                                 CODE OF VIRGINIA

STANDARDS FOR TRANSACTIONS WITHIN AN INSURANCE HOLDING COMPANY SYSTEM; ADEQUACY
OF SURPLUS (§ 38.2-1330)

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;

   6. The insurer&#8217;s surplus as regards policyholders following any
   dividends or distributions to shareholder affiliates shall be reasonable in
   relation to the insurer&#8217;s outstanding liabilities and adequate to meet
   its financial needs;

   7. If an insurer subject to this article is deemed by the Commission to be in
   a hazardous financial condition as defined by 14VAC5-290 or a condition that
   would be grounds for supervision, conservation, or a delinquency proceeding,
   then the Commission may require the insurer to secure and maintain either a
   deposit held by the Commission or a bond as determined by the insurer at the
   insurer&#8217;s discretion, for the protection of the insurer for the duration
   of the contract, agreement, or existence of the condition for which the
   Commission required deposit or bond.
   				In determining if a deposit or bond is required, the Commission shall
   consider whether concerns exist with respect to the affiliated person&#8217;s
   ability to fulfill the contract or agreement if the insurer were to be put
   into liquidation. Once the insurer is deemed to be in a hazardous financial
   condition or a condition that would be grounds for supervision, conservation,
   or a delinquency proceeding, and a deposit or bond is necessary, the
   Commission has the discretion to determine the amount of the deposit or bond,
   not to exceed the value of the contract or agreement in any one year, and
   whether such deposit or bond shall be required for a single contract, multiple
   contracts, or a contract only with a specific person;

   8. All records and data of the insurer held by an affiliate are and remain the
   property of the insurer, are subject to the control of the insurer, are
   identifiable, and are segregated or readily capable of segregation at no
   additional cost to the insurer from all other persons&#8217; records and data.
   This includes all records and data that are otherwise the property of the
   insurer, in whatever form maintained, including claims and claim files,
   policyholder lists, application files, litigation files, premium records, rate
   books, underwriting manuals, personnel records, financial records, or similar
   records within the possession, custody, or control of the affiliate. At the
   request of the insurer, the affiliate shall provide that the receiver may (i)
   obtain a complete set of all records of any type that pertain to the
   insurer&#8217;s business, (ii) obtain access to the operating systems on which
   the data is maintained, (iii) obtain the software that runs those systems
   either through assumption of licensing agreements or otherwise, and (iv)
   restrict the use of the data by the affiliate if it is not operating the
   insurer&#8217;s business. The affiliate shall provide a waiver of any landlord
   lien or other encumbrance to give the insurer access to all records and data
   in the event of the affiliate&#8217;s default under a lease or other
   agreement; and

   9. Premiums or other funds belonging to the insurer that are collected by or
   held by an affiliate are the exclusive property of the insurer and subject to
   the control of the insurer. Any right of offset in the event that an insurer
   is placed into receivership shall be subject to Chapter 15 (&#xA7; 38.2-1500
   et seq.).

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&#8217;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&#8217;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&#8217;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&#8217;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&#8217;s liabilities, or the projected reinsurance premium or a change
   in the insurer&#8217;s liabilities in any of the next three years, equals or
   exceeds five percent of the insurer&#8217;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&#8217;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&#8217;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&#8217;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&#8217;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&#8217;s
surplus as regards policyholders is reasonable in relation to the
insurer&#8217;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&#8217;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&#8217;s insured
   risk;

   5. The nature and extent of the insurer&#8217;s reinsurance program;

   6. The quality, diversification, and liquidity of the insurer&#8217;s
   investment portfolio;

   7. The recent past and projected future trend in the size of the
   insurer&#8217;s surplus to policyholders;

   8. The recent past and projected future trend in the size of the
   insurer&#8217;s investment portfolio;

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

   10. The adequacy of the insurer&#8217;s reserves;

   11. The quality of the insurer&#8217;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 &#xA7; 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&#8217;s voting securities.

H. Any affiliate that is party to a contract or agreement described in
subdivision B 4 with a domestic insurer shall be subject to the jurisdiction of
any supervision, seizure, conservatorship, or receivership proceedings against
the insurer and to the authority of any supervisor, conservator, rehabilitator,
or liquidator for the insurer appointed pursuant to Chapter 15 (&#xA7; 38.2-1500
et seq.) for the purpose of interpreting, enforcing, and overseeing the
affiliate&#8217;s obligations under the agreement or contract to perform
services for the insurer that are (i) an integral part of the insurer&#8217;s
operation, including management, administrative, accounting, data processing,
marketing, underwriting, claims handling, investment, or any other similar
functions or (ii) essential to the insurer&#8217;s ability to fulfill its
obligations under insurance policies. The Commission may require that an
agreement or contract described in subdivision B 4 for the provision of services
described in clause (i) or (ii) specify that the affiliate consents to the
jurisdiction as set forth in this subsection.

HISTORY: 1973, c. 505, § 38.1-178.3; 1986, c. 562; 1987, c. 417; 1992, c. 588;
2006, c. 577; 2014, c. 309; 2022, c. 113.