2023 Vermont Statutes › Title 8 - Banking and Insurance › Chapter 113 - Liability Insurance and Service Contract Companies › § 4249. Proof of financial stability

§ 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.)