V.I. Code tit. 22, § 326 (2019)
2019 US Virgin Islands Code|Title 22 - Insurance|Chapter 14 - Virgin Islands Insurance Holding Company System Regulation|§ 326. Standards and management of an insurer within an insurance holding company system

 (a)  (1) Transactions within an insurance holding company system to which an insurer subject to registration is a party are subject to the following standards: (A) The terms must be fair and reasonable; (B) Agreements for cost sharing services and management must include provisions as required by rule issued by the Commissioner; (C) Charges or fees for services performed must be reasonable; (D) Expenses incurred and payment received must be allocated to the insurer in conformity with customary insurance accounting practices consistently applied; (E) The books, accounts and records of each party to all the transactions must be so maintained as to clearly and accurately disclose the 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; and (F) The insurer’s surplus as regards policyholders following any dividends or distributions to shareholder affiliates must be reasonable in relation to the insurer’s outstanding liabilities and adequate to meet its financial needs. (2) The following transactions involving 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, which are subject to any materiality standards contained in subparagraphs (A) through (F), may not be entered into unless the insurer has notified the Commissioner in writing of its intention to enter into the transaction not less than 30 days prior thereto, or such shorter period as the Commissioner may permit, and the Commissioner has not disapproved it within that period. The notice for amendments or modifications must include the reasons for the change and the financial impact on the domestic insurer. Informal notice must be reported, within 30 days after a termination of a previously filed agreement, to the Commissioner for determination of the type of filing required, if any. (A) Sales, purchases, exchanges, loans, extensions of credit, or investments, provided the transactions are equal to or exceed: (i) with regarding nonlife insurers, the lesser of three percent of the insurer’s admitted assets or 25 percent of surplus as regards policyholders as of the 31st day of December next preceding; (ii) with regarding to life insurers, three percent of the insurer’s admitted assets as of the 31st day of December next preceding; (B) 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: (i) regarding nonlife insurers, the lesser of three percent of the insurer’s admitted assets or 25 percent of surplus as regards policyholders as of the 31st day of December next preceding; (ii) regarding life insurers, three percent of the insurer’s admitted assets as of the 31st day of December next preceding; (C) Reinsurance agreements or modifications thereto, including: (i) all reinsurance pooling agreements; and (ii) agreements in which the reinsurance premium or a change in the insurer’s liabilities, or the projected reinsurance premium or a change in the insurer’s liabilities in any of the next three years, equals or exceeds five percent of the insurer’s surplus as regards policyholders, as of the 31st day of December next preceding, including those agreements which may require as consideration the transfer of assets from an insurer to a non-affiliate, if an agreement or understanding exists between the insurer and non-affiliate that any portion of the assets will be transferred to one or more affiliates of the insurer; (D) All management agreements, service contracts, tax allocation agreements, guarantees and all cost-sharing arrangements; (E) Guarantees made by a domestic insurer, but a guarantee that is quantifiable as to amount is not subject to the notice requirements of this subparagraph unless it exceeds the lesser of one-half of one percent of the insurer’s admitted assets or ten percent of surplus as regards policyholders as of the 31st day of December next preceding. Further, all guarantees that are not quantifiable as to the amount are subject to the notice requirements of this subparagraph; (F) Direct or indirect acquisitions or investments in a person that controls the insurer or in an affiliate of the insurer in an amount which, together with its present holdings in such investments, exceeds two and one-half percent of the insurer’s surplus to policyholders. Direct or indirect acquisitions or investments in subsidiaries acquired pursuant to section 322, or authorized under any other section of this title, or in non-subsidiary insurance affiliates that are subject to the provisions of this chapter, are exempt from this requirement. When reviewing the notification required to be submitted pursuant to this section, the Commissioner shall examine prior and existing investments of this type to establish that the investments separately or together with other transactions, are not being made to contravene the dividend limitations set forth in subsection (b). However, an investment in a controlling person or in an affiliate may not be considered a dividend or distribution to shareholders when applying subsection (b); (G) Any material transactions, specified by regulation, that the Commissioner determines may adversely affect the interests of the insurer’s policyholders; and (H) Nothing in this subparagraph authorizes or permits any transactions which, in the case of an insurer not a member of the same insurance holding company system, would be otherwise contrary to law. (3) A domestic insurer may not enter into transactions which 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 would occur otherwise. If the Commissioner determines that separate transactions were entered into over any 12-month period for that purpose, the Commissioner may exercise the Commissioner’s authority under section 333. (4) The Commissioner, in