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§6006. Formation of captive insurance companies in this State


Published: 2015

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The Vermont Statutes Online



Title

08

:
Banking and Insurance






Chapter

141

:
CAPTIVE INSURANCE COMPANIES






Subchapter

001
:
GENERAL PROVISIONS










 

§

6006. Formation of captive insurance companies in this State

(a) A pure

captive insurance company may be incorporated as a stock insurer with its

capital divided into shares and held by the stockholders, as a nonprofit

corporation with one or more members, or as a manager-managed limited liability

company.

(b) An

association captive insurance company, an industrial insured captive insurance

company, or a risk retention group may be:

(1) incorporated

as a stock insurer with its capital divided into shares and held by the

stockholders;

(2) incorporated

as a mutual corporation;

(3) organized as

a reciprocal insurer in accordance with chapter 132 of this title; or

(4) organized as

a manager-managed limited liability company.

(c) A captive

insurance company incorporated or organized in this State shall have one or

more incorporators or one or more organizers, at least one of which shall be a

resident of this State.

(d) In the case

of a captive insurance company:

(1)(A) Formed as

a corporation, before the articles of incorporation are transmitted to the

Secretary of State, the incorporators shall petition the Commissioner to issue

a certificate setting forth the Commissioner's finding that the establishment

and maintenance of the proposed corporation will promote the general good of

the State. In arriving at such a finding, the Commissioner shall consider:

(i) the

character, reputation, financial standing, and purposes of the incorporators;

(ii) the

character, reputation, financial responsibility, insurance experience, and

business qualifications of the officers and directors; and

(iii) such other

aspects as the Commissioner shall deem advisable.

(B) The articles

of incorporation, such certificate, and the organization fee shall be

transmitted to the Secretary of State, who shall thereupon record both the

articles of incorporation and the certificate.

(2) Formed as a

reciprocal insurer, the organizers shall petition the Commissioner to issue a

certificate setting forth the Commissioner's finding that the establishment and

maintenance of the proposed association will promote the general good of the

State. In arriving at such a finding, the Commissioner shall consider the items

set forth in subdivisions (1)(A)(i)-(iii) of this subsection.

(3) Formed as a

limited liability company, before the articles of organization are transmitted

to the Secretary of State, the organizers shall petition the Commissioner to

issue a certificate setting forth the Commissioner's finding that the

establishment and maintenance of the proposed company will promote the general

good of the State. In arriving at such a finding, the Commissioner shall

consider the items set forth in subdivisions (1)(A)(i)-(iii) of this

subsection.

(e) The capital

stock of a captive insurance company incorporated as a stock insurer may be

authorized with no par value.

(f) In the case

of a captive insurance company:

(1) formed as a

corporation, at least one of the members of the board of directors shall be a

resident of this State;

(2) formed as a

reciprocal insurer, at least one of the members of the subscribers' advisory

committee shall be a resident of this State;

(3) formed as a

limited liability company, at least one of the managers shall be a resident of

this State.

(g) Other than

captive insurance companies formed as limited liability companies under 11

V.S.A. chapter 21 or as nonprofit corporations under Title 11B, captive

insurance companies formed as corporations under the provisions of this chapter

shall have the privileges and be subject to the provisions of Title 11A as well

as the applicable provisions contained in this chapter. In the event of

conflict between the provisions of said general corporation law and the

provisions of this chapter, the latter shall control.

(h) Captive

insurance companies formed under the provisions of this chapter:

(1) As limited

liability companies shall have the privileges and be subject to the provisions

of 11 V.S.A. chapter 21 as well as the applicable provisions contained in this

chapter. In the event of a conflict between the provisions of 11 V.S.A. chapter

21 and the provisions of this chapter, the latter shall control.

(2) As nonprofit

corporations shall have the privileges and be subject to the provisions of

Title 11B as well as the applicable provisions contained in this chapter. In

the event of conflict between the provisions of Title 11B and the provisions of

this chapter, the latter shall control.

(i) The

provisions of subchapter 3 and subchapter 3A of chapter 101 of this title,

pertaining to mergers, consolidations, conversions, mutualizations,

redomestications, and mutual holding companies, shall apply in determining the

procedures to be followed by captive insurance companies in carrying out any of

the transactions described therein, except that:

(1) The Commissioner

may, upon request of an insurer party to a merger authorized under this

subsection, waive the requirement of 3424(6) of this title.

(2) The

Commissioner may waive the requirements for public notice and hearing or, in

accordance with rules which the Commissioner may adopt addressing categories of

transactions, modify the requirements for public notice and hearing. If a

notice of public hearing is required, but no one requests a hearing ten days

before the day set for the hearing, then the Commissioner may cancel the

hearing.

(3) The

provisions of subsections 3423(f) and (h) of this title shall not apply, and

the Commissioner may waive or modify the requirement of subdivision 3423(b)(4)

of this title, with respect to market value of a converted company as necessary

or desirable to reflect applicable restrictions on ownership of companies

formed under this chapter.

(4) An alien

insurer may be a party to a merger authorized under this subsection; provided

that the requirements for a merger between a captive insurance company and a

foreign insurer under section 3431 of this title shall apply to a merger

between a captive insurance company and an alien insurer under this subsection.

Such alien insurer shall be treated as a foreign insurer under section 3431 and

such other jurisdictions shall be the equivalent of a state for purposes of

section 3431.

(5) The

Commissioner may issue a certificate of general good to permit the formation of

a captive insurance company that is established for the purpose of consolidating

or merging with or assuming existing insurance or reinsurance business from an

existing licensed captive insurance company. The Commissioner may, upon request

of such newly formed captive insurance company, waive or modify the

requirements of subdivisions 6002(c)(1)(B) and (2) of this title.

