The 2014 Virginia General Assembly session adjourned sine die on March 8, 2014. Of the approximately 2,000 bills that were introduced during the 2014 session, less than half passed both the Senate and the House of Delegates. There were a variety of insurance-related bills introduced during the 2014 General Assembly session.[i] Many of the insurance-related bills that the General Assembly enacted will promote uniformity in Virginia in accordance with the National Association of Insurance Commissioners’ (the “NAIC”) Model Laws and Regulations.
Senate Bill 88 – Risk Management by Insurance Companies; Own Risk and Solvency Assessments.
Senate Bill 88 enshrines the Own Risk Solvency Assessment (“ORSA”) framework into Virginia law. The legislation requires nonexempt domestic insurers, or the insurance group of which the insurer is a member, to at least annually conduct an ORSA. This legislation has a delayed effective date and will take effect on January 1, 2015. As a result, beginning in 2015, each domestic insurer subject to the ORSA requirement must submit an ORSA summary report to the Virginia State Corporation Commission (the “Commission”), of which the Virginia Bureau of Insurance (the “Bureau”) is a division, upon its request, but not more than once each year. However, if the nonexempt domestic insurer is part of an insurance group, the law requires the insurer to submit an ORSA summary report if the Commission is the lead state of the insurance group. An insurer may also comply with the ORSA filing requirement “by providing the most recent and substantially similar [ORSA] report” provided by the insurer or group to the regulator of another jurisdiction.[ii]
The law exempts domestic insurers from the ORSA requirement if the insurer has annual direct written and unaffiliated assumed premium of less than $500 million and the insurance group of which the insurer is a member has annual premium of less than $1 billion. In instances where the insurer is exempt because it does not exceed the $500 million threshold, yet the insurance group of which the insurer is a member does not qualify for the exemption, then the group is responsible for the ORSA summary report, and the report shall include each insurer within the group. By contrast, if the insurer exceeds the $500 million threshold but the insurance group of which the insurer is a member qualifies for the $1 billion exemption, then the only ORSA summary report required is the report applicable to that insurer.[iii]
The law also contains extensive provisions regarding confidentiality, sharing of ORSA-related information, and other related matters. The law recognizes that the ORSA summary report contains proprietary and trade secret information with the potential for harm and competitive disadvantage to the insurer or the insurance group if the information is made public. While the law enables the Commission to use the ORSA summary report and related materials in furtherance of its official duties, including in any regulatory or legal action, the law specifically provides that the ORSA summary report and related documents, materials or other information is not subject to subpoena, discovery or admissible in evidence in any private civil action. These provisions, coupled with the Commission’s exemption from the provisions of the Virginia Freedom of Information Act, should provide assurance to insurers and insurance groups subject to the ORSA requirements that their information will be protected by the Commission and the Bureau.[iv]
House Bill 109 – Insurance Holding Companies; Revises Requirements Applicable to Companies.
House Bill 109 revises certain requirements that apply to insurance holding company systems, so that they conform to the NAIC Insurance Holding Company System Regulatory Act and Insurance Holding Company System Model Regulation. Among other things, the legislation requires the ultimate controlling person of each insurance holding company, registered in the Commonwealth, to file a confidential enterprise risk report. The report must be filed annually in the state of the lead insurance holding company system, which is determined by the procedures in the NAIC’s Financial Analysis Handbook. The report must, “to the best of the ultimate controlling person’s knowledge and belief, identify the material risks within the insurance holding company system that could pose enterprise risk to the insurer.”[v] Though not included in the NAIC Model Holding Company System Regulatory Act, Virginia law also provides that the report “shall be appropriate to the nature, scale, and complexity of the operations of the insurance holding company system.”[vi]
Additionally, the legislation provides authority for the Commission to participate in a supervisory college for any insurer registered under Va. Code § 38.2-1329 if the domestic insurer is part of an insurance holding company system that operates internationally. In particular, the legislation enables the Commission to: (1) “initiat[e] the establishment of a supervisory college”; (2) “clarify[] the membership and participation of other supervisors in the supervisory college”; (3) “clarify[] the functions of the supervisory college and the role of other regulators, including the establishment of a group-wide supervisor”; (4) “coordinat[e] the ongoing activities of the supervisory college, including planning meetings, supervisory activities, and processes for information sharing”; and (5) “establish[] a crisis management plan.”[vii]
Generally, current law will apply to insurance holding company transactions originated before January 1, 2015. Notwithstanding the revisions set forth and adopted in House Bill 109, Virginia law applicable to insurance holding company systems contains some special features to account for the unique structure of the Commission and the Bureau.
