DEPARTMENT OF REGULATORY AGENCIES Division of Insurance FINANCIAL ISSUES 3 CCR 702-3 [Editor’s Notes follow the text of the rules at the end of this CCR Document.] _________________________________________________________________________ AMENDED REGULATION 3-1-1 FIDELITY BOND REQUIREMENTS Section 1 Authority This regulation is promulgated under the authority of § §10-1-109, 10-6-129, 10-14-505 and 10-16-109 C.R.S.

Section 2 Scope and Purpose The purpose of this regulation is to prescribe the minimum amount of fidelity coverage required to be maintained by insurers for money or other property, which may be lost because of theft or dishonest acts of its officers, directors and employees.

Section 3 Applicability This regulation shall apply to all Colorado domestic insurers as well as each risk retention group captive insurer, fraternal benefit society, health maintenance organization and non-profit hospital, medical- surgical and health service corporation.

Section 4 Requirement For Fidelity Coverage All insurers must obtain fidelity coverage for all officers, directors and employees who have access to, or authorize transactions concerning company funds and investments. The amount of coverage shall be determined in accordance with the following schedule.

Code of Colorado Regulations 1 A. Calculation of Exposure Index and Bond Amount

1. 1. Total Admitted Assets $ _______________ X 5% = $ ___________________ 2. Gross Income* $ _______________X 10% = $ ___________________ 3. Exposure Index $ ___________________**

B. Minimum Amount of Bond Code of Colorado Regulations 2 Bracket # ____ $___________________ *Include gross premium written and assumed plus interest and dividend income. **Amount is calculated by adding the results of A and B above. Section 5 Severability If any provisions of this regulation or its application to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected. Section 6 Enforcement Noncompliance with this Regulation may result, after proper notice and hearing, in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the specific line of business or the imposition of fines, issuance of cease and desist orders, and/or suspensions or revocation of license as permitted by statute.

Section 7 Effective Date This amended regulation shall be effective on October 2, 2006. Section 8 History Originally effective 1974.

Amended effective April 1, 2000.

Amended effective October 2, 2006.

Regulation 3-1-2 STATUTORY DEPOSITS QUARTERLY REPORTS ON MARKET VALUE Section 1 Authority Section 2 Scope and Purpose Section 3 Applicability Section 4 Filing of Market Value Reports Section 5 Severability Section 6 Enforcement Section 7 Effective Date Section 8 History Section 1 Authority This regulation is promulgated pursuant to the authority of § 10-1-109 C.R.S. Section 2 Scope and Purpose The purpose of this regulation is to implement the market valuation requirement of § 10-3-235(4) C.R.S., by the establishment of regular reporting method.

Code of Colorado Regulations 3 Section 3 Applicability This regulation shall apply to any domestic insurance company, and any fraternal benefit society, health maintenance organization, non-profit hospital, medical-surgical and health service corporation, prepaid dental care plan organization, public entity self-insurance pool, and title insurance company, which deposits securities with the Commissioner of Insurance. Section 4 Filing of Market Value Reports Domestic companies, identified in Section 3, which are required to maintain a joint or statutory deposit with the Commissioner of Insurance, shall file quarterly with the Commissioner of Insurance an itemized statement of market value of securities on joint deposit. Companies using a Denver area bank, which makes such quarterly filings with the Commissioner of Insurance on behalf of the companies, need not make a filing under this regulation. The time of filing is to be within thirty days of the end of each calendar quarter. Reports will be due no later than January 30, April 30, July 30, and October 30 of each year. The statement is to be certified by an officer of the company and is to include the following information for each security evaluated:

1. 1. Identify the source of quotation. If it is taken from a publication, give the name of the publication. If it is supplied by a broker or other source, identify the name and location of the broker or other source.
   1. 2. Give both the market quote and its extension as: 10,000 XYZ bonds @ 99, $99,000.00.
      1. 3. If the quotation is that of an actual sale indicate same by the letter "s" and the date of sale after the quote.
      2. 4. Include bond ratings and the name of the rating service: e.g., Moody's , S & P, Fitch, etc. If a bond is not rated, indicate this fact by the letters "NR". Section 5 Severability If any provision of this regulation or the application of it to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected. Section 6 Enforcement Noncompliance with this regulation may result in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance, or other laws, which include the imposition of civil penalties, issuance of cease and desist orders, and/or suspensions or revocation of license, subject to the requirements of due process.

Section 7 Effective Date This amended regulation shall be effective on August 1, 2012. Section 8 History Originally issued as Regulation 76-3, effective immediately. Re-codified as Regulation 3-1-2.

Regulation amended, effective October 1, 1999.

Amended regulation effective August 1, 2012.

Code of Colorado Regulations 4 Amended Regulation 3-1-3 CONCERNING ACTUARIAL OPINIONS Section 1 Authority Section 2 Scope And Purpose Section 3 Applicability Section 4 Definitions Section 5 Statement Of Opinion Of Reserves And Other Actuarial Items Section 6 Requirements/Limitations On Domestic Company Opinions Section 7 Exemption Or Extension Section 8 Severability Section 9 Enforcement Section 10 Effective Date Section 11 History Section 1 Authority This regulation is promulgated under the authority of § § 10-1-109, 10-5-117, 10-6-129, 10-16-109, C.R.S.

Section 2 Scope And Purpose The purpose of this regulation is to improve the Colorado Insurance Division's surveillance of the financial condition of companies, for the protection of all policyholders, contractholders and the general public, by requiring an annual opinion of a qualified actuary as to the adequacy of a company's reserves and other actuarial items which ought to be established in the required annual statement filings. Section 3 Applicability This regulation shall apply to all companies defined in Section 4 below, excluding those filing pursuant to Colorado Insurance Regulation 3-1-8 (3CCR 702-3). Domestic mutual protective and pure assessment associations operating under Part 1 of Article 12 of Title 10, C.R.S. are exempted from this filing requirement unless an actuarial opinion is specifically requested by the Commissioner. Section 4 Definitions The following terms used in this regulation shall have the following meanings:

A. "Company" means a licensed insurance company, captive insurance company, non-profit hospital, medical-surgical and health service corporation, health maintenance organization, foreign authorized surplus lines insurance company, Pinnacol Assurance, foreign risk retention group operating in this state, title company, or foreign authorized non-admitted reinsurer.

B. "Qualified actuary" generally means an actuary meeting the qualifications set forth in Colorado Insurance Regulation 1-1-1 (3CCR 702-1). However, for opinions submitted with any financial statement filing required of Property and Casualty insurers, a qualified actuary is a person who is Code of Colorado Regulations 5 either a member in good standing of the Casualty Actuarial Society or a member in good standing of the American Academy of Actuaries who has been approved as qualified for signing casualty loss reserve opinions by the Casualty Practice Council of the American Academy of Actuaries. Section 5 Statement Of Opinion Of Reserves And Other Actuarial Items Each company shall submit with the annual financial statement filing an opinion of a qualified actuary, in a form acceptable to the Commissioner, which must at a minimum meet the recommended standards contained in the NAIC Annual Statement Instructions as to the adequacy of the company's reserves. A non-domestic company that files an opinion with the NAIC in conformity with the requirements of this section shall be exempted from filing a separate opinion with the Colorado Division of Insurance. The actuary shall consider provisions of Colorado statutes, regulations and generally accepted actuarial standards in forming such opinion. Companies that have not filed the actuarial opinion by the due date of the annual financial statement, or written extension date if granted, shall be assessed a late fee of up to $100.00 per day for each day the opinion is received beyond such date. Such late fee may be assessed in addition to any other fines relating to the annual financial statement filing requirement. Section 6 Requirements/Limitations On Domestic Company Opinions Opinions submitted for Colorado domestic companies must comply with the following:

A. A company's loss and loss adjustment expense reserves reported in any required financial filing to the Commissioner shall reflect the company's best estimate of its insurance obligations, derived from reasonable assumptions, calculated in accordance with appropriate actuarial standards of practice and verified by the opining actuary. A company that establishes an amount less than the actuary's best estimate as indicated in the underlying actuarial report, if applicable, shall submit the underlying actuarial report supporting the actuary's opinion to the Commissioner no later than 30 days following the due date of the opinion. Failure to file the actuarial report within 30 days of a request by the Commissioner may result in a penalty of up to $100.00 per day. The actuarial report shall be confidential and not available for public inspection. In addition, a summary is required to be filed in accordance with the appropriate NAIC Property and Casualty Annual Statement instructions. This summary shall be confidential and not available for public inspection.

B. In addition to the items required by any applicable annual statement filing instructions, all company balance sheet amounts that are established through actuarial principles, including loss analysis, mortality, morbidity, discounting or estimation techniques, must be included within the actuarial opinion. These amounts include, but are not limited to: contingent reinsurance commissions, retrospective premium adjustments, premium deficiency reserves, claims-made free tail coverage, and unearned premium reserves which are determined in a manner other than pro- rata.

1. All items required by the applicable annual statement instructions must be included as part of the opinion’s scope, even if the required item has a value of zero. C . The actuary should be familiar with the material reinsurance arrangements of the insurer when determining the reasonableness of net reserves. The company shall not reflect any credit for reinsurance ceded in any financial statement filed, unless the reinsurance arrangements comply with the provisions of § 10-3-118, C.R.S. and Colorado Insurance Regulations 3-3-3 and 3-3-5. The actuary's opinion shall not reflect any credit taken for reinsurance ceded if the actuary is aware that reinsurance arrangements violate any provision of § 10-3-118, C.R.S. or Colorado Insurance Regulations 3-3-3 and 3-3-5.

D. Unless otherwise specified by statute, reserves for outstanding losses may not be discounted, with the exception of reserves established for losses with fixed and determinable future payments, such Code of Colorado Regulations 6 as those emanating from workers' compensation tabular indemnity reserves and long-term disability claims. The rate of interest, at each valuation date, used in the calculation of the discount shall not exceed the lesser of (i) the company's rate of return on statutory invested assets, and (ii) the 20 year duration valuation rate determined pursuant to §10-7-309.5, C.R.S.

E. Reserves shall not be reduced for anticipated salvage and subrogation unless such reduction has been evaluated, analyzed and opined upon by the actuary as being reasonable based upon the company's past experience, current and reasonably anticipated activities, and has made due provision for the collection and other expenses associated with the receipt of the salvage and subrogation amounts. The actuary may analyze the reserve data net of salvage and subrogation so long as the actuary is satisfied that such treatment of the data will cause no material distortion.

F. For all health insurers and Health Maintenance Organizations (HMOs), the annual Statement of Actuarial Opinion shall include a statement that the opining actuary has considered the impact of any risk-sharing arrangements with provider groups on health claim liabilities. If the insurer or HMO has entered into any kind of risk-sharing, usually contractual, arrangements with provider groups providing medical services to enrollees, then it is expected that the opining actuary evaluate these arrangements, and the financial position of each contracting entity. In the development and calculation of health claim reserves and other related actuarial items, due regard shall be given to the types and scopes of these arrangements, and the financial position of each contracting entity, including, but not limited to, the following:

1. 1. Ultimate responsibility for payment of all billed medical services in the event of nonpayment by, or insolvency of, the contracting entity, as required under §10-16-705(5)(a), C.R.S.;
   1. 2. Extent to which these arrangements contain provisions for uncovered expenditures;
      1. 3. Amount of the health claim liabilities allocated for uncovered expenditures;
      2. 4. Existence of any stop-loss provisions;
      3. 5. Retroactive settlements beyond the scope of the contracts;
      4. 6. Financial position of each capitated entity. In addition to the statement required in Subsection G of this section, the Actuarial Opinion should disclose the actuary’s knowledge of, and make appropriate provision for, any financially insolvent or troubled provider group that may have a material effect on the health claim liabilities;
      5. 7. Existence of any contractual incentive payments; and 8. Existence of any risk-sharing arrangements that involve a year-end settlement process.

G. For all health insurers and HMOs, the annual Statement of Actuarial Opinion should include a statement such as:

1. “In establishing the health claim reserves and other related actuarial items, I have evaluated and considered the impact of any and all risk-sharing arrangements with provider groups, as required under Subsection (6)(F) of Colorado Insurance Regulation 3-1-3.” If no such risk-sharing arrangements exist, the annual Statement of Actuarial Opinion should include a statement such as:
   1. “I am aware of the requirements of Subsection (6)(F) of Colorado Insurance Regulation 3-1-3, and I am not aware of any risk-sharing arrangements which would have a material impact on the Code of Colorado Regulations 7 amount of health claim reserves and other related actuarial items items which have been established.”
      1. If any liability has not been established in accordance with this subsection, the Actuarial Opinion should disclose the nature of the deviation from this subsection, and the rationale and the effect of such deviation.

H. Any HMO whose sole business is providing health care services to recipients under the “Colorado Medical Assistance Act” , Articles 4 to 6 of Title 25.5, C.R.S., “The Children’s Basic Health Plan” , Article 8 of Title 25.5, C.R.S., or Medicare under Title XVIII of the federal “Social Security Act” , as amended, shall also include the following statement in the annual Statement of Actuarial Opinion, “The company’s surplus level and outstanding claims liability meet the requirements of §10-16- 411 (1.5), C.R.S.”

Section 7 Exemption Or Extension A. The Commissioner may consider a written request for exemption or extension for the filing of the statement of actuarial opinion. Any such request must be made no later than 15 days before the due date of such opinion for which the exemption or extension is sought. Such request must contain a statement which sets forth the basis on which such exemption or extension is sought.

B. Requests for exemptions and extensions will be considered for the following reasons:

1. 1. supervision or conservatorship;
   1. 2. financial hardship;
      1. 3. nature of insurance;
      2. 4. less than $1,000,000 of direct and assumed premium and less than $1,000,000 of direct and assumed loss and loss adjustment expense reserves at year-end;
      3. 5. other circumstances that may render an opinion either unnecessary, or unavoidably delayed.

C. In all cases, however, an exception or extension will only be granted after the commissioner has determined that the non-submission or delay of the actuarial opinion would result in minimal potential harm to policyholders.

Section 8 Severability If any provision of this regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected thereby. Section 9 Enforcement Noncompliance with this Regulation may result, after proper notice and hearing, in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance or other laws which include the imposition of fines, issuance of cease and desist orders and/or suspension or revocation of license. Among others, the penalties provided for in § 10-3-1108, C.R.S. may be applied. Section 10 Effective Date This regulation is hereby amended and restated and shall be effective for any Statement of Actuarial Opinion filed with the Colorado Division of Insurance after October 1, 2007. Code of Colorado Regulations 8 Section 11 History New Regulation 90-1, effective December 31, 1994.

Amended Regulation, effective August 31, 1998.

Amended Regulation, effective December 1, 2005.

Amended Regulation, effective February 1, 2007.

Amended Regulation, effective October 1, 2007.

Regulation 3-1-4 CONCERNING ANNUAL AUDITED FINANCIAL REPORTS Section 1 Authority Section 2 Scope and Purpose Section 3 Applicability Section 4 Definitions Section 5 General Requirements Related to Filing and Extensions for Filing of Annual Audited Financial Report and Audit Committee Appointment Section 6 Contents of Annual Audited Financial Report Section 7 Designation of Independent Certified Public Accountant Section 8 Qualifications of Independent Certified Public Accountant Section 9 Consolidated or Combined Audits Section 10 Scope of Audit and Report of Independent Certified Public Accountant Section 11 Notification of Adverse Financial Condition Section 12 Communication of Internal Control Related Matters Noted in an Audit Section 13 Accountant’s Letter of Qualifications Section 14 Definition, Availability and Maintenance of Independent Certified Public Accountant Workpapers Section 15 Requirements for Audit Committees Section 16 Conduct of Company in Connection with the Preparation of Required Reports and Documents Section 17 Management’s Report of Internal Control over Financial Reporting Section 18 Exemptions and Effective Dates Section 19 Canadian and British Companies Section 20 Severability Provision Code of Colorado Regulations 9 Section 21 Incorporated Materials Section 22 Enforcement Section 23 Effective Date Section 24 History Section 1 Authority This regulation is promulgated under the authority of § § 10-1-108(7), 10-1-109, 10-1-203, 10-3-109, 10- 3-118, 10-3-208, 10-5-117, 10-6-114, 10-6-129, 10-14-505, 10-14-602, 10-16-109, 10-16-111 and 8-45- 12, C.R.S.

Section 2 Scope and Purpose The purpose of this regulation is to improve the Division’s surveillance of the financial condition of companies by requiring: (1) an annual audit of financial statements reporting the financial position and the results of operations of companies by independent certified public accountants, (2) Communication of Internal Control Related Matters Noted in an Audit, and (3) Management’s Report of Internal Control over Financial Reporting.

This regulation shall not prohibit, preclude or in any way limit the Commissioner from ordering or conducting or performing examinations of companies under the rules and regulations of the Division and the practices and procedures of the Division.

Section 3 Applicability Every company (as defined in Section 4) shall be subject to this regulation. Companies having direct premiums written in this state of less than $1,000,000 in any calendar year and less than 1,000 policyholders or certificate holders of direct written policies nationwide at the end of the calendar year shall be exempt from this regulation for the year (unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory responsibilities) except that companies having assumed premiums pursuant to contracts and/or treaties of reinsurance of $1,000,000 or more will not be so exempt.

Foreign or alien insurers filing the Audited financial report in another state, pursuant to that state’s requirement for filing of Audited financial reports, which has been found by the Commissioner to be substantially similar to the requirements herein, are exempt from Sections 5 through 14 of this regulation if:

A. A copy of the Audited financial report, Communication of Internal Control Related Matters Noted in an Audit, and the Accountant’s Letter of Qualifications that are filed with the other state are filed with the Commissioner in accordance with the filing dates specified in Sections 5, 12 and 13, respectively (Canadian insurers may submit accountants’ reports as filed with the Office of the Superintendent of Financial Institutions, Canada).

B. A copy of any Notification of Adverse Financial Condition Report filed with the other state is filed with the Commissioner within the time specified in Section 11. Foreign or alien insurers required to file Management’s Report of Internal Control over Financial Reporting in another state are exempt from filing the Report in this state provided the other state has substantially similar reporting requirements and the Report is filed with the Commissioner of the other state within the time specified.

Code of Colorado Regulations 10 Section 4 Definitions The terms and definitions contained herein are intended to provide definitional guidance as the terms are used within this regulation.

A. “Accountant” or “independent certified public accountant” means an independent certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants (AICPA) and in all states in which he or she is licensed to practice; for Canadian and British companies, it means a Canadian chartered or British-chartered accountant.

B. An “affiliate” of, or person “affiliated” with, a specific person, is a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.

C. “Audit committee” means a committee (or equivalent body) established by the board of directors of an entity for the purpose of overseeing the accounting and financial reporting processes of a company or Group of insurers, and audits of financial statements of the company or Group of insurers. The Audit committee of any entity that controls a Group of insurers may be deemed to be the Audit committee for one or more of these controlled companies solely for the purposes of this regulation at the election of the controlling person. Refer to Section 15E for exercising this election. If an Audit committee is not designated by the company, the company’s entire board of directors shall constitute the Audit committee.

D. “Audited financial report” means and includes those items specified in Section 6 of this regulation.

E. “Commissioner” means the Commissioner of Insurance for the State of Colorado.

F. "Company" means an insurer, captive insurance company, health maintenance organization or Pinnacol Assurance.

G. “Division” means the Colorado Division of Insurance.

H. “Indemnification” means an agreement of indemnity or a release from liability where the intent or effect is to shift or limit in any manner the potential liability of the person or firm for failure to adhere to applicable auditing or professional standards, whether or not resulting in part from knowing of other misrepresentations made by the company or its representatives.

I. “Independent board member” has the same meaning as described in Section 15C.

J. “Insurer” means a licensed insurance company, authorized surplus lines insurance company, authorized nonadmitted reinsurer, nonprofit hospital, medical-surgical, and health service corporation or fraternal benefit society.

K. “Group of insurers” means those licensed insurers included in the reporting requirements of §10-3- 801 et seq., C.R.S., or a set of insurers as identified by management, for the purpose of assessing the effectiveness of Internal control over financial reporting.

L. “Internal control over financial reporting” means a process effected by an entity’s board of directors, management and other personnel designed to provide reasonable assurance regarding the reliability of the financial statements, i.e., those items specified in Section 6B through 6G of this regulation and includes those policies and procedures that:

1. 1. Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets;

Code of Colorado Regulations 11

1. 2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements, i.e., those items specified in Section 6B through 6G of this regulation and that receipts and expenditures are being made only in accordance with authorizations of management and directors; and 3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements, i.e., those items specified in Section 6B through 6G of this regulation.

M. “SEC” means the United States Securities and Exchange Commission.

N. “Section 404” means Section 404 of the Sarbanes-Oxley Act of 2002 and the SEC’s rules and regulations promulgated thereunder.

O. “Section 404 Report” means management’s report on “internal control over financial reporting” as defined by the SEC and the related attestation report of the independent certified public accountant as described in Section 4A.

P. “SOX Compliant Entity” means an entity that either is required to be compliant with, or voluntarily is compliant with, all of the following provisions of the Sarbanes- Oxley Act of 2002: (i) the preapproval requirements of Section 201 (Section 10A(i) of the Securities Exchange Act of 1934);

1. (ii) the Audit committee independence requirements of Section 301 (Section 10A(m)(3) of the Securities Exchange Act of 1934); and (iii) the Internal control over financial reporting requirements of Section 404 (Item 308 of SEC Regulation S-K). Section 5 General Requirements Related to Filing and Extensions for Filing of Annual Audited Financial Reports and Audit Committee Appointment

A. All companies shall have an annual audit by an independent certified public accountant and shall file an Audited financial report with the Commissioner on or before June 1 for the year ended December 31 immediately preceding. The Commissioner may require a company to file an audited financial report earlier than June 1 with ninety (90) days advance notice to the company.

B. Extensions of the June 1 filing date may be granted by the Commissioner for thirty day periods upon a showing by the company and its independent certified public accountant of the reasons for requesting an extension and determination by the Commissioner of good cause for an extension. The request for extension must be submitted in writing not less than ten (10) days prior to the due date in sufficient detail to permit the Commissioner to make an informed decision with respect to the requested extension.

C. If an extension is granted in accordance with the provisions in Section 5B, a similar extension of thirty

1. (30) days is granted to the filing of Management’s Report of Internal Control over Financial Reporting.

D. Every company required to file an annual Audited financial report pursuant to this regulation shall designate a group of individuals as constituting its Audit committee, as defined in Section 4. The Audit committee of an entity that controls a company may be deemed to be the company’s Audit committee for purposes of this regulation at the election of the controlling person. Section 6 Contents of Annual Audited Financial Report The annual Audited financial report shall report the financial position of the company as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the Department of Insurance of the state of domicile. Code of Colorado Regulations 12 The annual Audited financial report shall include the following:

A. Report of independent certified public accountant.

B. Balance sheet reporting admitted assets, liabilities, capital and surplus.

C. Statement of operations.

D. Statement of cash flow.

E. Statement of changes in capital and surplus.

F. Notes to financial statements. These notes shall be those required by the appropriate NAIC Annual Statement Instructions and the NAIC Accounting Practices and Procedures Manual . The notes shall include a reconciliation of differences, if any, between the audited statutory financial statements and the annual statement filed pursuant to § §10-3-109, 10-3-208, 10-5-110, 10-6- 114, 10-14-602, 10-16-111 or 8 45 117, C.R.S., with a written description of the nature of these differences.

G. The financial statements included in the Audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the company filed with the Commissioner, and the financial statement shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. (However, in the first year in which a company is required to file an Audited financial report, the comparative data may be omitted). Section 7 Designation of Independent Certified Public Accountant A. Each company required by this regulation to file an annual Audited financial report must within sixty

1. (60) days after becoming subject to the requirement, register with the Commissioner in writing the name and address of the independent certified public accountant or accounting firm retained to conduct the annual audit set forth in this regulation. Companies not retaining an independent certified public accountant on the effective date of this regulation shall register the name and address of their retained independent certified public accountant not less than six (6) months before the date when the first Audited financial report is to be filed.

B. The company shall obtain a letter from the accountant, and file a copy with the Commissioner stating that the accountant is aware of the provisions of the insurance code and the regulations of the insurance department of the state of domicile that relate to accounting and financial matters and affirming that the accountant will express his or her opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by that insurance department, specifying such exceptions as he or she may believe appropriate.

C. If an accountant who was the accountant for the immediately preceding filed Audited financial report is dismissed or resigns, the company shall within five (5) business days notify the Commissioner of this event. The company shall also furnish the Commissioner with a separate letter within ten (10) business days of the above notification stating whether in the twenty-four (24) months preceding such event there were any disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure; which disagreements, if not resolved to the satisfaction of the former accountant, would have caused him or her to make reference to the subject matter of the disagreement in connection with his or her opinion. The disagreements required to be reported in response to this section include both those resolved to the former accountant’s satisfaction and those not resolved to the former accountant’s satisfaction. Disagreements contemplated by this section are those that occur at the decision-making level, i.e., between personnel of the company responsible for presentation of its Code of Colorado Regulations 13 financial statements and personnel of the accounting firm responsible for rendering its report. The company shall also in writing request the former accountant to furnish a letter addressed to the company stating whether the accountant agrees with the statements contained in the company’s letter and, if not, stating the reasons for which he or she does not agree; and the company shall furnish the responsive letter from the former accountant to the Commissioner together with its own.

Section 8 Qualifications of Independent Certified Public Accountant A. The Commissioner shall not recognize a person or firm as a qualified independent certified public accountant if the person or firm:

1. 1. Is not in good standing with the AICPA and in all states in which the accountant is licensed to practice, or, for a Canadian or British company, that is not a chartered accountant; or 2. Has either directly or indirectly entered into an agreement of indemnity or release from liability (collectively referred to as indemnification ) with respect to the audit of the company.

B. Except as otherwise provided in this regulation, the Commissioner shall recognize an independent certified public accountant as qualified as long as he or she conforms to the standards of his or her profession. Accountants’ determination of independence should be guided by the relevant professional standards promulgated by the American Institute of Certified Public Accountants, and the Rules and Regulations and Code of Ethics and Rules of Professional Conduct of the Colorado State Board of Accountancy.

C. A qualified independent certified public accountant may enter into an agreement with a company to have disputes relating to an audit resolved by mediation or arbitration. However, in the event of a delinquency proceeding commenced against the company under §10-3-401, et seq., C.R.S., the mediation or arbitration provisions shall operate at the option of the statutory successor.

D. The lead (or coordinating) audit partner (having primary responsibility for the audit) may not act in that capacity for more than five (5) consecutive years. The person shall be disqualified from acting in that or a similar capacity for the same company or its insurance subsidiaries or affiliates for a period of five (5) consecutive years. A company may make application to the Commissioner for relief from the above rotation requirement on the basis of unusual circumstances. This application should be made at least thirty (30) days before the end of the calendar year. The Commissioner may consider the following factors in determining if the relief should be granted:

1. 1. Number of partners, expertise of the partners or the number of insurance clients in the currently registered firm;
   1. 2. Premium volume of the company; or 3. Number of jurisdictions in which the company transacts business. The insurer shall file, with its annual statement filing, the approval for relief from Subsection D with the states that it is licensed in or doing business in and with the NAIC. If the nondomestic state accepts electronic filing with the NAIC, the insurer shall file the approval in an electronic format acceptable to the NAIC.

E. The Commissioner shall neither recognize as a qualified independent certified public accountant, nor accept an annual Audited financial report, prepared in whole or in part by, a natural person who: Code of Colorado Regulations 14

1. 1. Has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961 to 1968, or any dishonest conduct or practices under federal or state law;
   1. 2. Has been found to have violated the insurance laws of this state with respect to any previous reports submitted under this regulation; or 3. Has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under the provisions of this regulation.

F. The Commissioner of insurance may hold a hearing to determine whether an independent certified public accountant is qualified and, considering the evidence presented, may rule that the accountant is not qualified for purposes of expressing his or her opinion on the financial statements in the annual Audited financial report made pursuant to this regulation and require the company to replace the accountant with another whose relationship with the company is qualified within the meaning of this regulation.

G. The Commissioner shall not recognize as a qualified independent certified public accountant, nor accept an annual Audited financial report, prepared in whole or in part by an accountant who provides to a company, contemporaneously with the audit, the following non-audit services:

1. 1. Bookkeeping or other services related to the accounting records or financial statements of the company;
   1. 2. Financial information systems design and implementation;
      1. 3. Appraisal or valuation services, fairness opinions, or contribution-in-kind reports;
      2. 4. Actuarially-oriented advisory services involving the determination of amounts recorded in the financial statements. The accountant may assist a company in understanding the methods, assumptions and inputs used in the determination of amounts recorded in the financial statement only if it is reasonable to conclude that the services provided will not be subject to audit procedures during an audit of the company’s financial statements. An accountant’s actuary may also issue an actuarial opinion or certification (“opinion” ) on a company’s reserves if the following conditions have been met:
         1. a. Neither the accountant nor the accountant’s actuary has performed any management functions or made any management decisions;
         2. b. The company has competent personnel (or engages a third party actuary) to estimate the reserves for which management takes responsibility; and c. The accountant’s actuary tests the reasonableness of the reserves after the company’s management has determined the amount of the reserves;
      3. 5. Internal audit outsourcing services;
      4. 6. Management functions or human resources;
      5. 7. Broker or dealer, investment adviser, or investment banking services;
      6. 8. Legal services or expert services unrelated to the audit; or 9. Any other services that the Commissioner determines, by regulation, are impermissible. Code of Colorado Regulations 15 In general, the principles of independence with respect to services provided by the qualified independent certified public accountant are largely predicated on three basic principles, violations of which would impair the accountant’s independence. The principles are that the accountant cannot function in the role of management, cannot audit his or her own work, and cannot serve in an advocacy role for the company.

H. Companies having direct written and assumed premiums of less than $100,000,000 in any calendar year may request an exemption from Subsection G. The company shall file with the Commissioner a written statement discussing the reasons why the company should be exempt from these provisions. If the Commissioner finds, upon review of this statement, that compliance with this regulation would constitute a financial or organizational hardship upon the company, an exemption may be granted.

I. A qualified independent certified public accountant who performs the audit may engage in other non- audit services, including tax services, that are not described in Subsection G or that do not conflict with Subsection G, only if the activity is approved in advance by the Audit committee, in accordance with Subsection J.

J. All auditing services and non-audit services provided to a company by the qualified independent certified public accountant of the company shall be preapproved by the Audit committee. The preapproval requirement is waived with respect to non-audit services if the company is a SOX Compliant Entity or a direct or indirect wholly-owned subsidiary of a SOX Compliant Entity or:

1. 1. The aggregate amount of all such non-audit services provided to the company constitutes not more than five percent (5%) of the total amount of fees paid by the company to its qualified independent certified public accountant during the fiscal year in which the non- audit services are provided;
   1. 2. The services were not recognized by the company at the time of the engagement to be non- audit services; and 3. The services are promptly brought to the attention of the Audit committee and approved prior to the completion of the audit by the Audit committee or by one or more members of the Audit committee who are the members of the board of directors to whom authority to grant such approvals has been delegated by the Audit committee.

K. The Audit committee may delegate to one or more designated members of the Audit committee the authority to grant the preapprovals required by Subsection J. The decisions of any member to whom his authority is delegated shall be presented to the full Audit committee at each of its scheduled meetings.

L. The Commissioner shall not recognize an independent certified public accountant as qualified for a particular company if a member of the board, president, chief executive officer, controller, chief financial officer, chief accounting officer, or any person serving in an equivalent position for that company, was employed by the independent certified public accountant and participated in the audit of that company during the one-year period preceding the date that the most current statutory opinion is due. This section shall only apply to partners and senior managers involved in the audit. A company may make application to the Commissioner for relief from the above requirement on the basis of unusual circumstances.

1. The company shall file, with its annual statement filing, the approval for relief from Subsection L with the states that it is licensed in or doing business in and the NAIC. If the nondomestic state accepts electronic filing with the NAIC, the company shall file the approval in an electronic format acceptable to the NAIC.

Code of Colorado Regulations 16 Section 9 Consolidated or Combined Audits An insurer may make written application to the Commissioner for approval to file audited consolidated or combined financial statements in lieu of separate annual audited financial statements if the insurer is part of a group of insurance companies that utilizes a pooling or one hundred percent (100%) reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and the insurer cedes all of its direct and assumed business to the pool. In such cases, a columnar consolidating or combining worksheet shall be filed with the report, as follows:

A. Amounts shown on the consolidated or combined Audited financial report shall be shown on the worksheet;

B. Amounts for each insurer subject to this section shall be stated separately;

C. Noninsurance operations may be shown on the worksheet on a combined or individual basis;

D. Explanations of consolidating and eliminating entries shall be included; and E. A reconciliation shall be included of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the annual statements of the insurers.

Section 10 Scope of Audit and Report of Independent Certified Public Accountant Financial statements furnished pursuant to Section 6 shall be examined by the independent certified public accountant. The audit of the company’s financial statements shall be conducted in accordance with generally accepted auditing standards. In accordance with AU Section 319 of the Professional Standards of the AICPA, Consideration of Internal Control in a Financial Statement Audit , the independent certified public accountant should obtain an understanding of internal control sufficient to plan the audit. To the extent required by AU 319, for those companies required to file a Management’s Report of Internal Control over Financial Reporting pursuant to Section 17, the independent certified public accountant should consider (as that term is defined in Statement on Auditing Standards (SAS) No. 102, Defining Professional Requirements in Statements on Auditing Standards ) the most recently available report in planning and performing the audit of the statutory financial statements. Consideration shall be given to the procedures illustrated in the Financial Condition Examiners Handbook promulgated by the National Association of Insurance Commissioners as the independent certified public accountant deems necessary.

Section 11 Notification of Adverse Financial Condition A. The company required to furnish the annual Audited financial report shall require the independent certified public accountant to report, in writing, within five (5) business days to the board of directors or its Audit committee any determination by the independent certified public accountant that the company has materially misstated its financial condition as reported to the Commissioner as of the balance sheet date currently under audit or that the company does not meet the minimum capital and surplus requirement of the Colorado insurance code as of that date. A company that has received a report pursuant to this paragraph shall forward a copy of the report to the Commissioner within five (5) business days of receipt of the report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the Commissioner. If the independent certified public accountant fails to receive the evidence within the required five (5) business day period, the independent certified public accountant shall furnish to the Commissioner a copy of its report within the next five (5) business days.

Code of Colorado Regulations 17 B. No independent certified public accountant shall be liable in any manner to any person for any statement made in connection with the above paragraph if the statement is made in good faith in compliance with Subsection A.

C. If the accountant, subsequent to the date of the Audited financial report filed pursuant to this regulation, becomes aware of facts that might have affected his or her report, the Commissioner notes the obligation of the accountant to take such action as prescribed in Volume 1, AU Section 561 of the Professional Standards of the AICPA.

Section 12 Communication of Internal Control Related Matters Noted in an Audit A. In addition to the annual Audited financial report, each company shall furnish the Commissioner with a written communication as to any unremediated material weaknesses in its Internal control over financial reporting noted during the audit. Such communication shall be prepared by the accountant within sixty (60) days after the filing of the annual Audited financial report, and shall contain a description of any unremediated material weakness (as the term material weakness is defined by Statement on Auditing Standard 60, Communication of Internal Control Related Matters Identified in an Audit ) as of December 31 immediately preceding (so as to coincide with the Audited financial report discussed in Section 5(A)) in the company’s Internal control over financial reporting noted by the accountant during the course of their audit of the financial statements. If no unremediated material weaknesses were noted, the communication should so state. This rule does not include later amendments to or editions of the incorporated American institute of Certified Public Accountants’ materials.

B. The company is required to provide a description of remedial actions taken or proposed to correct unremediated material weaknesses, if the actions are not described in the accountant’s communication.

Section 13 Accountant’s Letter of Qualifications The accountant shall furnish the company in connection with, and for inclusion in, the filing of the annual Audited financial report, a letter stating:

A. That the accountant is independent with respect to the company. Accountants’ determination of independence should be guided by the relevant professional standards promulgated by the American Institute of Certified Public Accountants, and the Rules and Regulations and Code of Ethics and Rules of Professional Conduct of the Colorado State Board of Accountancy;

B. The background and experience in general, and the experience in audits of companies of the staff assigned to the engagement and whether each is an independent certified public accountant. Nothing within this regulation shall be construed as prohibiting the accountant from utilizing such staff as he or she deems appropriate where use is consistent with the standards prescribed by generally accepted auditing standards;

C. That the accountant understands the annual Audited financial report and his opinion thereon will be filed in compliance with this regulation and that the Commissioner will be relying on this information in the monitoring and regulation of the financial position of companies;

D. That the accountant consents to the requirements of Section 14 of this regulation and that the accountant consents and agrees to make available for review by the Commissioner, or the Commissioner’s designee or appointed agent, the workpapers, as defined in Section 14;

E. A representation that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the AICPA; and Code of Colorado Regulations 18 F. A representation that the accountant is in compliance with the requirements of Section 8 of this regulation.

Section 14 Definition, Availability and Maintenance of Independent Certified Public Accountants Workpapers A. Workpapers are the records kept by the independent certified public accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to the accountant’s audit of the financial statements of a company. Workpapers, accordingly, may include audit planning documentation, work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries prepared or obtained by the independent certified public accountant in the course of his or her audit of the financial statements of a company and which support the accountant’s opinion.

B. Every company required to file an Audited financial report pursuant to this regulation, shall require the accountant to make available for review by insurance department examiners, all workpapers prepared in the conduct of the accountant’s audit and any communications related to the audit between the accountant and the company, at the offices of the company, at the insurance department or at any other reasonable place designated by the Commissioner. The company shall require that the accountant retain the audit workpapers and communications until the insurance department has filed a report on examination covering the period of the audit but no longer than seven (7) years from the date of the audit report.

C. In the conduct of the aforementioned periodic review by the Division examiners, it shall be agreed that photocopies of pertinent audit workpapers may be made and retained by the Division. Such reviews by the Division examiners shall be considered investigations and all working papers and communications obtained during the course of such investigations shall be afforded the same confidentiality as other examination workpapers generated by the Division. Section 15 Requirements for Audit Committees This section shall not apply to foreign or alien insurers licensed in this state or a company that is a SOX Compliant Entity or a direct or indirect wholly-owned subsidiary of a SOX Compliant Entity.

A. The Audit committee shall be directly responsible for the appointment, compensation and oversight of the work of any accountant (including resolution of disagreements between management and the accountant regarding financial reporting) for the purpose of preparing or issuing the Audited financial report or related work pursuant to this regulation. Each accountant shall report directly to the Audit committee.

B. Each member of the Audit committee shall be a member of the board of directors of the company or a member of the board of directors of an entity elected pursuant to Subsection E and Section 4C.

C. In order to be considered independent for purposes of this section, a member of the Audit committee may not, other than in his or her capacity as a member of the Audit committee, the board of directors, or any other board committee, accept any consulting, advisory or other compensatory fee from the entity or be an affiliated person of the entity or any subsidiary thereof. However, if law requires board participation by otherwise non-independent members, that law shall prevail and such members may participate in the Audit committee and be designated as independent for Audit committee purposes, unless they are an officer or employee of the company or one of its affiliates.

D. If a member of the Audit committee ceases to be independent for reasons outside the member’s reasonable control, that person, with notice by the responsible entity to the state, may remain an Code of Colorado Regulations 19 Audit committee member of the responsible entity until the earlier of the next annual meeting of the responsible entity or one year from the occurrence of the event that caused the member to be no longer independent.

E. To exercise the election of the controlling person to designate the Audit committee for purposes of this regulation, the ultimate controlling person shall provide written notice to the Commissioners of the affected companies. Notification shall be made timely prior to the issuance of the statutory audit report and include a description of the basis for the election. The election can be changed through notice to the Commissioner by the company, which shall include a description of the basis for the change. The election shall remain in effect for perpetuity, until rescinded.

F. The Audit committee shall require the accountant that performs for a company any audit required by this regulation to timely report to the Audit committee in accordance with the requirements of SAS

1. No. 61, Communication With Audit Committees (Copyright May 2006) (This rule does not include later amendments to or editions of the incorporated American institute of Certified Public Accountants’ materials.), including:
   1. 1. All significant accounting policies and material permitted practices;
      1. 2. All material alternative treatments of financial information within statutory accounting principles that have been discussed with management officials of the company, ramifications of the use of the alternative disclosures and treatments, and the treatment preferred by the accountant; and 3. Other material written communications between the accountant and the management of the company, such as any management letter or schedule of unadjusted differences. If a company is a member of an insurance holding company system, the reports required by Subsection F may be provided to the Audit committee on an aggregate basis for companies in the holding company system, provided that any substantial differences among companies in the system are identified to the Audit committee.

G. The proportion of independent Audit committee members shall meet or exceed the following criteria: Prior Calendar Year Direct Written and Assumed Premiums $0 - $300,000,000 Over $300,000,000 - Over $500,000,000 $500,000,000 No minimum requirements. Majority of members (50% Supermajority of members See also Note A and B. or more) shall be (75% or more) shall be independent. See also Note independent. See also Note A and B. A.

