                                 CODE OF VIRGINIA

STANDARDS FOR TRANSACTIONS WITH AFFILIATES; ADEQUACY OF SURPLUS; DIVIDENDS AND
OTHER DISTRIBUTIONS (§ 38.2-4232)

A. Transactions by nonstock corporations licensed under this chapter with their
affiliates shall be subject to the following standards:

   1. The terms shall be fair and reasonable;

   2. Charges and fees for service performed shall be reasonable;

   3. Expenses incurred and payments received shall be allocated to the insurer
   in conformity with customary insurance accounting practices consistently
   applied;

   4. The books, accounts, and records of each party shall disclose clearly and
   accurately the precise nature and details of the transactions;

   5. The nonstock corporation&#8217;s surplus following any transaction with
   affiliates involving more than one-sixth of one percent of admitted assets or
   one percent of surplus as of the immediately preceding December 31, whichever
   is less, shall be reasonable in relation to the nonstock corporation&#8217;s
   outstanding liabilities and adequate to its financial needs; and

   6. The transaction is in the best interest of the subscribers.

B. For purposes of this article, in determining whether a nonstock
corporation&#8217;s surplus is reasonable in relation to the nonstock
corporation&#8217;s outstanding liabilities and adequate to its financial needs,
the following factors, among others, shall be considered:

   1. The size of the nonstock corporation as measured by its assets, surplus,
   reserves, business in force, and other appropriate criteria;

   2. The nonstock corporation&#8217;s method of operation and manner of doing
   business;

   3. The nature and extent of the nonstock corporation&#8217;s risk-sharing
   arrangements;

   4. The quality, diversification, and liquidity of the nonstock
   corporation&#8217;s investment portfolio;

   5. The recent past and projected future trend in the size of the nonstock
   corporation&#8217;s surplus;

   6. The adequacy of the nonstock corporation&#8217;s reserves; and

   7. The quality and liquidity of investments in subsidiaries. The Commission in
   its judgment may classify any investment as a nonadmitted asset for the
   purpose of determining the adequacy of surplus.

HISTORY: 1989, c. 606; 1992, c. 588.