(j) Captive

insurance companies formed as reciprocal insurers under the provisions of this

chapter shall have the privileges and be subject to the provisions of chapter

132 of this title in addition to the applicable provisions of this chapter. In

the event of a conflict between the provisions of chapter 132 and the

provisions of this chapter, the latter shall control. However, in approving

assessments levied upon subscribers of a captive insurance company formed as a

reciprocal insurer, the Commissioner may exempt the company from any provision

of sections 4850 (assessments), 4851 (time limit for assessments), and 4852

(aggregate of liability) of chapter 132. To the extent a reciprocal insurer is

made subject to other provisions of this title pursuant to chapter 132, such

provisions shall not be applicable to a reciprocal insurer formed under this

chapter unless such provisions are expressly made applicable to captive

insurance companies under this chapter.

(k) The articles

of incorporation or bylaws of a captive insurance company formed as a

corporation may authorize a quorum of its board of directors to consist of no

fewer than one-third of the fixed or prescribed number of directors determined

under 11A V.S.A. § 8.24(a) or under 11B V.S.A. § 8.24.

( l ) The

subscribers' agreement or other organizing document of a captive insurance

company formed as a reciprocal insurer may authorize a quorum of its

subscribers' advisory committee to consist of no fewer than one-third of the

number of its members.

(m) With the

Commissioner's approval, a captive insurance company organized as a stock

insurer may convert to a nonprofit corporation with one or more members by

filing with the Secretary of State an irrevocable election for such conversion,

provided that:

(1) the

irrevocable election shall certify that, at the time of the company's original

organization and at all times thereafter, the company conducted its business in

a manner not inconsistent with a nonprofit purpose; and

(2) at the time

of the filing of its irrevocable election, the company shall file with both the

Commissioner and the Secretary of State amended and restated articles of

incorporation consistent with the provisions of this chapter and with Title 11B,

duly authorized by the corporation.

(n) The

following provisions of Title 11B shall not apply to captive insurance

companies which are nonprofit corporations:

(1) subsection

2.02(c) (relating to the signing of articles of incorporation by directors);

(2) section

11.02, in the case of any merger in which a captive insurance company merges

with and into a captive insurance company organized as a nonprofit corporation

under Title 11B where the latter is the surviving corporation.

(o) In the case

of a captive insurance company formed as a limited liability company, a

reciprocal insurance company or mutual insurance company, any proxy executed by

the members, subscribers, and policyholders of each shall be valid if executed

and transmitted in compliance with 11A V.S.A. § 7.22.

(p) With the

Commissioner's prior written approval, a captive insurance company may

establish one or more separate accounts and may allocate to them amounts to

provide for the insurance of risks of certain of its parents, affiliates, or members,

as the case may be, subject to the following:

(1) The income,

gains, and losses, realized or unrealized, from assets allocated to a separate

account shall be credited to or charged against the account, without regard to

other income, gains, or losses of the captive insurance company.

(2) Amounts

allocated to a separate account in the exercise of the power granted by this

subsection are owned by the captive insurer, and the captive insurer may not be

nor hold itself out to be a trustee with respect to such amounts.

(3) Unless

otherwise approved by the Commissioner, assets allocated to a separate account

shall be valued in accordance with the rules otherwise applicable to the

captive insurer's assets.

(4) If and to

the extent so provided under the applicable contracts, that portion of the

assets of any such separate account equal to the reserves and other contract

liabilities with respect to such account shall not be chargeable with

liabilities arising out of any other business the captive insurer may conduct.

(5) No sale,

exchange, or other transfer of assets may be made by such captive insurer

between any of its separate accounts or between any other investment account

and one or more of its separate accounts unless, in the case of a transfer into

a separate account, such transfer is made solely to establish the account or to

support the operation of the contracts with respect to the separate account to

which the transfer is made and unless such transfer, whether into or from a

separate account is made by a transfer of cash or by a transfer of securities

having a readily determinable market value, provided that such transfer of

securities is approved by the Commissioner. The Commissioner may approve other

transfers among such accounts if, in his or her opinion, such transfers would

be equitable.

(6) To the

extent such captive insurer deems it necessary to comply with any applicable

federal or State laws, such captive insurer, with respect to any separate

account, including any separate account which is a management investment

company or a unit investment trust, may provide for persons having an interest

therein appropriate voting and other rights and special procedures for the

conduct of the business of such account, including special rights and procedures

relating to investment policy, investment advisory services, selection of

independent public accountants, and the selection of a committee, the members

of which need not be otherwise affiliated with such company, to manage the

business of such account. (Added 1981, No. 28; 1989, No. 72, § 1; amended 1989,

No. 72, § 1; 1991, No. 41, § 5; 1993, No. 85, § 3(d), eff. Jan. 1, 1994; 1995,

No. 179 (Adj. Sess.), § 1d, eff. Jan. 1, 1997; 1997, No. 49, § 11, eff. June

26, 1997; 1997, No. 100 (Adj. Sess.), § 2, eff. April 16, 1998; 1999, No. 38, §

8, eff. May 20, 1999; 1999, No. 86 (Adj. Sess.), § 8, eff. April 27, 2000;

2003, No. 55, § 7; 2003, No. 105 (Adj. Sess.), § 19, eff. May 4, 2004; 2005,

No. 36, §§ 11, 12, 13, eff. June 1, 2005; 2007, No. 178 (Adj. Sess.), § 10;

2009, No. 42, § 30a; 2009, No. 137 (Adj. Sess.), §§ 19, 20, eff. May 29, 2010;

2013, No. 29, § 48, eff. May 13, 2013; 2013, No. 103 (Adj. Sess.), § 5, eff.

April 14, 2014; 2015, No. 20, § 1, eff. May 7, 2015.)