1. Note:A The Commissioner has authority afforded by state law to require the entity’s board to enact improvements to the independence of the Audit committee membership if the company is in a RBC action level event, meets one or more of the standards of a company deemed to be in hazardous financial condition, or otherwise exhibits qualities of a troubled company. Note B: All companies with less than $500,000,000 in prior year direct written and assumed premiums are encouraged to structure their Audit committees with at least a supermajority of independent Audit committee members.
   1. Note C: Prior calendar year direct written and assumed premiums shall be the combined total of direct premiums and assumed premiums from non-affiliates for the reporting entities. Code of Colorado Regulations 20

H. A company with direct written and assumed premium, excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, less than $500,000,000 may make application to the Commissioner for a waiver from the Section 15 requirements based upon hardship. The company shall file, with its annual statement filing, the approval for relief from Section 15 with the states that it is licensed in or doing business in and the NAIC. If the nondomestic state accepts electronic filing with the NAIC, the company shall file the approval in an electronic format acceptable to the NAIC.

Section 16 Conduct of Company in Connection with the Preparation of Required Reports and Documents A. No director or officer of a company shall, directly or indirectly:

1. 1. Make or cause to be made a materially false or misleading statement to an accountant in connection with any audit, review or communication required under this regulation; or 2. Omit to state, or cause another person to omit to state, any material fact necessary in order to make statements made, in light of the circumstances under which the statements were made, not misleading to an accountant in connection with any audit, review or communication required under this regulation.

B. No officer or director of a company, or any other person acting under the direction thereof, shall directly or indirectly take any action to coerce, manipulate, mislead or fraudulently influence any accountant engaged in the performance of an audit pursuant to this regulation if that person knew or should have known that the action, if successful, could result in rendering the company’s financial statements materially misleading.

C. For purposes of Subsection B of this section, actions that, “if successful, could result in rendering the company’s financial statements materially misleading” include, but are not limited to, actions taken at any time with respect to the professional engagement period to coerce, manipulate, mislead or fraudulently influence an accountant:

1. 1. To issue or reissue a report on a company’s financial statements that is not warranted in the circumstances (due to material violations of statutory accounting principles prescribed by the Commissioner, generally accepted auditing standards, or other professional or regulatory standards);
   1. 2. Not to perform audit, review or other procedures required by generally accepted auditing standards or other professional standards;
      1. 3. Not to withdraw an issued report; or 4. Not to communicate matters to a company’s Audit committee. Section 17 Management’s Report of Internal Control over Financial Reporting

A. Every company required to file an Audited financial report pursuant to this regulation that has annual direct written and assumed premiums, excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, of $500,000,000 or more shall prepare a report of the company’s or Group of companies’ Internal control over financial reporting, as these terms are defined in Section 4. The report shall be filed with the Commissioner along with the Communication of Internal Control Related Matters Noted in an Audit described under Section 12. Management’s Report of Internal Control over Financial Reporting shall be as of December 31 immediately preceding.

Code of Colorado Regulations 21 B. Notwithstanding the premium threshold in Subsection A, the Commissioner may require a company to file Management’s Report of Internal Control over Financial Reporting if the company is in any RBC level event, or meets any one or more of the standards of a company deemed to be in hazardous financial condition as defined in § 10-1-110, C.R.S.

C. A company or a Group of insurers that is:

1. 1. directly subject to Section 404;
   1. 2. part of a holding company system whose parent is directly subject to Section 404;
      1. 3. not directly subject to Section 404 but is a SOX Compliant Entity; or 4. a member of a holding company system whose parent is not directly subject to Section 404 but is a SOX Compliant Entity;
         1. may file its or its parent’s Section 404 Report and an addendum in satisfaction of this Section 17 requirement provided that those internal controls of the company or Group of companies having a material impact on the preparation of the company’s or Group of companies’ audited statutory financial statements (those items included in Section 6B through 6G of this regulation) were included in the scope of the Section 404 Report. The addendum shall be a positive statement by management that there are no material processes with respect to the preparation of the company’s or Group of companies’ audited statutory financial statements (those items included in Section 6B through 6G of this regulation) excluded from the Section 404 Report. If there are internal controls of the company or Group of companies that have a material impact on the preparation of the company’s or Group of companies’ audited statutory financial statements and those internal controls were not included in the scope of the Section 404 Report, the company or Group of companies may either file (i) a Section 17 report, or (ii) the Section 404 Report and a Section 17 report for those internal controls that have a material impact on the preparation of the company’s or Group of companies’ audited statutory financial statements not covered by the Section 404 Report.

D. Management’s Report of Internal Control over Financial Reporting shall include:

1. 1. A statement that management is responsible for establishing and maintaining adequate Internal control over financial reporting;
   1. 2. A statement that management has established Internal control over financial reporting and an assertion, to the best of management’s knowledge and belief, after diligent inquiry, as to whether its Internal control over financial reporting is effective to provide reasonable assurance regarding the reliability of financial statements in accordance with statutory accounting principles;
      1. 3. A statement that briefly describes the approach or processes by which management evaluated the effectiveness of its Internal control over financial reporting;
      2. 4. A statement that briefly describes the scope of work that is included and whether any internal controls were excluded;
      3. 5. Disclosure of any unremediated material weaknesses in the Internal control over financial reporting identified by management as of December 31 immediately preceding. Management is not permitted to conclude that the Internal control over financial reporting is effective to provide reasonable assurance regarding the reliability of financial Code of Colorado Regulations 22 statements in accordance with statutory accounting principles if there is one or more unremediated material weaknesses in its Internal control over financial reporting;
      4. 6. A statement regarding the inherent limitations of internal control systems; and 7. Signatures of the chief executive officer and the chief financial officer (or equivalent position/title).

E. Management shall document and make available upon financial condition examination the basis upon which its assertions, required in Subsection D above, are made. Management may base its assertions, in part, upon its review, monitoring and testing of internal controls undertaken in the normal course of its activities.

1. 1. Management shall have discretion as to the nature of the internal control framework used, and the nature and extent of documentation, in order to make its assertion in a cost effective manner and, as such, may include assembly of or reference to existing documentation.
   1. 2. Management’s Report on Internal Control over Financial Reporting, required by Subsection A above, and any documentation provided in support thereof during the course of a financial condition examination, shall be kept confidential by the state insurance department.

Section 18 Exemptions and Effective Dates A. Upon written application of any company, the Commissioner may grant an exemption from compliance with any and all provisions of this regulation if the Commissioner finds, upon review of the application, that compliance with this regulation would constitute a financial or organizational hardship upon the company. An exemption may be granted at any time and from time to time for a specified period or periods. Within ten (10) days from a denial of a company’s written request for an exemption from this regulation, the company may request in writing a hearing on its application for an exemption.

B. Domestic companies retaining a certified public accountant on the effective date of this regulation who qualifies as independent shall comply with this regulation for the year ending December 31, 2009 and each year thereafter unless the Commissioner permits otherwise.

C. Domestic companies not retaining a certified public accountant on the effective date of this regulation who qualifies as independent may meet the following schedule for compliance unless the Commissioner permits otherwise.

1. (1) For the year ending December 31, 2009, file with the Commissioner an audited financial report.
   1. (2) For the year ending December 31, 2010, and each year thereafter, such companies shall file with the Commissioner all reports and communications required by this regulation.

D. Foreign insurers shall comply with this regulation for the year ending December 31, 2010, and each year thereafter, unless the Commissioner permits otherwise.

E. The requirements of Section 8D shall be in effect for audits of the year beginning January 1, 2010, and thereafter.

F. The requirements of Section 15 are to be in effect January 1, 2010. A company or Group of insurers that is not required to have independent Audit committee members or only a majority of independent Audit committee members (as opposed to a supermajority) because the total written Code of Colorado Regulations 23 and assumed premium is below the threshold and subsequently becomes subject to one of the independence requirements due to changes in premium shall have one (1) year following the year the threshold is exceeded (but not earlier than January 1, 2010) to comply with the independence requirements. Likewise, a company that becomes subject to one of the independence requirements as a result of a business combination shall have one (1) calendar year following the date of acquisition or combination to comply with the independence requirements.

G. The requirements of Section 17, and Sections 4, 5, 6, 7, 8, 10, 11, 12, 13, 14, 16, and 19, are effective beginning with the reporting period ending December 31, 2010 and each year thereafter. A company or Group of insurers that is not required to file a report because the total written premium is below the threshold and subsequently becomes subject to the reporting requirements shall have two (2) years following the year the threshold is exceeded (but not earlier than December 31, 2010) to file a report. Likewise, a company acquired in a business combination shall have two (2) calendar years following the date of acquisition or combination to comply with the reporting requirements.

Section 19 Canadian and British Companies A. In the case of Canadian and British insurers, the annual Audited financial report shall be defined as the annual statement of total business on the form filed by such companies with their supervision authority duly audited by an independent chartered accountant.

B. For such insurers, the letter required in Section 7B shall state that the accountant is aware of the requirements relating to the annual Audited financial report filed with the Commissioner pursuant to Section 5 and shall affirm that the opinion expressed is in conformity with those requirements. Section 20 Severability Provision If any provision of this regulation or the application of it to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected. Section 21 Incorporated Materials The Sarbanes- Oxley Act of 2002 (Public Law 107-204, 116 Stat. 745, enacted July 30, 2002), published in United States federal law shall mean Public Law 107-204, 116 Stat. 745, enacted July 30, 2002, as published on the effective date of this regulation and does not include later amendments to or editions of Public Law 107-204, 116 Stat. 745, enacted July 30, 2002. A copy of Public Law 107-204, 116 Stat. 745, enacted July 30, 2002 may be examined at any state publications depository library. For additional information regarding how the Public Law 107-204, 116 Stat. 745, enacted July 30, 2002 may be obtained or examined, contact the Chief of Financial Affairs, Colorado Division of Insurance, 1560 Broadway, Suite 850, Denver, Colorado, 80202.

The AU Section 319, published by Auditing Standards Board of the American Institute of Certified Public Accountants shall mean AU Section 319 as published on the effective date of this regulation and does not include later amendments to or editions of AU Section 319. A copy of the AU Section 319 may be examined at any state publications depository library. For additional information regarding how the AU Section 319 may be obtained or examined, contact the Chief of Financial Affairs, Colorado Division of Insurance, 1560 Broadway, Suite 850, Denver, Colorado, 80202. The Statement on Auditing Standards (SAS) No. 102, published by Auditing Standards Board of the American Institute of Certified Public Accountants shall mean SAS No. 102 as published on the effective date of this regulation and does not include later amendments to or editions of SAS No. 102. A copy of the SAS No. 102 may be examined at any state publications depository library. For additional information Code of Colorado Regulations 24 regarding how the SAS No. 102 may be obtained or examined, contact the Chief of Financial Affairs, Colorado Division of Insurance, 1560 Broadway, Suite 850, Denver, Colorado, 80202. The AU Section 561, published by Auditing Standards Board of the American Institute of Certified Public Accountants shall mean AU Section 561 as published on the effective date of this regulation and does not include later amendments to or editions of AU Section 561. A copy of the AU Section 561 may be examined at any state publications depository library. For additional information regarding how the AU Section 561 may be obtained or examined, contact the Chief of Financial Affairs, Colorado Division of Insurance, 1560 Broadway, Suite 850, Denver, Colorado, 80202. The Statement on Auditing Standards (SAS) No. 60, published by Auditing Standards Board of the American Institute of Certified Public Accountants shall mean SAS No. 60 as published on the effective date of this regulation and does not include later amendments to or editions of SAS No. 60. A copy of the SAS No. 60 may be examined at any state publications depository library. For additional information regarding how the SAS No. 60 may be obtained or examined, contact the Chief of Financial Affairs, Colorado Division of Insurance, 1560 Broadway, Suite 850, Denver, Colorado, 80202. The Statement on Auditing Standards (SAS) No. 61, published by Auditing Standards Board of the American Institute of Certified Public Accountants shall mean SAS No. 61 as published on the effective date of this regulation and does not include later amendments to or editions of SAS No. 61. A copy of the SAS No. 61 may be examined at any state publications depository library. For additional information regarding how the SAS No. 61 may be obtained or examined, contact the Chief of Financial Affairs, Colorado Division of Insurance, 1560 Broadway, Suite 850, Denver, Colorado, 80202. Section 22 Enforcement Noncompliance with this Regulation may result, after proper notice and hearing, in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance or other laws which include the imposition of fines, issuance of cease and desist orders, and/or suspensions or revocation of license. Among others, the penalties provided for in § 10-3-1108, C.R.S. may be applied. Section 23 Effective Date This regulation shall become effective January 1, 2010. Section 24 History This regulation was originally effective December 31, 1990. Amended regulation effective January 31, 1994.

Amended regulation effective April 1, 2001.

Repealed and repromulgated January 30, 2007.

Repealed and repromulgated January 1, 2010.

Regulation 3-1-5 CONCERNING ENTERPRISE ZONE CREDIT AGAINST PREMIUM TAX Section 1 Authority Section 2 Scope and Purpose Section 3 Applicability Code of Colorado Regulations 25 Section 4 Filing Requirements Section 5 Severability Section 6 Enforcement Section 7 Effective Date Section 8 History Section 1 Authority This regulation is promulgated under the authority of Sections 10-1-109, and 39-30-108(2), Colorado Revised Statutes Section 2 Scope and Purpose The purpose of this regulation is to assure the orderly implementation of the premium tax credit provisions set forth in the Urban and Rural Enterprise Zone Act. This regulation sets forth the criteria for filing and documenting a claim for credit or refund of premium tax. Section 3 Applicability This regulation shall apply to any taxpayer who is subject to the tax on insurance premiums established by § § 10-3-209, 10-5-111, and 10-6-128, C.R.S. and who is eligible to claim a credit or refund pursuant to Article 30 of Title 39, Colorado Revised Statutes.

Section 4 Filing Requirements Each taxpayer seeking to claim a credit or refund of premium tax must file the tax form prescribed by the commissioner of insurance. Each such filing must be for the calendar year, and such filing must be received on or before March 1. In addition to the prescribed form, when an enterprise zone credit or refund is sought, a supplementary schedule must be attached to the tax form. This schedule shall itemize and describe each claim for credit or refund and include a statutory citation referencing the pertinent section of Article 30 of Title 39, Colorado Revised Statutes that permits each claim or refund. This schedule shall be attested to by an officer of the company and contain, in a prominent location, the full company name, NAIC company number (if any), corporate seal, printed name and title of officer attesting to the correctness of the claim.

The value of the credit sought shall be further supported by an original certificate issued by the enterprise zone administrator. This certification shall set forth both the value and purpose of the related expenditure for which credit or refund is sought.

Section 5 Severability If any provision of this regulation or the application of it to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected. Section 6 Enforcement Noncompliance with this regulation may result in the imposition of the sanctions made available in the Colorado statutes pertaining to the business of insurance or other laws, which include the imposition of fines issuance of cease and desist orders, and/or suspensions or revocation of license. Section 7 Effective Date Code of Colorado Regulations 26 This amended regulation shall become effective on September 1, 2012 Section 8 History Original regulation effective December 31, 1990 Amended regulation effective September 1, 2012 Regulation 3-1-6 Repealed Effective 10/02/2006 Regulation 3-1-7 REGULATION TO DEFINE STANDARDS AND COMMISSIONER’S AUTHORITY FOR COMPANIES DEEMED TO BE IN HAZARDOUS FINANCIAL CONDITION Section 1 Authority Section 2 Scope and Purpose Section 3 Applicability Section 4 Standards Section 5 Commissioner's Authority Section 6 Severability Section 7 Enforcement Section 8 Effective Date Section 9 History Section 1 Authority This regulation is promulgated under the authority of § § 10-1-109, 10-3-201(1)(b), 10-6-129, 10-14-505, and 10-16-109, C.R.S.

Section 2 Scope and Purpose The purpose of this regulation is to set forth the standards which the Commissioner of Insurance may use for identifying insurers found to be in such condition as to render the continuance of their business hazardous to their policyholders, creditors or the general public. This regulation shall not be interpreted to limit the powers granted the Commissioner by any laws or parts of laws of this state, nor shall this regulation be interpreted to supersede any laws or parts of laws of this state. Section 3 Applicability This regulation shall apply to all Colorado licensed insurers as well as to each Colorado licensed group captive insurer, fraternal benefit society, health maintenance organization, prepaid dental care plan organization, and non-profit hospital, medical-surgical and health service corporation. Section 4 Standards The following standards, either singly or a combination of two or more, may be considered by the Commissioner to determine whether the continued operation of any company in this state might be Code of Colorado Regulations 27 deemed to be hazardous to its policyholders, creditors or the general public. The Commissioner may consider, but is not limited to, the following:

A. Adverse findings reported in financial condition and market conduct examination reports, audit reports, and actuarial opinions, reports or summaries;

B. The National Association of Insurance Commissioners Insurance Regulatory Information System and its other financial solvency tools and reports;

C. Whether the company has made adequate provision, according to presently accepted actuarial standards of practice, for the anticipated cash flows required by the contractual obligations and related expenses of the company, when considered in light of the assets held by the company with respect to such reserves and related actuarial items including, but not limited to, the investment earnings on such assets, and the considerations anticipated to be received and retained under such policies and contracts;

D. The ability of an assuming reinsurer to perform and whether the company's reinsurance program provides sufficient protection for the company's remaining surplus after taking into account the company's cash flow and the classes of business written as well as the financial condition of the assuming reinsurer;

E. The company's operating loss in the last twelve month period or any shorter period of time, including but not limited to net capital gain or loss, or its change in non-admitted assets, and cash dividends paid to shareholders, is greater than 50% of such company's remaining surplus as regards policyholders in excess of the minimum required;

F. Whether the insurer's operating loss in the last twelve-month period or any shorter period of time, excluding net capital gains, is greater than 20% of the insurer's remaining surplus as regards policyholders in excess of the minimum required;

G Whether a reinsurer, obligor or any entity within the company’s holding company system, is insolvent, threatened with insolvency or delinquent in payment of its monetary or other obligations, and which in the opinion of the Commissioner may affect the solvency of the company;

H. Contingent liabilities, pledges or guarantees which, either individually or collectively, involve a total amount which in the opinion of the Commissioner may affect the solvency of the company;

I. Whether any "controlling person" of a company is delinquent in transmitting to, or payment of, net premiums or other amounts to such company;

J. The age and collectability of receivables;

K. Whether the management of a company, including officers, directors, or any other person who directly or indirectly controls the operation of such company, fails to possess and demonstrate the competence, fitness and reputation deemed necessary to serve the company in such position;

L. Whether management of a company has failed to respond to inquiries relative to the condition of the company or has furnished false and misleading information concerning an inquiry; M Whether the company has failed to meet financial and holding company filing requirements in the absence of a reason satisfactory to the Commissioner;

N. Whether management of a company either has filed any false or misleading sworn financial statement, or has released a false or misleading financial statement to lending institutions or to Code of Colorado Regulations 28 the general public, or has made a false or misleading entry, or has omitted an entry of material amount in the books of the company;

O. Whether the company has grown so rapidly and to such an extent that it lacks adequate financial and administrative capacity to meet its obligations in a timely manner;

P. Whether the company has experienced or will experience in the foreseeable future cash flow and/or liquidity problems;

Q. Whether management has established reserves that do not comply with minimum standards established by state insurance laws, regulations, statutory accounting standards, sound actuarial principles and standards of practice;

R. Whether management persistently engages in material under-reserving that results in adverse development;

S. Whether transactions among affiliates, subsidiaries or controlling persons for which the company receives assets or capital gains, or both, do not provide sufficient value, liquidity or diversity to assure the company's ability to meet its outstanding obligations as they mature;

T. Any other finding determined by the Commissioner to be hazardous to the company’s policyholders, creditors or general public.

Section 5 Commissioner's Authority A. For the purposes of making a determination of a company's financial condition under this regulation, the Commissioner may, among other things:

1. 1. Disregard any credit or amount receivable resulting from transactions with a reinsurer that is insolvent, impaired or otherwise subject to a delinquency proceeding;
   1. 2. Make appropriate adjustments, including disallowance, to asset values attributable to investments in or transactions with parents, subsidiaries, or affiliates consistent with the NAIC Accounting Practices And Procedures Manual, state laws and regulations;
      1. 3. Refuse to recognize the stated value of accounts receivable if the ability to collect receivables is highly speculative in view of the age of the account or the financial condition of the debtor;
      2. 4. Increase the company's liability in an amount equal to any contingent liability, pledge, or guarantee not otherwise included if there is a substantial risk that the company will be called upon to meet the obligation undertaken within the next 12-month period.
      3. 5. Direct the company to submit additional information which may assist the Commissioner in reaching a determination. These include, but are not limited to, actuarial analysis, cash flow testing, asset/liability matching, feasibility analysis, surplus adequacy analysis and portfolio diversification analysis.

B. If the Commissioner determines that the continued operation of the company licensed to transact business in this state may be hazardous to the policyholders, creditors or the general public, then the Commissioner may, upon a determination, furnish the company with a written explanation of the concerns, request additional information, if necessary, to conclude the investigation or determination and request the position of the company with regard to such findings. The Commissioner may provide a written list of requirements for the company to abate the situation. Alternatively, the company may offer a plan of abatement for review and approval by the Code of Colorado Regulations 29 Commissioner. Examples of corrective measures or monitoring that the Commissioner may consider include, but are not limited to requiring the company to:

1. 1. Reduce the total amount of present and potential liability for policy benefits by reinsurance;
   1. 2. Reduce, suspend or limit the volume of business being accepted or renewed;
      1. 3. Reduce general insurance and commission expenses by specified methods;
      2. 4. Increase the company's capital and surplus;
      3. 5. Suspend or limit the declaration and payment of dividends by a company to its stockholders or to its policyholders;
      4. 6. File reports in a form acceptable to the Commissioner concerning the market value of a company's assets;
      5. 7. Limit or withdraw from certain investments or discontinue certain investment practices to the extent the Commissioner deems necessary;
      6. 8. Document the adequacy of premium rates in relation to the risks insured;
      7. 9. File, in addition to regular annual statements, interim financial reports on the form adopted by the National Association of Insurance Commissioners or on such format as promulgated by the Commissioner;
      8. 10. Correct corporate governance practice deficiencies, and adopt and utilize governance practices acceptable to the Commissioner.
      9. 11. Provide a business plan to the Commissioner in order to continue to transact business in the state.

         12 Notwithstanding any other provision of law limiting the frequency or amount of premium rate adjustments, adjust rates for any non-life insurance product written by the company that the Commissioner considers necessary to improve the financial condition of the company.

      10. 13. Establish a special deposit for Colorado policyholders;
      11. 14. Cease or desist from certain practices or acts which have contributed to or caused the concern; or 15. File actuarial feasibility studies, projections, cash flow analyses or asset/liability matching analyses with assumptions and/or scenarios acceptable to the Commissioner. If the insurer is a foreign insurer the Commissioner’s requirements may be limited to the extent provided by statute.

Section 6 Severability If any provision of this regulation or the application of it to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected. Section 7 Enforcement Code of Colorado Regulations 30 Noncompliance with this regulation may result in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance, or other laws, which include the imposition of civil penalties, issuance of cease and desist orders, and/or suspensions or revocation of license, subject to the requirements of due process.

Section 8 Effective Date This amended regulation shall become effective May 1, 2013. Section 9 History Amended, Effective October 1, 1992 Amended, Effective April 1, 2001 Amended, Effective December 1, 2012 Amended, Effective May 1, 2013 REGULATION 3-1-8 CONCERNING ACTUARIAL OPINIONS AND MEMORANDUMS FOR LIFE COMPANIES AND FRATERNAL BENEFIT SOCIETIES Section 1 Authority Section 2 Scope and Purpose Section 3 Applicability Section 4 Definitions Section 5 General Requirements Section 6 Statement of Actuarial Opinion Based On Asset Adequacy Analysis Section 7 Description of Actuarial Memorandum Including an Asset Adequacy Analysis and Regulatory Asset Adequacy Issues Summary Section 8 Severability Section 9 Enforcement Section 10 Effective Date Section 11 History Section 1 Authority This regulation is promulgated and adopted by the Commissioner of Insurance under the authority of § §10-1-108(7), 10-1-109, 10-7-114, and 10-14-505, C.R.S. Section 2 Scope and Purpose The purpose of this regulation is to prescribe:

Code of Colorado Regulations 31 A. Guidelines and standards for statements of actuarial opinion, which are to be submitted in accordance with § §10-7-114 and 10-14-602, C.R.S. and for memorandums submitted in support thereof;

B. Rules applicable to the appointment of an appointed actuary; and C. Guidance as to the meaning of “adequacy of reserves.” Section 3 Applicability This regulation shall apply to all life insurance companies and fraternal benefit societies doing business in this State and to all life insurance companies and fraternal benefit societies that are authorized to reinsure life insurance, annuities or accident and health insurance business in this State. This regulation shall be applied in a manner that allows the appointed actuary to utilize his or her professional judgment in performing the asset adequacy analysis and developing the actuarial opinion and supporting memoranda, consistent with relevant actuarial standards of practice. However, the Commissioner shall have the authority to specify specific methods of actuarial analysis and actuarial assumptions when, in the Commissioner’s judgment, these specifications are necessary for an acceptable opinion to be rendered relative to the adequacy of reserves and related items; see Section 7D of this regulation for requirements specific to companies domiciled in the State of Colorado . This regulation shall be applicable to all annual statements filed with the office of the Commissioner after the effective date of this regulation. A statement of opinion on the adequacy of the reserves and related actuarial items based on an asset adequacy analysis in accordance with Section 6 of this regulation, and a memorandum in support thereof in accordance with Section 7 of this regulation, shall be required each year.

Section 4 Definitions A. “Actuarial Opinion” means the opinion of an appointed actuary regarding the adequacy of the reserves and related actuarial items based on an asset adequacy analysis in accordance with Section 6 of this regulation and with applicable Actuarial Standards of Practice.

B. “Actuarial Standards Board” means the board established by the American Academy of Actuaries to develop and promulgate actuarial standards of practice.

C. “Actuarial Standards of Practice” means the Actuarial Standards of Practice and Compliance Guidelines as promulgated by the Actuarial Standards Board.

D. “Annual statement” means that statement required by § §10-3-208 and 10-14-602, C.R.S. to be filed annually, by the company, with the Commissioner.

E. “Appointed actuary” means an individual who is appointed or retained in accordance with the requirements set forth in Section 5B of this regulation to provide the actuarial opinion and supporting memorandum as required by this regulation and §10-7-114, C.R.S.

F. “Asset adequacy analysis” means an analysis that meets the standards and other requirements referred to in Section 5C of this regulation. It may take many forms, including, but not limited to, cash flow testing, sensitivity testing or applications of risk theory .

G. “Commissioner” means the Insurance Commissioner of the State of Colorado.

H. “Company” means a life insurance company, fraternal benefit society or reinsurer subject to the provisions of this regulation.

Code of Colorado Regulations 32 I. “Qualified actuary” means an individual who meets the requirements set forth in §10-7-114 (1)(e), C.R.S.

Section 5 General Requirements A. Submission of Statement of Actuarial Opinion

1. 1. There is to be included on or attached to Page 1 of the annual statement for each year beginning with the year in which this regulation becomes effective the statement of an appointed actuary, entitled “Statement of Actuarial Opinion,” setting forth an opinion relating to reserves and related actuarial items held in support of policies and contracts, in accordance with Section 6 of this regulation.
   1. 2. Upon written request and showing adequate justification by the company, the Commissioner may grant an extension of the date for submission of the Statement of Actuarial Opinion. Actuarial Opinions not received by the required filing date, or approved extended date, shall be subject to a penalty of up to $100.00 per day.

B. Appointed Actuary. An “appointed actuary” is a qualified actuary who is appointed or retained to prepare the Statement of Actuarial Opinion required by this regulation, either directly by or by the authority of the board of directors through an executive officer of the company other than the qualified actuary. The company shall give the Commissioner timely written notice of the name, title (and, in the case of a consulting actuary, the name of the firm) and manner of appointment or retention of each person appointed or retained by the company as an appointed actuary and shall state in the notice that the person meets the requirements set forth in §10-7-114(1)(e), C.R.S. Once notice is furnished, no further notice is required with respect to this person, provided that the company shall give the Commissioner timely written notice in the event the actuary ceases to be appointed or retained as an appointed actuary or to meet the requirements set forth in §10-7- 114(1)(e), C.R.S. If any person appointed or retained as an appointed actuary replaces a previously appointed actuary, the notice shall so state and give the reasons for replacement.

C. Standards for Asset Adequacy Analysis. The asset adequacy analysis required by this regulation:

1. 1. Shall conform to the Standards of Practice as promulgated from time to time by the Actuarial Standards Board, and on any additional standards under this regulation, which standards are to form the basis of the Statement of Actuarial Opinion in accordance with this regulation; and 2. Shall be based on methods of analysis as are deemed appropriate for such purposes by the Actuarial Standards Board.

D. Liabilities to be Covered.

1. 1. Under authority of §10-7-114(1)(b), C.R.S., the Statement of Actuarial Opinion shall apply to all in force business on the statement date, whether directly issued or assumed, regardless of when or where issued, e.g., reserves of Exhibits 5, 6 and 7, and claim liabilities in Exhibit 8, Part 1 of the Annual Statement and equivalent items in the separate account statement or statements.
   1. 2. If the appointed actuary determines, as the result of asset adequacy analysis, that a reserve should be held in addition to the aggregate reserve held by the company, and calculated in accordance with methods set forth in Article 7 of Title 10, C.R.S., the company shall establish the additional reserve.

Code of Colorado Regulations 33

1. 3. Additional reserves established under Paragraph (2) above and deemed not necessary in subsequent years may be released. Any amounts released shall be disclosed in the actuarial opinion for the applicable year. The release of such reserves would not be deemed an adoption of a lower standard of valuation.

Section 6 Statement of Actuarial Opinion Based On Asset Adequacy Analysis A. General Description. The Statement of Actuarial Opinion submitted in accordance with this section shall consist of:

1. 1. A paragraph identifying the appointed actuary and his or her qualifications (see Subsection B(1) of this regulation);
   1. 2. A scope paragraph identifying the subjects on which an opinion is to be expressed, and describing the scope of the appointed actuary’s work, including a tabulation delineating the reserves and related actuarial items that have been analyzed for asset adequacy and the method of analysis, (see Subsection B(2) of this regulation) and identifying the reserves and related actuarial items covered by the opinion that have not been so analyzed;
      1. 3. A reliance paragraph describing those areas, if any, where the appointed actuary has deferred to other experts in developing data, procedures or assumptions, (e.g., anticipated cash flows from currently owned assets, including variation in cash flows according to economic scenarios (see Subsection B(3)), supported by a statement of each such expert in the form prescribed by Subsection E; and 4. An opinion paragraph expressing the appointed actuary’s opinion with respect to the adequacy of the supporting assets to mature the liabilities (see Subsection B(4) of this regulation).
      2. 5. One or more additional paragraphs will be needed in individual company cases as follows:
         1. a. If the appointed actuary considers it necessary to state a qualification of his or her opinion;
         2. b. If the appointed actuary must disclose an inconsistency in the method of analysis or basis of asset allocation used at the prior opinion date with that used for this opinion;
         3. c. If the appointed actuary must disclose whether additional reserves as of the prior opinion date are released as of this opinion date, and the extent of the release; and/or d. If the appointed actuary chooses to add a paragraph briefly describing the assumptions that form the basis for the actuarial opinion.

B. Recommended Language. The following paragraphs are to be included in the Statement of Actuarial Opinion in accordance with this section. Language is that which in typical circumstances should be included in a Statement of Actuarial Opinion. The language may be modified as needed to meet the circumstances of a particular case, but the appointed actuary should use language that clearly expresses his or her professional judgment. However, in any event the opinion shall retain all pertinent aspects of the language provided in this section. Code of Colorado Regulations 34

1. 1. The opening paragraph should generally indicate the appointed actuary’s relationship to the company and his or her qualifications to sign the opinion. For a company actuary, the opening paragraph of the actuarial opinion should include a statement such as: “I, [name], am [title] of [insurance company name] and a member of the American Academy of Actuaries. I was appointed by, or by the authority of, the Board of Directors of said insurer to render this opinion as stated in the letter to the Commissioner dated [insert date]. I meet the Academy qualification standards for rendering the opinion and am familiar with the valuation requirements applicable to life and health insurance companies.”
   1. For a consulting actuary, the opening paragraph should include a statement such as: “I,[name], a member of the American Academy of Actuaries, am associated with the firm of [name of consulting firm]. I have been appointed by, or by the authority of, the Board of Directors of [name of company] to render this opinion as stated in the letter to the Commissioner dated [insert date]. I meet the Academy qualification standards for rendering the opinion and am familiar with the valuation requirements applicable to life and health insurance companies.”
      1. 2. The scope paragraph should include a statement such as: “I have examined the actuarial assumptions and actuarial methods used in determining reserves and related actuarial items listed below, as shown in the annual statement of the company, as prepared for filing with state regulatory officials, as of December 31, 20[ ] . Tabulated below are those reserves and related actuarial items which have been subjected to asset adequacy analysis.
      2. 3. If the appointed actuary has relied on other experts to develop certain portions of the analysis, the reliance paragraph should include a statement such as: “I have relied on [name], [title] for [e.g., “anticipated cash flows from currently owned assets, including variations in cash flows according to economic scenarios” or “certain critical aspects of the analysis performed in conjunction with forming my opinion” ], as certified in the attached statement. I have reviewed the information relied upon for reasonableness.”
         1. A statement of reliance on other experts should be accompanied by a statement by each of the experts in the form prescribed by Section 6E.
      3. 4. If the appointed actuary has examined the underlying asset and liability records, the reliance paragraph should include a statement such as:
         1. “My examination included such review of the actuarial assumptions and actuarial methods and of the underlying basic asset and liability records and such tests of the actuarial calculations as I considered necessary. I also reconciled the underlying basic asset and liability records to [exhibits and schedules listed as applicable] of the company’s current annual statement.”
      4. 5. If the appointed actuary has not examined the underlying records, but has relied upon data (e.g., listings and summaries of policies in force or asset records) prepared by the company, the reliance paragraph should include a statement such as: “In forming my opinion on [specify types of reserves], I relied upon data prepared by [name and title of company officer certifying in force records or other data] as certified in Code of Colorado Regulations 35 the attached statements. I evaluated that data for reasonableness and consistency. I also reconciled that data to [exhibits and schedules to be listed as applicable] of the company’s current annual statement. In other respects, my examination included review of the actuarial assumptions and actuarial methods used and tests of the calculations I considered necessary.”
         1. The section shall be accompanied by a statement by each person relied upon in the form prescribed by Subsection 6E of this regulation.
      5. 6. The opinion paragraph should include a statement such as: “In my opinion the reserves and related actuarial values concerning the statement items identified above:
         1. a. Are computed in accordance with presently accepted actuarial standards consistently applied and are fairly stated, in accordance with sound actuarial principles;
         2. b. Are based on actuarial assumptions that produce reserves at least as great as those called for in any contract provision as to reserve basis and method, and are in accordance with all other contract provisions;
         3. c. Meet the requirements of the Insurance Law and Regulation of the State of [state of domicile]; and are at least as great as the minimum aggregate amounts required by the state in which this statement is filed;
         4. d. Are computed on the basis of assumptions consistent with those used in computing the corresponding items in the annual statement of the preceding year-end (with any exceptions noted below); and e. Include provision for all actuarial reserves and related statement items which ought to be established.

            The reserves and related items, when considered in light of the assets held by the company with respect to such reserves and related actuarial items including, but not limited to, the investment earnings on the assets, and the considerations anticipated to be received and retained under the policies and contracts, make adequate provision, according to presently accepted actuarial standards of practice, for the anticipated cash flows required by the contractual obligations and related expenses of the company.

            The actuarial methods, considerations and analyses used in forming my opinion conform to the appropriate Actuarial Standards of Practice as promulgated by the Actuarial Standards Board, which standards form the basis of this statement of opinion.

            This opinion is updated annually as required by statute. To the best of my knowledge, there have been no material changes from the applicable date of the annual statement to the date of the rendering of this opinion which should be considered in reviewing this opinion.”

            or Code of Colorado Regulations 36 “The following material change(s) which occurred between the date of the statement for which this opinion is applicable and the date of this opinion should be considered in reviewing this opinion: (Describe the change or changes.)” Note : Choose one of the above two paragraphs, whichever is applicable. “The impact of unanticipated events subsequent to the date of this opinion is beyond the scope of this opinion. The analysis of asset adequacy portion of this opinion should be viewed recognizing that the company’s future experience may not follow all the assumptions used in the analysis.” _______________________________________ Signature of Appointed Actuary _______________________________________ Address of Appointed Actuary _______________________________________ Telephone Number of Appointed Actuary _______________________________________ Date Note : This table must be included in the actuarial opinion filed. Asset Adequacy Tested Amounts—Reserves and Liabilities Statement Item Formula (a) (b) Other Total Reserves Additional Analysis Amount Amount (1) Actuarial Method (3) (1)+(2)+(3)

            Reserves (2) (4)

Exhibit 5 A Life . . . . .

Insurance B Annuities . . . . .

C Supplementary . . . . .

Contracts Involving Life Contingencies D Accidental Death . . . . .

Benefit E Disability – Active . . . . .

F Disability – Disabled . . . . .

G Miscellaneous . . . . .

Code of Colorado Regulations 37 Total (Exhibit 5, Item . . . . .

1, Page 3)

Exhibit 6 A Active . . . . .

Life Reserve B Claim Reserve . . . . .

Total (Exhibit 6, Item . . . . .

2, Page 3)

Exhibit 7 Premium . . . . .

and Other Deposit Funds (Column 5, Line 14)

Guaranteed Interest . . . . .

Contracts (Column 2, Line 14)

Other (Column 6, Line . . . . .

14)

Supplemental . . . . .

Contracts and Annuities Certain (Column 3, Line 14)

Dividend . . . . .

Accumulations or Refunds (Column 4, Line 14)

Total (Exhibit 7, . . . . .

Column 1, Line 14)

Exhibit 8, Part 1 Life . . . . .

(Page 3, Line 4.1)

Health (Page 3, Line . . . . .

4.2)

Total (Exhibit 11, Part . . . . .

1)

Separate Accounts . . . . .

(Page 3 of the Annual Statement, Line 27)

TOTAL RESERVES . . . . .

Code of Colorado Regulations 38 IMR (General Account, Page 3, Line 9.4) .

1. Separate Accounts, (Page 3, Line 27) .

   AVR (Page 3, Line 24.1) (c)

   Net Deferred and Uncollected Premium, (Page 2, Lines 13.1 and 13.2) . Notes:

   1. (a) The additional actuarial reserves are the reserves established under Paragraph (3) of Section 5D.
      1. (b) The appointed actuary should indicate the method of analysis, determined in accordance with the standards for asset adequacy analysis referred to in Section 5C of this regulation, by means of symbols that should be defined in footnotes to the table.
         1. (c) Allocated amount of Asset Valuation Reserve (AVR).

C. Assumptions for New Issues The adoption for new issues or new claims or other new liabilities of an actuarial assumption that differs from a corresponding assumption used for prior new issues or new claims or other new liabilities is not a change in actuarial assumptions within the meaning of this Section 6.

D. Adverse Opinions If the appointed actuary is unable to form an opinion, then he or she shall refuse to issue a Statement of Actuarial Opinion. If the appointed actuary’s opinion is adverse or qualified, then he or she shall issue an adverse or qualified actuarial opinion explicitly stating the reasons for the opinion. This statement should follow the scope paragraph and precede the opinion paragraph.

E. Reliance on Information Furnished by Other Persons If the appointed actuary relies on the certification of others on matters concerning the accuracy or completeness of any data underlying the actuarial opinion, or the appropriateness of any other information used by the appointed actuary in forming the actuarial opinion, the actuarial opinion should so indicate the persons the actuary is relying upon and a precise identification of the items subject to such reliance. In addition, the persons on whom the appointed actuary relies shall provide a certification that precisely identifies the items on which the person is providing information and a statement as to the accuracy, completeness or reasonableness, as applicable, of the items. This certification shall include the signature, title, company, address and telephone number of the person rendering the certification, as well as the date on which it is signed.

F. Alternate Option

1. 1. The Standard Valuation Law gives the Commissioner broad authority to accept the valuation of a foreign insurer when that valuation meets the requirements applicable to a company domiciled in this state in the aggregate. As an alternative to the requirements of Subsection (6)(B)(6)(c) of this regulation, the opining actuary may state that the reserves “meet the requirements of the insurance laws and regulations of the State of [state of domicile] and I have verified that the company’s request to file an opinion based on the Code of Colorado Regulations 39 laws of the state of domicile has been approved and that any conditions required by the Commissioner for approval of that request have been met.” The foreign insurer should request a written statement from the Commissioner seeking this approval, prior to March 31 of the year it is to be effective. The statement should be issued no later than March 31 of this year. It shall remain valid until rescinded or modified by the Commissioner. The rescission or modifications shall be issued no later than March 31 of the year they are first effective. Subsequent to that statement being issued, if a company chooses to use this alternative, the company shall file a request to do so, along with justification for its use, no later than April 30 of the year of the opinion to be filed. The request shall be deemed approved on October 1 of that year if the Commissioner has not denied the request by that date.
   1. 2. Notwithstanding the above, the Commissioner may reject an opinion based on the laws and regulations of the state of domicile and require an opinion based on the laws of this state. If a company is unable to provide the opinion within sixty (60) days of the request or such other period of time determined by the Commissioner after consultation with the company, the Commissioner may contract an independent actuary at the company’s expense to prepare and file the opinion.

