutual companies, and surplus lines companies shall complete and attach as part of their application a power of attorney form. Please refer to the form titled Power of Attorney.

21. Reinsurance (This information is required in item 23: Reinsurance Arrangements and the related questionnaire, of the UCAA’s Financial Documents):

The Company must provide a list of the names and addresses of all reinsurance companies with whom it has a treaty or contract during the current year. The Company must provide a brief description of the contract and/or treaty and describe any special arrangements

22. Licenses (This information is required in Section Two: Introductory Letter or in item 3: Profile (plan of operation), of the UCAA’s Operational Documents):

The Company must provide a list of states where it is licensed, an approved reinsurer, or on the Commissioner's list of approved or disapproved surplus lines companies.

E. Approval Process:

1. Initial Review:

The Department will acknowledge receipt of an application that is timely, substantially complete, and contains the correct fee or retaliatory fee, if applicable. If the application is not complete, the Department will notify the Company or its representative, why the application is not acceptable. The Company will have 45 calendar days to perfect the application. The application fee will not be returned. If the Company does not perfect the application within 45 days it will be considered withdrawn. If the Company wishes to continue the licensing process, it must file a new application with a new filing fee. If the Company does not have the correct fee or retaliatory fee, it will have 10 business days from the date of notification to provide the correct fee. If the correct fee is not paid within 10 business days, the application will be considered withdrawn.

2. Final Review

The goal of the Department is to complete the review of the application within 90 days from the time that the application is deemed complete. This may not always be possible because of workflow and resources. The Company will be informed in writing, of the approval of the application. If the application cannot be approved, the Company will be informed in writing why it cannot be approved. The Company will be given one opportunity to withdraw the application without prejudice. If the Company wishes the Department to continue consideration of its application, it must perfect the deficiencies within 45 days. If the Company fails to perfect the deficiencies within 45 days or withdraws its application and later wants the department to reconsider its position, the Company must file a new application with a new application fee.

If the Department needs additional information or documentation, it will inform the Company. The Company will have 45 calendar days to deliver the additional information or documentation to the Department. If the Company fails to deliver the information or documentation within 45 calendar days and wishes the Department to continue to process the application, it must file a new application and pay a new application fee.

3. Fees:

Each application must be accompanied by a check for the non-refundable application fee of $200 or the appropriate retaliatory application fee payable to the Vermont Insurance Division. (8 V.S.A. §3361(b)). The fee is due with each application, regardless of whether an earlier application by the same Company was returned, withdrawn, or denied for any reason.

4. Form of Authorization:

Licensed companies will be issued an annually renewable license and will be responsible for the annual $300 license fee (8 V.S.A. §3361(b)). Authorized surplus lines companies will be included on the Commissioner’s list of authorized (but not licensed) surplus lines companies and will be responsible for the annual $300 fee (8 V.S.A. §5026(a)). All fees are subject to retaliation (see 8 V.S.A. §3367).

F. Other Requirements:

Licensed companies are required to participate in the appropriate Vermont Guaranty Association and must designate the Vermont Secretary of State as its agent for the service of process on the appropriate Vermont Power of Attorney form, which can be found in the UCAA’s Section 5.

Companies authorized to write workers' compensation are required to file quarterly and annual assessment reports with the Vermont Department of Labor and Industry, National Life Building, Drawer 20, Montpelier, Vermont 05620-3401, (802) 828-2288. A copy of the rule titled “Workers Compensation Administration Fund Rules” can be obtained from the Internet at the following address, http://www.state.vt.us/labind/wcfund.htm. Companies authorized to write workers' compensation are also required to participate in the Vermont Workers Compensation Assigned Risk Plan.

Companies authorized to write automobile insurance must participate in the Vermont Auto Insurance Plan.

A deposit of readily marketable securities to be held by the Vermont State Treasurer may be required.