reviewing transactions subject to paragraph (2), shall consider whether the transactions comply with the standards set forth in paragraph (1) and whether they may adversely affect the interests of policyholders. (5) The Commissioner must be notified no later than 30 days after any investment of a domestic insurer in any one corporation if the total investment in the corporation by the insurance holding company system exceeds 10 percent of the corporation’s voting securities. (b) Dividends and other Distributions (1) No domestic insurer shall pay any extraordinary dividend or make any other extraordinary distribution to its shareholders until 30 days after the Commissioner has received notice of the declaration thereof and has not within that period disapproved the payment, or until the Commissioner has approved the payment not later than the thirty-day period. An emergency situation shall be considered on a cases-by-case basis at the discretion of the Commissioner. If an emergency situation occurs, the Commissioner may, at his discretion on a case-by-case basis, give due consideration to a request for an expedited review of the proposed transaction. (2) For purposes of this subsection, an extraordinary dividend or distribution includes any dividend or distribution of cash or other property, whose fair market value, together with that of other dividends or distributions, made within the period of 12 consecutive months ending on the date on which the proposed dividend is scheduled for payment or distribution exceeds the greater of: (A) 10% of the insurer’s surplus as regards policyholders as of the 31 day of December next preceding; or (B) The net income of the insurer for the 12-month period ending the 31 day of December next preceding, but does not include pro rata distributions of any class of the insurer’s own securities. (3) For the purposes of this subsection, the following requirements also apply: (A) All dividends must be reasonable in relation to policyholder surplus, in accordance with rules promulgated by the Commissioner; (B) The insurer is required to provide prior notice to the Commissioner five days after the declaration of the dividend and 10 days prior to the payment of the dividend; and (C) There is an earned surplus restriction on all dividends. In determining whether a dividend or distribution is extraordinary, an insurer other than a life insurer may carry forward net income from the previous two calendar years that has not already been paid out as dividends. This carry-forward must be computed by taking the net income from the second and third preceding calendar years, not including realized capital gains, less dividends paid in the second and immediate preceding calendar years. Notwithstanding any other provision of law, an insurer may declare an extraordinary dividend or distribution which is conditional upon the Commissioner’s approval, and the declaration confers no rights upon shareholders until the Commissioner has approved the payment of the dividend or distribution or the Commissioner has not disapproved payment within the thirty-day period referred to in paragraph (1). (c)  (1) Notwithstanding the control of a domestic insurer by any person, the officers and directors of the insurer may not thereby be relieved of any obligation or liability to which they would otherwise be subject by law, and the insurer must be managed so as to assure its separate operating identity consistent with this chapter. (2) Nothing in this section may 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)(1). (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 must 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 must 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 comprised 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 have the responsibility of nominating candidates for director for election by shareholders or policyholders, evaluating the performance of officers considered principal officers of the insurer and recommending to the board of directors the selection and compensation of the principal officers. (5) The provisions of paragraphs (3) and (4) do 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 that meet the requirements of paragraphs (3) and (4) with respect to such controlling entity. (6) An insurer may make application to the Commissioner for a waiver from the requirements of this subsection, if the insurer’s annual direct written and assumed premium, excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, is less than $300,000,000. An insurer may also make application to the Commissioner for a waiver from the requirements of this subsection based upon unique circumstances. The Commissioner may consider various factors including, but not limited to, the type of business entity, volume of business written, availability of qualified board members, or the ownership or organizational structure of the entity. (d) For purposes of this chapter, in determining whether an insurer’s surplus as regards policyholders is reasonable in relation to the insurer’s outstanding liabilities and adequate to meet its financial needs, the following factors, among others, must 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’s business is diversified among several 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’s insured risks; (5) the nature and extent of the insurer’s reinsurance program; (6) the quality, diversification and liquidity of the insurer’s investment portfolio; (7) the recent past and projected future trend in the size of the insurer’s investment portfolio; (8) the surplus as regards policyholders maintained by other comparable insurers; (9) the adequacy of the insurer’s reserves; and (10) the quality and liquidity of investments in affiliates, which the Commissioner may treat as a disallowed asset whenever in the judgment of the Commissioner the investment so warrants.