Section 7 Description of Actuarial Memorandum Including an Asset Adequacy Analysis and Regulatory Asset Adequacy Issues Summary A. General

1. 1. In accordance with § §10-7-114 and 10-14-602, C.R.S., the appointed actuary shall prepare a memorandum to the company describing the analysis done in support of his or her opinion regarding the reserves. The memorandum shall be made available for examination by the Commissioner upon his or her request, but shall be destroyed by the Division of Insurance, or returned to the company, if a written request accompanies the filing of the memorandum, after such examination and shall not be considered a record of the Division of Insurance or subject to automatic filing with the Commissioner.
   1. 2. In preparing the memorandum, the appointed actuary may rely on, and include as a part of his or her own memorandum, memoranda prepared and signed by other actuaries who are qualified within the meaning of §10-7-114(1)(e), C.R.S., with respect to the areas covered in such memoranda, and so state in the appointed actuary’s memorandum.
      1. 3. If the Commissioner requests a memorandum and no such memorandum exists or if the Commissioner finds that the analysis described in the memorandum fails to meet the standards of the Actuarial Standards Board or the standards and requirements of this regulation, the Commissioner may designate a qualified actuary to review the opinion and prepare such supporting memorandum as is required for review. The reasonable and necessary expense of the independent review shall be paid by the company but shall be directed and controlled by the Commissioner.
      2. 4. The reviewing actuary shall have the same status as the Commissioner for purposes of obtaining data from the company and the work papers and documentation of the reviewing actuary shall be retained by the Commissioner; provided, however, that any information provided by the company to the reviewing actuary and included in the work papers shall be considered as material provided by the company to the Commissioner and shall be kept confidential to the same extent as is prescribed by law with respect to other material provided by the company to the Commissioner pursuant to the statute governing this regulation. The reviewing actuary shall not be an employee of a consulting firm involved with the preparation of any prior memorandum or opinion for the Code of Colorado Regulations 40 insurer pursuant to this regulation for any one of the current year or the preceding three
         1. (3) years.
      3. 5. In accordance with §10-7-114(2), C.R.S, the appointed actuary shall prepare a regulatory asset adequacy issues summary, the contents of which are specified in Section 7C of this regulation. The regulatory asset adequacy issues summary will be submitted no later than March 15 of the year following the year for which a Statement of Actuarial Opinion based on asset adequacy is required. The regulatory asset adequacy issues summary is to be kept confidential to the same extent and under the same conditions as the actuarial memorandum.

B. Details of the Memorandum Section Documenting Asset Adequacy Analysis When an actuarial opinion is provided, the memorandum shall demonstrate that the analysis has been done in accordance with the standards for asset adequacy referred to in Section 5C of this regulation and any additional standards under this regulation. It shall specify:

1. 1. For reserves:
   1. a. Product descriptions including market description, underwriting and other aspects of a risk profile and the specific risks the appointed actuary deems significant;
      1. b. Source of liability in force;
         1. c. Reserve method and basis;
         2. d. Investment reserves;
         3. e. Reinsurance arrangements;
         4. f. Identification of any explicit or implied guarantees made by the general account in support of benefits provided through a separate account or under a separate account policy or contract and the methods used by the appointed actuary to provide for the guarantees in the asset adequacy analysis; and g. Documentation of assumptions to test reserves for the following:
         5. (1) Lapse rates (both base and excess);
         6. (2) Interest crediting rate strategy;
         7. (3) Mortality;
         8. (4) Policyholder dividend strategy;
         9. (5) Competitor or market interest rate;
         10. (6) Annuitization rates;
         11. (7) Commissions and expenses; and (8) Morbidity.

Code of Colorado Regulations 41 The documentation of the assumptions shall be such that an actuary reviewing the actuarial memorandum could form a conclusion as to the reasonableness of the assumptions ;

1. 2. For assets:
   1. a. Portfolio descriptions, including a risk profile disclosing the quality, distribution and types of assets;
      1. b. Investment and disinvestment assumptions;
         1. c. Source of asset data;
         2. d. Asset valuation bases; and e. Documentation of assumptions made for:
         3. (1) Default costs;
         4. (2) Bond call function;
         5. (3) Mortgage prepayment function;
         6. (4) Determining market value for assets sold due to disinvestment strategy; and (5) Determining yield on assets acquired through the investment strategy. The documentation of the assumptions shall be such that an actuary reviewing the actuarial memorandum could form a conclusion as to the reasonableness of the assumptions ;
      2. 3. For the analysis basis:
         1. a. Methodology;
         2. b. Rationale for inclusion or exclusion of different blocks of business and how pertinent risks were analyzed;
         3. c. Rationale for degree of rigor in analyzing different blocks of business (include in the rationale the level of “materiality” that was used in determining how rigorously to analyze different blocks of business);
         4. d. Criteria for determining asset adequacy (include in the criteria the precise basis for determining if assets are adequate to cover reserves under “moderately adverse conditions” or other conditions as specified in relevant actuarial standards of practice); and e. Whether the impact of federal income taxes was considered and the method of treating reinsurance in the asset adequacy analysis;
      3. 4. Summary of material changes in methods, procedures, or assumptions from prior year’s asset adequacy analysis;
      4. 5. Summary of results; and Code of Colorado Regulations 42 6. Conclusions.

C. Details of the Regulatory Asset Adequacy Issues Summary

1. 1. The regulatory asset adequacy issues summary shall include:
   1. a. Descriptions of the scenarios tested (Section 7D of this regulation) and the sensitivity testing done relative to those scenarios. If negative ending surplus results under certain tests in the aggregate, the actuary should describe those tests and the amount of additional reserve as of the valuation date which, if held, would eliminate the negative aggregate surplus values. Ending surplus values shall be determined by either extending the projection period until the in-force and associated assets and liabilities at the end of the projection period are immaterial or by adjusting the surplus amount at the end of the projection period by an amount that appropriately estimates the value that can reasonably be expected to arise from the assets and liabilities remaining in-force ;
      1. b. The extent to which the appointed actuary uses assumptions in the asset adequacy analysis that are materially different than the assumptions used in the previous asset adequacy analysis;
         1. c. The amount of reserves and the identity of the product lines that had been subjected to asset adequacy analysis in the prior opinion but were not subject to analysis for the current opinion;
         2. d. Comments on any interim results that may be of significant concern to the appointed actuary . For example, the impact of the insufficiency of assets to support the payment of benefits and expenses and the establishment of statutory reserves during one or more interim periods;
         3. e. The methods used by the actuary to recognize the impact of reinsurance on the company’s cash flows, including both assets and liabilities, under each of the scenarios tested; and f. Whether the actuary has been satisfied that all options whether explicit or embedded, in any asset or liability (including but not limited to those affecting cash flows embedded in fixed income securities) and equity-like features in any investments have been appropriately considered in the asset adequacy analysis.
      2. 2. The regulatory asset adequacy issues summary shall contain the name of the company for which the regulatory asset adequacy issues summary is being supplied and shall be signed and dated by the appointed actuary rendering the actuarial opinion.

D. Required Interest Scenarios For the purpose of performing the asset adequacy analysis required by this regulation, the qualified actuary is expected to follow all appropriate Actuarial Standards of Practice. In addition, the appointed actuary, for each Colorado domestic insurer, must consider, in any analysis incorporating cash flow testing as the basis for the asset adequacy analysis, the effect of at least the following interest rate scenarios:

1. 1. Level with no deviation;
   1. 2. Uniformly increasing over ten (10) years at a half percent per year and then level; Code of Colorado Regulations 43 3. Uniformly increasing at one percent per year over five (5) years and then uniformly decreasing at one percent per year to the original level at the end of ten (10) years and then level;
      1. 4. An immediate increase of three percent (3%) and then level;
      2. 5. Uniformly decreasing over ten (10) years at a half percent per year and then level;
      3. 6. Uniformly decreasing at one percent per year over five (5) years and then uniformly increasing at one percent per year to the original level at the end of ten (10) years and then level; and 7. An immediate decrease of three percent (3%) and then level. For these and other scenarios that may be used, projected interest rates for a five (5) year Treasury Note need not be reduced beyond the point where such five (5) year Treasury Note yield would be at fifty percent (50%) of its initial level. The beginning interest rates may be based on interest rates for new investments as of the valuation date similar to recent investments allocated to support the product being tested or be based on an outside index, such as Treasury yields, of assets of the appropriate length on a date close to the valuation date. Whatever method is used to determine the beginning yield curve and associated interest rates should be specifically defined. The beginning yield curve and associated interest rates should be consistent for all interest rate scenarios.

E. Conformity to Standards of Practice.

1. The memorandum shall include this statement:
   1. “Actuarial methods, considerations and analyses used in the preparation of this memorandum conform to the appropriate Standards of Practice as promulgated by the Actuarial Standards Board, which standards form the basis for this memorandum.”

F. Use of Assets Supporting the Interest Maintenance Reserve and the Asset Valuation Reserve. An appropriate allocation of assets in the amount of the interest maintenance reserve (IMR), whether positive or negative, shall be used in any asset adequacy analysis. Analysis of risks regarding asset default may include an appropriate allocation of assets supporting the asset valuation reserve (AVR); these AVR assets may not be applied for any other risks with respect to reserve adequacy. Analysis of these and other risks may include assets supporting other mandatory or voluntary reserves available to the extent not used for risk analysis and reserve support.

1. The amount of the assets used for the AVR shall be disclosed in the Table of Reserves and Liabilities of the opinion and in the memorandum. The method used for selecting particular assets or allocated portions of assets shall be disclosed in the memorandum.

G. Documentation.

1. The appointed actuary shall retain on file, for at least seven (7) years, sufficient documentation so that it will be possible to determine the procedures followed, the analyses performed, the bases for assumptions and the results obtained.

Section 8 Severability Code of Colorado Regulations 44 If any provision of this regulation or the application of it to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected. Section 9 Enforcement Noncompliance with this regulation may result, after proper notice and hearing, in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance or other laws which include the imposition of fines, issuance of cease and desist orders, and/or suspensions or revocation of license. Among others, the penalties provided for in §10-3-1108, C.R.S. may be applied. Section 10 Effective Date This amended regulation is effective November 1, 2010 Section 11 History New regulation effective September 1, 1992.

Amended regulation effective September 1, 1994.

Amended regulation effective January 1, 2004.

Amended regulation effective November 1, 2010.

Regulation 3-1-9 MINIMUM RESERVE STANDARDS FOR INDIVIDUAL AND GROUP HEALTH INSURANCE CONTRACTS Section 1 Authority Section 2 Scope and Purpose Section 3 Applicability Section 4 Definitions Section 5 Adequacy of Reserves Section 6 Categories of Reserves Section 7 Appendices Section 8 Claim Reserves Section 9 Premium Reserves Section 10 Contract Reserves Section 11 Reinsurance Section 12 Severability Section 13 Incorporated Materials Section 14 Enforcement Code of Colorado Regulations 45 Section 15 Effective Date Section 16 History Appendix A Specific Standards for Morbidity, Interest and Mortality Appendix B Glossary of Technical Terms Used Appendix C Reserves for Waiver of Premium Section 1 Authority This regulation is promulgated and adopted by the Commissioner of Insurance under the authority of § § 10-1-109, 10-16-109 and 10-16-220, C.R.S.

Section 2 Scope and Purpose The purpose of this regulation is to set forth minimum standards for reserves of insurers providing individual and group health insurance.

Section 3 Applicability These standards apply to all individual and group health sickness and accident insurance coverages except credit insurance regulated under Article 10 of Title 10 of the Colorado Revised Statutes. Section 4 Definitions A. “Annual statement” means that statement required by § § 10-3-208 and 10-14-602, C.R.S. to be filed annually, by the insurer, with the Commissioner.

B. “Commissioner” means the Insurance Commissioner of the State of Colorado.

C. "Qualified actuary" means an actuary meeting the qualifications set forth in Colorado Insurance Regulation 1-1-1 (3 CCR 702-1).

Section 5 Adequacy of Reserves When an insurer determines that adequacy of its health insurance reserves requires reserves in excess of the minimum standards specified herein, such increased reserves must be held and shall be considered the minimum reserves for that insurer.

With respect to any block of contracts, or with respect to an insurer’s health business as a whole, a prospective gross premium valuation is the ultimate test of reserve adequacy as of a given valuation date. Such a gross premium valuation will take into account, for contracts in force, in a claims status, or in a continuation of benefits status on the valuation date, the present value as of the valuation date of; all expected benefits unpaid, all expected expenses unpaid, and all unearned or expected premiums, adjusted for future premium increases reasonably expected to be put into effect. Such a gross premium valuation is to be performed whenever a significant doubt exists as to reserve adequacy with respect to any major block of contracts, or with respect to the insurer’s health business as a whole. In the event inadequacy is found to exist, immediate loss recognition shall be made and the reserves restored to adequacy. Adequate reserves (inclusive of claim, premium and contract reserves, if any) shall be held with respect to all contracts, regardless of whether contract reserves are required for such contracts under these standards.

Code of Colorado Regulations 46 Whenever minimum reserves, as defined in these standards, exceed reserve requirements as determined by a prospective gross premium valuation, such minimum reserves remain the minimum requirement under these standards.

Section 6 Categories of Reserves The following sections set forth minimum standards for three categories of health insurance reserves: claim reserves, premium reserves and contract reserves. Adequacy of an insurer’s health insurance reserves is to be determined on the basis of all three categories combined. However, these standards emphasize the importance of determining appropriate reserves for each of the three categories separately.

Section 7 Appendices These standards contain two appendices which are an integral part of the standards, and one additional "supplementary" appendix which is not part of the standards as such, but is included for explanatory and illustrative purposes only.

Appendix A. Specific minimum standards with respect to morbidity, mortality and interest, which apply to claim reserves according to year of incurral and to contract reserves according to year of issue. Appendix B. Glossary of Technical Terms used.

Appendix C. (Supplementary) Waiver of Premium Reserves. Section 8 Claim Reserves A. General

1. 1. Claim reserves are required for all incurred but unpaid claims on all health insurance policies.
   1. 2. Appropriate claim expense reserves are required with respect to the estimated expense of settlement of all incurred but unpaid claims.
      1. 3. All such reserves for prior valuation years are to be tested for adequacy and reasonableness along the lines of claim runoff schedules in accordance with the statutory financial statement including consideration of any residual unpaid liability.

B. Minimum Standards for Claim Reserves

1. 1. Disability Income
   1. a. Interest. The maximum interest rate for claim reserves is specified in Appendix A.
      1. b. Morbidity. Minimum standards with respect to morbidity are those specified in Appendix A, except that, at the option of the insurer:
         1. (1) For all claims with a duration from date of disablement of less than two (2) years, reserves may be based on the insurer’s experience, if such experience is considered credible, or upon other assumptions designed to place a sound value on the liabilities.
         2. (2) For group disability income claims with a duration from date of disablement of at least two (2) years but less than five (5) years, reserves may, with Code of Colorado Regulations 47 the prior written approval of the Commissioner, be based on the insurer’s experience for which the insurer maintains underwriting and claim administration control. The request for such approval of a plan of modification to the reserve basis must include:
         3. (a) An analysis of the credibility of the experience;
         4. (b) A description of how all of the insurer's experience is proposed to be used in setting reserves;
         5. (c) A description and quantification of the contingent risk margins in the reserves;
         6. (d) A summary of the financial impact that the proposed plan of modification would have had on the insurer’s last filed annual statement;
         7. (e) A copy of the approval of the proposed plan of modification by the commissioner of the state of domicile; and (f) Any other information deemed necessary by the Commissioner.
         8. c. Duration of Disablement. For contracts with an elimination period, the duration of disablement should be measured as dating from the time that benefits would have begun to accrue had there been no elimination period.
      2. 2. All Other Benefits
         1. a. Interest. The maximum interest rate for claim reserves is specified in Appendix A.
         2. b. Morbidity or Other Contingency. The reserve should be based on the insurer’s experience, if such experience is considered credible, or upon other assumptions designed to place a sound value on the liabilities.

C. Claim Reserve Methods Generally Any generally accepted or reasonable actuarial method or combination of methods may be used to estimate all claim liabilities. The methods used for estimating liabilities generally may be aggregate methods, or various reserve items may be separately valued. Approximations based on groupings and averages may also be employed. Adequacy of the claim reserves, however, shall be determined in the aggregate.

Section 9 Premium Reserves A. General

1. 1. Unearned premium reserves are required for all contracts with respect to the period of coverage for which premiums, other than premiums paid in advance, have been paid beyond the date of valuation.
   1. 2. If premiums due and unpaid are carried as an asset, such premiums must be treated as premiums in force, subject to unearned premium reserve determination. The value of unpaid commissions, premium taxes, and the cost of collection associated with due and unpaid premiums must be carried as an offsetting liability or as a reduction to the otherwise allowable asset.

Code of Colorado Regulations 48

1. 3. The gross premiums paid in advance for a period of coverage commencing after the next premium due date which follows the date of valuation may be appropriately discounted to the valuation date and shall be held either as a separate liability or as an addition to the unearned premium reserve which would otherwise be required as a minimum.

B. Minimum Standards for Unearned Premium Reserves

1. 1. The minimum unearned premium reserve with respect to any contract is the pro rata unearned modal premium that applies to the premium period beyond the valuation date, with such premium determined on the basis of:
   1. a. The valuation net modal premium on the contract reserve basis applying to the contract; or b. The gross modal premium for the contract if no contract reserve applies.
      1. 2. However, in no event may the sum of the unearned premium and contract reserves for any contract of the insurer subject to contract reserve requirements be less than the gross modal unearned premium reserve on any such contract, as of the date of valuation. In addition such reserve shall never be less than the expected claims for the period beyond the valuation date represented by such unearned premium reserve, to the extent not provided for elsewhere.

C. Premium Reserve Methods Generally The insurer may employ suitable approximations and estimates; including, but not limited to groupings, averages and aggregate estimation; in computing premium reserves. Such approximations or estimates should be tested periodically to determine their continuing adequacy and reliability.

Section 10 Contract Reserves A. General

1. 1. Contract reserves are required, unless otherwise specified in Paragraph 2 below, for:
   1. a. All individual and group contracts with which level premiums are used; or b. All individual and group contracts with respect to which, due to the gross premium pricing structure at issue, the value of the future benefits at any time exceeds the value of any appropriate future valuation net premiums at that time. This evaluation may be applied on a rating block basis if the total premiums for the block were developed to support the total risk assumed and expected expenses for the block each year, and a qualified actuary certifies the premium development. The actuary should state in the certification that premiums for the rating block were developed such that each year’s premium was intended to cover that year’s costs without any prefunding. If the premium is also intended to recover costs for any prior years, the actuary should also disclose the reasons for and magnitude of such recovery. The values specified in this subparagraph must be determined on the basis specified in Subsection B of this section.
      1. 2. Contracts not requiring a contract reserve are:
         1. a. Contracts which cannot be continued after one year from issue; or Code of Colorado Regulations 49 b. Contracts already in force on the effective date of these standards for which no contract reserve was required under the immediately preceding standards.
      2. 3. The contract reserve is in addition to claim reserves and premium reserves.
      3. 4. The methods and procedures for contract reserves should be consistent with those for claim reserves for any contract, or else appropriate adjustment shall be made when necessary to assure provision for the aggregate liability. The definition of the date of incurral must be the same in both determinations.
      4. 5. For contracts issued on or after January 1, 2013, the total contract reserve established must incorporate provisions for moderately adverse deviations.

B. Basis for Minimum Standards for Contract Reserves

1. 1. Morbidity or other Contingency. Minimum standards with respect to morbidity are those set forth in Appendix A. Valuation net premiums used under each contract shall have a structure consistent with the gross premium structure at issue of the contract as this relates to advancing age of insured, contract duration and period for which gross premiums have been calculated. Contracts for which tabular morbidity standards are not specified in Appendix A shall be valued using tables established for reserve purposes by a qualified actuary and acceptable to the Commissioner. The morbidity tables shall contain a pattern of incurred claims cost that reflects the underlying morbidity and must not be constructed for the primary purpose of minimizing reserves.
   1. a. In determining the morbidity assumptions, the actuary shall use assumptions that represent the best estimate of anticipated future experience, but shall not incorporate any expectation of future morbidity improvement. Morbidity improvement is a change, in the combined effect of claim frequency and the present value of future expected claim payments given that a claim has occurred, from the current morbidity tables or experience that will result in a reduction to reserves. It is not the intent of this provision to restrict the ability of the actuary to reflect the morbidity impact for a specific known event that has occurred and that is able to be evaluated and quantified.
      1. b. Business in force as of the effective date of Section 10(B)(3) may be permitted to retain the original reserve basis which may not meet the provisions of item (a) above, subject to the acceptability to the Commissioner.
      2. 2. Interest. The maximum interest rate is specified in Appendix A.
      3. 3. Termination Rates. Termination rates used in the computation of reserves shall be on the basis of a mortality table as specified in Appendix A except as noted under Subparagraphs (a) and (b) below:
         1. a. Under contracts for which premium rates are not guaranteed, and where the effects of insurer underwriting are specifically used by policy duration in the valuation morbidity standard or for return of premium or other deferred cash benefits, total termination rates may be used at ages and durations where these exceed specified mortality table rates, but not in excess of the lesser of:
         2. (1) Eighty percent (80%) of the total termination rate used in the calculation of the gross premiums, or (2) Eight percent (8%).

Code of Colorado Regulations 50

1. b. For long-term care individual policies or group certificates issued on or after January 1, 2013, the contract reserves may be established on a basis of separate:
   1. (1) Mortality as specified in Appendix A; and (2) Terminations other than mortality, where the termination rate is not to exceed:
      1. (a) For policy year one, the lesser of eighty percent (80%) of the voluntary lapse rate used in the calculation of gross premiums or six percent (6%);
         1. (b) For policy years two (2) through four (4), the lesser of eighty percent (80%) of the voluntary lapse rate used in the calculation of gross premiums or four percent (4%); and (c) For policy years five (5) and later, the lesser of one hundred percent (100%) of the voluntary lapse rate used in the calculation of gross premiums or two percent (2%), except for group insurance as defined in § 10-19-103(4)(a), C.R.S., where the 2% shall be three percent (3%).
         2. c. Where a morbidity standard specified in Appendix A is on an aggregate basis, such morbidity standard may be adjusted to reflect the effect of insurer underwriting by policy duration. The adjustments must be appropriate to the underwriting and be acceptable to the Commissioner.
      2. 4. Reserve Method.
         1. a. For insurance except long-term care and return of premium or other deferred cash benefits, the minimum reserve is the reserve calculated on the two-year full preliminary term method; that is, under which the terminal reserve is zero at the first and also the second contract anniversary.
         2. b. For long-term care insurance, the minimum reserve is the reserve calculated on the one-year full preliminary term method.
         3. c. For return of premium or other deferred cash benefits, the minimum reserve is the reserve calculated as follows:
         4. (1) On the one-year full preliminary term method if such benefits are provided at any time before the twentieth anniversary; or (2) On the two-year full preliminary term method if such benefits are only provided on or after the twentieth anniversary.
         5. d. The preliminary term method may be applied only in relation to the date of issue of a contract. Reserve adjustments introduced later, as a result of rate increases, revisions in assumptions (e.g., projected inflation rates) or for other reasons, are to be applied immediately as of the effective date of adoption of the adjusted basis.
      3. 5. Negative Reserves. Negative reserves on any benefit may be offset against positive reserves for other benefits in the same contract, but the total contract reserve with respect to all benefits combined may not be less than zero.

Code of Colorado Regulations 51

1. 6. Nonforfeiture Benefits for Long-Term Care Insurance. The contract reserve on a policy or certificate basis must not be less than the net single premium for the nonforfeiture benefits at the appropriate policy or certificate duration, where the net single premium is computed according to the specifications in this subsection.

C. Alternative Valuation Methods and Assumptions Generally Provided the contract reserve on all contracts to which an alternative method or basis is applied is not less in the aggregate than the amount determined according to the applicable standards specified above, an insurer may use any reasonable assumptions as to interest rates, termination and/or mortality rates, and rates of morbidity or other contingency. Also, subject to the preceding condition, the insurer may employ methods other than the methods stated above in determining a sound value of its liabilities under such contracts, including, but not limited to the following: the net level premium method; the one-year full preliminary term method; prospective valuation on the basis of actual gross premiums with reasonable allowance for future expenses; the use of approximations such as those involving age groupings, groupings of several years of issue, average amounts of indemnity, grouping of similar contract forms; the computation of the reserve for one contract benefit as a percentage of, or by other relation to, the aggregate contract reserves exclusive of the benefit or benefits so valued; and the use of a composite annual claim cost for all or any combination of the benefits included in the contracts valued.

D. Tests for Adequacy and Reasonableness of Contract Reserves Annually, an appropriate review shall be made of the insurer’s prospective contract liabilities on contracts valued by tabular reserves, to determine the continuing adequacy and reasonableness of the tabular reserves giving consideration to future gross premiums. The insurer shall make appropriate increments to such tabular reserves if such tests indicate that the basis of such reserves is no longer adequate, subject to the minimum standards of Section 10(B). In the event an insurer has a contract or a group of related similar contracts, for which future gross premiums will be restricted by contract, insurance department regulations, or for other reasons, such that the future gross premiums reduced by expenses for administration, commissions, and taxes will be insufficient to cover future claims, the insurer must establish contract reserves for such shortfall in the aggregate.

Section 11 Reinsurance Increases to, or credits against reserves carried, arising because of reinsurance assumed or reinsurance ceded, must be determined in a manner consistent with these minimum reserve standards and with all applicable provisions of the reinsurance contracts which affect the insurer’s liabilities. Section 12 Severability If any provision of this regulation or the application of it to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected. Section 13 Incorporated Materials The 2001 CSO Mortality Table and 2001 CSO Preferred Class Structure Mortality Table published by the American Academy of Actuaries shall mean the 2001 CSO Mortality Table and the 2001 CSO Preferred Class Structure Mortality Table as published on the effective date of this regulation and does not include later amendments to or editions of the CSO Mortality Table and the 2001 CSO Preferred Class Structure Mortality Table. A copy of the 2001 CSO Mortality Table and 2001 CSO Preferred Class Structure Mortality Table may be examined during regular business hours at the Colorado Division of Insurance, 1560 Broadway, Suite 850, Denver, Colorado, 80202, or may be found online at www.actuary.org . Code of Colorado Regulations 52 A Certified copy of the 2001 CSO Mortality Table and 2001 CSO Preferred Class Structure Mortality Table may be requested from the Division of Insurance’s Chief Actuary . A charge for certification or copies may apply.

Section 14 Enforcement Noncompliance with this regulation may result in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance, or other laws, which include the imposition of civil penalties, issuance of cease and desist orders, and/or suspensions or revocation of license, subject to the requirements of due process.

Section 15 Effective Date This amended regulation shall become effective on January 1, 2013. Section 16 History Regulation 3-1-9 effective January 31, 1993.

Amended regulation effective January 1, 2013.

APPENDIX A. SPECIFIC STANDARDS FOR MORBIDITY, INTEREST AND MORTALITY I. MORBIDITY A. Minimum morbidity standards for valuation of specified individual contract health insurance benefits are as follows:

1. 1. Disability Income Benefits Due to Accident or Sickness
   1. a. Contract Reserves:
      1. (1) Contracts issued on or after January 1, 1965 and prior to January 1, 1987: The 1964 Commissioners Disability Table (64 CDT) (published by the Health Insurance Association, copyright 1965) .
         1. (2) Contracts issued on or after January 1, 1996:
         2. (a) The 1985 Commissioners Individual Disability Tables A (85CIDA) (published in the Transactions of the Society of Actuaries , Volume XXXVII, pp.449-601); or (b) The 1985 Commissioners Individual Disability Tables B (85CIDB) (published in the Proceedings of the National Association of Insurance Commissioners , Volume 1, 1985, pp. 494-540).
         3. (3) Contracts issued during the years 1987 through 1995: Optional use of either the 1964 Table or the 1985 Tables.
         4. (4) Each insurer shall elect, with respect to all individual contracts issued in any one statement year, whether it will use Tables A or Tables B as the minimum standard. The insurer may, however, elect to use the other tables with respect to any subsequent statement year.

Code of Colorado Regulations 53

1. b. Claim Reserves:
   1. (1) For claims incurred on or after January 1, 2013:
      1. The 1985 Commissioners Individual Disability Tables A (85CIDA) with claim termination rates multiplied by the following adjustment factors: Duration Adjustment Factor Adjusted Duration Rates* Week 1 0.366 0.04831 2 0.366 0.04172 3 0.366 0.04063 4 0.366 0.04355 5 0.365 0.04088 6 0.365 0.04271 7 0.365 0.04380 8 0.365 0.04344 9 0.370 0.04292 10 0.370 0.04107 11 0.370 0.03848 12 0.370 0.03478 13 0.370 0.03034 Month 4 0.391 0.08758 5 0.371 0.07346 6 0.435 0.07531 7 0.500 0.07245 8 0.564 0.06655 9 0.613 0.05520 10 0.663 0.04705 11 0.712 0.04486 Code of Colorado Regulations 54 12 0.756 0.04309 13 0.800 0.04080 14 0.844 0.03882 15 0.888 0.03730 16 0.932 0.03448 17 0.976 0.03026 18 1.020 0.02856 19 1.049 0.02518 20 1.078 0.02264 21 1.107 0.02104 22 1.136 0.01932 23 1.165 0.01865 24 1.195 0.01792 Year 3 1.369 0.16839 4 1.204 0.10114 5 1.199 0.07434 6 and later 1.000 ** *The adjusted duration rates derived from the application of the adjustment factors to the DTS Valuation Table duration rates shown in exhibits 3a, 3b, 3c, 4 and 5, Transactions of the Society of Actuaries (TSA) XXXVII, pp. 457-463, are displayed.
         1. **Applicable DTS Valuation Table duration rate from exhibits 3c and 4 (TSA XXXVII, pp. 462-463).

            The 85CIDA table so adjusted for the computation of claim reserves shall be known as the 85CIDC (The 1985 Commissioners Individual Disability Table C).

         2. (2) For claims incurred prior to January 1, 2013:
         3. (a) The minimum morbidity standard in effect for contract reserves on currently issued contracts, as of the date the claim is incurred, or Code of Colorado Regulations 55 (b) The standard as defined in Item I.A.1.b(1) above, applied to all open claims. Once an insurer elects to calculate reserves for all open claims on the standard defined in Item I.A.1.b(1), all future valuations must be on that basis.
      2. 2. Hospital Benefits, Surgical Benefits and Maternity Benefits (Scheduled benefits or fixed time period benefits only)
         1. a. Contract Reserves:
         2. (1) Contracts issued on or after January 1, 1955, and before January 1, 1982: The 1956 Intercompany Hospital-Surgical Tables (published in the 1957 Proceedings of the National Association of Insurance Commissioners).
         3. (2) Contracts issued on or after January 1, 1982:

            The 1974 Medical Expense Tables, Table A (published in the Transactions of the Society of Actuaries (TSA), Volume XXX, pg. 63. Refer to the paper (in the same volume, pg. 9) to which this table is appended, including its discussions, for methods of adjustment for benefits not directly valued in Table A: "Development of the 1974 Medical Expense Benefits," Houghton and Wolf).

         4. b. Claim Reserves:

            No specific standard. See Item I.A.5, below.

      3. 3. Cancer Expense Benefits (Scheduled benefits or fixed time period benefits only)
         1. a. Contract Reserves:

            Contracts issued on or after January 1, 1986:

            The 1985 NAIC Cancer Claim Cost Tables (published in the Proceedings of the National Association of Insurance Commissioners , Volume 1, 1986, pp. 601- 624).

         2. b. Claim Reserves: No specific standard. See Item I.A.5, below.
      4. 4. Accidental Death Benefits
         1. a. Contract Reserves:

            Contracts issued on or after January 1, 1965:

            The 1959 Accidental Death Benefits Table (1959 ADB) (published by the Society of Actuaries, copyright 1962).

         2. b. Claim Reserves:

            Actual amount incurred.

      5. 5. Other Individual Contract Benefits.

Code of Colorado Regulations 56

1. a. Contract Reserves:
   1. For all other individual contract benefits, morbidity assumptions are to be determined as provided in the reserve standards.
      1. b. Claim Reserves:
         1. For all benefits other than disability, claim reserves are to be determined as provided in the standards.

B. Minimum morbidity standards for valuation of specified group contract health insurance benefits are as follows:

1. 1. Disability Income Benefits Due to Accident or Sickness
   1. a. Contract Reserves:
      1. (1) Contracts issued prior to January 1, 1993:
         1. The same basis, if any, as that employed by the insurer as of January 1, 1993;
         2. (2) Contracts issued on or after January 1, 1993:

            The 1987 Commissioners Group Disability Income Table (87CGDT) (published in the Transactions of the Society of Actuaries , Volume XXXIX, pp. 393-458).

         3. b. Claim Reserves:
         4. (1) For claims incurred on or after January 1, 1993:

            The 1987 Commissioners Group Disability Income Table (87CGDT) (published in the Transactions of the Society of Actuaries , Volume XXXIX, pp. 393-458);

         5. (2) For claims incurred prior to January 1, 1993:

            Use of the 87CGDT is optional.

      2. 2. Other Group Contract Benefits
         1. a. Contract Reserves:

            For all other group contract benefits, morbidity assumptions are to be determined as provided in the reserve standards.

         2. b. Claim Reserves:

            For all benefits other than disability, claim reserves are to be determined as provided in the standards.

II. INTEREST Code of Colorado Regulations 57 A. For contract reserves the maximum interest rate is the maximum rate permitted by Article 7 of Title 10, C.R.S., for the valuation of whole life insurance issued on the same date as the health insurance contract.

B. For claim reserves, for which interest discounting is expressly permitted:

1. 1. On policies or certificates that require contract reserves, the maximum interest rate is the maximum rate permitted by Article 7 of Title 10, C.R.S., for the valuation of whole life insurance issued on the same date as the claim incurral date.
   1. 2. On policies or certificates not requiring contract reserves, the maximum interest rate is the maximum rate permitted by law in the valuation of single premium immediate annuities issued on the same date as the claim incurral date, reduced by one hundred basis points.

III. MORTALITY A. Unless Subsection B or C applies, the mortality basis used shall be according to a table (but without use of selection factors) permitted by Article 7 of Title 10, C.R.S. for the valuation of whole life insurance issued on the same date as the health insurance contract.

B. For long-term care individual policies and group certificates issued on or after January 1, 2013, the mortality basis used shall be the 1994 Group Annuity Mortality Static Table (1994 GAM). The 1994 GAM table can be found in Appendix B of Colorado Insurance Regulation 4-1-7.

C. Other mortality tables adopted by the National Association of Insurance Commissioners and promulgated by the Commissioner may be requested to be used in the calculation of the minimum reserves if appropriate for the type of benefits and if approved by the Commissioner. The request for such approval must include the proposed mortality table and the reason that the standard specified in Subsection A is inappropriate.

APPENDIX B. GLOSSARY OF TECHNICAL TERMS USED As used in this valuation standard, the following terms have the following meaning: ANNUAL CLAIM COST. The net annual cost per unit of benefit before the addition of expenses, including claim settlement expenses, and a margin for profit or contingencies. For example, the annual claim cost for a $100 monthly disability benefit, for a maximum disability benefit period of one year, with an elimination period of one week, with respect to a male at age 35, in a certain occupation might be $12, while the gross premium for this benefit might be $18. The additional $6 would cover expenses and profit or contingencies.

CLAIMS ACCRUED. That portion of claims incurred on or prior to the valuation date which result in liability of the insurer for the payment of benefits for medical services which have been rendered on or prior to the valuation date, and for the payment of benefits for days of hospitalization and days of disability which have occurred on or prior to the valuation date, which the insurer has not paid as of the valuation date, but for which it is liable, and will have to pay after the valuation date. This liability is sometimes referred to as a liability for "accrued" benefits. A claim reserve, which represents an estimate of this accrued claim liability, must be established.

CLAIMS REPORTED. When an insurer has been informed that a claim has been incurred, if the date reported is on or prior to the valuation date, the claim is considered as a reported claim for annual statement purposes.

CLAIMS UNACCRUED. That portion of claims incurred on or prior to the valuation date which result in liability of the insurer for the payment of benefits for medical services expected to be rendered after the Code of Colorado Regulations 58 valuation date, and for benefits expected to be payable for days of hospitalization and days of disability occurring after the valuation date. This liability is sometimes referred to as a liability for unaccrued benefits. A claim reserve, which represents an estimate of the unaccrued claim payments expected to be made, must be established.

CLAIMS UNREPORTED. When an insurer has not been informed, on or before the valuation date, concerning a claim that has been incurred on or prior to the valuation date, the claim is considered as an unreported claim for annual statement purposes.

DATE OF DISABLEMENT. The earliest date the insured is considered as being disabled under the definition of disability in the contract, based on a doctor's evaluation or other evidence. Normally this date will coincide with the start of any elimination period. ELIMINATION PERIOD. A specified number of days, weeks, or months starting at the beginning of each period of loss, during which no benefits are payable.

GROSS PREMIUM. The amount of premium charged by the insurer. It includes the net premium (based on claim cost) for the risk, together with any loading for expenses, profit or contingencies. GROUP INSURANCE. The term group insurance includes blanket insurance and franchise insurance and any other forms of group insurance.

LEVEL PREMIUM. A premium calculated to remain unchanged throughout either the lifetime of the policy, or for some shorter projected period of years. The premium need not be guaranteed; in which case, although it is calculated to remain level, it may be changed if any of the assumptions on which it was based are revised at a later time. Generally, the annual claim costs are expected to increase each year and the insurer, instead of charging premiums that correspondingly increase each year, charges a premium calculated to remain level for a period of years or for the lifetime of the contract. In this case the benefit portion of the premium is more than needed to provide for the cost of benefits during the earlier years of the policy and less than the actual cost in the later years. The building of a prospective contract reserve is a natural result of level premiums.

MODAL PREMIUM. This refers to the gross premium paid on a contract based on a premium term which could be annual, semiannual, quarterly, monthly, or weekly. Thus, if the annual premium is $100 and if, instead, monthly premiums of $9 are paid then the modal premium is $9. NEGATIVE RESERVE. Normally the terminal reserve is a positive value. However, if the values of the benefits are decreasing with advancing age or duration it could be a negative value, called a negative reserve.

PRELIMINARY TERM RESERVE METHOD. Under this method of valuation the valuation net premium for each year falling within the preliminary term period is exactly sufficient to cover the expected incurred claims of that year, so that the terminal reserves will be zero at the end of the year. As of the end of the preliminary term period, a new constant valuation net premium (or stream of changing valuation premiums) becomes applicable such that the present value of all such premiums is equal to the present value of all claims expected to be incurred following the end of the preliminary term period. PRESENT VALUE OF AMOUNTS NOT YET DUE ON CLAIMS. The reserve for "claims unaccrued" (see definition), which may be discounted at interest.

RATING BLOCK. “Rating block” means a grouping of contracts based on common characteristics, such as a policy form or forms having similar benefit designs. Code of Colorado Regulations 59 RESERVE. The term "reserve" is used to include all items of benefit liability, whether in the nature of incurred claim liability or in the nature of contract liability relating to future periods of coverage, and whether the liability is accrued or unaccrued.

An insurer under its contracts promises benefits which result in:

1. a. Claims which have been incurred, that is, for which the insurer has become obligated to make payment, on or prior to the valuation date. On these claims, payments expected to be made after the valuation date for accrued and unaccrued benefits are liabilities of the insurer which should be provided for by establishing claim reserves; or b. Claims which are expected to be incurred after the valuation date. Any present liability of the insurer for these future claims should be provided for by the establishment of contract reserves and unearned premium reserves.

TERMINAL RESERVE. This is the reserve at the end of a contract year, and is defined as the present value of benefits expected to be incurred after that contract year minus the present value of future valuation net premiums.

UNEARNED PREMIUM RESERVE. This reserve values that portion of the premium paid or due to the insurer which is applicable to the period of coverage extending beyond the valuation date. Thus if an annual premium of $120 was paid on November 1, $20 would be earned as of December 31 and the remaining $100 would be unearned. The unearned premium reserve could be on a gross basis as in this example, or on a valuation net premium basis.

VALUATION NET MODAL PREMIUM. This is the modal fraction of the valuation net annual premium that corresponds to the gross modal premium in effect on any contract to which contract reserves apply. Thus, if the mode of payment in effect is quarterly, the valuation net modal premium is the quarterly equivalent of the valuation net annual premium.

APPENDIX C. RESERVES FOR WAIVER OF PREMIUM (Supplementary explanatory material)

Waiver of premium reserves involve several special considerations. First, the disability valuation tables promulgated by the National Association of Insurance Commissioners are based on exposures that include contracts on premium waiver as in-force contracts. Hence, contract reserves based on these tables are NOT reserves on "active lives" but rather reserves on contracts "in force." This is true for the 1964 CDT and for the 1985CIDA, 1985CIDB and 1985CIDC tables. Accordingly, tabular reserves using any of these tables should value reserves on the following basis: Claim reserves should include reserves for premiums expected to be waived, valuing as a minimum the valuation net premium being waived.

