                                 CODE OF VIRGINIA

POLICY FORMS; APPLICANTS TO BE ISSUED POLICIES; CANCELLATION OF POLICIES; RATES;
GROUP RETROSPECTIVE RATING PLAN; EXAMINATION OF BUSINESS OF ASSOCIATION (§
38.2-2905)

A. All policies issued by the Association shall be subject to the group
retrospective premium adjustment and to the stabilization reserve fund required
by &#xA7; 38.2-2906. No policy form shall be used by the Association unless it
has been filed with the Commission and either (i) the Commission has approved it
or (ii) thirty days have elapsed and the Commission has not disapproved the form
or endorsement for one or more of the reasons enumerated in subsection A of
&#xA7; 38.2-317.

B. Policies shall be issued by the Association, after receipt of the premium or
portion of the premium prescribed by the plan of operation, to applicants that
(i) meet the minimum underwriting standards of the Association, and (ii) have no
unpaid or uncontested premium due as evidenced by the applicant having failed to
make written objection to premium charges within thirty days after billing.

C. Any policy issued by the Association may be cancelled for any one of the
following reasons:

   1. Nonpayment of premium or portion of the premium;

   2. Suspension or revocation of the insured&#8217;s license to conduct
   business;

   3. Failure of the insured to meet the minimum underwriting standards;

   4. Failure of the insured to meet other minimum standards prescribed by the
   plan of operation; or

   5. Nonpayment of any stabilization reserve fund charge.

D. The rates, rating plans, rating rules, rating classifications, premium
payment plans and territories applicable to the insurance written by the
Association, and related supplementary rate information shall be subject to the
provisions of Chapter 20 (&#xA7; 38.2-2000 et seq.) of this title. Due
consideration shall be given to the past and prospective loss and expense
experience for the line, subclassification or type of commercial liability
insurance written in this Commonwealth, trends in the frequency and severity of
losses, the investment income of the Association, and other information the
Commission requires. All rates shall be on an actuarially sound basis, giving
due consideration to the stabilization reserve fund, and shall be calculated to
be self-supporting. The Commission shall take all appropriate steps to make
available to the Association the loss and expense experience of insurers writing
or having written the same line, subclassification or type of commercial
liability insurance in this Commonwealth.

E. All policies issued by the Association shall be subject to a nonprofit group
retrospective premium adjustment to be approved by the Commission under which
the final total premium for all policyholders for each line, subclassification
or type of commercial liability insurance issued each year by the Association,
as a group, will be calculated based upon the experience of all such
policyholders. The experience of all such policyholders shall be calculated
following the end of each year and shall be based upon earned premiums,
administrative expenses, loss and loss adjustment expenses, and taxes, plus a
reasonable allowance for contingencies and servicing, for each line,
subclassification or type of commercial liability insurance. Policyholders shall
be given full credit for all investment income, net of expenses and a reasonable
management fee on policyholder supplied funds. Any final premium resulting from
a retrospective premium adjustment will be collected from those moneys in the
stabilization reserve fund set forth in &#xA7; 38.2-2906 that are attributable
to the policies written for the particular line, subclassification or type of
commercial liability insurance or group of such risks for which activation
occurred pursuant to &#xA7; 38.2-2901. The maximum premium for all policyholders
as a group shall be limited as provided in &#xA7; 38.2-2906.

F. 1. If the stabilization reserve fund account for one or more lines,
subclassifications or types of commercial liability insurance is exhausted in
the payment of the maximum final premium for all such policies issued during the
year for which a deficit exists, the Association shall certify to the Commission
the estimated amount of any remaining deficit for any year&#8217;s policies.
Within sixty days after such certification, the Commission shall authorize the
Association to recover from the members their respective share of such deficit.
No member insurer may be assessed in any year an amount greater than two percent
of the member&#8217;s direct gross premium income as defined in § 58.1-2500
from liability insurance for the calendar year preceding the assessment. If an
assessment in any year is not sufficient to eliminate such deficit, a like
assessment may be made the ensuing year but not thereafter.

   2. A member shall be permitted to recover any assessment made by the
   Association under subdivision 1 of this subsection by deducting the
   member&#8217;s share of the deficit from future premium taxes due the
   Commonwealth. The amount of premium tax deduction for each member&#8217;s
   share of the deficit shall be apportioned by the Commission so that in the
   aggregate, the total premium tax deduction permitted for all members in any
   one taxable year shall not exceed 0.05 of one percent of the direct gross
   premium income for the liability insurance written by member insurers defined
   in subsection A of &#xA7; 38.2-2901. To the extent that the said 0.05 of one
   percent is reached in any one taxable year, any amount not so offset may be
   carried over to a subsequent year or years.

G. In the event that sufficient funds are not available for the sound financial
operation of the Association, subject to recoupment as provided in this chapter
and the plan of operation, all members shall, on a temporary basis, contribute
to the financial requirements of the Association in the manner provided in this
chapter. The contribution shall be reimbursed to the members by the procedure
set forth in subdivision 2 of subsection F of this section.

H. The Commission shall examine the business of the Association as often as it
deems appropriate to make certain that the group retrospective premium
adjustments are being calculated and applied in a manner consistent with this
section. If the Commission finds that the group retrospective premium
adjustments are not being made in a manner consistent with this section, it
shall issue an order to the Association, specifying (i) how such calculation and
application are not consistent and (ii) stating what corrective action shall be
taken.

HISTORY: 1988, cc. 769, 783.