§4249. Proof of financial stability

Link to law: http://legislature.vermont.gov/statutes/section/08/113/04249
Published: 2015

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Title

08

:
Banking and Insurance






Chapter

113

:
LIABILITY INSURANCE






Subchapter

004
:
SERVICE CONTRACT COMPANIES










 

§

4249. Proof of financial stability

(a) In order to

ensure the performance of a provider's obligations to its contract holders,

each provider shall continue to possess and provide the Commissioner the

following documents as proof of financial stability:

(1)(A) a surety

bond, securities of the type eligible for deposit by an authorized insurer in

this State, cash, or letter of credit in a form acceptable to the Commissioner,

which shall have at all times a value of not less than five percent of the

gross annual consideration from all service contracts issued and in force, but

in no case to be less than $25,000.00. Such bond, securities, cash, or letter

of credit shall be maintained unimpaired as long as the provider continues to

do business in this State. When the provider ceases to do business in this

State and has furnished the Commissioner proof that it has discharged all its

obligations to its service contract holders in this State, the Commissioner

shall release said bond, cash, or letter of credit; and

(B) a funded

reserve account for its liability under its service contracts issued and

outstanding in this State. Such reserve shall at all times be not less than 40

percent of all consideration received, less claims paid, on in force contracts.

Such reserve accounts shall be subject to examination and review by the

Commissioner upon a request; or

(2) evidence

that all of its service contracts are insured through the purchase of a service

contract reimbursement policy issued by an insurer that files annually with the

National Association of Insurance Commissioners a financial statement prepared

in accordance with the accounting practices and procedures required or

permitted by their domiciliary regulatory authority and a corresponding audit

report that reflects:

(A) capital and

surplus of $5,000,000.00 or more;

(B) written

premiums not exceeding three times capital and surplus over the most recent

five years; and

(C) profitable

operations over the most recent five years; or

(3) a copy of

the provider's financial statement or, if the provider's financial statement is

consolidated with those of a parent company or affiliate, the provider's parent

company or affiliate's financial statement, for the most recent calendar year

which shows a net worth of the provider or its parent company or affiliate of

at least $50 million. The financial statement shall contain information

relating to the general financial condition, ownership, and management of the

provider and its controlling parent organization, the identity of the

controlling entity, if applicable, and any reinsurance agreements covering all

or substantially all of the ceded service contracts. A Form 10-K filed with the

Securities and Exchange Commission within the last calendar year may be filed

to meet the financial stability filing requirement.

(b) If the

provider's parent or affiliate company's financial statement is filed with the

Commissioner pursuant to subdivision (a)(3) of this section as evidence of a

net worth of at least $50 million, the parent or affiliate company shall agree,

on a form prescribed by the Commissioner, to guarantee the provider's

obligations relating to service contracts sold by the provider in this State.

(c) The

Commissioner may, upon review of the business activities of a provider, determine

that the amounts set forth in this section are inadequate for protection of the

public, and may require additional assurances of financial stability.

(d) In the event

that the Department recovers funds from service contract providers, the Commissioner

in his or her discretion may distribute such funds in a manner that he or she

determines is equitable and cost-effective, giving due consideration to the

amount of funds recovered, the estimated amounts due to consumers, and the

costs of administering any distribution. Distributions may be allocated based

on claims made, premiums, or the number of consumers affected. If the

Commissioner determines that it would be prohibitively expensive or impossible

to make restitution to consumers, the recovered funds will be remitted to the

General Fund. (Added 1997, No. 109 (Adj. Sess.), § 2, eff. Sept. 1, 1998;

amended 2005, No. 122 (Adj. Sess.), § 2.)
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