1. Premium reserves should include contracts on premium waiver as in-force contracts, valuing as a minimum the unearned modal valuation net premium being waived. Contract reserves should include recognition of the waiver of premium benefit in addition to other contract benefits provided for, valuing as a minimum the valuation net premium to be waived. If an insurer is, instead, valuing reserves on what is truly an active life table, or if a specific valuation table is not being used but the insurer’s gross premiums are calculated on a basis that includes in the projected exposure only those contracts for which premiums are being paid, then it may not be necessary to provide specifically for waiver of premium reserves. Any insurer using such a true "active life" basis Code of Colorado Regulations 60 should carefully consider, however, whether or not additional liability should be recognized on account of premiums waived during periods of disability or during claim continuation. Regulation 3-1-10 CONCERNING FINANCIAL STATEMENT FILINGS, ACCOUNTING STANDARDS AND REPORTING OF LIABILITIES Section 1 Authority Section 2 Scope and Purpose Section 3 Applicability Section 4 Rule Section 5 Severability Section 6 Enforcement Section 7 Effective Date Section 8 History Section 1 Authority This regulation is promulgated under the authority of § § 10-1-108, 10-1-109, 10-3-109, 10-3-208, 10-5- 117, 10-6-129, 10-14-505, 10-14-602, 10-16-109, and 10-16-111, Colorado Revised Statutes (C.R.S.). Section 2 Scope and Purpose Colorado insurance law provides that regulated companies must file financial statements annually with the Commissioner of Insurance. Insurers subject to the provisions of § 10-3-208, C.R.S. are required to file what is known as the convention blank adopted from year to year by the National Association of Insurance Commissioners (NAIC). Colorado law does not specifically prescribe a form of the annual statement filing for nonprofit hospital, medical-surgical, and health service corporations, health maintenance organizations, prepaid dental care plan organizations, group captive insurers and fraternal benefit societies. However, the NAIC does adopt convention blanks for each of these regulated companies and the Commissioner has been provided the authority to designate the form of the annual filing for these entities.

In addition to the annual statements, the NAIC also adopts instruction and procedure manuals for the convention blanks. These manuals include information which contributes to the body of knowledge referred to as statutory accounting practices.

The purpose of this regulation is twofold:

1. To enhance the consistency of the accounting treatment of assets, liabilities, reserves, income and expenses by setting forth the accounting standards, practices and procedures to be followed in completing all of the required annual statements.

2. To set forth the form of the financial statements to be filed for those entities which do not have the form prescribed in statute.

Section 3 Applicability Code of Colorado Regulations 61 This regulation shall apply to all Colorado domestic insurers as well as to each domestic group captive insurer, fraternal benefit society, health maintenance organization, prepaid dental care plan organization, and non-profit hospital, medical-surgical and health service corporation. Section 4 Rule A. Standards, Practices and Procedures Statutory financial statements must be completed in accordance with statutory accounting principles and practices as prescribed by Colorado insurance laws, regulations, and rulings, including the instructions, footnotes, annual statement accounting practices and procedures developed by the NAIC. These NAIC documents include the appropriate Annual Statement Instructions Manual and the Accounting Practices and Procedures Manual. These manuals provide direction, procedures, and methods of completing the annual statements and include those categories for which a company is required to establish reserves or liabilities. Liabilities and reserves which are to be established shall include, but are not necessarily limited to, life reserves, active life reserves, unearned premium reserves, loss reserves for claims both known and unknown, loss adjustment expenses both allocated and unallocated, unpaid claims, unpaid claims adjustment expenses, and accounts payable.

B. Filing

1. 1. The form of the annual statement to be filed by a group captive insurer, nonprofit hospital, medical-surgical, and health service corporation, health maintenance organization, prepaid dental care plan organization, and fraternal benefit society is the NAIC convention blank form for each of these types of entities.
   1. 2. All entities required to file with the NAIC must file on diskette and pay the NAIC filing fees.

C. Notwithstanding the foregoing, it should be noted that while the NAIC's Accounting Practices and Procedures Manual identifies and establishes generally accepted statutory accounting principles, such principles and procedures do not supersede any specific statutes, regulations, orders or rulings of the state of Colorado or this office.

Section 5 Severability If any provision of this regulation or the application of it to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected. Section 6 Enforcement Noncompliance with this regulation may result in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance, or other laws, which include the imposition of civil penalties, issuance of cease and desist orders, and/or suspensions or revocation of license, subject to the requirements of due process.

Section 7 Effective Date This regulation shall be effective July 1, 2012.

Section 8 History Originally effective November 1, 1992.

Amended effective April 1, 2001.

Code of Colorado Regulations 62 Amended effective July 1, 2012.

Regulation 3-1-11 RISK BASED CAPITAL (RBC) FOR INSURERS Section 1 Authority Section 2 Scope and Purpose Section 3 Applicability Section 4 Definitions Section 5 RBC Reports Section 6 Company Action Level Event Section 7 Regulatory Action Level Event Section 8 Authorized Control Level Event Section 9 Mandatory Control Level Event Section 10 Hearings Section 11 Confidentiality and Prohibition on Announcements Section 12 Foreign Insurers Section 13 Severability Section 14 Notices Section 15 Enforcement Section 16 Effective Date Section 17 History Section 1 Authority This Regulation is promulgated under the authority of § § 10-1-109, 10-3-201(1)(b), 10-6-129, and 10-14- 604, C.R.S.

Section 2 Scope and Purpose The purpose of this Regulation is to establish standards for the minimum capital and surplus to be maintained by insurers, captive insurers and fraternal benefit societies as provided by § § 10-3-201(1)(b), 10-6-116, and 10-14-604, C.R.S. These standards provide for the early detection of a potentially hazardous or otherwise dangerous condition of an insurer in order to protect its insureds and the general public. This Regulation additionally provides for reporting, corrective measures, and enforcement actions available to the Commissioner.

Section 3 Applicability This Regulation shall apply to all insurers as defined in Section 4 below. Code of Colorado Regulations 63 Section 4 Definitions As used in this Regulation, these terms shall have the following meanings:

A. "Adjusted RBC Report" means an RBC report which has been adjusted by the Commissioner in accordance with Section 5E.

B. "Corrective Order" means an order issued by the Commissioner pursuant to § 10-3-404, C.R.S., specifying corrective actions which the Commissioner has determined are required.

C. "Domestic insurer" means any insurance company or fraternal benefit society domiciled in this State.

D. "Foreign insurer" means any insurance company or fraternal benefit society that is licensed to do business in this State, but is not domiciled in this State.

E. "Life and/or health insurer" means any insurance company licensed as a life insurer, health insurer, fraternal benefit society, or a licensed property and casualty insurer writing only accident and health insurance.

F. "NAIC" means the National Association of Insurance Commissioners.

G. "Negative trend" means, with respect to a life and/or health insurer, a negative trend over a period of time, as determined in accordance with the "Trend Test Calculation" included in the Life RBC Instructions.

H. "Property and casualty insurer" means any licensed property and casualty insurance company, including a group captive insurance company organized pursuant to the provisions of Article 6 of Title 10, C.R.S., but shall not include monoline mortgage guaranty insurers, financial guaranty insurers, title insurers and county mutual protective associations organized on an assessment basis pursuant to § 10-12-101(2), C.R.S.

I. "RBC instructions" means the RBC Report, including risk-based capital instructions and procedures adopted by the NAIC, as part of the required annual filing on the NAIC convention blank.

J. "RBC Level" means an insurer’s Company Action Level RBC, Regulatory Action Level RBC, Authorized Control Level RBC, or Mandatory Control Level RBC, where:

1. 1. "Company Action Level RBC" means, with respect to any insurer, the product of 2.0 and its Authorized Control Level RBC;
   1. 2. "Regulatory Action Level RBC" means the product of 1.5 and its Authorized Control Level RBC;
      1. 3. "Authorized Control Level RBC" means the number determined under the risk based capital formula in accordance with the RBC Instructions;
      2. 4. "Mandatory Control Level RBC" means the product of .70 and the Authorized Control Level RBC.

K. "RBC Plan" means a comprehensive financial plan containing the elements specified in Section 6B. If the Commissioner rejects the RBC Plan, and it is revised by the insurer, with or without the Commissioner’s recommendation, the plan shall be called the "Revised RBC Plan." L. "RBC Report" means the report required in Section 5 of this Regulation. Code of Colorado Regulations 64 M. "Total Adjusted Capital" means the sum of:

1. 1. An insurer’s statutory capital and surplus as determined in accordance with the statutory accounting applicable to the annual financial statements; and 2. Such other items, if any, as the RBC Instructions may provide. Section 5 RBC Reports

A. A domestic insurer shall, on or prior to each March 1 (the "filing date"), prepare and submit to the Commissioner a report of its RBC Levels as of the end of the calendar year just ended, in a form and containing such information as is required by the RBC Instructions. In addition, a domestic insurer shall file its RBC Report:

1. 1. With the NAIC in accordance with the RBC Instructions; and 2. With the insurance commissioner in any state in which the insurer is authorized to do business, if the insurance commissioner has notified the insurer of its request in writing, in which case the insurer shall file its RBC Report not later than the later of:
   1. a. Fifteen (15) days from the receipt of notice to file its RBC Report with that state; or b. The filing date.

B. A life and/or health insurer’s RBC shall be determined in accordance with the formula set forth in the RBC Instructions. The formula shall take the following into account (and may adjust for the covariance between) determined in each case by applying the factors in the manner set forth in the RBC Instructions:

1. 1. The risk with respect to the insurer’s assets;
   1. 2. The risk of adverse insurance experience with respect to the insurer’s liabilities and obligations;
      1. 3. The interest rate risk with respect to the insurer’s business; and 4. All other business risks and such other relevant risks as are set forth in the RBC Instructions.

C. A property and casualty insurer’s RBC shall be determined in accordance with the formula set forth in the RBC Instructions. The formula shall take the following into account (and may adjust for the covariance between) determined in each case by applying the factors in the manner set forth in the RBC Instructions:

1. 1. Asset risk;
   1. 2. Credit risk;
      1. 3. Underwriting risk; and 4. All other business risks and such other relevant risks as are set forth in the RBC Instructions.

D. An excess of capital over the amount produced by the risk-based capital requirements contained in this Regulation and the formulas, schedules and instructions referenced in this Regulation is desirable in the business of insurance. Accordingly, insurers should seek to maintain capital above the RBC Levels required by this Regulation. Additional capital is used and useful in the Code of Colorado Regulations 65 insurance business and helps to secure an insurer against various risks inherent in, or affecting, the business of insurance and not accounted for or only partially measured by the risk-based capital requirements contained in this Regulation.

E. If a domestic insurer files an RBC Report which in the judgment of the Commissioner is inaccurate, then the Commissioner shall adjust the RBC Report to correct the inaccuracy and shall notify the insurer of the adjustment. The notice shall contain a statement of the reason for the adjustment. An RBC Report as so adjusted is referred to as an "Adjusted RBC Report." Section 6 Company Action Level Event A. "Company Action Level Event" means any of the following events:

1. 1. The filing of an RBC Report by an insurer, which indicates that:
   1. a. The insurer’s Total Adjusted Capital is greater than or equal to its Regulatory Action Level RBC but less than its Company Action Level RBC;
      1. b. If a life and/or health insurer, the insurer has Total Adjusted Capital which is greater than or equal to its Company Action Level RBC but less than the product of its Authorized Control Level RBC and 2.5 and has a negative trend; or c. If a property and casualty insurer, the insurer has Total Adjusted Capital which is greater than or equal to its Company Action Level RBC but less than the product of its Authorized Control Level RBC and 3.0 and triggers the trend test determined in accordance with the trend test calculation included in the Property and Casualty RBC Instructions;
      2. 2. The notification by the Commissioner to the insurer of an Adjusted RBC Report that indicates an event in Paragraph (1) of this subsection, provided the insurer does not challenge the Adjusted RBC Report under Section 10; or 3. If, pursuant to Section 10, an insurer challenges an Adjusted RBC Report that indicates the event in Paragraph (1) of this subsection, the notification by the Commissioner to the insurer that the Commissioner has, after a hearing, rejected the insurer’s challenge.

B. In the event of a Company Action Level Event, the insurer shall prepare and submit to the Commissioner an RBC Plan which shall:

1. 1. Identify the conditions which contribute to the Company Action Level Event;
   1. 2. Contain proposals of corrective actions which the insurer intends to take and that would be expected to result in the elimination of the Company Action Level Event;
      1. 3. Provide projections of the insurer’s financial results in the current year and at least the four (4) succeeding years, both in the absence of proposed corrective actions and giving effect to the proposed corrective actions, including projections of statutory operating income, net income, capital and surplus. (The projections for both new and renewal business might include separate projections for each major line of business and separately identify each significant income, expense and benefit component);
      2. 4. Identify the key assumptions impacting the insurer’s projections and the sensitivity of the projections to the assumptions; and Code of Colorado Regulations 66 5. Identify the quality of, and problems associated with, the insurer’s business, including but not limited to its assets, anticipated business growth and associated surplus strain, extraordinary exposure to risk, mix of business and use of reinsurance, if any, in each case.

C. The RBC Plan shall be submitted:

1. 1. Within forty-five (45) days of the Company Action Level Event; or 2. If the insurer challenges an Adjusted RBC Report pursuant to Section 10, within forty-five (45) days after notification to the insurer that the Commissioner has, after a hearing, rejected the insurer’s challenge.

D. Within sixty (60) days after the submission by an insurer of an RBC Plan to the Commissioner, the Commissioner shall notify the insurer whether the RBC Plan shall be implemented or is, in the judgment of the Commissioner, unsatisfactory. If the Commissioner determines the RBC Plan is unsatisfactory, the notification to the insurer shall set forth the reasons for the determination, and may set forth proposed revisions which will render the RBC Plan satisfactory, in the judgment of the Commissioner. Upon notification from the Commissioner, the insurer shall prepare a Revised RBC Plan, which may incorporate by reference any revisions proposed by the Commissioner, and shall submit the Revised RBC Plan to the Commissioner:

1. 1. Within forty-five (45) days after the notification from the Commissioner; or 2. If the insurer challenges the notification from the Commissioner under Section 10, within forty- five (45) days after a notification to the insurer that the Commissioner has, after a hearing, rejected the insurer’s challenge.

E. In the event of a notification by the Commissioner to an insurer that the insurer’s RBC Plan or Revised RBC Plan is unsatisfactory, the Commissioner may at the Commissioner’s discretion, subject to the insurer’s right to a hearing under Section 10, specify in the notification that the notification constitutes a Regulatory Action Level Event.

F. Every domestic insurer that files an RBC Plan or Revised RBC Plan with the Commissioner shall file a copy of the RBC Plan or Revised RBC Plan with the insurance commissioner or other regulatory authority in any state in which the insurer is authorized to do business if:

1. 1. Such state has a provision substantially similar to Section 11A; and 2. The insurance commissioner of that state has notified the insurer of its request for the filing in writing, in which case the insurer shall file a copy of the RBC Plan or Revised RBC Plan in that state no later than the later of:
   1. a. Fifteen (15) days after the receipt of notice to file a copy of its RBC Plan or Revised RBC Plan with the state; or b. The date on which the RBC Plan or Revised RBC Plan is filed under Section 6C and 6D of this Regulation.

Section 7 Regulatory Action Level Event A. "Regulatory Action Level Event" means any of the following events: Code of Colorado Regulations 67

1. 1. The filing of an RBC Report by the insurer which indicates that the insurer’s Total Adjusted Capital is greater than or equal to its Authorized Control Level RBC but less than its Regulatory Action Level RBC;
   1. 2. Notification by the Commissioner to an insurer of an Adjusted RBC Report that indicates the event in Paragraph (1), provided the insurer does not challenge the Adjusted RBC Report under Section 10;
      1. 3. If, pursuant to Section 10, the insurer challenges an Adjusted RBC Report that indicates the event in Paragraph (1), the notification by the Commissioner to the insurer that the Commissioner has, after a hearing, rejected the insurer’s challenge;
      2. 4. The failure of the insurer to file an RBC Report by the filing date, unless the insurer has provided an explanation for such failure which is satisfactory to the Commissioner and has cured the failure within ten (10) days after the filing date;
      3. 5. The failure of the insurer to submit an RBC Plan to the Commissioner within the time period set forth in Section 6C of this Regulation;
      4. 6. Notification by the Commissioner to the insurer that:
         1. a. The RBC Plan or Revised RBC Plan submitted by the insurer is, in the judgment of the Commissioner, unsatisfactory; and b. Such notification constitutes a Regulatory Action Level Event with respect to the insurer, provided the insurer has not challenged the determination under Section 10;
      5. 7. If, pursuant to Section 10, the insurer challenges a determination by the Commissioner under Paragraph (6), the notification by the Commissioner to the insurer that the Commissioner has, after a hearing, rejected such challenge;
      6. 8. Notification by the Commissioner to the insurer that the insurer has failed to adhere to its RBC Plan or Revised RBC Plan, but only if the failure has a substantial adverse effect on the ability of the insurer to eliminate the Company Action Level Event in accordance with its RBC Plan or Revised RBC Plan and the Commissioner has so stated in the notification, provided the insurer has not challenged the determination under Section 10; or 9. If, pursuant to Section 10, the insurer challenges a determination by the Commissioner under Paragraph (8), the notification by the Commissioner to the insurer that the Commissioner has, after a hearing, rejected the challenge.

B. In the event of a Regulatory Action Level Event the Commissioner shall:

1. 1. Require the insurer to prepare and submit an RBC Plan or, if applicable, a Revised RBC Plan;
   1. 2. Perform such examination or analysis as the Commissioner deems necessary of the assets, liabilities and operations of the insurer including a review of its RBC Plan or Revised RBC Plan; and 3. Subsequent to the examination or analysis, issue an order specifying such corrective actions as the Commissioner shall determine are required (a "Corrective Order").

C. In determining corrective actions, the Commissioner may take into account factors the Commissioner deems relevant with respect to the insurer based upon the Commissioner’s examination or Code of Colorado Regulations 68 analysis of the assets, liabilities and operations of the insurer, including, but not limited to, the results of any sensitivity tests undertaken pursuant to the RBC Instructions. The RBC Plan or Revised RBC Plan shall be submitted:

1. 1. Within forty-five (45) days after the occurrence of the Regulatory Action Level Event;
   1. 2. If the insurer challenges an Adjusted RBC Report pursuant to Section 10 and the challenge is not frivolous in the judgment of the Commissioner, within forty-five (45) days after the notification to the insurer that the Commissioner has, after a hearing, rejected the insurer’s challenge; or 3. If the insurer challenges a Revised RBC Plan pursuant to Section 10 and the challenge is not frivolous in the judgment of the Commissioner, within forty-five (45) days after the notification to the insurer that the Commissioner has, after a hearing, rejected the insurer’s challenge.

D. The Commissioner may retain actuaries and investment experts and other consultants as may be necessary in the judgment of the Commissioner to review the insurer’s RBC Plan or Revised RBC Plan, examine or analyze the assets, liabilities and operations of the insurer and formulate the Corrective Order with respect to the insurer. The fees, costs and expenses relating to consultants shall be borne by the affected insurer or such other party as directed by the Commissioner.

Section 8 Authorized Control Level Event A. "Authorized Control Level Event" means any of the following events:

1. 1. The filing of an RBC Report by the insurer which indicates that the insurer’s Total Adjusted Capital is greater than or equal to its Mandatory Control Level RBC but less than its Authorized Control Level RBC;
   1. 2. The notification by the Commissioner to the insurer of an Adjusted RBC Report that indicates the event in Paragraph (1), provided the insurer does not challenge the Adjusted RBC Report under Section 10;
      1. 3. If, pursuant to Section 10, the insurer challenges an Adjusted RBC Report that indicates the event in Paragraph (1), notification by the Commissioner to the insurer that the Commissioner has, after a hearing, rejected the insurer’s challenge;
      2. 4. The failure of the insurer to respond, in a manner satisfactory to the Commissioner, to a Corrective Order (provided the insurer has not challenged the Corrective Order under Section 10); or 5. If the insurer has challenged a Corrective Order under Section 10 and the Commissioner has, after a hearing, rejected the challenge or modified the Corrective Order, the failure of the insurer to respond, in a manner satisfactory to the Commissioner, to the Corrective Order subsequent to rejection or modification by the Commissioner.

B. In the event of an Authorized Control Level Event with respect to an insurer, the Commissioner shall:

1. 1. Take such actions as are required under Section 7 regarding an insurer with respect to which an Regulatory Action Level Event has occurred; or 2. If the Commissioner deems it to be in the best interests of the policyholders and creditors of the insurer and of the public, take such actions as are necessary to cause the insurer to Code of Colorado Regulations 69 be placed under regulatory control pursuant to § 10-3-501 et seq., C.R.S. In the event the Commissioner takes such actions, the Authorized Control Level Event shall be deemed sufficient grounds for the Commissioner to take action pursuant to § 10-3-501 et seq., C.R.S., and the Commissioner shall have the rights, powers and duties with respect to the insurer as are set forth in § 10-3-501 et seq., C.R.S. In the event the Commissioner takes actions under this paragraph pursuant to an Adjusted RBC Report, the insurer shall be entitled to such protections as are afforded to insurers under the provisions of § 10-3-501 et seq., C.R.S.

Section 9 Mandatory Control Level Event A. "Mandatory Control Level Event" means any of the following events:

1. 1. The filing of an RBC Report which indicates that the insurer’s Total Adjusted Capital is less than its Mandatory Control Level RBC;
   1. 2. Notification by the Commissioner to the insurer of an Adjusted RBC Report that indicates the event in Paragraph (1), provided the insurer does not challenge the Adjusted RBC Report under Section 10; or 3. If, pursuant to Section 10, the insurer challenges an Adjusted RBC Report that indicates the event in Paragraph (1), notification by the Commissioner to the insurer that the Commissioner has, after a hearing, rejected the insurer’s challenge.

B. In the event of a Mandatory Control Level Event:

1. 1. With respect to a life and/or health insurer, the Commissioner shall take such actions as are necessary to place the insurer under regulatory control pursuant to § 10-3-501 et seq., C.R.S. In that event, the Mandatory Control Level Event shall be deemed sufficient grounds for the Commissioner to take action under § 10-3-501 et seq., C.R.S., and the Commissioner shall have the rights, powers and duties with respect to the insurer as are set forth in § 10-3-501 et seq., C.R.S.. If the Commissioner takes actions pursuant to an Adjusted RBC Report, the insurer shall be entitled to the protections of § 10-3-501 et seq., C.R.S. pertaining to summary proceedings. Notwithstanding any of the foregoing, the Commissioner may forego action for up to ninety (90) days after the Mandatory Control Level Event if the Commissioner finds there is a reasonable expectation that the Mandatory Control Level Event may be eliminated within the ninety (90) day period.
   1. 2. With respect to a property and casualty insurer, the Commissioner shall take such actions as are necessary to place the insurer under regulatory control pursuant to § 10-3-501 et seq., C.R.S., or, in the case of an insurer which is writing no business and which is running-off its existing business, may allow the insurer to continue its run-off under the supervision of the Commissioner. In either event, the Mandatory Control Level Event shall be deemed sufficient grounds for the Commissioner to take action under § 10-3- 501 et seq., C.R.S., and the Commissioner shall have the rights, powers and duties with respect to the insurer as are set forth in § 10-3-501 et seq., C.R.S. If the Commissioner takes actions pursuant to an Adjusted RBC Report, the insurer shall be entitled to the protections of § 10-3-501 et seq., C.R.S. pertaining to summary proceedings. Notwithstanding any of the foregoing, the Commissioner may forego action for up to ninety (90) days after the Mandatory Control Level Event if the Commissioner finds there is a reasonable expectation that the Mandatory Control Level Event may be eliminated within the ninety (90) day period.

Section 10 Hearings Code of Colorado Regulations 70 Upon the occurrence of any of the following events, the insurer shall have the right to a confidential departmental hearing pursuant to § 24-4-105, C.R.S., on a record, at which the insurer may challenge any determination or action by the Commissioner. The insurer shall notify the Commissioner of its request for a hearing within five (5) days after the notification by the Commissioner under Subsection A, B, C or D. Upon receipt of the insurer’s request for a hearing, the Commissioner shall set a date for the hearing, which shall be no less than ten (10) nor more than thirty (30) days after the date of the insurer’s request. The events include:

A. Notification to an insurer by the Commissioner of an Adjusted RBC Report; or B. Notification to an insurer by the Commissioner that:

1. 1. The insurer’s RBC Plan or Revised RBC Plan is unsatisfactory; and 2. Such notification constitutes a Regulatory Action Level Event with respect to such insurer; or

C. Notification to an insurer by the Commissioner that the insurer has failed to adhere to its RBC Plan or Revised RBC Plan and that such failure has a substantial adverse effect on the ability of the insurer to eliminate the Company Action Level Event with respect to the insurer in accordance with its RBC Plan or Revised RBC Plan; or D. Notification to an insurer by the Commissioner of a Corrective Order with respect to the insurer. Section 11 Confidentiality and Prohibition on Announcements A. All RBC Reports (to the extent the information therein is not required to be set forth in a publicly available annual statement schedule) and RBC Plans (including the results or report of any examination or analysis of an insurer performed pursuant hereto and any Corrective Order issued by the Commissioner pursuant to examination or analysis) with respect to a domestic insurer or foreign insurer that are in the possession or control of the Commissioner shall be confidential by law and privileged, pursuant to § 24-72-204(3)(a)(IV), C.R.S., and shall not be subject to § 24- 72-201, et. seq. C.R.S., shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any private civil action. However, the Commissioner is authorized to use the documents, materials or other information in the furtherance of any regulatory or legal action brought as a part of the Commissioner’s official duties.

B. Neither the Commissioner nor any person who received documents, materials or other information while acting under the authority of the Commissioner shall be permitted or required to testify in any private civil action concerning any confidential documents, materials or information subject to Subsection A.

C. In order to assist in the performance of the Commissioner’s duties, the Commissioner:

1. 1. May share documents, materials or other information, including the confidential and privileged documents, materials or information subject to Subsection A, with other state, federal and international regulatory agencies, with the NAIC and its affiliates and subsidiaries, and with state, federal and international law enforcement authorities, provided that the recipient agrees to maintain the confidentiality and privileged status of the document, material or other information; and 2. May receive documents, materials or information, including otherwise confidential and privileged documents, materials or information, from the NAIC and its affiliates and subsidiaries, and from regulatory and law enforcement officials of other foreign or domestic jurisdictions, and shall maintain as confidential or privileged any document, material or information received with notice or the understanding that it is confidential or Code of Colorado Regulations 71 privileged under the laws of the jurisdiction that is the source of the document, material or information.

D. No waiver of any applicable privilege or claim of confidentiality in the documents, materials or information shall occur as a result of disclosure to the Commissioner under this section or as a result of sharing as authorized in Section 11C.

E. The comparison of an insurer’s Total Adjusted Capital to any of its RBC Levels is a regulatory tool which may indicate the need for possible corrective action with respect to the insurer, and is not intended as a means to rank insurers generally. Therefore, except as otherwise required under the provisions of this Regulation, the making, publishing, disseminating, circulating or placing before the public, or causing, directly or indirectly to be made, published, disseminated, circulated or placed before the public, in a newspaper, magazine or other publication, or in the form of a notice, circular, pamphlet, letter or poster, or over any radio or television station, or in any other way, an advertisement, announcement or statement containing an assertion, representation or statement with regard to the RBC Levels of any insurer, or of any component derived in the calculation, by any insurer, agent, broker or other person engaged in any manner in the insurance business would be misleading and a violation of § 10-3-1104, C.R.S., and is therefore prohibited; provided, however, that if any materially false statement with respect to the comparison regarding an insurer’s Total Adjusted Capital to its RBC Levels (or any of them) or an inappropriate comparison of any other amount to the insurers’ RBC Levels is published in any written publication and the insurer is able to demonstrate to the Commissioner with substantial proof the falsity of such statement, or the inappropriateness, as the case may be, then the insurer may publish an announcement in a written publication if the sole purpose of the announcement is to rebut the materially false statement.

Section 12 Foreign Insurers A. Any foreign insurer shall, upon the written request of the Commissioner, submit to the Commissioner an RBC Report as of the end of the calendar year just ended the later of:

1. 1. The date an RBC Report would be required to be filed by a domestic insurer under this Regulation; or 2. Fifteen (15) days after the request is received by the foreign insurer.

B. Any foreign insurer shall, at the written request of the Commissioner, promptly submit to the Commissioner a copy of any RBC Plan that is filed with the insurance commissioner of any other state.

C. In the event of a Company Action Level Event, Regulatory Action Level Event or Authorized Control Level Event with respect to any foreign insurer as determined under the RBC statute or regulation applicable in the state of domicile of the insurer (or, if no RBC statute or regulation is in force in that state, under the provisions of this Regulation), if the insurance commissioner of the state of domicile of the foreign insurer fails to require the foreign insurer to file an RBC Plan in the manner specified under that state’s RBC statute or regulation (or, if no RBC statute or regulation is in force in that state, under Section 6 hereof), the Commissioner may require the foreign insurer to file an RBC Plan with the Commissioner. In such event, the failure of the foreign insurer to file an RBC Plan with the Commissioner shall be grounds to order the insurer to cease and desist from writing new insurance business in this State.

D. In the event of a Mandatory Control Level Event with respect to a foreign insurer, if no domiciliary receiver has been appointed with respect to the foreign insurer under the rehabilitation and liquidation statute applicable in the state of domicile of the foreign insurer, the Commissioner may make application to the Denver District Court permitted under § 10-3-501 et. seq., C.R.S., with Code of Colorado Regulations 72 respect to the liquidation of property of foreign insurers found in this State, and the occurrence of the Mandatory Control Level Event shall be considered adequate grounds for the application. Section 13 Severability If any provision of this Regulation or the application of it to any person or circumstance is for any reason held to be invalid, the remainder of this Regulation shall not be affected. Section 14 Notices All notices by the Commissioner to an insurer which may result in regulatory action thereunder shall be effective upon dispatch if transmitted by registered or certified mail, or in the case of any other transmission shall be effective upon the insurer's receipt of such notice. Section 15 Enforcement Noncompliance with this regulation may result in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance, or other laws, which include the imposition of civil penalties, issuance of cease and desist orders, and/or suspensions or revocation of license, subject to the requirements of due process.

Section 16 Effective Date This Regulation shall become effective on August 1, 2013. Section 17 History Originally effective March 31, 1994.

Amended Regulation, effective August 31, 1997.

Amended Regulation, effective November 1, 1999.

Amended Regulation, effective April 1, 2002.

Repealed and Repromulgated Regulation, effective February 1, 2012 Amended Regulation, effective August 1, 2013 Regulation 3-1-12 RISK BASED CAPITAL (RBC) FOR HEALTH ORGANIZATIONS Section 1 Authority Section 2 Scope and Purpose Section 3 Applicability Section 4 Definitions Section 5 RBC Reports Section 6 Company Action Level Event Section 7 Regulatory Action Level Event Code of Colorado Regulations 73 Section 8 Authorized Control Level Event Section 9 Mandatory Control Level Event Section 10 Hearings Section 11 Confidentiality and Prohibition on Announcements Section 12 Foreign Health organizations Section 13 Severability Section 14 Notices Section 15 Enforcement Section 16 Effective Date Section 17 History Section 1 Authority This Regulation is promulgated under the authority of § § 10-16-310(3) and 10-16-411(2), C.R.S. Section 2 Scope and Purpose The purpose of this Regulation is to establish standards for the minimum capital and surplus to be maintained by health organizations as provided by § § 10-16-310 and 10-16-411, C.R.S. These standards provide for the early detection of a potentially hazardous or otherwise dangerous condition of a health organization in order to protect its enrollees/members and the general public. This Regulation additionally provides for reporting, corrective measures, and enforcement actions available to the Commissioner.

Section 3 Applicability This Regulation shall apply to all health organizations defined in Section 4 below. Section 4 Definitions As used in this Regulation, these terms shall have the following meanings:

A. "Adjusted RBC Report" means an RBC report which has been adjusted by the Commissioner in accordance with Section 5E.

B. "Corrective Order" means an order issued by the Commissioner pursuant to § 10-3-404, C.R.S., specifying corrective actions which the Commissioner has determined are required.

C. "Domestic health organization" means a health organization domiciled in this State.

D. "Foreign health organization" means a health organization that is licensed to do business in this State, but is not domiciled in this State.

E. "Health organization" means a health maintenance organization, nonprofit hospital medical-surgical and health service corporation, or other managed care organization. This definition does not include an organization that is licensed as either a life and health insurer or a property and Code of Colorado Regulations 74 casualty insurer, and that is otherwise subject to either the life or property and casualty RBC requirements.

F. "NAIC" means the National Association of Insurance Commissioners.

G. "RBC instructions" means the RBC Report, including risk-based capital instructions and procedures adopted by the NAIC, as part of the required annual filing on the NAIC convention blank.

H. "RBC Level" means a health organization’s Company Action Level RBC, Regulatory Action Level RBC, Authorized Control Level RBC, or Mandatory Control Level RBC where:

1. 1. "Company Action Level RBC" means, with respect to any health organization, the product of
   1. 2.0 and its Authorized Control Level RBC;
      1. 2. "Regulatory Action Level RBC" means the product of 1.5 and its Authorized Control Level RBC;
      2. 3. "Authorized Control Level RBC" means the number determined under the risk-based capital formula in accordance with the RBC Instructions;
      3. 4. "Mandatory Control Level RBC" means the product of .70 and the Authorized Control Level RBC.

I. "RBC Plan" means a comprehensive financial plan containing the elements specified in Section 6B. If the Commissioner rejects the RBC Plan, and it is revised by the health organization, with or without the Commissioner’s recommendation, the plan shall be called the "Revised RBC Plan." J. "RBC Report" means the report required in Section 5 of this Regulation.

K. "Total Adjusted Capital" means the sum of:

1. 1. A health organization’s statutory capital and surplus (i.e. net worth) as determined in accordance with the statutory accounting applicable to the annual financial statements; and 2. Such other items, if any, as the RBC Instructions may provide. Section 5 RBC Reports

A. A domestic health organization shall, on or prior to each March 1 (the "filing date"), prepare and submit to the Commissioner a report of its RBC Levels as of the end of the calendar year just ended, in a form and containing such information as is required by the RBC Instructions. In addition, a domestic health organization shall file its RBC Report:

1. 1. With the NAIC in accordance with the RBC Instructions; and 2. With the insurance commissioner in any state in which the health organization is authorized to do business, if the insurance commissioner has notified the health organization of its request in writing, in which case the health organization shall file its RBC Report not later than the later of:
   1. a. Fifteen (15) days from the receipt of notice to file its RBC Report with that state; or b. The filing date.

Code of Colorado Regulations 75 B. A health organization’s RBC shall be determined in accordance with the formula set forth in the RBC Instructions. The formula shall take the following into account (and may adjust for the covariance between) determined in each case by applying the factors in the manner set forth in the RBC Instructions.

1. 1. Asset risk;
   1. 2. Credit risk;
      1. 3. Underwriting risk; except domestic and foreign health organizations having contractual relations which may be subject to § 10-16-705(5)(a), C.R.S. are not permitted to take managed care credit for the arrangement unless they have an approved alternative payment mechanism under § 10-16-705(5)(b), C.R.S.; and 4. All other business risks and such other relevant risks as are set forth in the RBC Instructions.

C. An excess of capital (i.e. net worth) over the amount produced by the risk-based capital requirements contained in this Regulation, and the formulas, schedules and instructions referenced in this Regulation is desirable in the business of health insurance. Accordingly, health organizations should seek to maintain capital above the RBC Levels required by this Regulation. Additional capital is used and useful in the insurance business and helps to secure a health organization against various risks inherent in, or affecting, the business of insurance and not accounted for or only partially measured by the risk-based capital requirements contained in this Regulation.

D. If a domestic health organization files an RBC Report which in the judgment of the Commissioner is inaccurate, then the Commissioner shall adjust the RBC Report to correct the inaccuracy and shall notify the health organization of the adjustment. The notice shall contain a statement of the reason for the adjustment. An RBC Report as so adjusted is referred to as an "Adjusted RBC Report."

Section 6 Company Action Level Event A. "Company Action Level Event" means any of the following events:

1. 1. The filing of an RBC Report by a health organization, which indicates that the health organization’s Total Adjusted Capital is greater than or equal to its Regulatory Action Level RBC but less than its Company Action Level RBC;
   1. 2. The filing of an RBC Report by a health organization, which indicates that the health organization’s Total Adjusted Capital is greater than or equal to its Company Action Level RBC but less than the product of its Authorized Control Level RBC and 3.0 and triggers the trend test determined in accordance with the trend test calculation included in the Health RBC Instructions;
      1. 3. Notification by the Commissioner to the health organization of an Adjusted RBC Report that indicates an event in Paragraphs 1 or 2 of this subsection, provided the health organization does not challenge the Adjusted RBC Report under Section 10; or 4. If, pursuant to Section 10, a health organization challenges an Adjusted RBC Report that indicates an event in Paragraphs 1 or 2 of this subsection, the notification by the Commissioner to the health organization that the Commissioner has, after a hearing, rejected the health organization’s challenge.

B. In the event of a Company Action Level Event, the health organization shall prepare and submit to the Commissioner an RBC Plan that shall:

Code of Colorado Regulations 76

1. 1. Identify the conditions that contribute to the Company Action Level Event;
   1. 2. Contain proposals of corrective actions that the health organization intends to take and that would be expected to result in the elimination of the Company Action Level Event;
      1. 3. Provide projections of the health organization’s financial results in the current year and at least the four (4) succeeding years, both in the absence of proposed corrective actions and giving effect to the proposed corrective actions, including projections of statutory balance sheets, operating income, net income, capital and surplus, and RBC Levels. (The projections for both new and renewal business might include separate projections for each major line of business and separately identify each significant income, expense and benefit component);
      2. 4. Identify the key assumptions impacting the health organization’s projections and the sensitivity of the projections to the assumptions; and 5. Identify the quality of, and problems associated with, the health organization’s business, including but not limited to its assets, anticipated business growth, extraordinary exposure to risk, mix of business and use of reinsurance, if any, in each case.

C. The RBC Plan shall be submitted:

1. 1. Within forty-five (45) days of the Company Action Level Event; or 2. If the health organization challenges an Adjusted RBC Report pursuant to Section 10, within forty-five (45) days after notification to the health organization that the Commissioner has, after a hearing, rejected the health organization’s challenge.

D. Within sixty (60) days after the submission by a health organization of an RBC Plan to the Commissioner, the Commissioner shall notify the health organization whether the RBC Plan shall be implemented or is, in the judgment of the Commissioner, unsatisfactory. If the Commissioner determines the RBC Plan is unsatisfactory, the notification to the health organization shall set forth the reasons for the determination, and may set forth proposed revisions which will render the RBC Plan satisfactory, in the judgment of the Commissioner. Upon notification from the Commissioner, the health organization shall prepare a Revised RBC Plan, which may incorporate by reference any revisions proposed by the Commissioner, and shall submit the Revised RBC Plan to the Commissioner:

1. 1. Within forty-five (45) days after the notification from the Commissioner; or 2. If the health organization challenges the notification from the Commissioner under Section 10, within forty-five (45) days after a notification to the health organization that the Commissioner has, after a hearing, rejected the health organization’s challenge.

E. In the event of a notification by the Commissioner to a health organization that the health organization’s RBC Plan or Revised RBC Plan is unsatisfactory, the Commissioner may at the Commissioner’s discretion, subject to the health organization’s right to a hearing under Section 10, specify in the notification that the notification constitutes a Regulatory Action Level Event.

F. Every domestic health organization that files an RBC Plan or Revised RBC Plan with the Commissioner shall file a copy of the RBC Plan or Revised RBC Plan with the insurance commissioner in any state in which the health organization is authorized to do business if:

1. 1. Such state has a provision substantially similar to Section 11A; and Code of Colorado Regulations 77 2. The insurance commissioner of that state has notified the health organization of its request for the filing in writing, in which case the health organization shall file a copy of the RBC Plan or Revised RBC Plan in that state no later than the later of:
   1. a. Fifteen (15) days after the receipt of notice to file a copy of its RBC Plan or Revised RBC Plan with the state; or b. The date on which the RBC Plan or Revised RBC Plan is filed under Section 6C and 6D.

Section 7 Regulatory Action Level Event A. "Regulatory Action Level Event" means any of the following events:

1. 1. The filing of an RBC Report by the health organization that indicates that the health organization’s Total Adjusted Capital is greater than or equal to its Authorized Control Level RBC but less than its Regulatory Action Level RBC;
   1. 2. Notification by the Commissioner to a health organization of an Adjusted RBC Report that indicates the event in Paragraph (1), provided the health organization does not challenge the Adjusted RBC Report under Section 10;
      1. 3. If, pursuant to Section 10, the health organization challenges an Adjusted RBC Report that indicates the event in Paragraph (1), the notification by the Commissioner to the health organization that the Commissioner has, after a hearing, rejected the health organization’s challenge;
      2. 4. The failure of the health organization to file an RBC Report by the filing date, unless the health organization has provided an explanation for the failure that is satisfactory to the Commissioner and has cured the failure within ten (10) days after the filing date;
      3. 5. The failure of the health organization to submit an RBC Plan to the Commissioner within the time period set forth in Section 6C;
      4. 6. Notification by the Commissioner to the health organization that:
         1. a. The RBC Plan or revised RBC Plan submitted by the health organization is, in the judgment of the Commissioner, unsatisfactory; and b. Such notification constitutes a Regulatory Action Level Event with respect to the health organization, provided the health organization has not challenged the determination under Section 10;
      5. 7. If, pursuant to Section 10, the health organization challenges a determination by the Commissioner under Paragraph (6), the notification by the Commissioner to the health organization that the Commissioner has, after a hearing, rejected the challenge;
      6. 8. Notification by the Commissioner to the health organization that the health organization has failed to adhere to its RBC Plan or revised RBC Plan, but only if the failure has a substantial adverse effect on the ability of the health organization to eliminate the Company Action Level Event in accordance with its RBC Plan or revised RBC Plan and the Commissioner has so stated in the notification, provided the health organization has not challenged the determination under Section 10; or Code of Colorado Regulations 78 9. If, pursuant to Section 10, the health organization challenges a determination by the Commissioner under Paragraph (8), the notification by the Commissioner to the health organization that the Commissioner has, after a hearing, rejected the challenge.