House Bill 631 – Insurance Contracts; Principle-Based Reserves; Use of Valuation Manual.
House Bill 631, which has a delayed effective date and will take effect on January 1, 2015, implements the NAIC’s revised Standard Valuation Model Law (“SVL”). Among other things, the legislation sets forth two general requirements for insurance companies. First, it requires certain insurers to establish reserves using a principle-based reserve (“PBR”) valuation for specified life, annuity, and accident and health insurance contracts.[viii] Second, the legislation requires insurers, as defined in the law, to utilize the valuation manual adopted by the NAIC.[ix] While the legislation takes effect on January 1, 2015, the requirement to use the NAIC valuation manual does not take effect until the January 1 following the first July 1 in which certain requirements have been satisfied. Among these requirements is the condition that 42 other states or U.S. jurisdictions have enacted the revised SVL or substantially similar provisions.[x]
The legislation also sets forth the conditions for the establishment of reserves using PBR, including provisions on quantifying benefits and guarantees, incorporating certain assumptions, risk analysis methods and financial models, and establishing corporate governance procedures for utilizing PBR.[xi] Once PBR becomes effective in Virginia, the Commission may promulgate regulations to flesh out certain provisions in the PBR legislation.
As defined in the bill, an insurance company includes any entity that has written, issued or reinsured life insurance contracts, annuities, accident and health insurance contracts or deposit-type contracts in Virginia and has in force at least one policy. The definition of an insurance company also includes an entity that has written, issued, or reinsured such contracts in other states and is required to hold a certificate of authority in the Commonwealth.[xii]
House Bill 1043 and Senate Bill 542 – Health Benefit Exchanges; Regulation of Navigators.
House Bill 1043 and Senate Bill 542 are companion bills. The legislation imposes additional requirements upon “navigators,” which are defined in Virginia law as any individuals or entities described in 42 U.S.C. § 1311(i)(2) and selected to perform activities and duties set forth in 42 U.S.C. § 18031(i) in Virginia. In particular, beginning September 1, 2014, any individual or entity acting as a navigator in Virginia must be certified with the U.S. Department of Health and Human Services (“HHS”) and registered with the Commission. The Commission must prescribe the form and contents of the application for navigator registration. The navigator submitting an application for registration must also pay a nonrefundable fee and submit a criminal history record with the application. The Commission must register each applicant if it “finds that the character and general fitness of the applicant are such as to warrant belief that the applicant will act as a navigator fairly, in the public interest, and in accordance with law.”[xiii]
The Commission has the power to investigate any person engaged or alleged to be engaged in navigator activities to ensure compliance with the law. Additionally, each registered navigator is required to report certain actions to the Commission, such as decertification proceedings by HHS or the conviction of a felony.[xiv] The legislation also provides the authority for the Commission to penalize a navigator or to revoke its registration, and the legislation provides that the Commission shall work with HHS to propose improvements to navigator standards and qualifications if the Commission determines that existing standards and qualifications are “insufficient” to ensure that navigators can perform the required duties.[xv] The legislation also provides the Commission with the authority to adopt regulations requiring additional standards and qualifications for navigators if the standards and qualifications remain “insufficient” after a reasonable interval.[xvi]
Philip R. “Duke” de Haas, Esq. and Anne Hampton Andrews, Esq.[xvii]