B. In the event of a Regulatory Action Level Event the Commissioner shall:

1. 1. Require the health organization to prepare and submit an RBC Plan or, if applicable, a Revised RBC Plan;
   1. 2. Perform such examination or analysis as the Commissioner deems necessary of the assets, liabilities and operations of the health organization including a review of its RBC Plan or Revised RBC Plan; and 3. Subsequent to the examination or analysis, issue an order specifying such corrective actions as the Commissioner shall determine are required (a "Corrective Order").

C. In determining corrective actions, the Commissioner may take into account factors the Commissioner deems relevant with respect to the health organization based upon the Commissioner’s examination or analysis of the assets, liabilities and operations of the health organization, including, but not limited to, the results of any sensitivity tests undertaken pursuant to the RBC Instructions. The RBC Plan or Revised RBC Plan shall be submitted:

1. 1. Within forty-five (45) days after the occurrence of the Regulatory Action Level Event;
   1. 2. If the health organization challenges an Adjusted RBC Report pursuant to Section 10 and the challenge is not frivolous in the judgment of the Commissioner, within forty-five (45) days after the notification to the health organization that the Commissioner has, after a hearing, rejected the health organization’s challenge; or 3. If the health organization challenges a Revised RBC Plan pursuant to Section 10 and the challenge is not frivolous in the judgment of the Commissioner, within forty-five (45) days after the notification to the health organization that the Commissioner has, after a hearing, rejected the health organization’s challenge.

D. The Commissioner may retain actuaries and investment experts and other consultants as may be necessary in the judgment of the Commissioner to review the health organization’s RBC Plan or Revised RBC Plan, examine or analyze the assets, liabilities and operations (including contractual relationships) of the health organization and formulate the Corrective Order with respect to the health organization. The fees, costs and expenses relating to consultants shall be borne by the affected health organization or such other party as directed by the Commissioner. Section 8 Authorized Control Level Event A. "Authorized Control Level Event" means any of the following events:

1. 1. The filing of an RBC Report by the health organization that indicates that the health organization’s Total Adjusted Capital is greater than or equal to its Mandatory Control Level RBC but less than its Authorized Control Level RBC;
   1. 2. The notification by the Commissioner to the health organization of an Adjusted RBC Report that indicates the event in Paragraph (1), provided the health organization does not challenge the Adjusted RBC Report under Section 10;
      1. 3. If, pursuant to Section 10, the health organization challenges an Adjusted RBC Report that indicates the event in Paragraph (1), notification by the Commissioner to the health Code of Colorado Regulations 79 organization that the Commissioner has, after a hearing, rejected the health organization’s challenge;
      2. 4. The failure of the health organization to respond, in a manner satisfactory to the Commissioner, to a Corrective Order (provided the health organization has not challenged the Corrective Order under Section 10); or 5. If the health organization has challenged a Corrective Order under Section 10 and the Commissioner has, after a hearing, rejected the challenge or modified the Corrective Order, the failure of the health organization to respond, in a manner satisfactory to the Commissioner, to the Corrective Order subsequent to rejection or modification by the Commissioner.

B. In the event of an Authorized Control Level Event with respect to a health organization, the Commissioner shall:

1. 1. Take such actions as are required under Section 7 regarding a health organization with respect to which an Regulatory Action Level Event has occurred; or 2. If the Commissioner deems it to be in the best interests of the policyholders and creditors of the health organization and of the public, take such actions as are necessary to cause the health organization to be placed under regulatory control pursuant to § § 10-16-418 and 10-3-501 et seq., C.R.S. In the event the Commissioner takes such actions, the Authorized Control Level Event shall be deemed sufficient grounds for the Commissioner to take action pursuant to § § 10-16-418 and 10-3-501 et seq., C.R.S., and the Commissioner shall have the rights, powers and duties with respect to the health organization as are set forth in § § 10-16-418 and 10-3-501 et seq., C.R.S. In the event the Commissioner takes actions under this paragraph pursuant to an Adjusted RBC Report, the health organization shall be entitled to such protections as are afforded to health organizations under the provisions of § § 10-16-418 and 10-3-501 et seq., C.R.S. Section 9 Mandatory Control Level Event

A. "Mandatory Control Level Event" means any of the following events:

1. 1. The filing of an RBC Report which indicates that the health organization’s Total Adjusted Capital is less than its Mandatory Control Level RBC;
   1. 2. Notification by the Commissioner to the health organization of an Adjusted RBC Report that indicates the event in Paragraph (1), provided the health organization does not challenge the Adjusted RBC Report under Section 10; or 3. If, pursuant to Section 10, the health organization challenges an Adjusted RBC Report that indicates the event in Paragraph (1), notification by the Commissioner to the health organization that the Commissioner has, after a hearing, rejected the health organization’s challenge.

B. In the event of a Mandatory Control Level Event, the Commissioner shall take such actions as are necessary to place the health organization under regulatory control under § § 10-16-418 and 10- 3-501 et seq., C.R.S. In that event, the Mandatory Control Level Event shall be deemed sufficient grounds for the Commissioner to take action under § § 10-16-418 and 10-3-501 et seq., C.R.S., and the Commissioner shall have the rights, powers and duties with respect to the health organization as are set forth in § § 10-16-418 and 10-3-501 et seq., C.R.S. If the Commissioner takes actions pursuant to an Adjusted RBC Report, the health organization shall be entitled to the protections of § § 10-16-418 and 10-3-501 et seq., C.R.S., pertaining to summary proceedings. Code of Colorado Regulations 80 Notwithstanding any of the foregoing, the Commissioner may forego action for up to ninety (90) days after the Mandatory Control Level Event if the Commissioner finds there is a reasonable expectation that the Mandatory Control Level Event may be eliminated within the ninety (90) day period.

Section 10 Hearings Upon the occurrence of any of the following events, the health organization shall have the right to a confidential departmental hearing pursuant to § 24-4-105, C.R.S., on a record, at which the health organization may challenge any determination or action by the Commissioner. The health organization shall notify the Commissioner of its request for a hearing within five (5) days after the notification by the Commissioner under Subsection A, B, C or D. Upon receipt of the health organization’s request for a hearing, the Commissioner shall set a date for the hearing, which shall be no less than ten (10) nor more than thirty (30) days after the date of the health organization’s request. The events include:

A. Notification to a health organization by the Commissioner of an Adjusted RBC Report; or B. Notification to a health organization by the Commissioner that:

1. 1. The health organization’s RBC Plan or Revised RBC Plan is unsatisfactory; and 2. Such notification constitutes a Regulatory Action Level Event with respect to such health organization; or

C. Notification to a health organization by the Commissioner that the health organization has failed to adhere to its RBC Plan or Revised RBC Plan and that the failure has a substantial adverse effect on the ability of the health organization to eliminate the Company Action Level Event with respect to the health organization in accordance with its RBC Plan or Revised RBC Plan; or D. Notification to a health organization by the Commissioner of a Corrective Order with respect to the health organization.

Section 11 Confidentiality and Prohibition on Announcements A. All RBC Reports (to the extent the information is not required to be set forth in a publicly available annual statement schedule) and RBC Plans (including the results or report of any examination or analysis of a health organization performed pursuant to this statute and any Corrective Order issued by the Commissioner pursuant to examination or analysis) with respect to a domestic or foreign health organization that are in the possession or control of the Commissioner shall be confidential by law and privileged, pursuant to § 24-72-204(3)(a)(IV), C.R.S., and shall not be subject to § 24-72-201, et. seq. C.R.S., shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any private civil action. However, the Commissioner is authorized to use the documents, materials or other information in the furtherance of any regulatory or legal action brought as a part of the Commissioner’s official duties.

B. Neither the Commissioner nor any person who received documents, materials or other information while acting under the authority of the Commissioner shall be permitted or required to testify in any private civil action concerning any confidential documents, materials or information subject to Subsection A.

C. In order to assist in the performance of the Commissioner’s duties, the Commissioner:

1. 1. May share documents, materials or other information, including the confidential and privileged documents, materials or information subject to Subsection A, with other state, federal and Code of Colorado Regulations 81 international regulatory agencies, with the NAIC and its affiliates and subsidiaries, and with state, federal and international law enforcement authorities, provided that the recipient agrees to maintain the confidentiality and privileged status of the document, material or other information; and 2. May receive documents, materials or information, including otherwise confidential and privileged documents, materials or information, from the NAIC and its affiliates and subsidiaries, and from regulatory and law enforcement officials of other foreign or domestic jurisdictions, and shall maintain as confidential or privileged any document, material or information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material or information.

D. No waiver of any applicable privilege or claim of confidentiality in the documents, materials or information shall occur as a result of disclosure to the Commissioner under this section or as a result of sharing as authorized in Section 11C.

E. The comparison of a health organization’s Total Adjusted Capital to any of its RBC Levels is a regulatory tool which may indicate the need for corrective action with respect to the health organization, and is not intended as a means to rank health organizations generally. Therefore, except as otherwise required under the provisions of this Regulation, the making, publishing, disseminating, circulating or placing before the public, or causing, directly or indirectly to be made, published, disseminated, circulated or placed before the public, in a newspaper, magazine or other publication, or in the form of a notice, circular, pamphlet, letter or poster, or over a radio or television station, or in any other way, an advertisement, announcement or statement containing an assertion, representation or statement with regard to the RBC Levels of any health organization, or of any component derived in the calculation, by any health organization, agent, broker or other person engaged in any manner in the insurance business would be misleading and is therefore prohibited; provided, however, that if any materially false statement with respect to the comparison regarding a health organization’s Total Adjusted Capital to its RBC Levels (or any of them) or an inappropriate comparison of any other amount to the health organizations’ RBC Levels is published in any written publication and the health organization is able to demonstrate to the Commissioner with substantial proof the falsity of the statement, or the inappropriateness, as the case may be, then the health organization may publish an announcement in a written publication if the sole purpose of the announcement is to rebut the materially false statement.

Section 12 Foreign Health Organizations A. A foreign health organization shall, upon the written request of the Commissioner, submit to the Commissioner an RBC Report as of the end of the calendar year just ended the later of:

1. 1. The date an RBC Report would be required to be filed by a domestic health organization under this Regulation; or 2. Fifteen (15) days after the request is received by the foreign health organization.

B. A foreign health organization shall, at the written request of the Commissioner, promptly submit to the Commissioner a copy of any RBC Plan that is filed with the insurance commissioner of any other state.

C. In the event of a Company Action Level Event, Regulatory Action Level Event or Authorized Control Level Event with respect to a foreign health organization as determined under the RBC statute or regulation applicable in the state of domicile of the health organization (or, if no RBC statute or regulation is in force in that state, under the provisions of this Regulation), if the insurance Code of Colorado Regulations 82 commissioner of the state of domicile of the foreign health organization fails to require the foreign health organization to file an RBC Plan in the manner specified under that state’s RBC statute or regulation (or, if no RBC statute or regulation is in force in that state, under Section 6 of this Regulation), the Commissioner may require the foreign health organization to file an RBC Plan with the Commissioner. In such event, the failure of the foreign health organization to file an RBC Plan with the Commissioner shall be grounds to order the health organization to cease and desist from writing new insurance business in this state.

D. In the event of a Mandatory Control Level Event with respect to a foreign health organization, if no domiciliary receiver has been appointed with respect to the foreign health organization under the rehabilitation and liquidation statute applicable in the state of domicile of the foreign health organization, the Commissioner may make application to the Denver District Court permitted under § 10-3-501 et. seq., C.R.S., with respect to the liquidation of property of foreign health organizations found in this state, and the occurrence of the Mandatory Control Level Event shall be considered adequate grounds for the application.

Section 13 Severability If any provision of this Regulation or the application of it to any person or circumstance is for any reason held to be invalid, the remainder of this Regulation shall not be affected. Section 14 Notices All notices by the Commissioner to a health organization which may result in regulatory action thereunder shall be effective upon dispatch if transmitted by registered or certified mail, or in the case of any other transmission shall be effective upon the health organization’s receipt of such notice. Section 15 Enforcement Noncompliance with this regulation may result in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance, or other laws, which include the imposition of civil penalties, issuance of cease and desist orders, and/or suspensions or revocation of license, subject to the requirements of due process.

Section 16 Effective Date This Regulation shall become effective on August 1, 2013. Section 17 History New Regulation, effective March 1, 2012.

Amended Regulation, effective August 1, 2013 AMENDED REGULATION 3-1-13 DISCLOSURE OF MATERIAL TRANSACTIONS Section 1 Authority Section 2 Scope and Purpose Section 3 Applicability Section 4 Report Section 5 Acquisitions and Dispositions of Assets Code of Colorado Regulations 83 Section 6 Nonrenewals, Cancellations or Revisions of Ceded Reinsurance Agreements Section 7 Confidentiality Section 8 Severability Section 9 Enforcement Section 10 Effective Date Section 11 History Section 1 Authority This regulation is promulgated under the authority of § §10-1-109, 10-6-114, 10-6-129, 10-14-505, 10-16- 109 C.R.S.

Section 2 Scope and Purpose The purpose of this regulation is to establish filing requirements for certain domestic insurers for material transactions, which have the potential of creating a hazardous financial condition. It is necessary to monitor the financial condition and operation of an insurer so as to adequately protect its insureds and the public.

Section 3 Applicability This regulation shall apply to Colorado domestic insurers licensed under §10-3-102 C.R.S. as well as each risk retention group captive insurer, fraternal benefit society, health maintenance organization, non- profit hospital, medical-surgical and health service corporation, and prepaid dental care plan. Section 4 Report A. Every insurer domiciled in this state shall file a report with the Commissioner disclosing material acquisitions and dispositions of assets or material nonrenewals, cancellations or revisions of ceded reinsurance agreements or material new ceded reinsurance agreements affecting life insurance business unless the acquisitions and dispositions of assets or material nonrenewals, cancellations or revisions of ceded reinsurance agreements or material new ceded reinsurance agreements affecting in force life insurance business have been submitted to the Commissioner for review, approval or information purposes pursuant to other provisions of the insurance laws, regulations, or other requirements.

B. The report required in Subsection A is due within fifteen (15) days after the end of the calendar month in which any of the foregoing transactions occur.

C. One complete copy of the report, including any exhibits or other attachments, shall be filed with:

1. 1. The Commissioner; and 2. The National Association of Insurance Commissioners. Section 5 Acquisitions and Dispositions of Assets

A. Materiality.

Code of Colorado Regulations 84 No acquisitions or dispositions of assets need be reported pursuant to Section 4 if the acquisitions or dispositions are not material. For purposes of this regulation, a material acquisition (or the aggregate of any series of related acquisitions during any thirty-day period) or disposition (or the aggregate of any series of related dispositions during any thirty-day period) is one that is non-recurring and not in the ordinary course of business and involves more than five percent (5%) of the reporting insurer's total admitted assets as reported in its most recent statutory statement filed with the Commissioner.

B. Scope.

1. 1. Asset acquisitions subject to this regulation include every purchase, lease, exchange, merger, consolidation, succession, or other acquisition other than the construction or development of real property by or for the reporting insurer or the acquisition of materials for such purpose.
   1. 2. Asset dispositions subject to this regulation include every sale, lease, exchange, merger, consolidation, mortgage, hypothecation, assignment (whether for the benefit of creditors or otherwise), abandonment, destruction, or other disposition.

C. Information to be reported.

1. 1. The following information is required to be disclosed in any report of a material acquisition or disposition of assets:
   1. a. Date of the transaction;
      1. b. Manner of acquisition or disposition;
         1. c. Description of the assets involved;
         2. d. Nature and amount of the consideration given or received;
         3. e. Purpose of, or reason for, the transaction;
         4. f. Manner by which the amount of consideration was determined;
         5. g. Gain or loss recognized or realized as a result of the transaction; and h. Name(s) of the person(s) from whom the assets were acquired or to whom they were disposed.
      2. 2. Insurers are required to report material acquisitions and dispositions on a non-consolidated basis unless the insurer is part of a consolidated group of insurers which utilizes a pooling arrangement or one hundred percent (100%) reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and the insurer cedes substantially all of its direct and assumed business to the pool. An insurer is deemed to have ceded substantially all of its direct and assumed business to a pool if the insurer has less than $1,000,000 total direct plus assumed written premiums during a calendar year that are not subject to a pooling arrangement and the net income of the business not subject to the pooling arrangement represents less than five percent (5%) of the insurer’s capital and surplus.

Section 6 Nonrenewals, Cancellations or Revisions of Ceded Reinsurance Agreements Code of Colorado Regulations 85 Introduction: For purposes of this Section 6, health maintenance organizations, non-profit hospital, medical-surgical and health service corporations, prepaid dental care plans, title companies and group captives shall follow the requirements for property and casualty companies, and fraternal benefit societies shall follow the rules for life insurance companies.

A. Materiality and Scope.

1. 1. No nonrenewals, cancellations or revisions of ceded reinsurance agreements or new ceded reinsurance agreements affecting in force life insurance business need be reported pursuant to Section 4 if the nonrenewals, cancellations or revisions of ceded reinsurance agreements or new ceded reinsurance agreements affecting in force life insurance business are not material. For purposes of this regulation, a material nonrenewal, cancellation or revision of a ceded reinsurance agreement or a material new ceded reinsurance agreement affecting in force life insurance business is one that affects:
   1. a. With respect to property and casualty business, including accident and health business written by a property and casualty insurer:
      1. (i) More than fifty percent (50%) of the insurer’s total ceded written premium; or (ii) More than fifty percent (50%) of the insurer’s total ceded indemnity and loss adjustment reserves.
         1. b. With respect to life, annuity, and accident and health business: more than fifty percent (50%) of the total reserve credit taken for business ceded, on an annualized basis, as indicated in the insurer’s most recent annual statement.
         2. c. With respect to either property and casualty or life, annuity, and accident and health business, either of the following events shall constitute a material revision which must be reported:
         3. (i) An authorized reinsurer representing more than ten percent (10%) of a total cession is replaced by one or more unauthorized reinsurers; or (ii) Previously established collateral requirements have been reduced or waived with respect to one or more unauthorized reinsurers representing collectively more than ten percent (10%) of a total cession.
      2. 2. However, no filing shall be required if:
         1. a. With respect to property and casualty business, including accident and health business written by a property and casualty insurer: the insurer’s total ceded written premium represents, on an annualized basis, less than ten percent (10%) of its total written premium for direct and assumed business, or b. With respect to life, annuity, and accident and health business: the total reserve credit taken for business ceded represents, on an annualized basis, less than ten percent (10%) of the statutory reserve requirement prior to any cession for all life, annuity and accident and health business combined.

B. Information to be reported.

1. (1) The following information is required to be disclosed in any report of a material nonrenewal, cancellation or revision of ceded reinsurance agreements: Code of Colorado Regulations 86
   1. a. Effective date of the nonrenewal, cancellation, revision or new agreement;
      1. b. The description of the transaction with an identification of the initiator thereof;
         1. c. Purpose of, or reason for, the transaction; and d. If applicable, the identity of the replacement reinsurers.
      2. 2. Insurers are required to report all material nonrenewals, cancellations or revisions of ceded reinsurance agreements or material new ceded reinsurance agreements affecting in force life insurance business on a non-consolidated basis unless the insurer is part of a consolidated group of insurers which utilizes a pooling arrangement or 100 percent reinsurance agreement that affects the solvency or integrity of the insurer’s reserves and the insurer cedes substantially all of its direct and assumed business to the pool. An insurer is deemed to have ceded substantially all of its direct and assumed business to a pool if the insurer has less than $1,000,000 total direct plus assumed written premiums during a calendar year that are not subject to the pooling arrangement and the net income of the business not subject to the pooling arrangement represents less than five percent (5%) of the insurer’s capital and surplus.

Section 7 Confidentiality A. All reports obtained by or disclosed to the Commissioner pursuant to this Regulation in the possession or control of the Division of Insurance, shall be considered confidential and privileged pursuant to §24-72-204(3)(a)(IV), C.R.S., and where applicable §10-3-807, C.R.S. Said reports shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any private civil action without the prior written consent of the insurer to which it pertains. However, the Commissioner is authorized to use the documents, materials or other information in the furtherance of any regulatory or legal action brought as a part of the Commissioner’s official duties.

B. After giving the insurer who would be affected notice and an opportunity to be heard, the Commissioner may determine that the interest of policyholders, shareholders or the public will be served by publication of the information subject to Subsection A, in which event the Commissioner may publish all or any part in the manner the Commissioner may deem appropriate.

C. Neither the Commissioner nor any person who received documents, materials or other information while acting under the authority of the Commissioner shall be permitted or required to testify in any private civil action concerning any confidential documents, materials or information subject to Subsection A.

D. In order to assist in the performance of the Commissioner’s duties, the Commissioner:

1. 1. May share documents, materials or other information, including the confidential and privileged documents, materials or information subject to Subsection A, with other state, federal and international regulatory agencies, with the NAIC and its affiliates and subsidiaries, and with state, federal and international law enforcement authorities, provided that the recipient agrees to maintain the confidentiality and privileged status of the document, material or other information;
   1. 2. May receive documents, materials or information, including otherwise confidential and privileged documents, materials or information, from the NAIC and its affiliates and subsidiaries, and from regulatory and law enforcement officials of other foreign or domestic jurisdictions, and shall maintain as confidential or privileged any document, Code of Colorado Regulations 87 material or information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material or information; and 3. May enter into agreements governing sharing and use of information consistent with this subsection.

E. No waiver of any applicable privilege or claim of confidentiality in the documents, materials or information shall occur as a result of disclosure to the Commissioner under this section or as a result of sharing as authorized in Subsection D.

Section 8 Severability If any provision of this regulation or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected thereby. Section 9 Enforcement Noncompliance with this Regulation may result, after proper notice and hearing, in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance or other laws which include the imposition of fines, issuance of cease and desist orders, and/or suspensions or revocation of license. Among others, the penalties provided for in §10-3-109(3), C.R.S. may be applied. Section 10 Effective Date This amended regulation shall be effective for all transactions accomplished on or after October 2, 2006. Section 11 History Original effective April 1, 1996.

Amended effective October 2, 2006 Regulation 3-1-14 ALTERNATIVE MECHANISMS FOR CARRIERS ENTERING INTO CONTRACTS WITH RISK BEARING ENTITIES Section 1 Authority Section 2 Scope and Purpose Section 3 Applicability Section 4 Definitions Section 5 Determining and Monitoring the Financial Viability of the Risk Bearing Entity Section 6 Appropriate Management Expertise and Infrastructure Section 7 Reinsurance/Reserves or other Financial Assurance Section 8 Risk Bearing Entity/Provider Communication Section 9 Reports from Carrier to Risk Bearing Entity Section 10 Corrective Action Code of Colorado Regulations 88 Section 11 Resolution of Conflicts through Binding Arbitration Section 12 Applying for the Alternative Mechanism Section 13 Severability Section 14 Enforcement Section 15 Effective Date Section 16 History Section 1 Authority This regulation is promulgated under the authority of § §10-1-109, 10-16-109 and 10-16-708 C.R.S. Section 2 Scope and Purpose Colorado law permits carriers to enter into contracts with risk bearing entities. Section 10-16-705(5)(a), C.R.S. states that in the event of nonpayment by or insolvency of the risk bearing entity the carrier is responsible for the payment of all participating providers that have provided covered health care services to covered persons of the Carrier. In lieu of this automatic requirement to pay, Section 10-16-705(5)(b) provides a Carrier with the option of applying for use of an alternative mechanism to ensure that all participating providers that have provided covered health care services to covered persons of the Carrier pursuant to one or more contracts with such contractors or subcontractors or their intermediaries receive payment due.

The alternative mechanism is approved and operating to exempt the Carrier from the automatic requirement to pay under Section 10-16-705(5)(a) as long as the carrier complies with the provisions of the alternative mechanism for which it is directly responsible and monitors the execution of the provisions of the alternative mechanism for which the Risk Bearing Entity is responsible. If a carrier knew or should have known the Risk Bearing Entity was unable to meet its contractual obligations and did not take reasonable action, then the carrier is deemed not to be in compliance with the alternative mechanism, and therefore is subject to §10-16-705(5)(a), C.R.S.

The purpose for this regulation is to establish an acceptable alternative mechanism pursuant to §10-16- 705(5)(b), C.R.S. This regulation establishes the terms of an alternative mechanism, which, if complied with, is deemed approved for purposes of §10-16-705(5)(b), C.R.S. Carriers are not limited to this one alternative mechanism. Other alternative mechanism plans can be submitted for consideration to the commissioner.

Section 3 Applicability This regulation applies to all carriers requesting approval from the commissioner for the use of an alternative mechanism to ensure that all participating providers receive payment due. Section 4 Definitions A. "Risk Bearing Entity" is any entity assuming risk from a licensed Carrier to provide covered benefits and services under a managed care plan, which risk the entity would not otherwise have the ability and legal authority to provide.

B. "Start Up Entity" is any Risk Bearing Entity which has less than 24 months operational experience in the Colorado market; or an entity which has experienced a major change in business, including Code of Colorado Regulations 89 significant market and product expansions; or an entity which has less than 24 months experience in managing its current scope of services.

C. "Established Entity" is a Risk Bearing Entity which has been operating in the Colorado market under its current operational plan for a minimum of 24 months.

D. "Carrier" as referenced herein, is an entity as defined in §10-16-102(8), C.R.S. which enters into a risk bearing arrangement with providers of services to members of the Carrier's managed care plan.

E. "IBNR report" is a report containing sufficient information to assess all of the Risk Bearing Entity's future liabilities under the contract, including all liabilities incurred and reported but not paid and incurred but not reported.

Section 5 Determining and Monitoring the Financial Viability of the Risk Bearing Entity A. For a Start Up Entity, a Carrier must receive, review and accept documentation from the Risk Bearing Entity which evidences sufficient ability to accept the risk transfer.

1. 1. Prior to the start of business the Risk Bearing Entity must have a business plan including two years of monthly projections.
   1. 2. No less than monthly, the Carrier must review:
      1. a. An operating summary with Carrier-specific information broken down by plan;
         1. b. Year to date financial statements for the Risk Bearing Entity as a whole, including a statement of cash flows;
         2. c. A report of incurred but not reported liabilities ("IBNR report"). The IBNR report must contain sufficient information to assess the Risk Bearing Entity's future liabilities under the contract;
         3. d. Total number of referrals, number of referrals per 1000 members and the number of referrals out of the Risk Bearing Entity's network;
         4. e. Number of bed days per 1000 members as defined by the contract between the Risk Bearing Entity and the Carrier;
         5. f. Information concerning any other material liabilities of the Risk Bearing Entity.
      2. 3. Within 180 days from the Risk Bearing Entity's fiscal year end the Carrier shall review audited financial statements for the Risk Bearing Entity.

B. For an Established Entity a Carrier must receive, review and accept documentation evidencing sufficient ability to accept the risk transfer.

1. 1. No less than monthly, the Carrier must review an IBNR report and a year to date statement of cash flows for the Established Entity.
   1. 2. No less than quarterly, the Carrier must review:
      1. a. An operating summary with Carrier-specific information broken out by plan; Code of Colorado Regulations 90 b. Year to date financial statements for the Risk Bearing Entity as a whole, including a statement of cash flows;
         1. c. Total number of referrals, number of referrals per 1000 members and the number of referrals out of the Risk Bearing Entity's network;
         2. d. Number of bed days per 1000 members as defined by the contract between the Risk Bearing Entity and the Carrier.
      2. 3. Within 180 days from the Risk Bearing Entity's fiscal year end, the Carrier shall review audited financial statements for the Risk Bearing Entity.

Section 6 Appropriate Management Expertise and Infrastructure A. A Carrier shall ascertain that a Risk Bearing Entity has the management expertise and infrastructure needed to successfully enter into and perform in accordance with the risk contract.

1. 1. Prior to entering into a contract the Carrier shall review the health care experience of senior management; the composition of the Board and its committees; bylaws; ownership of the Risk Bearing Entity; available financial resources; ownership interests of participating providers; adequacy of transaction systems, utilization management, quality assurance, claims, credentialing, and member services; and copies of provider contracts.
   1. 2. Annually, the Carrier shall review changes in senior management; ownership; ownership interests of participating providers; adequacy of transaction systems, utilization management, quality assurance, claims, credentialing and member services.
      1. 3. The Carrier shall ascertain that the Risk Bearing Entity has a plan to distribute its annual report to all contracted providers and that the report is archived in a manner to which the parties agree.

B. The Risk Bearing Entity shall notify the Carrier of 1) all material modifications to its plan of operations;

1. 2) changes in ownership structure and 3) material financial or operational concerns regarding the financial viability of the Risk Bearing Entity or of the Carrier's contract which has been brought to the attention of the Risk Bearing Entity’s board of directors. Section 7 Reinsurance/Reserves or other Financial Assurance

A. A Risk Bearing Entity must maintain cash and cash equivalents at least equal to 45 days of claims liability and capitation payments if claims are administered by the Carrier and 90 days of claims liability and capitation payments if claims are administered by the Risk Bearing Entity. The Commissioner may establish alternative requirements in cases where the contract contains the following terms: 1) The carrier pays the provider directly; 2) The providers are only at risk to provide services which they have the ability and the legal authority to provide; and 3) Neither the carrier nor the risk bearing entity may withhold or redirect funds from these providers to pay for other services.

B. A Risk Bearing Entity shall have appropriate aggregate and specific reinsurance contracts. At a minimum, aggregate and specific reinsurance in amounts required for Risk Bearing Entities participating in HCFA Medicare + Choice programs is required, even if the Risk Bearing Entity does not participate in a Medicare + Choice program.

C. Once the Start Up Entity and the Carrier have agreed to a contract, a Start Up Entity shall obtain an actuarial opinion from a mutually agreed upon qualified actuarial firm certifying that the financial arrangements, including initial capitation rates, are actuarially sound. Code of Colorado Regulations 91 Section 8 Risk Bearing Entity/Provider Communication A. The contract between a Carrier and a Risk Bearing Entity shall include a provision requiring the Risk Bearing Entity to obtain from each provider a statement of understanding at the time the provider enters into a contract with the Risk Bearing Entity and at least annually thereafter. The statement of understanding shall disclose:

1. 1. The level of risk, for every contract, including information on the maximum and minimum possible reimbursements;
   1. 2. Identification of what services are being subcontracted out of the Risk Bearing Entity’s network;
      1. 3. The availability to the provider of the following information, upon request, on line, if possible, but in any event within ten (10) business days from receipt of a written request:
         1. a. For a Start Up Entity, its business plan with two years of projections (one time filing requirement only);
         2. b. For a Start Up Entity, a statement indicating that the Risk Bearing Entity has complied with the actuarial opinion requirement in Section 6.C.
         3. c. A report on the status of the Risk Bearing Entity, including the health care experience of senior management; administrative fees in the event that the claims processing function has been delegated; composition of the Board and its committees; copy of bylaws; names of physicians paid by the Risk Bearing Entity for services not related to patient care; ownership of the Risk Bearing Entity; ownership interests of participating providers; adequacy of transaction systems, utilization management, quality assurance, claims, credentialing, and member services; and d. An annual operating summary; audited financial statements; and Carrier audit results for delegated functions.

B. The contract between a Carrier and a Risk Bearing Entity shall include a provision requiring the Risk Bearing Entity to provide, no less than quarterly, its participating providers with a financial summary including claims performance versus projections for the Risk Bearing Entity as a whole and by Carrier contract; a report of claims paid by the Carrier and by the Risk Bearing Entity; an IBNR report; the amount of actual cash and cash equivalents compared to the minimum amount required to be owned pursuant to Section 6(A) and material changes in major contracts.

C. Excluding privileged, member, client and provider specific proprietary information, all of the reports in their standard format described in this regulation will be made available to any provider contracted with the Risk Bearing Entity, upon request, on line, if possible, but in any event within ten (10) business days from receipt of a written request. Section 9 Reports from Carrier to Risk Bearing Entity A. The Carrier shall provide the Risk Bearing Entity reports at least monthly pertaining to the specific contract which includes:

1. 1. Eligibility download;
   1. 2. Claims download, including detail of all claims that are the Risk Bearing Entity's risk; Code of Colorado Regulations 92 3. Operating summary detailing allocation of amounts paid to and on behalf of the Risk Bearing Entity including claims paid and IBNR estimates;
      1. 4. Catastrophic claims summary;
      2. 5. Monthly report of the aggregated amount related to pended claims;
      3. 6. Provider appeal logs; and 7. Disposition of member and provider appeals.

B. The Carrier shall notify the Risk Bearing Entity of

1. 1. Changes in reimbursement for providers who are contracted with the Carrier for services that the Risk Bearing Entity has risk and could reasonably be expected to impact the Risk Bearing Entity;
   1. 2. Significant changes in the provider network;
      1. 3. Material changes in the plan design and covered services; and 4. Changes of 5% or more from the previous quarter in age/sex demographic mix of membership.
      2. 5. Material changes in claims payment turnaround time.

Section 10 Corrective Action A. If at any time the Carrier identifies deficiencies and determines that the deficiencies would result in imminent nonpayment to participating providers or inability to provide services to a substantial number of members, the Carrier may immediately deem itself insecure and take back administration of the contract including paying providers directly. Such action can only be taken upon written confirmation by a mutually agreed upon third party named within three business days of notice from the Carrier to the Risk Bearing Entity of imminent nonpayment to participating providers or inability to provide services to a substantial number of members. If the parties are unable to make a determination on a third party within the allowed 3 days, they may seek selection by the Commissioner.

B. If the Carrier determines that the Risk Bearing Entity is not meeting significant requirements of the contract, the Carrier must notify the Risk Bearing Entity of the deficiency in writing. The Carrier and the Risk Bearing Entity have 30 days to mutually agree upon a reasonable action plan and begin implementation of the action plan.

C. If the deficiencies continue after the completion of the term of the action plan, and the deficiencies would have a material detrimental financial impact, the Carrier shall deem itself insecure and may take back administration of the contract including paying providers directly.

D. If the Risk Bearing Entity determines that the Carrier is not meeting significant requirements of the contract, the Risk Bearing Entity must notify the Carrier in writing of the deficiency. The Carrier and the Risk Bearing Entity have 30 days to mutually agree upon a reasonable action plan and begin implementation of the action plan.

E. If the deficiencies continue after the completion of the term of the action plan, and the deficiencies would have a material detrimental financial impact, the Risk Bearing Entity shall deem itself insecure and must initiate remedies available under the contract. Code of Colorado Regulations 93 F. If 20% or more of providers contracted with the Risk Bearing Entity sign a letter addressed to the Carrier and to the Risk Bearing Entity attesting to the fact that the Risk Bearing Entity or Carrier is not providing payment as required by their contracts or state statute, the Carrier, the Risk Bearing Entity and a representative of these providers have 30 days to mutually agree upon a reasonable action plan to address the providers' issues.

G. If 50% or more of providers contracted with the Risk Bearing Entity sign a letter addressed to the Carrier and to the Risk Bearing Entity indicating that the deficiencies continue after the completion of the term of the action plan, and a third party, mutually agreed upon by the Carrier, the Risk Bearing Entity and the providers, determines that the deficiencies would have a material detrimental financial impact, the Carrier shall deem itself insecure and shall take back administration of, including paying providers directly, or terminate the contract.

H. If 50% or more of providers contracted with the Risk Bearing Entity sign a letter addressed to the Carrier and to the Risk Bearing Entity identifying deficiencies that would result in imminent nonpayment to participating providers or inability to provide services to a substantial number of members, the providers may ask that the Carrier deem itself insecure and take back administration of, including paying providers directly, or terminate the contract.

I. If the above provisions do not result in payment to the providers pursuant to their contracts, the Carrier, the Risk Bearing Entity or a representative of 50% of the providers may seek Alternative Dispute Resolution (ADR).

J. The Carrier shall provide notice of any deficiency identified under this Section 9, alleging a material detrimental financial impact, to the Financial Affairs Section of the Division of Insurance within five business days from the date the Carrier receives notification from or notifies the Risk Bearing Entity.

Section 11 Resolution of Conflicts through Binding Arbitration A. All contracts between or among a Carrier, a Risk Bearing Entity and one or more providers arising under circumstances covered in Section 9, shall contain a provision that conflicts will be resolved through binding arbitration or through any other form of ADR agreed to by all parties.

B. The purpose of ADR is to provide an allocation of responsibility between providers, Carriers and Risk Bearing Entities with respect to compliance with the alternative mechanism.

C. The arbitration panel shall be established as follows. One person may be selected if the parties can agree. Otherwise, a three person panel will be selected with one member selected by the Carrier, and one member selected by the provider representative and one member by the Risk Bearing Entity. If any of the three parties do not suggest a panel member, the third panelist will be selected by the other two panelists.

Section 12 Applying for the Alternative Mechanism A. When a Carrier and a Risk Bearing Entity enter into a contract, both parties will certify their intention to comply with the alternative mechanism described in this Regulation. The Carrier will maintain a copy of the contractual language or certification on file.

B. When a Carrier submits its risk based capital report on March 1 of each year, the report will include an attachment to the report identifying each contract for which this alternative mechanism was invoked, the amount of managed care credit taken by contract and the total managed care credit taken for risk based capital purposes.

Code of Colorado Regulations 94 C. The Carrier will be responsible to provide the Commissioner with information substantiating compliance with the provisions of the alternative mechanism upon request. Section 13 Severability If any provision of this regulation or the application of it to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected. Section 14 Enforcement Noncompliance with this regulation may result in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance, or other laws, which include the imposition of civil penalties, issuance of cease and desist orders, and/or suspensions or revocation of license, subject to the requirements of due process.

Section 15 Effective Date This amended regulation shall become effective on July 1, 2012. Section 16 History New regulation effective on May 1, 2001 Amended regulation effective July 1, 2012 Regulation 3-1-15 PREMIUM DEFICIENCY RESERVE STANDARDS FOR INDIVIDUAL AND GROUP HEALTH BENEFITPLANS Section 1 Authority Section 2 Scope and Purpose Section 3 Applicability Section 4 Definitions Section 5 Calculations Section 6 Restrictions and Other Guidelines Section 7 Documentation Section 8 Severability Section 9 Enforcement Section 10 Effective Date Section 11 History Section 1 Authority This regulation is promulgated and adopted by the Commissioner of Insurance under the authority of § § 10-1-108, 10-1-109, 10-3-109, 10-3-208, 10-16-109, and 10-16-220, C.R.S. Code of Colorado Regulations 95 Section 2 Scope and Purpose The purpose of this regulation is to establish minimum standards for determining when a Premium Deficiency Reserve is necessary, for companies providing individual and group health coverage, and to implement rules for calculating the reserve.

Section 3 Applicability This regulation applies to all licensed companies conducting business in the State of Colorado, as defined in Section 4, who issue any line of health coverage including, but not limited to, major medical, long-term care, and disability insurance. Each company is required to establish a Premium Deficiency Reserve, when necessary, on each financial statement submitted to the Colorado Division of Insurance. The Premium Deficiency Reserve is in addition to claim and contract reserves, rate stabilization reserves, retroactive premium liabilities, provider reserves, provider withhold or bonus pool reserves, and other reserves not held to specifically make future benefit payments. A reserve similar to the Premium Deficiency Reserve may also be necessary for other types of contractual arrangements, such as administrative services agreements, or any other health benefit contracts in which the administrative fees or compensation received are not sufficient to cover the expenses for the remainder of the deficiency period. This reserve should be calculated using the procedures outlined in this regulation. Section 4 Definitions A. "Claims" means, for purposes of this regulation, all amounts payable for losses incurred under the health benefit contract.

B. "Company" means, for purposes of this regulation, a carrier as defined in Section 10-16-102(8), C.R.S., and includes, but is not limited to, licensed property and casualty insurance companies; licensed life and health insurance companies; non-profit hospital, medical-surgical, and health service corporations; health maintenance organizations; prepaid dental companies; and limited service licensed provider networks.

C. "Contract Grouping" means, for purposes of this regulation, a collection of health benefit contracts with similar benefits, such as comprehensive major medical plans, Medicaid, or small group health benefit plans. Each grouping should be determined in a manner consistent with how policies are marketed, serviced and measured. Generally the groupings should reflect how the premium rates are developed and applied.

D. "Contract Period" means, for purposes of this regulation, the period of time for which the company is liable for the provision of benefits as provided in the health benefit contract. This period may include multi-year arrangements.

E. "Deficiency Period" means, for purposes of this regulation, the period of time for which future earned premiums and current reserves are not sufficient to cover future incurred claim payments and expenses. This period may be for the remainder of the contract period and may include future contract periods.

F. "Expenses" means, for the purpose of this regulation, a reasonable allocation, by contract grouping, of the company’s expenses (including claims adjustment expenses) reasonably assumed to be incurred in the settlement of the claims to be paid in the deficiency period. Fixed expenses need not be allocated to each contract grouping. These expenses may be allocated as determined by the Company and the calculation of the premium deficiency reserve may be performed using the direct costs only. Expenses for functions performed under a management agreement may not be waived and must be considered as part of the company’s fixed expenses. Code of Colorado Regulations 96 G. "Investment Income" means, for purposes of this regulation, any income, dividends, or other earnings that can appropriately be attributable to the contract grouping and the time period for which the calculation is being performed. This income normally can be attributed to earnings from earned premium reserves, reserves for known losses, and reserves for incurred but not reported losses.

H. "Premium" means, for the purpose of this regulation, the amount of compensation received to pay future claims payments and expenses potentially payable during the deficiency period.

I. “Premium Deficiency Reserve" means, for the purpose of this regulation, a reserve established on the valuation date when, it is probable that, future premiums and current reserves are not sufficient to pay future claim payments and expenses for the remainder of the deficiency period. This reserve should be reviewed at least annually and adjusted as necessary. The procedure for calculating this reserve can be found in Section 5 below.

J. "Valuation Date" means, for the purpose of this regulation, the beginning of the time period over which the Premium Deficiency Reserve is calculated.

Section 5 Calculations The Premium Deficiency Reserve must be calculated, according to the following methodology and, if greater than zero, disclosed as a liability on each financial statement filed with the Colorado Division of Insurance, with a corresponding charge to operations. The reserve must be calculated, for each contract grouping, as the sum of the:

1. Present value of future paid claims through the end of the deficiency period; Present value of future expenses; and Present value of the claim and contract reserves at the end of the deficiency period. Less:
   1. The claim reserves as of the valuation date, including special large claim reserves; The contract reserves as of the valuation date;
      1. The present value of the future earned premiums and appropriate investment income for the deficiency period; and Any current balance sheet accruals for future expenses. Section 6 Restrictions and Other Guidelines

A. Accuracy Review - Determinations of the reserve may be done monthly, quarterly, annually, or any time the actuary determines is reasonable, or is necessary for statutory reporting purposes, but no less frequently than annually. As of the date of each successive statutory financial statement, the Premium Deficiency Reserve must be re-evaluated and adjusted to reflect the losses that have been realized since the previous financial statement, and any deficiencies that have arisen.

B. Actuarial Opinions - The Premium Deficiency Reserve amount is expected to be included in each Statement of Actuarial Opinion submitted to the Colorado Division of Insurance.

C. Assumptions - All underlying assumptions should be specified and supported by as much company data as possible and other supporting data deemed necessary. These include, but are not limited Code of Colorado Regulations 97 to, the following assumptions; lapse, interest rate, claim and expense trend, premium increases and enrollment changes.

D. Contract Grouping - Each contract grouping should be large enough to be material relative to the size of the company as a whole. In some cases, considerations of similarity and materiality may result in all health contracts being treated as a single grouping. Each contract grouping should be reviewed to determine if earned premiums and reserves will be sufficient to cover incurred claims and related expenses for each contract period. Each contract grouping should remain relatively consistent from valuation to valuation. A Premium Deficiency Reserve must be recognized for each contract grouping where a premium deficiency is indicated.

E. Enrollment - The Premium Deficiency Reserve must be calculated using reasonable and supportable enrollment assumptions. Enrollment assumptions should be tied to any anticipated rate increases during the deficiency period. The effect of new business must be considered in the enrollment assumptions.

F. Interest Rate - The interest rate used in determining the present values should be reasonable and supportable based upon the type of business and the deficiency period. Guidance may be found in Colorado Insurance Regulation 3-1-9.

G. Investment Income – The calculation may reflect investment income that is appropriately attributable to the contract grouping and the time period for which the calculation is being performed. Investment income should be reflected as a cash inflow in the calculation.

H. Profit Recognition – Under no circumstances may anticipated future profits from contracts in one contract grouping from future renewal periods be used to reduce or mitigate the calculated Premium Deficiency Reserve for prior periods for contracts in a different contract grouping. Within a contract grouping, if rate increases are on file with the Division of Insurance that increase rates for the new contract period, and these increases will be adequate to cover claims and expenses in the new contract period, the anticipated profits may be used to reduce or mitigate the calculated Premium Deficiency Reserve for prior contract periods. Considerable actuarial judgment, including consideration of all pertinent factors, should be incorporated to determine if it is highly probable that these future profits will offset the calculated deficiencies in the valuation period.

Section 7 Documentation The company must maintain adequate documentation as to how the Premium Deficiency Reserve was determined or why a Premium Deficiency Reserve was not necessary. The documentation should be maintained in a report or workpaper containing, at a minimum, the following information:

A. The characteristics of the policies in each contract grouping.

B. A listing of all of the assumptions underlying the calculation of the Premium Deficiency Reserve. Support for the determination of the assumptions should also be maintained. The listing should include, but not be limited to:

1. 1. Enrollment changes at renewal.
   1. 2. Enrollment for any new business.
      1. 3. Claim trends (including aging and durational changes as well as inflation and utilization trends).
      2. 4. Future premium and expense assumptions.

Code of Colorado Regulations 98

1. 5. Valuation interest rate.

C. Documentation as to how the Premium Deficiency Reserve was calculated. All documentation should be made available, upon request, from the Colorado Division of Insurance within 30 days of the date of the request, or within 30 days of the filing date of the financial statements to which the request is directed.

Section 8 Severability If any provision of this regulation or the application of it to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected. Section 9 Enforcement Non compliance with this regulation may result in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance or other laws, which include the imposition of fines, issuance of cease and desist orders, and/or suspensions or revocation of license. Section 10 Effective Date This regulation shall become effective on July 1, 2012. Section 11 History New regulation effective March 2, 2002.

Amended regulation effective July 1, 2012.

REGULATION 3-1-16 CUSTODIAL AGREEMENTS AND THE USE OF CLEARING CORPORATIONS Section 1 Authority Section 2 Scope and Purpose Section 3 Applicability Section 4 Definitions Section 5 Custody Agreement; Requirements Section 6 Severability Section 7 Enforcement Section 8 Effective Date Section 9 History Section 1 Authority This regulation is promulgated under the authority of § § 10-1-109, 10-3-1203(2), 10-6-129, 10-14-505 and 10-16-109 C.R.S.

Section 2 Scope and Purpose Code of Colorado Regulations 99 The purpose of this regulation is to provide current criteria, procedures and clarification concerning the holding of securities or book-entry securities as investments or in meeting the statutory deposits or guaranty fund deposits pursuant to § § 10-3-210, 10-6-116, 10-16-310, 10-16-412 and 10-16-505, C.R.S. Only custodial agreements complying with this regulation shall be acceptable to the Commissioner of Insurance.

Section 3 Applicability This regulation shall apply to all Colorado domestic insurers as well as each risk retention group captive insurer, fraternal benefit society, health maintenance organization and non-profit hospital, medical- surgical and health service corporation, prepaid dental care plan and Pinnacol Assurance. Section 4 Definitions When used in this regulation, the term A. "Agent" means a national bank, state bank, trust company or broker/dealer that maintains an account in its name in a clearing corporation or which is a member of the Federal Reserve System and through which a custodian participates in a clearing corporation, including the Treasury/Reserve Automated Debt Entry Securities System (TRADES) or Treasury Direct systems, except that with respect to securities issued by institutions organized or existing under the laws of a foreign country or securities used to meet the deposit requirements pursuant to the laws of a foreign country as a condition of doing business therein, "agent" may include a corporation which is organized or existing under the laws of a foreign country and that is legally qualified under those laws to accept custody of securities.

B. "Clearing corporation" means a corporation as defined in § § 4-8-102(a)(5) and 10-3-1202(1), C.R.S., that is organized for the purpose of effecting transactions in securities by computerized book- entry, except that with respect to securities issued by institutions organized or existing under the laws of a foreign country or securities used to meet the deposit requirements pursuant to the laws of a foreign country as a condition of doing business therein, "clearing corporation" may include a corporation that is organized or existing under the laws of a foreign country and which is legally qualified under such laws to effect transactions in securities by computerized book-entry. Clearing corporation also includes "Treasury/Reserve Automated Debt Entry Securities System" and "Treasury Direct" book-entry securities systems established pursuant to Title 4, Article 8, Prefatory Note, Section III(C)(2).

C. “Commissioner” means the commissioner of insurance.

D. “Company” means an insurer, captive insurance company, fraternal benefit society, health maintenance organization, non-profit hospital, medical-surgical and health service corporation, prepaid dental care plan and Pinnacol Assurance.

E. "Custodian" means:

1. 1. A national bank, state bank or trust company that shall at all times during which it acts as a custodian pursuant to this regulation be no less than adequately capitalized as determined by the standards adopted by United States banking regulators and that is regulated by either state banking laws or is a member of the Federal Reserve System and that is legally qualified to accept custody of securities in accordance with the standards set forth below, except that with respect to securities issued by institutions organized or existing under the laws of a foreign country, or securities used to meet the deposit requirements pursuant to the laws of a foreign country as a condition of doing business therein, "custodian" may include a bank or trust company incorporated or organized under the laws of a country other than the United States that is regulated as Code of Colorado Regulations 100 such by that country's government or an agency thereof that shall at all times during which it acts as a custodian pursuant to this regulation be no less than adequately capitalized as determined by the standards adopted by international banking authorities and that is legally qualified to accept custody of securities; or 2. A broker/dealer that shall be registered with and subject to jurisdiction of the Securities and Exchange Commission, maintains membership in the Securities Investor Protection Corporation, and has a tangible net worth equal to or greater than two hundred fifty million dollars ($250,000,000).
   1. 3. With respect to a custodian designated as the Commissioner's depository to receive and hold securities pursuant to § § 10-3-210, 10-6-116, 10-16-310, 10-16-412 and 10-16-505, C.R.S., the custodian and its administration of the pledged securities must be physically located in the City and County of Denver.
      1. F. "Custodied securities" means securities held by the custodian or its agent or in a clearing corporation, including the Treasury/Reserve Automated Debt Equity Securities System (TRADES) or Treasury Direct systems.
      2. G. "Tangible net worth" means shareholders equity, less intangible assets, as reported in the broker/dealer's most recent Annual or Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (S.E.C. Form 10-K) filed with the Securities and Exchange Commission.
      3. H. "Treasury/Reserve Automated Debt Entry Securities System" ("TRADES") and "Treasury Direct" mean the book entry securities systems established pursuant to Title 4, Article 8, Prefatory Note, Section III(C)(2).
      4. I. “Securities” has the same meaning as that defined in § 4-8-102(15), C.R.S.
      5. J. “Securities certificate” has the same meaning as that defined in § 4-8-102(16), C.R.S. Section 5 Custody Agreement; Requirements

A. A company may, by written agreement with a custodian, provide for the custody of its securities with that custodian. The securities that are the subject of the agreement may be held by the custodian or its agent or in a clearing corporation.

B. Any custodial agreement shall be in writing and shall be authorized by a resolution of the board of directors of the company or of an authorized committee of the board. The terms of the agreement shall comply with the following:

1. 1. Securities' certificates held by the custodian shall be held separate from the securities' certificates of the custodian and of all of its other customers.
   1. 2. Securities held indirectly by the custodian and securities in a clearing corporation shall be separately identified on the custodian's official records as being owned by the company. The records shall identify which securities are held by the custodian or by its agent and which securities are in a clearing corporation. If the securities are in a clearing corporation, the records shall also identify where the securities are physically located and if in a clearing corporation, the name of the clearing corporation and if through an agent, the name of the agent.

Code of Colorado Regulations 101

1. 3. All custodied securities that are registered shall be registered in the name of the company or in the name of a nominee of the company or in the name of the custodian or its nominee or, if in a clearing corporation, in the name of the clearing corporation or its nominee.
   1. 4. Custodied securities shall be held subject to the instructions of the company and shall be withdrawable upon the demand of the company, except that custodied securities used to meet the deposit requirements set forth in § § 10-3-210, 10-6-116, 10-16-310, 10-16- 412, and 10-16-505, C.R.S., shall, to the extent required by those sections, be under the control of the Commissioner and shall not be withdrawn by the company without the approval of the Commissioner.
      1. 5. The custodian shall be required to send or cause to be sent to the company a confirmation of all transfers of custodied securities to or from the account of the company. In addition, the custodian shall be required to furnish, no less than monthly, the company with reports of holdings of custodied securities at such times and containing such information as may be reasonably requested by the company. The custodian's trust committee's annual reports of its review of the insurer's trust accounts shall also be provided to the insurer. Reports and verifications may be transmitted in electronic or paper form.
      2. 6. During the course of the custodian's regular business hours, an officer or employee of the company, an independent accountant selected by the company and a representative of an appropriate regulatory body shall be entitled to examine, on the premises of the custodian, the custodian's records relating to custodied securities, but only upon furnishing the custodian with written instructions to that effect from an appropriate officer of the company.
      3. 7. The custodian and its agents shall be required to send to the company:
         1. a. All reports which they receive from a clearing corporation on their respective systems of internal accounting control, and b. Reports prepared by outside auditors on the custodian’s or its agent's internal accounting control of custodied securities that the company may reasonably request.
      4. 8. The custodian shall maintain records sufficient to determine and verify information relating to custodied securities that may be reported in the company's annual statement and supporting schedules and information required in an audit of the financial statements of the company.
      5. 9. The custodian shall provide, upon written request from an appropriate officer of the company, the appropriate affidavits, substantially in the form attached to this regulation, with respect to custodied securities.
      6. 10. A national bank, state bank or trust company shall secure and maintain insurance protection in an adequate amount covering the bank's or trust company's duties and activities as custodian for the insurer's assets, and shall state in the custody agreement that protection is in compliance with the requirements of the custodian's banking regulator. A broker/dealer shall secure and maintain insurance protection for each insurance company's custodied securities in excess of that provided by the Securities Investor Protection Corporation in an amount equal to or greater than the market value of each respective company's custodied securities. The commissioner may determine whether the type of insurance is appropriate and the amount of coverage is adequate. Code of Colorado Regulations 102 11. The custodian shall be obligated to indemnify the company for any loss of custodied securities occasioned by the negligence or dishonesty of the custodian's officers or employees, or burglary, robbery, holdup, theft or mysterious disappearance, including loss by damage or destruction.
      7. 12. In the event that there is a loss of custodied securities for which the custodian shall be obligated to indemnify the company as provided in Paragraph 11 above, the custodian shall promptly replace the securities or the value thereof and the value of any loss of rights or privileges resulting from the loss of securities.
      8. 13. The agreement may provide that the custodian will not be liable for a failure to take an action required to be taken under the agreement in the event and to the extent that the taking of the action is prevented or delayed by war (whether declared or not and including existing wars), revolution, insurrection, riot, civil commotion, act of God, accident, fire, explosion, stoppage of labor, strikes or other differences with employees, laws, regulations, orders or other acts of any governmental authority, or any other cause whatever beyond its reasonable control.
      9. 14. In the event that the custodian gains entry in a clearing corporation through an agent, there shall be an agreement between the custodian and the agent under which the agent shall be subject to the same liability for loss of custodied securities as the custodian. However, if the agent shall be subject to regulation under the laws of a jurisdiction that is different from the jurisdiction the laws of which regulate the custodian, the Commissioner of Insurance of the state of domicile of the company may accept a standard of liability applicable to the agent that is different from the standard of liability applicable to the custodian.
      10. 15. The custodian shall provide written notification to the insurer's domiciliary commissioner if the custodial agreement with the insurer has been terminated or if 100% of the account assets in any one custody account have been withdrawn. This notification shall be remitted to the insurance commissioner within three (3) business days of the receipt by the custodian of the insurer's written notice of termination or within three (3) business days of the withdrawal of 100% of the account assets.

Section 6 Severability If any provision of this regulation or the application of it to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected thereby. Section 7 Enforcement Noncompliance with this Regulation may result, after proper notice and hearing, in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance or other laws which include the imposition of fines, issuance of cease and desist orders, and/or suspensions or revocation of license.

Section 8 Effective Date This regulation replaces regulation 3-1-6. This regulation shall become effective on October 2, 2006. Section 9 History New regulation effective October 2, 2006.

Code of Colorado Regulations 103 REGULATION 3-2-1 PROXIES, CONSENTS AND AUTHORIZATIONS OF DOMESTIC STOCK INSURERS I. AUTHORITY This regulation is promulgated pursuant to the authority of § 10-1-109, C.R.S.

II. APPLICATION OF REGULATION This regulation is applicable to each domestic stock insurer which has any class of equity security held of record by one hundred or more persons; provided, however, that this regulation shall not apply to any insurer if ninety-five percent or more of its equity securities are owned or controlled by a parent or an affiliated insurer and the remaining securities are held of record by less than five hundred persons. A domestic stock insurer which files with the Securities and Exchange Commission forms of proxies, consents and authorizations complying with the requirements of the Securities Exchange Act of 1934, as amended, and the applicable regulations promulgated thereunder, shall be exempt from the provisions of this regulation with respect to any class of securities subject to SEC jurisdiction.

III. PROXIES, CONSENTS AND AUTHORIZATIONS No domestic stock insurer, or any director, officer or employee of such insurer subject to article II hereof, or any other person, shall solicit, or permit the use of his name to solicit by mail or otherwise, any proxy, consent or authorization in respect of any class of equity security of such insurer held of record by one hundred or more persons in contravention of this regulation and Schedules A and B hereto annexed and hereby made a part of this regulation.

IV. DISCLOSURE OF EQUIVALENT INFORMATION Unless proxies, consents or authorizations in respect of any class of equity security of a domestic insurer are solicited by or on behalf of the management of such insurer from the holders of record of such security in accordance with this regulation and the Schedules hereunder prior to any annual or other meeting of such security holders, such insurer shall, in accordance with this regulation and such further regulations as the Commissioner may adopt, file with the Commissioner and transmit to all security holders of record information substantially equivalent to the information which would be required to be transmitted if a solicitation were made.

Such insurer shall transmit a written information statement containing the information specified in section 4 of Article VI to every security holder who is entitled to vote in regard to any matter to be acted upon at the meeting and from whom a proxy is not solicited on behalf of the management of the insurer; provided that in the case of a class of securities in unregistered or bearer form such statement need be transmitted only to those security holders whose name and addresses are known to the insurer.

V. DEFINITIONS 1. The definitions and instructions set out in Schedule SIS, as promulgated by the National Association of Insurance Commissioners, shall be applicable for purposes of this regulation.

2. The terms “solicit” and “solicitation” for purposes of this regulation shall include:

1. a. any request for a proxy, whether or not accompanied by or included in a form of proxy; or b. any request to execute or not to execute, or revoke, a proxy; or Code of Colorado Regulations 104 c. the furnishing of a form of proxy or other communication to security holders under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy.

3. The terms “solicit” and “solicitation” shall include:

1. a. any solicitation by a person in respect of securities of which he is the beneficial owner;
   1. b. action by a broker or other persons in respect to securities carried in his name or in the name of his nominee in forwarding to the beneficial owner of such securities soliciting material received from the insurer, or impartially instructing such beneficial owner to forward a proxy to the person, if any, to whom the beneficial owner desires to give a proxy, or impartially requesting instructions from the beneficial owner with respect to the authority to be conferred by the proxy and stating that a proxy will be given if the instructions are received by a certain date;
      1. c. the furnishing of a form of proxy to a security holder upon the unsolicited request of such security holder, or the performance by any persons of ministerial acts on behalf of a person soliciting a proxy.

VI. INFORMATION TO BE FURNISHED TO SECURITY HOLDERS 1. No solicitation subject to this regulation shall be made unless each person solicited is concurrently furnished or has previously been furnished with a written proxy statement containing the information specified in Schedule A.

2. If the solicitation is made on behalf of the management of the insurer and relates to an annual meeting of security holders at which directors are to be elected, each proxy statement furnished pursuant to section 1 of Article VI shall be accompanied or preceded by an annual report (in preliminary or final form) to such security holders containing such financial statements for the last fiscal year as are referred to in Schedule SIS under the heading “Financial Reporting to Stockholders”. Subject to the foregoing requirements with respect to financial statements, the annual report to security holders may be in any form deemed suitable by the management.

3. Two copies of each report sent to the security holders pursuant to this section shall be mailed to the Commissioner not later than the date on which such report is first sent or given to security holders or the date on which preliminary copies of solicitation material are filed with the Commissioner pursuant to section 1 of Article VIII, whichever date is later.

4. If no solicitation is being made by management of the insurer with respect to any annual or other meeting, such insurer shall mail to every security holder of record at least twenty days prior to the meeting date, an information statement as required by section 3, containing the information called for by all the items of Schedule A, other than Items 1, 3 and 4 thereof, which would be applicable to any matter to be acted upon at the meeting if proxies were to be solicited in connection with the meeting. If such information statement relates to an annual meeting at which directors are to be elected. it shall be accompanied by an annual report to such security holders in the form provided in section 2 of Article VI.

VII. REQUIREMENTS AS TO PROXY AND INFORMATION STATEMENT 1. The form of proxy (a) shall indicate in bold-face type whether or not the proxy is solicited on behalf of the management, (b) shall provide a specifically designated blank space for dating the proxy and

1. (c) shall identify clearly and impartially each matter or group of related matters intended to be acted upon, whether proposed by the management, or security holders. No reference need be Code of Colorado Regulations 105 made to proposals as to which discretionary authority is conferred pursuant to subsection three hereof.
   1. 2. a. Means shall be provided in the proxy for the person solicited to specify by ballot a choice between approval or disapproval of each matter or group of related matters referred to therein, other than elections to office. A proxy may confer discretionary authority with respect to matters as to which a choice is not specified if the form of proxy states in boldface type how it is intended to vote the shares or authorization represented by the proxy in each case.
      1. b. A form of proxy which provides both for elections to office and for action on other specified matters shall be prepared so as to clearly provide, by a box or otherwise, means by which the security holder may withhold authority to vote for elections to office. Any such form of proxy which is executed to vote for elections to office shall be deemed to grant such authority, provided the form of proxy so states in bold-face type.

3. A proxy may confer discretionary authority with respect to other matters which may come before the meeting, provided the persons on whose behalf the solicitation is made are not aware a reasonable time prior to the time the solicitation is made that any other matters are to be presented for action at the meeting and provided further that a specific statement to that effect is made in the proxy statement or in the form of proxy.

4. No proxy shall confer authority (a) to vote for the election of any person to any office which a bona fide nominee is not named in the proxy statement, or (b) to vote any annual meeting other than the next annual meeting (or any adjournment thereof) to be held after the date on which the proxy statement and form of proxy are first sent or given to security holders.

5. The proxy statement or form of proxy shall provide, subject to reasonable specified conditions, that the proxy will be voted and that where the person solicited specifies by means of ballot provided pursuant to subsection 2 thereof a choice with respect to any matter to be acted upon, the vote will be in accordance with the specifications so made.

6. The information included in the proxy statement or information statement shall be clearly presented and the statements made shall be divided into groups according to subject matter, with appropriate headings. All printed proxy statements or information statements shall be clearly and legibly presented.

VIII. MATERIAL REQUIRED TO BE FILED 1. Two preliminary copies of the information statement or the proxy statement and form of proxy and any other soliciting material to be furnished to security holders concurrently therewith shall be filed with the Commissioner at least ten days prior to the date definitive copies of such material are first sent or given to security holders, or such shorter period prior to the date as the Commissioner may authorize upon a showing of good cause therefor.

2. Two preliminary copies of any additional soliciting material relating to the same meeting or subject matter to be furnished to security holders subsequent to the proxy statements shall be filed with the Commissioner at least two days (exclusive of Saturdays, Sundays or holidays) prior to the date copies of this material are first sent or given to security holders or a shorter period prior to such date as the Commissioner may authorize upon a showing of good cause therefor.

3. Two definitive copies of the information statement of the proxy statement, form of proxy and all other soliciting material, in the form in which this material is furnished to security holders, shall be filed with, or mailed for filing to the Commissioner not later than the date such material is first sent or given to security holders.

Code of Colorado Regulations 106 4. When any information statement or proxy statement, form of proxy or other material filed pursuant to this regulation is amended or revised, one of the two copies submitted shall be marked to clearly show such changes.

5. Copies of replies to inquiries from security holders requesting further information and copies of communications which do no more than request that forms of proxy theretofore solicited be signed and returned need not be filed pursuant to this section.

6. Notwithstanding the provisions of section 1 and 2 of Article VIII and of section 5 of Article XI copies of soliciting material in the form of speeches, press released and radio or television scripts may, but need not, be filed with the Commissioner prior to use or publication. Definitive copies, however, shall be filed with or mailed for filing to the Commissioner as required by section 3 of Article VIII not later than the date such material is used or published. The provision of section 1 and 2 of Article VIII and section 5 of Article XI shall apply, however, to any reprints or reproductions of all or any of such material.

IX. FALSE OR MISLEADING STATEMENT No proxy statement, form of proxy, notice of meeting, information statement, or other communication, written or oral, subject to this regulation, shall contain any statement which at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact or which omits to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the same meeting or subject matter which has become false or misleading.

X. PROHIBITION OF CERTAIN SOLICITATIONS No person making a solicitation which is subject to this regulation shall solicit any undated or postdated proxy or any proxy which provides that it shall be deemed to be dated as of any date subsequent to the date on which it is signed by the security holder.

XI. SPECIAL PROVISIONS APPLICABLE TO ELECTION CONTEST 1. Applicability. This Article shall apply to any solicitation subject to this regulation by any person or group for the purpose of opposing a solicitation subject to this regulation by any other person or group with respect to the election or removal of directors at any annual or special meeting of security holders.

2. Participant or Participant in a Solicitation.

1. a. For purpose of this section the term “participant” and “participant in solicitation” include: (i) the insurer; (ii) any director of the insurer, and any nominee for whose election as a director proxies are solicited; (iii) any other person, acting alone or with one or more other persons, committees or groups, in organizing, directing or financing the solicitation.
   1. b. For the purposes of this section the terms “participant” and “participant in a solicitation” do not include: (i) a bank, broker or dealer who, in the ordinary course of business, lends money or executes order for the purchase or sale of securities and who is not otherwise a participant; (ii) any person or organization retained or employed by a participant to solicit security holders or any person who merely transmits proxy soliciting material or performs ministerial or clerical duties; (iii) any person employed in the capacity of attorney, accountant, or advertising, public relations or financial adviser, and whose activities are limited to the performance of his duties in the course of such employment; (iv) any person regularly employed as an officer or employee of the insurer or any of its subsidiaries or affiliates who is not otherwise a participancy; or (v) any officer or director of, or any Code of Colorado Regulations 107 person regularly employed by any other participant, if such officer, director, or employee is not otherwise a participant.

3. Filing of Information Required by Schedule B.

1. a. No solicitation subject to this section shall be made by any person other than the management of an insurer unless at least five business days prior thereto, or such shorter period as the Commissioner may authorize upon a showing of good cause therefore, there has been filed, with the Commissioner by or on behalf of each participant in such solicitation, a statement in duplicate containing the information specified by Schedule B and a copy of any material proposed to be distributed to security holders in furtherance of such solicitation. Where preliminary copies of any materials are filed, distribution to security holders should be deferred until the Commissioner's comments have been received and complied with.
   1. b. Within five business days after a solicitation subject to this section is made by the management of an insurer, or such longer period as the Commissioner may authorize upon showing of good cause therefor, there shall be filed with the Commissioner by or on behalf of each participant in such solicitation, other than the insurer, and by or on behalf of each management nominee for director, a statement in duplicate containing the information specified by Schedule B.
      1. c. If any solicitation on behalf of management or any other person has been made, or if proxy material is ready for distribution, prior to a solicitation subject to this section in opposition thereto, a statement in duplicate containing the information specified in Schedule B shall be filed with the Commissioner, by or on behalf of each participant in such prior solicitation, other than the insurer, as soon as reasonably practicable after the commencement of the solicitation in opposition thereto.
      2. d. If, subsequent to the filing of the statements required by paragraphs a, b and c of this section, additional persons become participants in a solicitation subject to this section, there shall be filed with the Commissioner by or on behalf of each such person, a statement in duplicate containing the information specified by Schedule B, within three business days after such person becomes a participant, or such longer period as the Commissioner may authorize upon showing of good cause therefor.
      3. e. If any material change occurs in the facts reported in any statement filed by or on behalf of any participant, an appropriate amendment to such statement shall be filed promptly with the Commissioner.
      4. f. Each statement and amendment thereto filed pursuant to this paragraph shall be part of the public files of the Commissioner.

4. Solicitations Prior to Furnishing Required Written Proxy Statement. Notwithstanding the provisions of section 1 of Article VI a solicitation subject to this Article may be made prior to furnishing security holders a written proxy statement containing the information specified in Schedule A with respect to such solicitation, provided that:

1. a. The statements required by section 3 of Article XI are filed by or on behalf of each participant in such solicitation.
   1. b. No form of proxy is furnished to security holders prior to the time the written proxy statement required by section 1 of Article VI is furnished to such persons; provided, however, that this paragraph b. shall not apply where a proxy statement then meeting the requirements of Schedule A has been furnished to security holders.

Code of Colorado Regulations 108

1. c. At least the information specified in paragraphs b. and c. of the statements required by section 3 of Article XI to be filed by each participant, or an appropriate summary thereof, is included in each communication sent or given to security holders in connection with the solicitation.
   1. d. A written proxy statement containing the information specified in Schedule A with respect to a solicitation is sent or given security holders at the earliest practicable date.

5. Solicitations Prior to Furnishing Required Written Proxy Statement-Filing Requirements. Two copies of any soliciting material proposed to be sent or given to security holders prior to the furnishing of the written proxy statement required by section 1 of Article VI shall be filed with the Commissioner in preliminary form at least five business days prior to the date definitive copies of such material are first sent or given to such persons, or such shorter period as the Commissioner may authorize upon a showing of good cause therefor.

6. Application of This Section to Annual Report. Notwithstanding the provisions of sections 2 and 3 of Article VI, two copies of any portion of the annual report referred to in section 2 of Article VI which comments upon or refers to any solicitation subject to this article or any participant in any such solicitation, other than the solicitation by the management, shall be filed with the Commissioner, as proxy material subject to this regulation. Such portion of the report shall be filed with the Commissioner, in preliminary form, at least five business days prior to the date copies of the report are first sent or given to security holders.

XII. REPEAL The directive dated January 26, 1966, entitled “Regulation Adopted Pursuant to 72-2-18 C.R.S. 1963, as Amended, Regarding Proxies, Consents and Authorizations of Domestic Stock Insurers” which in publication was designated “Bulletin No. 48 (Bulletin Numbering Not Official)” is herewith repealed. XIII. EFFECTIVE DATE This regulation, initially effective on February 1, 1972, is amended effective December 31, 1992. SCHEDULE A INFORMATION REQUIRED IN PROXY STATEMENT OR INFORMATIONS STATEMENT Item 1. Revocability of Proxy.

State whether or not the person giving the proxy has the power to revoke it. If the right of revocation before the proxy is exercised is limited or is subject to compliance with any formal procedure, briefly describe such limitations or procedure.

Item 2. Dissenter's Rights of Appraisal.

Outline briefly the rights of appraisal or similar rights of dissenting security holders with respect to any matter to be acted upon and indicate any statutory procedure required to be followed by such security holders in order to perfect their right. Where such rights may be exercised only within a limited time after the date of the adoption of a proposal, the filing of a charter amendment, or other similar act, state whether the person solicited will be notified of such date. Item 3. Persons Making Solicitations Not Subject to Article XI.

(1) If the solicitation is made by the management of the insurer, so state. Give the name of any director of the insurer who has informed the management in writing that he intends to oppose any action intended to be taken by the management and indicate the action which he intends to oppose. Code of Colorado Regulations 109 (2) If the solicitation is made otherwise than by the management of the insurer, state the names and addresses of the persons by whom and on whose behalf it is made and the names and addresses of the persons by whom the cost of solicitation has been or will be borne, directly or indirectly.

(3) If the solicitation is to be made by specially engaged employees or paid solicitors, state (i) the material features of any contract or arrangement for such solicitation and identify the parties; and (ii) the cost or anticipated cost thereof.

Item 4. Interest of Certain Persons in Matters to be Acted Upon. Describe briefly any substantial interest, direct or indirect, by security holdings or otherwise, of any director, nominee for election as director, officer and, if the solicitation is made otherwise than on behalf of the management, each person on whose behalf the solicitation is made, in any matter to be acted upon, other than elections to office.

Item 5. Voting Securities.

(1) State, as to each class of voting securities of the insurer entitled to be voted at the meeting, the number of shares outstanding and the number of votes to which each class is entitled.

(2) Give the date as of which the record list of security holders entitles to vote at the meeting will be determined. If the right to vote is not limited to security holders of record on that date, indicate the conditions under which other security holders may be entitles.

(3) If action is to be taken with respect to the election of directors and if the persons solicited have cumulative voting rights, make a statement that they have such rights and state briefly the conditions precedent to the exercise thereof.

Item 6. Nominees and Directors.

If action is to be taken with respect to the election of directors furnish the following information, in tabular form to the extent practicable, with respect to each person nominated for election as director and each other person whose term of office as a director will continue after the meeting:

(a) Name each such person, state when his term of office or the term of office for which he is a nominee will expire, and all other positions and offices with the insurer presently held by him and indicate which persons are nominees for election as director at the meeting.

(b) State his present principal occupation or employment and give the name and principal business of any corporation or other organization in which such employment is carried on. Furnish similar information as to all of his principal occupations or employments during the last five years, unless he is now a director and was elected to his present term of office by a vote of security holders at a meeting for which proxies were solicited under this regulation.

(c) If he is or has previously been a director of the insurer, state the period or periods during which he has served as such.

(d) State, as of the most recent practicable date, the approximate amount of each class of equity securities of the insurer or any of its parents, subsidiaries or affiliates other than directors' qualifying shares, beneficially owned directly or indirectly by him. If he is not the beneficial owner of any such securities, make a statement to that effect. Item 7. Remuneration and Other Transactions with Management and Others. Code of Colorado Regulations 110 Furnish the information reported or required in Item One of Schedule SIS under the heading “Information Regarding Management and Directors” if action is to be taken with respect to (a) the election of directors, (b) any remuneration plan, contract or arrangement in which any director, nominee for election as a director, or officer of the insurer will participate, (c) any pension or retirement plan in which any such person will participate, or (d) the granting or extension to any such person of any options, warrants or tights to purchase any securities, other than warrants or rights issued to security holders, as such, on a pro rata basis. If the solicitation is made on behalf of persons other than the management, information shall be furnished only as to Item One A of the aforesaid heading of Schedule SIS. Item 8. Bonus, Profit Sharing and Other Remuneration Plans. If action is to be taken with respect to any bonus, profit sharing, or other remuneration plan, of the insurer, furnish the following information:

(a) A brief description of the material features of the plan, each class of persons who will participate therein, the approximate number of persons in each such class, and the basis of such participation.

(b) The amounts which would have been distributable under the plan during the last calendar year to (1) each person named in item seven of this schedule, (2) directors and officers as a group, and (3) all other employees as a group, if the plan has been in effect.

(c) If the plan to be acted upon may be amended (other than by a vote of security holders) in a manner which would materially increase the benefits as between the groups specified in paragraph (b) of this item, the nature of such amendments should be specified. Item 9. Pension and Retirement Plans.

If action is to be taken with respect to any pension or retirement plan of the insurer, furnish the following information:

(a) A brief description of the material features of the plan, each class of persons who will participate therein, the approximate number of persons in each such class, and the basis of such participation.

(b) State (1) the approximate total amount necessary to fund the plan with respect to past services, the period over which such amount is to be paid and the estimated annual payments necessary to pay the total amount over such periods;(2) the estimated annual payment to be made with respect to current services; and (3) the amount of such annual payments to be made for the benefit of (i) each person named in item seven of this schedule, (ii) directors and officers as a group and (iii) employees as a group.

(c) If the plan to be acted upon may be amended (other than by a vote of security holders) in a manner which would materially increase the cost thereof to the insurer or to materially alter the allocation of the benefits as between the groups specified in sub-paragraph (b)(3) of this item, the nature of such amendments should be specified.

Item 10. Options, Warrants or Rights.

If action is to be taken with respect to the granting or extension of any options, warrants or rights (all referred to herein as “warrants”) to purchase securities of the insurer or any subsidiary of affiliate, other than warrants issued to all security holders on a pro rata basis, furnish the following information:

(a) The title and amount of securities called for or to be called for, the prices, expiration dates and other material conditions upon which the warrants may be exercised, the consideration received or to Code of Colorado Regulations 111 be received by the insurer, subsidiary or affiliate for the granting or extension of the warrants and the market value of the securities called for or to be called for by the warrants, as of the latest practicable date.

(b) If known, state separately the total amount of securities called for or to be called for by warrants received or to be received by the following persons, naming each such person: (1) each person named in item seven of this schedule and (2) each other person who will be entitled to acquire five per cent or more of the securities called for or to be called for by such warrants.

(c) If known, state also the total amount of securities call for or to be called for by such warrants, received or to be received by all directors and officers of the company as a group and all employees, without naming them.

Item 11. Authorization or Issuance of Securities.

1. If action is to be taken with respect to the authorization or issuance of any securities of the insurer furnish the title, amount and description of the securities to be authorized or issued.

2. If the securities are other than additional shares of common stock of a class outstanding, furnish a brief summary of the following, if applicable: dividend, voting liquidation, preemptive, and conversion rights, redemption and sinking fund provisions, interest rate and date of maturity.

3. If the securities to be authorized or issued are other than additional shares of common stock of a class outstanding, the Commissioner may require financial statements comparable to those contained in the annual report.

Item 12. Mergers, Consolidations, Acquisitions and Similar Matters.

1. If action is to be taken with respect to a merger, consolidation, acquisition, or similar matter, furnish in brief outline the following information:

1. (a) The rights of appraisal or similar rights of dissenters with respect to any matters to be acted. upon. Indicate any procedure required to be followed by dissenting security holders in order to perfect such rights.
   1. (b) The material features of the plan or agreement.
      1. (c) The business done by the company to be acquired or whose assets are being acquired.
      2. (d) If available, the high and low sales prices for each quarterly period within two years.
      3. (e) The percentage of outstanding shares which must approve the transaction before it is consummated.

2. For each company involved in a merger, consolidation or acquisition, the following financial statements should be furnished:

1. (a) A comparative balance sheet as of the close of the last two fiscal years.
   1. (b) A comparative statement of operating income and expenses for each of the last two fiscal years and, as a continuation of each statement, a statement of earnings per share after related taxes and cash dividends paid per share.
      1. (c) A pro forma combined balance sheet and income and expenses statement for the last fiscal year giving effect to the necessary adjustments with respect to the resulting company. Code of Colorado Regulations 112 Item 13. Restatement of Accounts.

If action is to be taken with respect to the restatement of an asset, capital or surplus account of the insurer, furnish the following informations:

(a) State the nature of the restatement and the date as of which it is to be effective.

(b) Outline briefly the reasons for the restatement and for the selection of the particular effective date.

(c) State the name and amount of each account affected by the restatement and the effect of the restatement thereon.

Item 14. Matters Not Required to be Submitted.

If action is to be taken with respect to any matter which is not required to be submitted to a vote of security holders, state the nature of such matter, the reason for submitting it to a vote of security holders and what action is intended to be taken by the management in the events of a negative vote on the matter by the security holders.

Item 15. Amendment of Charter, By-Laws, or Other Documents. If action is to be taken with respect to any amendment of the insurer's charter, by-laws or other documents as to which information is not required above, state briefly the reasons for the general effect of such amendment and the vote needed for its approval.

SCHEDULE BINFORMATION TO BE INCLUDED IN STATEMENTS FILED BY OR ON BEHALF OF A PARTICIPANT (OTHER THAN THE INSURER) IN A PROXY SOLICITATION IN AN ELECTION CONTEST Item 1. Insurer. State the name and address of insurer. Item 2. Identity and Background.

1. State the following:

1. (a) Your name and business address.
   1. (b) Your present principal occupation or employment and the name, principal business and address of any corporation or other organization in which such employment is carried on.

2. State the following:

1. (a) Your residences address.
   1. (b) Information as to all material occupations, positions, offices or employments during the last ten years, giving starting and ending dates of each and the name, principal business address of any business corporation or other business organization in which each such occupation, position, office or employment was carried on.

3. State whether or not you are or have been a participant in any other proxy contest involving this company or other companies within the past ten years. If so, identify the principals, the subject matter and your relationship to the parties and the outcome.

4. State whether or not, during the past ten years, you have been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) and, if so, give dates, nature of conviction, Code of Colorado Regulations 113 name and location of court, and penalty imposed or other disposition of the case. A negative answer to this sub-item need not be included in the proxy statement or other proxy soliciting material.

Item 3. Interest in Securities of the Insurer.

1. State the amount of each class of securities of the insurer which you own beneficially directly or indirectly.

2. State the amount of each class of securities of the insurer which you own of record but not beneficially.

3. State with respect to all securities of the insurer purchased or sold within the past two years, the dates on which they were purchased or sold and the amount purchased or sold on each such date.

4. If any part of the purchase price or market value of any of the securities specified in paragraph (3) is represented by funds borrowed or otherwise obtained for the purpose of acquiring or holding such securities, so state and indicate the amount of the indebtedness as of the latest practicable date. If such funds were borrowed or obtained otherwise than pursuant to a margin account or bank loan in the regular course of business of a bank, broker or dealer, briefly describe the transaction, and state the names of the parties.

5. State whether or not you are a party to any contracts, arrangements or understandings with any person with respect to any securities of the insurer, including but not limited to joint ventures, loan or option arrangements, puts or calls, guarantees against losses or guarantees of profits, division of losses or profits, or the given or withholding of proxies. If so, name the persons with whom such contracts, arrangements, or understandings exist and give the details thereof.

6. State the amount of securities of the insurer owned beneficially, directly or indirectly, by each of your associates and the name and address of each such associate.

7. State the amount of each class of securities of any parent, subsidiary or affiliate of the insurer which you own beneficially, directly or indirectly.

Item 4. Further Matters.

1. Describe the time and circumstances under which you became a participant in the solicitation and state the nature and extent of your activities or proposed activities as a participant.

2. Describe briefly, and where practicable state the approximate amount of, any material interest, direct or indirect, of yourself and of each of your associates in any material transactions since the beginning of the company's last fiscal year, or in any material proposed transactions, to which the company or any of its subsidiaries or affiliates was or is to be a party.

3. State whether or not you or any of your associates have any arrangement or understanding with any person -

1. a. with respect to any future employment by the insurer or its subsidiaries or affiliates; or b. with respect to any future transactions to which the insurer or any of its subsidiaries or affiliates will or may be a party.

If so, describe such arrangement or understanding and state the names of the parties thereto. Item 5. Signature.

Code of Colorado Regulations 114 The statement shall be dated and signed in the following manner: I certify that the statements made in this statement are true, complete, and correct, to the best of my knowledge and belief.

1. Date Signature of participant or authorized representative REGULATION 3-2-2 INSIDER TRADING OF EQUITY SECURITIES OF A DOMESTIC STOCK INSURANCE COMPANY

I. AUTHORITY This regulation is promulgated pursuant to the authority of Section 10-1-109, C.R.S.

II. DEFINITIONS 1. “Insurer” means any domestic stock insurance company with an equity security subject to the provisions of Section 10-3-120, C.R.S., and not exempt thereunder.

2. “Officer” means a president, vice president, treasurer, actuary, secretary, controller and any other person who performs for the insurer functions corresponding to those performed by the foregoing officers.

3. “Equity security” means any stock or similar security; or any voting trust certificate or certificate of deposit for such a security; or any security convertible, with or without consideration, into such a security, or carrying any warrant or right to subscribe to or purchase such a security; or any such warrant or right.

4. Securities “held of record”.

1. a. For the purpose of determining whether the equity securities of an insurer are held of record by one hundred or more persons, securities shall be deemed to be “held of record” by each person who is identified as the owner of such securities on records of security holders maintained by or on behalf of the insurer, subject to the following:
   1. (1) In any case where the records of security holders have not been maintained in accordance with accepted practice, any additional person who would be identified as such an owner on such records if they had been maintained in accordance with accepted practice shall be included as a holder of record.
      1. (2) Securities identified as held of record by a corporation, a partnership, a trust whether or not the trustees are named, or other organization shall be included as so held by one person.
         1. (3) Securities identified as held of record by one or more persons as trustees, executors, guardians, custodians or in other fiduciary capacities with respect to a single trust, estate or account shall be included as held of record by one person.
         2. (4) Securities held by two or more persons as co-owners shall be included as held by one person.

Code of Colorado Regulations 115

1. (5) Each outstanding unregistered or bearer certificate shall be included as held of record by a separate person, except to the extent that the insurer can establish that, if such securities were registered, they would be held of record, under the provisions of this regulation, by a lesser number of persons.
   1. (6) Securities registered in substantially similar names where the insurer has reason to believe because of the address or other indications that such names represent the same person, may be included as held of record by one person.
      1. b. Notwithstanding subsection 4a of this Article:
         1. (1) Securities held, to the knowledge of the insurer, subject to a voting trust, deposit agreement or similar arrangement shall be included as held of record by the record holders of the voting certificates, certificates of deposit, receipts or similar evidences of interest in such securities, provided however, that the insurer may rely in good faith on such information as is received in response to its request from a nonaffiliated insurer of the certificates or evidences of interest.
         2. (2) If the insurer knows or has reason to know that the form of holding securities of record is used primarily to circumvent the provisions of Section 10-3-120, C.R.S., the beneficial owners of such securities shall be deemed to be the record owners thereof.

5. “Class” means all securities of an insurer which are of substantially similar character and the holders of which enjoy substantially similar rights and privileges.

III. TRANSACTIONS EXEMPTED FROM THE OPERATION OF SECTION 10-3-120, C.R.S. Any acquisition or disposition of any equity security by a director or officer of an insurer within six months prior to the date on which Section 10-3-120, C.R.S. first became applicable with respect to the equity securities of such insurer shall not be subject to the operation of Section 10-3-120(2), C.R.S.

IV. RULES UNDER 10-3-120(1)

1. Filing of Statements.

Initial statements of beneficial ownership of equity securities required by Section 10-3-120(1) shall be filed on Form 01-IT-1 attached hereto. Statements of changes in such beneficial ownership required by Section 10-3-120(1) shall be filed on Form 01-IT-2 attached hereto. All such statements shall be prepared and filed in accordance with the requirements of the applicable form. Reproduction of the attached forms is advised as the Insurance division will not maintain a supply thereof.

2. Ownership of More than Ten Per Cent of an Equity Security.

a. In determining, for the purpose of Section 10-3-120(1) whether a person is the beneficial owner, directly or indirectly, of more than ten per cent of any class of any equity security, such class shall be deemed to consist of the total amount of such class outstanding, exclusive of any securities of such class held by or for the account of the insurer or a subsidiary of the insurer; except that for the purpose of determining percentage ownership of voting trust certificates or certificates of deposit for equity securities, the class of voting trust certificates or certificates of deposit shall be deemed to consist of the amount of voting trust certificates or certificates of deposit issuable with respect to the total amount of outstanding equity securities of the class which may be deposited under the voting trust agreement or deposit agreement in question, whether or not all of such outstanding securities have been so deposited. for the purpose of this section a person acting in good faith may rely on the information contained in the latest Convention Form statement filed Code of Colorado Regulations 116 with the Commissioner with respect to the amount of securities of a class outstanding or in the case of voting trust certificates or certificates of deposit the amount thereof issuable.

b. In determining for the purpose of Section 10-3-120(1), C.R.S., whether a person is the beneficial owner, directly or indirectly, of more than ten percent of any class of equity securities, such person shall be deemed to be the beneficial owner of securities of such class which such person has the right to acquire through the exercise of presently exercisable options, warrants or rights or through the conversion of presently convertible securities. The securities subject to such options, warrants, right of conversion privileges held by a person shall be deemed to be outstanding for the purpose of computing, in accordance with paragraph (a), the percentage of the class owned by any other person. This paragraph shall not be construed to relieve any person of any duty to comply with Section 10-3-120(1), C.R.S., with respect to any equity securities consisting of options, warrants, rights or convertible securities which are otherwise subject as a class to Section 10-3-120(1), C.R.S.

3. Disclaimer of Beneficial Ownership.

Any person filing a statement may expressly declare therein that the filing of such statement shall not be construed as an admission that such person is, for the purpose of Section 10-3-120, C.R.S., the beneficial owner of any equity securities covered by the statement.

4. Exemptions from Section 10-3-120(1) and (2), C.R.S.

a. During the period of 12 months following their appointment and qualification, securities held by the following persons shall be exempt from Section 10-3-120 (1) and (2), C.R.S.

1. (1) Executors or administrators of the estate of a decedent:
   1. (2) Guardians or committees for an incompetent; and (3) Receivers, trustees in bankruptcy, assigners for the benefit of creditors, conservators, liquidating agents, and other similar persons duly authorized by law to administer the estate or assets of other persons.

b. After the 12-month period following their appointment or qualification the foregoing persons shall be required to file reports with respect to the securities held by the estates which they administer under Section 10-3-120(1), C.R.S., and shall be liable for profits realized from trading in such securities pursuant to Section 10-3-120(2), C.R.S., only when the estate being administered is a beneficial owner of more than 10 per cent of any class of equity security of an insurer subject to Section 10-3-120, C.R.S.

c. Securities reacquired by or for the account of an insurer and held by it for its account shall be exempt from Section 10-3-120(1) and (2), C.R.S. during the time they are held by the insurer.

5. Exemption from the Act of Securities Purchased or Sold by Odd-Lot Dealers. Securities purchased or sold by an odd-lot dealer (1) in odd lots so far as reasonably necessary to carry on odd-lot transactions or (2) in round lots to offset odd-lot transactions previously or simultaneously executed or reasonably anticipated in he usual course of business, shall be exempt from the provisions of Section 10-3-120, C.R.S., with respect to participation by such odd-lot dealer in such transactions.

6. Certain transactions Subject to Section 10-3-120(1), C.R.S. The acquisition or disposition of any transferable option, put, call, spread or straddle shall be deemed such a change in the beneficial ownership of the security to which such privilege relates as to require the Code of Colorado Regulations 117 filing of a statement reflecting the acquisition or disposition of such privilege. Nothing in this section, however, shall exempt any person from filing the statements required upon the exercise of such option, put, call, spread or straddle.

7. Ownership of Securities Held in Trust.

a. Beneficial ownership of a security for the purpose of Section 10-3-120(1), C.R.S., shall include:

1. (1) The ownership of securities as a trustee where either the trustee or members of his immediate family have a vested interest in the income or corpus of the trust, (2) The ownership of a vested beneficial interest in a trust, and (3) The ownership securities as a settlor of a trust in which the settlor has the power to revoke the trust without obtaining the consent of all the beneficiaries.

b. In the event that ten per cent of any class of any equity security of an insurer is held in a trust, that trust and the trustees thereof as such shall be deemed a person required to file the reports specified in Section 10-3-120(1), C.R.S.

c. Not more than one report need be filed to report any holdings or with respect to any transaction in securities held by a trust, regardless of the number of officers, directors or ten per cent stockholders who are either trustees, settlors, or beneficiaries of a trust, provided that the report filed shall disclose the names of all trustees, settlors and beneficiaries who are officers, directors or ten per cent stockholders. A person having an interest only as a beneficiary of a trust shall not be required to file any such report so long as he relies in good faith upon an understanding that the trustee of such trust will file whatever reports might otherwise be required of such beneficiary.

d. As used in this section the “immediate family” of a trustee means:

1. (1) a son or daughter of the trustee, or a descendant of either.
   1. (2) a stepson or stepdaughter of the trustee, (3) the father or mother of the trustee, or an ancestor of either.
      1. (4) a stepfather or stepmother of the trustee, (5) a spouse of the trustee.

         For the purpose of determining whether any of the foregoing relations exists, a legally adopted child of a person shall be considered a child of such person by blood.

e. In determining, for the purposes of Section 10-3-120(1), C.R.S., whether a person is the beneficial owner, directly or indirectly, of more than ten per cent of any class of any equity security, the interest of such person in the remainder of a trust shall be excluded from the competition.

f. No report shall be required by any person, whether or not otherwise subject to the requirement of filing reports under Section 10-3-120(1), C.R.S., with respect to his indirect interest in portfolio securities held by:

1. (1) a pension or retirement plan holding securities of an insurer whose employees generally are the beneficiaries of the plan, (2) a business trust with over 25 beneficiaries.

Code of Colorado Regulations 118 g. Nothing in this section shall be deemed to impose any duties or liabilities with respect to reporting any transaction or holding prior to its effective date.

8. Exemption for Small Transactions.

a. Any acquisition of securities shall be exempt from Section 10-3-120, C.R.S., where

1. (1) The person effecting the acquisition does not within six months thereafter effect any disposition, otherwise than by way of gift, of securities of the same class, and (2) The person effecting such acquisition does not participate in acquisitions or in dispositions of securities of the same class having a total market value in excess of $3,000 for any six months' period during which the acquisition occurs.

b. Any acquisition or disposition of securities by way of gift, where the total amount of such gifts does not exceed $3,000 in market value for any six months' period, shall be exempt from Section 10-3- 120(1), C.R.S., and may be excluded from the computations prescribed in paragraph 8. a. (2) of this regulation.

c. Any person exempted by paragraph 8. a. (2) of this regulation shall include in the first report filed by him after a transaction within the exemption a statement showing his acquisitions and dispositions for each six months' period or portion thereof which has elapsed since his last filing.

9. Exemption from Section 10-3-120(2), C.R.S., of Transactions Which Need Not Be Reported Under Section 10-3-120(1), C.R.S.

Any transaction which has been or shall be exempted from the requirements of Section 10-3-120(1), C.R.S., shall, insofar as it is otherwise subject to the provisions of Section 10-3-120(2), C.R.S., be likewise exempted from Section 10-3-120(2), C.R.S.

V. RULES UNDER SECTION 10-3-120(2), C.R.S.

1. Exemption of Section 10-3-120(2), C.R.S., of Certain Transactions Effective in Connection with A Distribution.

1. a. Any transaction of purchase and sale, or sale and purchase, of a security which is effected in connection with the distribution of a substantial block of securities shall be exempt from the provisions of Section 10-3-120(2), C.R.S., to the extent specified in this section as not comprehended within the purpose of said Section 10-3-120(2), C.R.S., upon the following conditions:
   1. (1) The person effecting the transaction is engaged in the business of distributing securities and is participating in good faith, in the ordinary course of such business, in the distribution of such block of securities;
      1. (2) The security involved in the transaction is (A) a part of such block of securities and is acquired by the person effecting the transaction, with a view to the distribution thereof, from the insurer or other person on whose behalf such securities are being distributed or from a person who is participating in good faith in the distribution of such block of securities or (B) a security purchased in good faith by or for the account of the person effecting the transaction for the purpose of stabilizing the market price of securities of the class being distributed or to cover an over-allotment or other short position created in connection with such distribution; and Code of Colorado Regulations 119 (3) Other persons not within the purview of Section 10-3-120(2), C.R.S., are participating in the distribution of such block of securities on terms at least as favorable as those on which such person is participating and to an extent at least equal to the aggregate participation of all persons exempted from the provisions of Section 10-3-120(2), C.R.S., by this section. However, the performance of the functions of manager of a distributing group and the receipt of a bona fide payment for performing such functions shall not preclude an exemption which would otherwise be available under this section.
      2. b. The exemption of a transaction pursuant to this section with respect to the participation therein of one party thereto shall not render such transaction exempt with respect to participation of any other party therein unless such other party also meets the conditions of this section.

2. Exemption from Section 10-3-120(2), C.R.S., of Acquisitions of Shares of Stock and Stock Options under Certain Stock Bonus, Stock Option or Similar Plans. Any acquisition of shares of stock (other than stock acquired upon the exercise of an option, warrant or right) pursuant to a stock bonus, profit sharing, retirement, incentive, thrift, savings or similar plan, or any acquisition of a qualified or a restricted stock option pursuant to an employee stock purchase plan, by a director or officer of an insurer issuing such stock or stock option shall be exempt from the operation of Section 10-3-120(2), C.R.S., if the plan meets the following conditions:

1. a. The plan has been approved, directly or indirectly, (1) by the affirmative votes of the holders of a majority of the securities of such insurer present, or represented, and entitled to vote at a meeting duly held in accordance with the applicable laws of the State of Colorado, or
   1. (2) by the written consent of the holders of a majority of the securities of such insurer entitled to vote: provided however, that if such vote or written consent was not solicited substantially in accordance with the proxy rules and regulations prescribed by the National Association of Insurance Commissioners, if any, in effect at the time of such vote or written consent, the insurer shall furnish in writing to the holders of record of the securities entitled to vote for the plan substantially the same information concerning the plan which would be required by any such rules and regulations so prescribed and in effect at the time such information is furnished, if proxies to be voted with respect to the approval or disapproval of the plan were then being solicited, on or prior to the date of the first annual meeting of security holders held subsequent to the later of (i) the date Section 10-3-120, C.R.S., first applies to such insurer, or (ii) the acquisition of an equity security for which exemption is claimed. Such written information may be furnished by mail to the last know address of the security holders of record within 30 days prior to the date of mailing. four copies of such written information shall be field with, or mailed for filing to, the Commissioner not later than the date on which it is first sent or given to security holders of the insurer. For the purposes of this paragraph, the term “insurer” includes a predecessor corporation if the plan or obligations to participate thereunder were assumed by the insurer in connection with the succession.
      1. b. If the selection of any director or officer of the insurer to whom stock may be allocated or to whom qualified, restricted or employee stock purchase plan stock options may be granted pursuant to the plan, or the determination of the number or maximum number of shares of stock which may be allocated to any such director or officer or which may be covered by qualified, restricted or employee stock purchase plan stock options granted to any such director or officer, is subject to the discretion of any person, then such discretion shall be exercised only as follows:
         1. (1) With respect to the participation of directors— Code of Colorado Regulations 120 (A) by the board of directors of the insurer, a majority of which board and a majority of the directors acting in the matter are disinterested persons;
         2. (B) by, or only in accordance with the recommendations of, a committee of three or more persons having full authority to act in the matter, all of the members of which committee are disinterested persons; or (C) otherwise in accordance with the plan, if the plan (1) specifies the number or maximum number of shares of stock which directors may acquire or which may be subject to qualified, restricted or employee stock purchase plan stock options granted to directors and the terms upon which, and the times at which, or the periods within which, such stock may be acquired or such options may be acquired and exercised; or (ii) sets forth, by formula or otherwise, effective and determinable limitations with respect to the foregoing based upon earnings of the insurer, dividends paid, compensation received by participants, option prices, market value of shares, outstanding shares or percentages thereof outstanding from time to time, or similar factors.
         3. (2) With respect to the participation of officers who are not directors— (A) by the board of directors of the insurer or a committee of three or more directors; or (B) by, or only in accordance with the recommendations of, a committee of three or more persons having full authority to act in the matter, all of the members of which committee are disinterested persons.

            For the purpose of this paragraph, a director or committee member shall be deemed to be a disinterested person only if such person is not at the time such discretion is exercised eligible and has not at any time within one year prior thereto been eligible for selection as a person to whom stock may be allocated or to whom qualified, restricted or employee stock purchase plan stock options may be granted pursuant to the plan or any other plan of the insurer or any of the its affiliates entitling the participants therein to acquire stock or qualified, restricted or employee stock purchase plan stock options of the insurer or any of its affiliates.

         4. (3) The provisions of this paragraph shall not apply with respect to any option granted, or other equity security acquired, prior to the date that Section 10-3-120(1), (2) and (3), C.R.S., first become applicable with respect to any class of equity securities of any insurer.
      2. c. As to each participant or as to all participants the plan effectively limits the aggregate dollar amount or the aggregate number of shares of stock which may be allocated, or which may be subject to qualified, restricted, or employee stock purchase plan stock options granted, pursuant to the plan. The limitations may be established on an annual basis, or for the duration of the plan, whether or not the plan has a fixed termination date; and may be determined either by fixed or maximum dollar amounts or fixed or maximum numbers of shares or by formulas based upon earnings of the insurer, dividends paid, compensation received by participants, option prices, market value of shares, outstanding shares or percentages thereof outstanding from time to time, or similar factors which will result in an effective and determinable limitation. Such limitations may be subject to any provisions for adjustment of the plan or of stock allocable or options outstanding thereunder to prevent dilution or enlargement of rights. Code of Colorado Regulations 121 d. Unless the context otherwise requires, all terms used in this section shall have the same meaning as in Section 10-3-120, C.R.S., and Article II of this regulation. In addition, the following definitions apply:
         1. (1) The term “plan” includes any plan, whether or not set forth in any formal written document or documents and whether or not approved in its entirety at one time.
         2. (2) The definition of the terms “qualified stock option” and “employee stock purchase plan” that are set forth in Sections 422 and 423 of the Internal Revenue Code of 1954, as amended, are to be applied to those terms where used in this section. The term “restricted stock option” as defined in Section 424 (b) of the Internal Revenue Code of 1954, as amended, shall be applied to that term as used in this section, provided however, that for the purposes of this section an option which meets all of the conditions of that Section, other than the date of issuance shall be deemed to be a “restricted stock option.”
         3. (3) The term “exercise of an option, warrant or right” contained in the parenthetical clause of the first paragraph of this section shall not include (i) the making of any election to receive under any plan an award of compensation in the form of stock or credits therefore, provided, that such election is made prior to the making of the award: and provided further that such election is irrevocable until at least six months after termination of employment: (ii) the subsequent crediting of such stock: (iii) the making of any election as to a time for delivery of such stock after termination of employment, provided that such election is made at least six months prior to any such delivery: (iv) the fulfillment of any condition to the absolute right to receive such stock; or (v) the acceptance of certificates for shares of such stock.

3. Exemption from Section 10-3-120 (2), C.R.S., of Certain Transactions in Which Securities Are Received by Redeeming Other Securities.

1. Any acquisition of an equity security (other than a convertible security or right to purchase a security) by a director or officer of the insurer issuing such security shall be exempt from the operation of Section 10-3-120(2), C.R.S., upon condition that a. The equity security is acquired by way of redemption of another security of an insurer substantially all of whose assets to her than cash (or Government bonds) consist of securities of the insurer issuing the equity security so acquired, and which
   1. (1) represented substantially and in practical effect a stated or readily ascertainable amount of such equity security, (2) had a value which was substantially determined by the value of such equity security without the payment of any consideration other than the security redeemed.
      1. b. no security of the same class as the security redeemed was acquired by the director or officer within six months prior to such redemption or is acquired within six months after such redemption;
      2. c. the insurer issuing the equity security acquired has recognized the applicability of paragraph 3a. of this Article by appropriate corporate action.

4. Exemption of the Long Term Profits Incident to Sales Within Six Months of the Exercise of an Option. Code of Colorado Regulations 122

1. a. To the extent specified in paragraph b. of this section, the Commissioner hereby exempts as not comprehended within the purposes of Section 10-3-120(2), C.R.S., any transaction or transactions involving the purchase and sale, or sale and purchase, of any equity security where such purchase is pursuant to the exercise of an option or similar right either (1) acquired more than six months before its exercise, or (2) acquired pursuant to the terms of an employment contract entered into more than six months before its exercise.
   1. b. In respect of transactions specified in paragraph a. of this section, the profits inuring to the insurer shall not exceed the difference between the proceeds of sale and the lowest market price of any security of the same class within six months before or after the date of sale. Nothing in this section shall be deemed to enlarge the amount of profit which would inure to such insurer in the absence of this section.
      1. c. The Commissioner also hereby exempts, as not comprehended within the purposes of Section 10-3-120(2), C.R.S., the disposition of security, purchased in a transaction specified in paragraph a. of this section pursuant to a plan or agreement or merger or consolidation, or reclassification of the insurer's securities, or for the exchange of its securities for the securities of another person which has acquired its assets, or which is in control, as defined in Section 368 (c) of the Internal Revenue Code of 1954, of a person which has acquired its assets, where the terms of such plan or agreement are binding upon all stockholders of the insurer except to the extent that dissenting stockholders may be entitled, under statutory provisions or provisions contained in the certificate of incorporation, to receive the appraised or fair value of their holdings.
      2. d. The exemptions provided by this section shall not apply to any transaction made unlawfully by Section 10-3-120 (2), C.R.S., or by any rules and regulations thereunder.
      3. e. The burden of establishing market price of a security for the purpose of this section shall rest upon the person claiming the exemption.

5. Exemption from Section 10-3-120(2), C.R.S., of Certain Acquisitions and Dispositions of Securities Pursuant to Merger or Consolidations.

1. a. The following transactions shall be exempt from the provisions of Section 10-3-120(2), C.R.S., as not comprehended within the purpose of Section 10-3-120(2), C.R.S.:
   1. (1) The acquisition of a security of an insurer, pursuant to a merger or consolidation, in exchange for a security of a company which, prior to said merger or consolidation, owned 85 per cent or more of the equity securities of all other companies involved int he merger or consolidation except, in the case of consolidation, the resulting company;
      1. (2) The disposition of a security, pursuant to a merger or consolidation of an insurer which, prior to said merger or consolidation, owned 85 per cent or more of the equity securities of all other companies involved int he merger or consolidation except, in the case of consolidation, the resulting company;
         1. (3) The acquisition of a security of an insurer, pursuant to a merger or consolidation, in exchange for a security of a company which, prior to said merger or consolidation, held over 85 per cent of the combined assets of all the companies undergoing merger or consolidation, computed according to their book values prior to the merger or consolidation as determined by reference to their most recent available financial statements for a 12-month period prior to the merger or consolidation.

Code of Colorado Regulations 123

1. (4) The disposition of a security, pursuant to a merger or consolidation, of an insurer which, prior to said merger or consolidation, held over 85 per cent of the combined assets of all the companies undergoing merger or consolidation, computed according to their book values prior to merger or consolidation, as determined by reference to their most recent available financial statements for a 12-month period prior to the merger or consolidation.
   1. b. A merger within the meaning of this section shall include the sale or purchase of substantially all the assets of one insurer by another in exchange for stock which is then distributed to the security holders of the insurer which sold its assets.
      1. c. Notwithstanding the foregoing, if an officer, director or stockholder shall make any purchase (other than a purchase exempted by this Section) of a security in any company involved in the merger or consolidation and any sale (other than a sale exempted by this Section) of a security in any other company involved in the merger or consolidation within any period of less than six months during which the merger or consolidation took place, the exemption provided by this Section shall be unavailable to such officer, director, or stockholder to the extent of such purchase and sale.

6. Exemption from Section 10-3-120(2), C.R.S., of Transaction Involving the Deposit or Withdrawal of Equity Securities Under a Voting Trust or Deposit Agreement. Any acquisition or disposition of any equity security involved in the deposit of such security under, or the withdrawal of such security from, a voting trust or deposit agreement, and the acquisition or disposition in connection therewith of the certificate representing such security, shall be exempt from the operation of Section 10-3-120(2), C.R.S., if substantially all of the assets held under the voting trust or deposit agreement immediately after the deposit or immediately prior to the withdrawal, as the case may be, consisted of equity securities of the same class as the security deposited or withdrawn: provided, however, that this section shall not apply to the extent that there shall have been either

1. (a) a purchase of an equity security of the class deposited and a sale of any certificate representing an equity security of such class, or (b) a sale of an equity security of the class deposited and purchase of any certificate representing an equity security of such class (otherwise than in a transaction involved in such deposit or withdrawal or in a transaction exempted by any other provision of the regulations under Section 10-3-120(2), C.R.S., within a period of less than six months which includes the date of the deposit or withdrawal.

7. Exemption from Section 10-3-120(2), C.R.S., of Certain Transactions Involving the Conversion of Equity Securities.

1. a. Any acquisition or disposition of an equity security involved in the conversion of an equity security which, by its terms or pursuant to the terms of the insurer's charter or other governing instruments, is convertible immediately or after a stated period of time into another equity security of the same insurer, shall be exempt from the operation of Section 10-3-120(2), C.R.S.: provided, however, that this section shall not apply to the extent that there shall have been either (1) a purchase of any equity security of the class convertible (including any acquisition of or change in a conversion privilege) and a sale of any equity security of the class issuable upon conversion, or (2) a sale of any equity security of the class convertible and any purchase of any equity security issuable upon conversion (otherwise than in a transaction involved in such conversion or in a transaction exempted by any other provision of the regulations under Section 10-3-120(2), C.R.S., within a period of less than six months which includes the date of conversion.
   1. b. For the purpose of this section, an equity security shall not be deemed to be acquired or disposed of upon conversion of an equity security if the terms of the equity security converted require the payment or entail the receipt, in connection with such conversion, of cash or other property in connection with such conversion, of cash or other property (other than equity securities involved in the conversion) equal in value at the time of Code of Colorado Regulations 124 conversion to more than 15 percent of the value of the equity security issued upon conversion.
      1. c. For the purpose of this section, an equity security shall be deemed convertible if it is convertible at the option of the holder or of some other person or by operation of the terms of the security or the governing instruments.

8. Exemption from Section 10-3-120(2), C.R.S., of Certain Transactions Involving the Sale of Subscription Rights.

1. a. Any sale of a subscription right to acquire any subject security of the same insurer shall be exempt from the provision of Section 10-3-120(2), C.R.S. to the extent prescribed n this section, as not comprehended within the purpose of Section 10-3-120(2), C.R.S., if:
   1. (1) Such subscription right is acquired, directly or indirectly, from the insurer without the payment of consideration;
      1. (2) Such subscription right by its terms expires within 45 days after the issuance thereof;
         1. (3) Such subscription right by its terms is issued on a pro rata basis to all holders of the beneficiary security of the insurer; and (4) A registration statement under the Securities Act of 1933 is in effect as to each subject security, or the applicable terms of any exemption from such registration have been met in respect to each subject security.
      2. b. When used within this section the following terms shall have the meaning indicated:
         1. (1) The term “subscription right” means any warrant or certificate evidencing a right to subscribe to or otherwise acquire an equity security;
         2. (2) The term “beneficiary security” means a security registered pursuant to section 12 of the Securities Exchange Act, to the holders of which a subscription right is granted;
         3. (3) The term “subject security” means a security which is the subject of a subscription right.
      3. c. Notwithstanding anything contained herein to the contrary, if a person purchases subscription rights for cash or other consideration, then a sale by such person of subscription rights otherwise exempted by this section will not be so exempted to the extent of such purchases within the six month period preceding or following such sale.

VI. RULES UNDER SECTION 10-3-120(3), C.R.S.

1. Exemption of Certain Securities from Section 10-3-120(3), C.R.S. Any security shall be exempt from the operation of Section 10-3-120(3), C.R.S., to the extent necessary to render lawful thereunder the execution by a broker of an order for an account in which he has no direct or indirect interest.

2. Exemption from Section 10-3-120(3), C.R.S., of Certain Transactions Effected in Connection with a Distribution. Any security shall be exempt from the operation of Section 10-3-120(3), C.R.S., to the extent necessary to render lawful thereunder any sale made by or on behalf of a dealer in connection with a distribution of a substantial block of securities, upon the following conditions: Code of Colorado Regulations 125

1. a. The sale is represented by an over-allotment in which the dealer is participating as a member of an underwriting group, or the dealer or a person acting on his behalf intends in good faith to offset such sale with a security to be acquired by or on behalf of the dealer as a participant in an underwriting, selling or soliciting-dealer group of which the dealer is a member at the time of the sale, whether or to the security to be so acquired is subject to a prior offering to existing security holders or some other class of persons; and b. Other persons not within the purview of Section 10-3-120(3), C.R.S., are participating in the distribution of such block of securities on terms at least as favorable as those on which such dealer is participating and to an extent at least equal to the aggregate participation of all persons exempted from the provisions of Section 10-3-120(3), C.R.S., by this section. However, the performance of the functions of manager of a distributing group and the receipt of a bona fide payment for performing such functions shall not preclude an exemption which would otherwise be available under this section.

3. Exemption from Section 10-3-120(3), C.R.S., of Sales of Securities to Be Acquired.

1. a. Whenever any person is entitled, as an incident to his ownership of an issued security and without the payment of consideration, to receive another security “when issued” or “when distributed:, the security to be acquired shall be exempt from the operation of Section 10- 3-120 (3), C.R.S., provided that:
   1. (1) the sale is made subject to the same conditions as those attaching to the right of acquisition, and (2) such person exercises reasonable diligence to deliver such security to the purchaser promptly after his right of acquisition matures, and (3) such person reports the sale on the appropriate form for reporting transactions by persons subject to Section 10-3-120(1), C.R.S.
      1. b. This section shall not be construed as exempting transactions involving both a sale of a security “when issued” or “when distributed” and a sale of the security by virtue of which the seller expects to receive the “when-issued” or “when-distributed” security, if the two transactions combined result in a sale of more units than the aggregate of those owned by the seller plus those to be received by him pursuant to this right of acquisition.

VII. ARBITRAGE TRANSACTIONS UNDER SECTION 10-3-120(5), C.R.S. It shall be unlawful for any director or officer of an insurer to effect any foreign or domestic arbitrage transaction in any equity security of such insurer, unless he shall include such transaction in the statements required by Section 10-3-120(1), C.R.S., and shall account to such insurer for the profits arising from such transaction, as provided in Section 10-3-120(2), C.R.S. The provisions of Section 10-3- 120(3), C.R.S., shall not apply to such arbitrage transactions. The provisions of Section 10-3-120 C.R.S., shall not apply to any bona fide foreign or domestic arbitrage transaction insofar as it is effected by any person other than such director or officer of the insurer. VIII .REPEAL The directive dated January 19, 1966 entitled “Regulation Adopted Pursuant to an Act Concerning the Insider Trading of Equity Securities of a Domestic Stock Insurance Company” which, in publication was designated “Bulletin No. 47 (Bulletin Numbering Not Official)” is herewith repealed.

IX. EFFECTIVE DATE Code of Colorado Regulations 126 The Regulation, initially effective on February 1, 1972, is amended effective December 31, 1992. STATE OF COLORADO Commissioner of Insurance FORM 01-IT-1 INITIAL STATEMENT of Beneficial Ownership of Securities Filed by domestic stock insurance companies pursuant to Section 10-3-120, C.R.S.

1. _________________________ (Name of insurance company)
   1. _________________________ (Name of person whose ownership is reported)
      1. _________________________ (Business address of such person; street, city, state, Zip Code) Relationship of such person to company named above. (See instruction 5) _________________________ _________________________ Date of event which required the filing of this statement. (See instruction 6) ________________________ SECURITIES BENEFICIALLY OWNED Title of Security Nature of Ownership Amount Owned Beneficially (See instruction 7) (See instruction 8) (See instruction 9) Code of Colorado Regulations 127 REMARKS: (See instruction 10)

   Date of Statement _________________________ Where made _________________________ I affirm under penalty of perjury that the foregoing is full, true, and correct. _________________________ Signature INSTRUCTIONS Initial Statement of Beneficial Ownership of Stock FORM 01-IT-1

1. Persons Required to File Statements.

A statement on this form is required to be filed by every person who is directly or indirectly the beneficial owner of more than 10 percent of any class of any equity security of a Colorado stock insurance company, or who is a director or an officer of such a company.

2. When Statements Are to Be Filed.

(a) Persons who hold any of the relationships specified in instruction 1 are required to file a statement within 10 days after assuming such relationship.

(b) Statements are not deemed to have been filed with the Commissioner until they have actually been received by him.

3. Where Statements Are to Be Filed.

One signed copy of each statement shall be filed with the Commissioner of Insurance, 1560 Broadway, Suite 850, Denver, Colorado 80202.

4. Separate Statement for Each Company.

A separate statement shall be filed with respect to the securities of each company.

5. Relationship of Reporting Person to Company.

Indicate clearly the relationship of the reporting person to the company; for example, “Director”, “Director and Vice President”, “Beneficial owner of more than 10 percent of the company's common stock”, etc. Code of Colorado Regulations 128 6. Date as of Which Beneficial Ownership Is to Be Given. The information as to beneficial ownership of securities shall be given as of the date the relationship specified in Instruction 1 was assumed.

7. Title of Security.

The statement of the title of a security shall be such as clearly to identify the security even though there may be only one class; for example, “Class A Common Stock”, “$6 Convertible Preferred Stock”, “5% Debentures Due 1965”, etc.

8. Nature of Ownership.

Under “nature of ownership”, state whether ownership of the securities is “direct” or indirect”. If the ownership is indirect, i.e., through a partnership, corporation, trust or other entity, indicate, in a footnote or other appropriate manner, the name or identity of the medium through which the securities are indirectly owner. The fact that securities are held in the name of a broker or other nominee does not of itself, constitute indirect ownership. Securities owned indirectly shall be reported on separate lines from those owned directly and also from those owned through a different type of indirect ownership.

9. Statement of Amount Owned.

In stating the amount of securities beneficially owned, give the face amount of debt securities or the number of shares or other units of other securities. In the case of securities owned indirectly, the entire amount of securities owned by the partnership, corporation, trust or other entity shall be stated. The person whose ownership is reported may, if he so desires, also indicate in a footnote, or other appropriate manner, the extent of his interest in the partnership, corporation, trust or other entity.

10. Inclusion of Additional Information.

A statement may include any additional information or explanation deemed relevant by the person filing the statement.

11. Signature.

If the statement is filed for a corporation, partnership, trust, etc., the name of the organization shall appear over the signature of the officer or other person authorized to sign the statement. If the statement is filed for an individual, it shall be signed by him or specifically on his behalf by a person authorized to sign for him.

1. STATE OF COLORADO Commissioner of Insurance FORM 01-IT-2 STATEMENT OF CHANGES in Beneficial Ownership of Securities Code of Colorado Regulations 129 Filed by domestic stock insurance companies pursuant to 10-3-120 C.R.S.
   1. _________________________ (Name of insurance company)
      1. _________________________ (Name of person whose ownership is reported)
         1. _________________________ (Business address of such person, street, city, state, Zip Code) Relationship of such person to company named above. (See instruction 5) _________________________ _________________________ Statement for Calendar Month of _________________________, 19_________________________ CHANGES DURING MONTH AND MONTH-END OWNERSHIP (See instruction 6)

   Title of Date of Amount Amount Nature of Amount Security Transaction Bought or Sold or Ownership Owned (See (See otherwise otherwise (See beneficially at instruction instruction 8) acquired acquired instruction end of month 7) 10) (See (See (See instruction 9)

   1. instruction instruction 9) 10)

REMARKS: (See instruction 11)

Code of Colorado Regulations 130 Date of Statement _________________________ Where made _________________________ I affirm under penalty of perjury that the foregoing is full, true, and correct. _________________________ Signature INSTRUCTIONS FORM 01-IT-2 1. Persons Required to File Statements.

Statements on this form are required to be filed by every person who at any time during any calendar months was directly or indirectly the beneficial owner of more than 10 percent of any class of equity security of a Colorado stock insurance company, or a director or officer of the company which is the issuer of such securities, and who during such month hade any change in his beneficial ownership of any class of equity security of such company.

2. When Statements Are to Be Filed.

Statements are required to be filed on or before the 10th day after the end of each month in which any change in beneficial ownership has occurred. Statements are not deemed to have been filed with the Commissioner until they have actually been received by him.

3. Where Statements Are to Be Filed.

One signed copy of each statement shall be filed with the Commissioner of Insurance, Colorado Division of Insurance, 1560 Broadway, Suite 850, Denver, Colorado 80202.

4. Separate Statement for Each Company.

A separate statement shall be filed with respect to the securities of each company.

5. Relationship of Reporting Person to Company.

Indicate clearly the relationship of the reporting person to the company; for example, “Director”, “Director and Vice President”, “Beneficial owner of more than 10 percent of the company's common stock”, etc.

6. Transactions and Holdings to Be Reported.

Every transaction shall be reported even though purchases and sales during a month are equal or the change involves only the nature of ownership; for example, from direct to indirect ownership. Beneficial ownership at the end of the month of all classes of securities required to be reported shall be shown even though there has been no change during the month in the ownership of securities of one or more classes.

7. Title of Security.

The statement of the title of the security shall be such as clearly to identify the security even though there may be only one class; for example, “Class A Common Stock”, “$6 convertible Preferred Stock”, “5% Debentures Due 1965”, etc.

Code of Colorado Regulations 131 8. Date of Transaction.

The exact date (month, day and year) of each transaction shall be stated opposite the amount involved in the transaction.

9. Statement of Amounts of Securities.

In stating the amount of the securities acquired, disposed of, or beneficially owned, give the face amount of debt securities or the number of shares or other units of other securities. In the case of securities owned indirectly, i.e., though a partnership, corporation, trust or other entity, the entire amount of securities involved in the transaction or owned by the partnership, corporation, trust or other entity shall be stated. The person whose ownership is reported may, if he so desire, also indicate in a footnote, or other appropriate manner, the extent of his interest in the transaction or holdings of the partnership, corporation, trust or other entity.

10. Nature of Ownership.

Under “Nature of ownership”, state whether ownership of the securities is “direct” or “indirect”. If the ownership is indirect, i.e., through a partnership, corporation, trust or other entity, indicate in a footnote, or other appropriate manner, the name or identity of the medium through which the securities are indirectly owned. The fact that securities are held in the name of a broker or other nominee does not, of itself, constitute indirect ownership. Securities owned indirectly shall be reported on separate lines from those owned directly and from owned through a different type of indirect ownership.

11. Character of Transaction.

If the transaction was with the issuer of the securities, so state. If it involved the purchase of securities through the exercise of options, so state and give the exercise price per share. If any other purchase or sale was effected otherwise than in the open market, that fact shall be indicated. If the transaction was not a purchase or sale, indicate its character; for example, gift, 5% stock dividend, etc., as the case may be. The foregoing information may be appropriately set forth in the table or under “Remarks” at the end of the table.

12. Inclusion of Additional Information.

A statement may include any additional information or explanation deemed relevant by the person filing the statement.

13. Signature.

If the statement is filed for a corporation, partnership, trust, etc., the name of the organization shall appear over the signature of the officer or other person authorized to sign the statement. If the statement is filed for an individual it shall be signed by him or specifically on his behalf by a person authorized to sign for him.

Regulation 3-2-4 PARTICIPATION LOANS Section 1 Authority This regulation is promulgated under the authority of § § 10-1-109, 10-6-129, 10-14-505 and 10-16-109, C.R.S.

Section 2 Scope and Purpose Code of Colorado Regulations 132 The purpose of this regulation is to implement the provisions of § 10-3-216(1)(f), C.R.S., in regard to participation loans authorized pursuant to statute.

Section 3 Applicability This regulation shall apply to all Colorado domestic insurers as well as each risk retention group captive insurer, fraternal benefit society, health maintenance organization and non-profit hospital, medical- surgical and health service corporation.

Section 4 Participants A. Participation in loans secured by a first lien on real property under § 10-3-216(1)(f), C.R.S. is limited to loans with the following participants:

1. A bank whose depositors are federally insured.

1. 2. A savings and loan association whose members are federally insured.
   1. 3. A trust for a pension or other benefit plan for employees as provided in § 10-3-216(1)(f)(III), C.R.S.
      1. 4. An insurance company organized in any state of the United States, the District of Columbia, or any province of Canada.
      2. 5. A corporation or association owned wholly by one or more of the entities or one or more wholly owned subsidiaries of the entities specified above.

Section 5 Documentation Every domestic insurance company participant in a participation loan on real property under § 10-3- 216(1)(f), C.R.S., must maintain adequate documentation to evidence its interest as a participant therein. This documentation should consist, as a minimum, of originals or certified copies of the documents listed below. If the document is one that the domestic insurance company would be expected to have in its possession, such as a participation certificate, the original will be required. If the document is one which the domestic insurance company would not be expected to have in its possession, such as the Note in a case where another entity is the lead participant, a certified copy will suffice. Copies may be certified by an officer of the participant having possession of the originals of the documents.

A. Note evidencing the obligation.

B. Mortgage or Deed of Trust, properly executed and recorded.

C. Participation Certificate.

D. Recorded partial assignment (if recognized under state law).

E. Any other security taken in connection with the loan.

F. Appraisal report prepared as a basis for underwriting in the course of committing to make the loan.

G. Survey of premises (or other satisfactory evidence) identifying the property by address and legal description.

H. Participation (loan sharing) Agreement.

Code of Colorado Regulations 133 I. Title insurance policy or attorney's title opinion.

J. Hazard insurance policies or certificates.

K. Statement showing unpaid principal balance on mortgage, amount of periodic installments, and date to which interest is paid.

Section 6 Severability If any provision of this regulation of the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected. Section 7 Enforcement Noncompliance with this Regulation may result, after proper notice and hearing, in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance or other laws which include the imposition of fines, issuance of cease and desist orders, and/or suspensions or revocation of license.

Section 8 Effective Date This regulation is effective on October 2, 2006.

Section 9 History This regulation was originally effective in 1975.

Amended, effective December 31, 1992.

Amended, effective April 1, 2001.

Amended, effective October 1, 2001.

Amended, effective October 2, 2006 Regulation 3-2-6 Repealed Effective 08/01/2012.

Regulation 3-2-7 Repealed Effective 12/01/2012.

Regulation 3-3-1 ASSUMPTION REINSURANCE AGREEMENTS Section 1 Authority Section 2 Scope and Purpose Section 3 Applicability Section 4 Definitions Section 5 Notice Requirements Section 6 Policyholder Rights Section 7 Effect of Consent Code of Colorado Regulations 134 Section 8 Commissioner’s Discretion Section 9 Severability Section 10 Enforcement Section 11 Effective Date Section 12 History Section 1 Authority This regulation is promulgated under the authority of § 10-1-109, C.R.S. Section 2 Scope and Purpose The purpose of this regulation is to clarify the filing and other requirements regarding insurers gaining approval to reinsure risks pursuant to § § 10-3-702 and 10-3-703, C.R.S. through the transfer and novation of contracts of notice and disclosure insurance by way of assumption reinsurance. It defines assumption reinsurance and establishes notice and disclosure requirements which protect and define the rights and obligations of policyholders, regulators and the parties to assumption reinsurance agreements. Section 3 Applicability A. This regulation applies to any insurer authorized in this state pursuant to § 10-3-105, C.R.S. which either assumes or transfers the obligations and/or risks on contracts of insurance pursuant to an assumption reinsurance agreement.

B. This regulation does not apply to:

1. 1. Any reinsurance agreement or transaction in which the ceding insurer continues to remain directly liable for its insurance obligations or risks, or both, under the contracts of insurance subject to the reinsurance agreement;
   1. 2. The substitution of one insurer for another upon the expiration of insurance coverage pursuant to statutory or contractual requirements and the issuance of a new contract of insurance by another insurer;
      1. 3. The transfer of liabilities from one insurer to another under a single group policy upon the request of the group policyholder;

Section 4 Definitions A. “Assuming insurer” means the insurer that acquires an insurance obligation or risk, or both, from the transferring insurer pursuant to an assumption reinsurance agreement.

B. “Assumption reinsurance agreement” means any contract that:

1. 1. Transfers insurance obligations or risks, or both, of existing or in-force contracts of insurance from a transferring insurer to an assuming insurer; and 2. Is intended to effect a novation of the transferred contract of insurance with the result that the assuming insurer becomes directly liable to the policyholders of the transferring insurer and the transferring insurer’s insurance obligations or risks, or both, under the contracts are extinguished.

Code of Colorado Regulations 135

1. 3. Assumption reinsurance agreement does not include the transfer of contracts of insurance pursuant to mergers or consolidations of two (2) or more insurers to the extent that those transactions are regulated by statute.

C. “Contract of insurance” means any written agreement between an insurer and policyholder pursuant to which the insurer, in exchange for premium or other consideration, agrees to assume an obligation or risk, or both, of the policyholder or to make payments on behalf of, or to, the policyholder or its beneficiaries; it shall include all property, casualty, life, health, accident, surety, title and annuity business authorized to be written pursuant to the insurance laws of this state.

D. “Home service business” means insurance business on which premiums are collected on a weekly or monthly basis by an agent of the insurer.

E. “Notice of transfer” means the written notice to policyholders required by Section 5A.

F. “Policyholder” means any individual or entity which has the right to terminate or otherwise alter the terms of a contract of insurance. It includes any certificate holder whose certificate is in force on the proposed effective date of the assumption, if the certificate holder has the right to keep the certificate in force without change in benefit following termination of the group policy. The right to keep the certificate in force referred to in this section shall not include the right to elect individual coverage under the Consolidated Omnibus Budget Reconciliation Act, (“COBRA” ) Section 601, et seq. , of the Employee Retirement Income Security Act of 1974, as amended (29 U.S.C. 1161 et seq.

G. “Transferring insurer” means the insurer which transfers an insurance obligation or risk, or both, to an assuming insurer pursuant to an assumption reinsurance agreement. Section 5 Notice Requirements A. Notice to Policyholders, Agents and Brokers

1. 1. The transferring insurer shall provide or cause to be provided to each policyholder a Notice of Transfer by first-class mail, addressed to the policyholder’s last known address or to the address to which premium notices or other policy documents are sent or, with respect to home service business, by personal delivery with acknowledged receipt. A Notice of Transfer shall also be sent to the transferring insurer’s agents or brokers of record on the affected policies.
   1. 2. The Notice of Transfer shall state or provide:
      1. a. The date the transfer and novation of the policyholder’s contract of insurance is proposed to take place;
         1. b. The name, address, and telephone number of the assuming and transferring insurer;
         2. c. That the policyholder has the right to either consent to or reject the transfer and novation;
         3. d. The procedures and time limit for consenting to or rejecting the transfer and novation;
         4. e. A summary of any effect that consenting to or rejecting the transfer and novation will have on the policyholder’s rights;

Code of Colorado Regulations 136

1. f. A statement that the assuming insurer is licensed to write the type of business being assumed in the state where the policyholder resides, or is otherwise authorized, as provided herein, to assume such business;
   1. g. The name and address of the person at the transferring insurer to whom the policyholder should send its written statement of acceptance or rejection of the transfer and novation; and h. The address and phone number of the insurance department where the policyholder resides so that the policyholder may write or call the insurance department for further information regarding the financial condition of the assuming insurer.
      1. i. The following financial data for both companies:
         1. (1) Ratings for the last five (5) years if available or for such lesser period as is available from two (2) nationally recognized insurance rating services acceptable to the commissioner including the rating service’s explanation of the meaning of the ratings. If ratings are unavailable for any year of the five-year period, this shall also be disclosed;
         2. (2) A balance sheet as of December 31 for the previous three (3) years if available or for such lesser period as is available and as of the date of the most recent quarterly statement;
         3. (3) A copy of the Management’s Discussion and Analysis that was filed as a supplement to the previous year’s annual statement; and (4) An explanation of the reason for the transfer.
      2. 3. Notice in a form identical or substantially similar to Appendix A attached shall be deemed to comply with the requirements of Section 5 A 2.
      3. 4. The Notice of Transfer shall include a pre-addressed, postage-paid response card which a policyholder may return as its written statement of acceptance or rejection of the transfer and novation.

B. Regulatory Filing and Approval Requirements

1. 1. Prior written approval by the Commissioner is required for any transaction where an insurer domiciled in this state assumes or transfers obligations or risks, or both, on contracts of insurance under an assumption reinsurance agreement. An insurer domiciled in thisstate shall not assume obligations or risks, or both, on contracts of insurance issued to or owned by policyholders residing in any other state unless it is licensed in the other state, or the insurance regulatory official of that state has approved the assumption. The following items shall be filed with the Corporate Affairs section of the Division of Insurance to obtain the required approval:
   1. a. A petition to the Commissioner for approval of the proposed transaction. The petition must be executed by an officer of each insurer and contain the following:
      1. (1) The full and complete names and addresses of the ceding and assuming insurers, and their states(s) of domicile;
         1. (2) A description of the type of business transferred, e.g., life, accident and health, annuity, workers’ compensation, professional liability, etc.; Code of Colorado Regulations 137 (3) An analysis of the five (5) considerations delineated in Section 5 B 3 of this regulation;
         2. (4) Disclosure of any remuneration paid which meets the conditions of Section 10-3-705, C.R.S.; and (5) Disclosure of all states in which risks, subject to this transfer, reside and whether the assuming insurer is licensed in each state.
         3. b. A complete copy of the Notice of Transfer including all attachments;
         4. c. A copy of the executed assumption reinsurance agreement;
         5. d. A copy of the proposed assumption certificate to be mailed to all policyholders, which includes a description of the transaction, the name and address of the assuming company, the policyholder name and policy number, and a statement that the certificate should be attached to and become part of the policy;
         6. e. The following financial information for each company;
         7. (1) The latest annual financial statement if the statement has not been filed with the National Association of Insurance Commissioners;
         8. (2) The total number of policyholders affected and the reserves for such risks;
         9. (3) The number of Colorado policyholders affected and the reserves for such risks;
         10. (4) Pro forma risk based capital results prior to and after the transaction f. Any other documents or information which the Commissioner deems pertinent by the particular terms or circumstances of the reinsurance transaction.
      2. 2. No insurer licensed in this state shall transfer obligations or risks, or both, on contracts of insurance written in this state or covering risks or property located in this state, or owned by residents of this state, to any insurer that is not licensed in this state. Any licensed foreign insurer that enters into an assumption reinsurance agreement with another foreign insurer shall file or cause to be filed the following with the Corporate Affairs section of the Division of Insurance:
         1. a. A copy of the executed reinsurance agreement and the proposed assumption certificate;
         2. b. A complete copy of the Notice of Transfer, including all attachments;
         3. c. A copy of the approval of each of the states of domicile;
         4. d. The number of Colorado policyholders affected by the transfer; and e. An affidavit that the transaction is subject to substantially similar requirements in the state of domicile of both the transferring and assuming insurer. If no such requirements exist in the domicile of either the transferring or assuming insurers, then the prior approval requirements of Section 5 B 1 shall apply. Code of Colorado Regulations 138
      3. 3. The following factors, along with such other factors as the Commissioner deems appropriate under the circumstances, shall be considered by the Commissioner in reviewing a request for approval:
         1. a. The financial condition of the transferring and assuming insurers and the affect the transaction will have on the financial condition of each company;
         2. b. The competence, experience and integrity of those persons who control the operation of the assuming insurer;
         3. c. The plans or proposals the assuming party has with respect to the administration of the policies subject to the proposed transfer;
         4. d. Whether the transfer is fair and reasonable to the policyholders of both companies; and e. Whether the notice of transfer to be provided by the insurer is fair, adequate and not misleading.
      4. 4. Provided the provisions of Section 5 B 1 do not apply, and if the Commissioner does not approve or deny the transaction within 60 days of receipt of all the required information, the transaction will be deemed approved after 60 days of receipt by the Commissioner. The Notice of Transfer may not be mailed to Colorado policyholders until formally approved by the Commissioner or the transaction is deemed approved. The assuming and transferring insurers are required to maintain sufficient records to document that the provisions of this regulation have been met, including the detail of all policyholders who have consented to, rejected or have been deemed transferred.
      5. 5. If the assumption reinsurance agreement involves the transfer of health insurance obligations or risks, or both, the assuming insurer must submit a rate filing within 60 calendar days after the assumption reinsurance agreement’s approval as required by Colorado Insurance Regulation 4-2-11.

Section 6 Policyholder Rights A. Policyholders shall have the right to reject the transfer and novation of their contracts of insurance. Policyholders electing to reject the assumption transaction shall return to the transferring insurer the pre-addressed, postage-paid response card or other written notice and indicate thereon that the assumption is rejected (collectively referred to as the “Response Card” ).

B. Payment of any premium to the assuming company during the twenty-four-month period after notice is received shall be deemed to indicate the policyholder’s acceptance of the transfer to the assuming insurer and a novation shall be deemed to have been effected, provided that the premium notice clearly states that payment of the premium to the assuming insurer shall constitute acceptance of the transfer. However, the premium notice shall also provide a method for the policyholder to pay the premium while reserving the right to reject the transfer. With respect to any home service business or any other business not using premium notices, the disclosures and procedural requirements of this subsection are to be set forth in the Notice of Transfer and in the assumption certificate.

C. After no fewer that twenty-four (24) months from the mailing of the initial Notice of Transfer, if positive consent to, or rejection of, the transfer and assumption has not been received or consent has not been deemed to have occurred under Section B of this section, the transferring company shall send to the policyholder a second and final Notice of Transfer. If the policyholder does not accept or reject the transfer during the one month period immediately following the date on which the Code of Colorado Regulations 139 transferring insurer mails the second and final notice of transfer, the policyholder’s consent will be deemed to have occurred and novation of the contract will be effected. With respect to the home service business, or any other business not using premium notices, the twenty-four and one month periods shall be measured from the date of delivery of the Notice of Transfer.

D. The transferring insurer will be deemed to have received the Response Card on the date it is postmarked. A policyholder may also send its Response Card by facsimile or other electronic transmission or by registered mail, express delivery or courier service, in which case the Response Card shall be deemed to have been received by the assuming insurer on the date of actual receipt by the transferring insurer.

Section 7 Effect of Consent If a policyholder consents to the transfer pursuant to Section 6 or if the transfer is effected under Section 8, there shall be a novation of the contract of insurance subject to the assumption reinsurance agreement with the result that the transferring insurer shall thereby be relieved of all insurance obligations or risks, or both, transferred under the assumption reinsurance agreement and the assuming insurer shall become directly and solely liable to the policyholder for those insurance obligations or risks, or both. Section 8 Commissioner’s Discretion If an insurer domiciled in this state or in a jurisdiction having a substantially similar law is deemed by the domiciliary Commissioner to be in a hazardous financial condition or an administrative proceeding has been instituted against it for the purpose of reorganizing or conserving the insurer, and the transfer of the contracts of insurance is in the best interest of the policyholders, as determined by the domiciliary Commissioner, a transfer and novation may be effected notwithstanding the provisions of this regulation. This may include a form of implied consent and adequate notification to the policyholder of the circumstances requiring the transfer as approved by the Commissioner. Section 9 Severability If any provision of this regulation or the application of it to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected. Section 10 Enforcement Noncompliance with the regulation may result in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance or other laws which include the imposition of fines, issuance of cease and desist orders, and/or suspensions or revocation of license. Section 11 Effective Date This regulation shall become effective on June 1, 2012. Section 12 History Original Regulation effective August 1, 1990 Amended Regulation effective August 31, 1994 Repealed and Repromulgated Regulation effective June 1, 2012 APPENDIX A NOTICE OF TRANSFER IMPORTANT: THIS NOTICE AFFECTS YOUR CONTRACT RIGHTS. PLEASE READ IT CAREFULLY. Code of Colorado Regulations 140 Transfer of Policy The [ABC Insurance Company] has agreed to replace us as your insurer under [insert policy/certificate name and number] effective [insert date]. The [ABC Insurance Company's] principal place of business is [insert address] and certain financial information concerning both companies is attached, including (1) ratings for the last five years, if available, or for such lesser period as is available from two nationally recognized insurance rating services; (2) balance sheets, for the previous three years if available, or for such lesser period as is available; and as of the date of the most recent quarterly statement; (3) a copy of the Management's Discussion and Analysis that was filed as a supplement to the previous year's annual statement; and (4) an explanation of the reason for the transfer. You may obtain additional information concerning [ABC Insurance Company] from reference materials in your local library or by contacting your Insurance Commissioner at [insert address and phone number]. The [ABC Insurance Company] is licensed to write this coverage in your state. The Commissioner of Insurance in your state has reviewed the potential effect of the proposed transaction, and has approved the transaction.

Your Rights You may choose to consent to or reject the transfer of your policy to [ABC Insurance Company]. If you want your policy transferred, you may notify us in writing by signing and returning the enclosed pre- addressed, postage-paid card or by writing to us at:

[Insert name, address and facsimile number of contact person.] Payment of your premium to the assuming company will also constitute acceptance of the transaction. However, a method will be provided to allow you to pay the premium while reserving the right to reject the transfer.

If you reject the transfer, you may keep your policy with us or exercise any option under your policy. If we do not receive a written rejection you will, as a matter of law, have consented to the transfer. However, before this consent is final you will be provided a second notice of the transfer twenty-four months from now. After the second notice is provided, you will have one month to reply. If you have paid your premium to the [ABC Insurance Company], without reserving your right to reject the transfer, you will not receive a second notice.

Effect of Transfer If you accept this transfer, [ABC Insurance Company] will be your insurer. It will have direct responsibility to you for the payment of all claims, benefits and for all other policy obligations. We will no longer have any obligations to you.

If you accept this transfer, you should make all premium payments and claims submissions to [ABC Insurance Company] and direct all questions to [ABC Insurance Company]. If you have any further questions about this agreement, you may contact [XYZ Insurance] or [ABC Insurance].

Sincerely, [XYZ Insurance Company [ABC Insurance Company 111 No Street 222 No Street Smithville, USA Jonesville, USA Code of Colorado Regulations 141 555/555-5555] 333/333-3333] For your convenience, we have enclosed a pre-addressed postage-paid response card. Please take time now to read the enclosed notice and complete and return the response card to us. [Notice Date] RESPONSE CARD ____ Yes, I accept the transfer of my policy from [name of transferring company] to [name of assuming company].

1. ____ No, I reject the proposed transfer of my policy from [name of transferring company] to [name of assuming company] and wish to retain my policy with [name of transferring company].

(Date) (Signature)

Name:

Street Address:

City, State, Zip:

REGULATION 3-3-2 – C EDING REINSURANCE AGREEMENTS – REPEALED [Repealed eff. 1/1/2007. Replaced by Regs. 3-3-3, 3-3-4, and 3-3-5] REGULATION 3-3-3 CREDIT FOR REINSURANCE Section 1. Authority Section 2. Scope and Purpose Section 3. Applicability Section 4. Definitions Section 5. Credit for Reinsurance-Reinsurer Licensed in this State Section 6. Credit for Reinsurance-Accredited Reinsurers Sec tion 7. Credit for Reinsurance-Reinsurer Domiciled in Another State Section 8. Credit for Reinsurance-Reinsurers Maintaining Trust Funds Section 9. Credit for Reinsurance Required by Law Section 10. Asset or Reduction from Liability for Reinsurance Ceded to an Unauthorized Assuming Insurer not Meeting the Requirements of Sections 5 Through 9 Section 11. Trust Agreements Qualified under Section 10 Section 12. Letters of Credit Qualified under Section 10 Code of Colorado Regulations 142 Section 13. Other Security Section 14. Reinsurance Contract Section 15. Contracts Affected Section 16 Severability Section 17 Enforcement Section 18 Effective Date Section 19 History Appendix A References to the U.S.C.A.

Form AR-1. Certificate of Assuming Insurer Section 1 Authority This regulation is promulgated pursuant to the authority granted by Sections 10-1-109(1), 10-3-118(6), 10-3-529(4), 10-6-129, 10-14-505 and 10-16-109, and provides standards regarding reinsurance agreements under Sections 10-3-118, 10-6-122, 10-11-119, 10-14-304, 8-44-204, 8-44-205, 8-45-121, 24-10-115.5, and 29-13-102, C.R.S.

Section 2 Scope and Purpose The purpose of this regulation is to set forth rules and procedural requirements that the commissioner deems necessary to carry out the provisions of the Section 10-3-118, C.R.S., regarding the conditions and circumstances under which a domestic insurer may reduce their liabilities, or establish an asset associated with risks reinsured. The actions and information required by this regulation are declared to be necessary and appropriate in the public interest and for the protection of the ceding insurers in this state. This regulation addresses credit for reinsurance associated with a valid reinsurance contract. The criteria as to what constitutes a valid reinsurance agreement, limitations on the amount of credit that can be claimed and other requirements as regards financial reporting are addressed in regulations 3-3-4 and 3-3-5.

Section 3 Applicability This regulation shall apply to all domestic insurers.

Section 4 Definitions A. “Insurer” includes any licensed insurance company, health maintenance organization, fraternal benefit society, captive insurer, licensed self-insurance pool, title insurer, Pinnacol Assurance, nonprofit hospital medical-surgical and health service corporation.

B. “Qualified Financial Institution” means a United States financial institution as defined in Section 10-1- 102(17), C.R.S.

Section 5 Credit for Reinsurance-Reinsurer Licensed in this State Pursuant to Section 10-3-118 (4)(b), C.R.S. the commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that is licensed in this state as of any date on which statutory financial statement credit for reinsurance is claimed.

Code of Colorado Regulations 143 Section 6 Credit for Reinsurance-Accredited Reinsurers A. Pursuant to Section 10-3-118 (4)(c), C.R.S., the commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that is accredited as a reinsurer in this state as of any date on which statutory financial statement credit for reinsurance is claimed. An accredited reinsurer:

1. 1. Files a properly executed Form AR-1 (attached as an exhibit to this regulation) as evidence of its submission to this state's jurisdiction and to this state's authority to examine its books and records;
   1. 2. Files with the commissioner a certified copy of a certificate of authority or other acceptable evidence that it is licensed to transact insurance or reinsurance in at least one state, or, in the case of a U.S. branch of an alien assuming insurer, is entered through and licensed to transact insurance or reinsurance in at least one state;
      1. 3. Files annually with the commissioner a copy of its annual statement filed with the insurance department of its state of domicile or, in the case of an alien assuming insurer, with the state through which it is entered and in which it is licensed to transact insurance or reinsurance, and a copy of its most recent audited financial statement; and
         1. a. Maintains a surplus as regards policyholders in an amount not less than $20,000,000 and whose accreditation has not been denied by the commissioner within ninety (90) days of its submission; or b. Maintains a surplus as regards policyholders of less than $20,000,000, and whose accreditation has been approved by the commissioner.

B. If the commissioner determines that the assuming insurer has failed to meet or maintain any of these qualifications, the commissioner may upon written notice and hearing revoke the accreditation. Credit shall not be allowed a domestic ceding insurer if the assuming insurer's accreditation has been revoked by the commissioner.

Section 7 Credit for Reinsurance-Reinsurer Domiciled in Another State A. Pursuant to Section 10-3-118 (4)(d), C.R.S. the commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that, as of any date on which statutory financial statement credit for reinsurance is claimed:

1. 1. Is domiciled in (or, in the case of a U.S. branch of an alien assuming insurer, is entered through) a state that employs standards regarding credit for reinsurance substantially similar to those included in Section 10-3-118, C.R.S. and this regulation;
   1. 2. Maintains a surplus as regards policyholders in an amount not less than $20,000,000; and 3. Files a properly executed Form AR-1 with the commissioner as evidence of its submission to this state's authority to examine its books and records.

B. The provisions of this section relating to surplus as regards policyholders shall not apply to reinsurance ceded and assumed pursuant to pooling arrangements among insurers in the same holding company system. As used in this section, "substantially similar" standards means credit for reinsurance standards that the commissioner determines equal or exceed the standards established in Section 10-3-118, C.R.S. and this regulation. Section 8 Credit for Reinsurance-Reinsurers Maintaining Trust Funds Code of Colorado Regulations 144 A. Pursuant to Section 10-3-118 (4)(f), C.R.S. the commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer which, as of any date on which statutory financial statement credit for reinsurance is claimed, and thereafter for so long as credit for reinsurance is claimed, maintains a trust fund in an amount prescribed below in a Qualified Financial Institution for the payment of the valid claims of its U.S. domiciled ceding insurers, their assigns and successors in interest. The assuming insurer shall report annually to the commissioner substantially the same information as that required to be reported on the National Association of Insurance Commissioners (NAIC) annual statement form by licensed insurers, to enable the commissioner to determine the sufficiency of the trust fund.

B. The following requirements apply to the following categories of assuming insurer:

1. 1. The trust fund for a single assuming insurer shall consist of funds in trust in an amount not less than the assuming insurer's liabilities attributable to reinsurance ceded by U.S. domiciled insurers, and in addition, the assuming insurer shall maintain a trusteed surplus of not less than $20,000,000.
   1. 2.
      1. a. The trust fund for a group including incorporated and individual unincorporated underwriters shall consist of:
         1. (1) For reinsurance ceded under reinsurance agreements with an inception, amendment or renewal date on or after August 1, 1995, funds in trust in an amount not less than the group's several liabilities attributable to business ceded by United States domiciled ceding insurers to any member of the group;
         2. (2) For reinsurance ceded under reinsurance agreements with an inception date on or before July 31, 1995, and not amended or renewed after that date, notwithstanding the other provisions of this regulation, funds in trust in an amount not less than the group's several insurance and reinsurance liabilities attributable to business written in the United States; and (3) In addition to these trusts, the group shall maintain a trusteed surplus of which $100,000,000 shall be held jointly for the benefit of the U. S. domiciled ceding insurers of any member of the group for all the years of account.
         3. b. The incorporated members of the group shall not be engaged in any business other than underwriting as a member of the group and shall be subject to the same level of regulation and solvency control by the group's domiciliary regulator as are the unincorporated members. The group shall, within ninety (90) days after its financial statements are due to be filed with the group's domiciliary regulator, provide to the commissioner:
         4. (1) An annual certification by the group's domiciliary regulator of the solvency of each underwriter member of the group; or (2) If a certification is unavailable, a financial statement, prepared by independent public accountants, of each underwriter member of the group.

C.

Code of Colorado Regulations 145

1. 1. Credit for reinsurance shall not be granted unless the form of the trust and any amendments to the trust have been approved by either the commissioner of the state where the trust is domiciled or the commissioner of another state who, pursuant to the terms of the trust instrument, has accepted responsibility for regulatory oversight of the trust. The form of the trust and any trust amendments also shall be filed with the commissioner of every state in which the ceding insurer beneficiaries of the trust are domiciled. The trust instrument shall provide that:
   1. a. Contested claims shall be valid and enforceable out of funds in trust to the extent remaining unsatisfied thirty (30) days after entry of the final order of any court of competent jurisdiction in the United States;
      1. b. Legal title to the assets of the trust shall be vested in the trustee for the benefit of the grantor's United States ceding insurers, their assigns and successors in interest;
         1. c. The trust shall be subject to examination as determined by the commissioner;
         2. d. The trust shall remain in effect for as long as the assuming insurer, or any member or former member of a group of insurers, shall have outstanding obligations under reinsurance agreements subject to the trust; and e. No later than February 28 of each year the trustee of the trust shall report to the commissioner in writing setting forth the balance in the trust and listing the trust's investments at the preceding year-end, and shall certify the date of termination of the trust, if so planned, or certify that the trust shall not expire prior to the following December 31.

         2.

         1. a. Notwithstanding any other provisions in the trust instrument, if the trust fund is inadequate because it contains an amount less than the amount required by this subsection or if the grantor of the trust has been declared insolvent or placed into receivership, rehabilitation, liquidation or similar proceedings under the laws of its state or country of domicile, the trustee shall comply with an order of the commissioner with regulatory oversight over the trust or with an order of a court of competent jurisdiction directing the trustee to transfer to the commissioner with regulatory oversight over the trust or other designated receiver all of the assets of the trust fund.
         2. b. The assets shall be distributed by and claims shall be filed with and valued by the commissioner with regulatory oversight over the trust in accordance with the laws of the state in which the trust is domiciled applicable to the liquidation of domestic insurance companies.
         3. c. If the commissioner with regulatory oversight over the trust determines that the assets of the trust fund or any part thereof are not necessary to satisfy the claims of the U. S. beneficiaries of the trust, the commissioner with regulatory oversight over the trust shall return the assets, or any part thereof, to the trustee for distribution in accordance with the trust agreement.
         4. d. The grantor shall waive any right otherwise available to it under U.S. law that is inconsistent with this provision.

Code of Colorado Regulations 146 D. For purposes of this regulation, the term "liabilities" shall mean the assuming insurer's gross liabilities attributable to reinsurance ceded by U. S. domiciled insurers that are not otherwise secured by acceptable means, and, shall include:

1. 1. For business ceded by domestic insurers authorized to write accident and health, and property and casualty insurance:
   1. a. Losses and allocated loss expenses paid by the ceding insurer, recoverable from the assuming insurer;
      1. b. Reserves for losses reported and outstanding;
         1. c. Reserves for losses incurred but not reported;
         2. d. Reserves for allocated loss expenses; and e. Unearned premiums.
      2. 2. For business ceded by domestic insurers authorized to write life, health and annuity insurance:
         1. a. Aggregate reserves for life policies and contracts, net of policy loans and net of due and deferred premiums;
         2. b. Aggregate reserves for accident and health policies;
         3. c. Deposit funds and other liabilities without life or disability contingencies; and d. Liabilities for policy and contract claims.

E. Assets deposited in trusts established pursuant to Section 10-3-118 (4)(f), C.R.S. and this section shall be valued according to their fair market value and shall consist only of cash in U.S. dollars, certificates of deposit issued by a Qualified Financial Institution, clean, irrevocable, unconditional and "evergreen" letters of credit issued or confirmed by a Qualified Financial Institution, and investments of the type specified in this subsection, but investments in or issued by an entity controlling, controlled by or under common control with either the grantor or beneficiary of the trust shall not exceed five percent (5%) of total investments. No more than twenty percent (20%) of the total of the investments in the trust may be foreign investments authorized under Paragraphs (1)(e), (3), (6)(b) or (7) of this subsection, and no more than ten percent (10%) of the total of the investments in the trust may be securities denominated in foreign currencies. For purposes of applying the preceding sentence, a depository receipt denominated in U.S. dollars and representing rights conferred by a foreign security shall be classified as a foreign investment denominated in a foreign currency. The assets of a trust established to satisfy the requirements of Section 10-3-118(4)(f), C.R.S. shall be invested only as follows:

1. 1. Government obligations that are not in default as to principal or interest, that are valid and legally authorized and that are issued, assumed or guaranteed by:
   1. a. The United States or by any agency or instrumentality of the United States;
      1. b. A state of the United States;
         1. c. A territory, possession or other governmental unit of the United States;
         2. d. An agency or instrumentality of a governmental unit referred to in Subparagraphs (b) and (c) of this paragraph if the obligations shall be by law (statutory of otherwise) Code of Colorado Regulations 147 payable, as to both principal and interest, from taxes levied or by law required to be levied or from adequate special revenues pledged or otherwise appropriated or by law required to be provided for making these payments, but shall not be obligations eligible for investment under this paragraph if payable solely out of special assessments on properties benefited by local improvements; or e. The government of any other country that is a member of the Organization for Economic Cooperation and Development and whose government obligations are rated A or higher, or the equivalent, by a rating agency recognized by the Securities Valuation Office of the NAIC;
      2. 2. Obligations that are issued in the United States, or that are dollar denominated and issued in a non-U.S. market, by a solvent U. S. institution (other than an insurance company) or that are assumed or guaranteed by a solvent U. S. institution (other than an insurance company) and that are not in default as to principal or interest if the obligations:
         1. a. Are rated A or higher (or the equivalent) by a securities rating agency recognized by the Securities Valuation Office of the NAIC, or if not so rated, are similar in structure and other material respects to other obligations of the same institution that are so rated;
         2. b. Are insured by at least one authorized insurer (other than the investing insurer or a parent, subsidiary or affiliate of the investing insurer) licensed to insure obligations in this state and, after considering the insurance, are rated AAA (or the equivalent) by a securities rating agency recognized by the Securities Valuation Office of the NAIC; or c. Have been designated as Class One or Class Two by the Securities Valuation Office of the NAIC;
      3. 3. Obligations issued, assumed or guaranteed by a solvent non-U. S. institution chartered in a country that is a member of the Organization for Economic Cooperation and Development or obligations of U.S. corporations issued in a non-U.S. currency, provided that in either case the obligations are rated A or higher, or the equivalent, by a rating agency recognized by the Securities Valuation Office of the NAIC;
      4. 4. An investment made pursuant to the provisions of Paragraph (1), (2) or (3) of this subsection
         1. (E) shall be subject to the following additional limitations:
         2. a. An investment in or loan upon the obligations of an institution other than an institution that issues mortgage-related securities shall not exceed five percent (5%) of the assets of the trust;
         3. b. An investment in any one mortgage-related security shall not exceed five percent (5%) of the assets of the trust;
         4. c. The aggregate total investment in mortgage-related securities shall not exceed twenty- five percent (25%) of the assets of the trust; and d. Preferred or guaranteed shares issued or guaranteed by a solvent U.S. institution are permissible investments if all of the institution's obligations are eligible as investments under Paragraphs (2)(a) and (2)(c) of this subsection, but shall not exceed two percent (2%) of the assets of the trust.
      5. 5. As used in this regulation:

Code of Colorado Regulations 148

1. a. "Mortgage-related security" means an obligation that is rated AA or higher (or the equivalent) by a securities rating agency recognized by the Securities Valuation Office of the NAIC and that either:
   1. (1) Represents ownership of one or more promissory notes or certificates of interest or participation in the notes (including any rights designed to assure servicing of, or the receipt or timeliness of receipt by the holders of the notes, certificates, or participation of amounts payable under, the notes, certificates or participation), that:
      1. (a) Are directly secured by a first lien on a single parcel of real estate, including stock allocated to a dwelling unit in a residential cooperative housing corporation, upon which is located a dwelling or mixed residential and commercial structure, or on a residential manufactured home as defined in 42 U.S.C.A. Section 5402(6), whether the manufactured home is considered real or personal property under the laws of the state in which it is located; and (b) Were originated by a savings and loan association, savings bank, commercial bank, credit union, insurance company, or similar institution that is supervised and examined by a federal or state housing authority, or by a mortgagee approved by the Secretary of Housing and Urban Development pursuant to 12 U.S.C.A. Sections 1709 and 1715-b, or, where the notes involve a lien on the manufactured home, by an institution or by a financial institution approved for insurance by the Secretary of Housing and Urban Development pursuant to 12 U.S.C.A. Section 1703; or (2) Is secured by one or more promissory notes or certificates of deposit or participations in the notes (with or without recourse to the insurer of the notes) and, by its terms, provides for payments of principal in relation to payments, or reasonable projections of payments, or notes meeting the requirements of Items (i)(I) and (i)(II) of this subsection;
         1. b. "Promissory note," when used in connection with a manufactured home, shall also include a loan, advance or credit sale as evidenced by a retail installment sales contract or other instrument.
      2. 6. Equity interests
         1. a. Investments in common shares or partnership interests of a solvent U. S. institution are permissible if:
         2. (1) Its obligations and preferred shares, if any, are eligible as investments under this subsection (E); and (2) The equity interests of the institution (except an insurance company) are registered on a national securities exchange as provided in the Securities Exchange Act of 1934, 15 U.S.C. 78a to 78kk or otherwise registered pursuant to that Act, and if otherwise registered, price quotations for them are furnished through a nationwide automated quotations system approved by the National Association of Securities Dealers, Inc. A trust shall not invest in equity interests under this Code of Colorado Regulations 149 paragraph an amount exceeding one percent (1%) of the assets of the trust even though the equity interests are not so registered and are not issued by an insurance company;
         3. b. Investments in common shares of a solvent institution organized under the laws of a country that is a member of the Organization for Economic Cooperation and Development, if:
         4. (1) All its obligations are rated A or higher, or the equivalent, by a rating agency recognized by the Securities Valuation Office of the NAIC; and (2) The equity interests of the institution are registered on a securities exchange regulated by the government of a country that is a member of the Organization for Economic Cooperation and Development;
         5. c. An investment in or loan upon any one institution's outstanding equity interests shall not exceed one percent (1%) of the assets of the trust. The cost of an investment in equity interests made pursuant to this paragraph, when added to the aggregate cost of other investments in equity interests then held pursuant to this paragraph, shall not exceed ten percent (10%) of the assets in the trust;
      3. 7. Obligations issued, assumed or guaranteed by a multinational development bank, provided the obligations are rated A or higher, or the equivalent, by a rating agency recognized by the Securities Valuation Office of the NAIC.
      4. 8. Investment companies
         1. a. Securities of an investment company registered pursuant to the Investment Company Act of 1940, 15 U.S.C. 80a, are permissible investments if the investment company:
         2. (1) Invests at least ninety percent (90%) of its assets in the types of securities that qualify as an investment under Paragraph (1), (2) or (3) of this subsection (E) or invests in securities that are determined by the commissioner to be substantively similar to the types of securities set forth in Paragraph (1), (2) or (3) of this subsection (E); or (2) Invests at least ninety percent (90%) of its assets in the types of equity interests that qualify as an investment under Paragraph (6)(a) of this subsection (E);
         3. b. Investments made by a trust in investment companies under this paragraph shall not exceed the following limitations:
         4. (1) An investment in an investment company qualifying under Subparagraph (a)(i) of this paragraph (8) shall not exceed ten percent (10%) of the assets in the trust and the aggregate amount of investment in qualifying investment companies shall not exceed twenty-five percent (25%) of the assets in the trust; and (2) Investments in an investment company qualifying under Subparagraph (a)(ii) of this paragraph (8) shall not exceed five percent (5%) of the assets in the trust and the aggregate amount of investment in qualifying investment companies shall be included when calculating the permissible Code of Colorado Regulations 150 aggregate value of equity interests pursuant to Paragraph (6)(a) of this subsection.
      5. 9. Letters of Credit
         1. a. In order for a letter of credit to qualify as an asset of the trust, the trustee shall have the right and the obligation pursuant to the deed of trust or some other binding agreement (as duly approved by the commissioner), to immediately draw down the full amount of the letter of credit and hold the proceeds in trust for the beneficiaries of the trust if the letter of credit will otherwise expire without being renewed or replaced.
         2. b. The trust agreement shall provide that the trustee shall be liable for its negligence, willful misconduct or lack of good faith. The failure of the trustee to draw against the letter of credit in circumstances where such draw would be required shall be deemed to be negligence and/or willful misconduct.

F. A specific security provided to a ceding insurer by an assuming insurer pursuant to Section 10 of this regulation shall be applied, until exhausted, to the payment of liabilities of the assuming insurer to the ceding insurer holding the specific security prior to, and as a condition precedent for, presentation of a claim by the ceding insurer for payment by a trustee of a trust established by the assuming insurer pursuant to this section.

Section 9 Credit for Reinsurance Required by Law Pursuant to Section 10-3-118 (4)(g), C.R.S., the commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of Section 10-3-118 (4)(b), (c), (e) or (f), C.R.S., but only as to the insurance of risks located in jurisdictions where the reinsurance is required by the applicable law or regulation of that jurisdiction. As used in this section, "jurisdiction" means a state, district or territory of the United States and any lawful national government. Section 10 Asset or Reduction from Liability for Reinsurance Ceded to an Unauthorized Assuming Insurer not Meeting the Requirements of Sections 5 Through 9 A. Pursuant to Section 10-3-118 (5), C.R.S., the commissioner shall allow a reduction from liability for reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of Section 10-3-118(4), C.R.S. in an amount not exceeding the liabilities carried by the ceding insurer. The reduction shall be in the amount of funds held by or on behalf of the ceding insurer, including funds held in trust for the exclusive benefit of the ceding insurer, under a reinsurance contract with such assuming insurer as security for the payment of obligations under the reinsurance contract. The security shall be held in the United States subject to withdrawal solely by, and under the exclusive control of, the ceding insurer or, in the case of a trust, held in a Qualified Financial Institution. This security may be in the form of any of the following:

1. 1. Cash;
   1. 2. Securities listed by the Securities Valuation Office of the NAIC and qualifying as admitted assets;
      1. 3. Clean, irrevocable, unconditional and "evergreen" letters of credit issued or confirmed by a Qualified Financial Institution, effective no later than December 31 of the year for which filing is being made, and in the possession of, or in trust for, the ceding company on or before the filing date of its annual statement. Letters of credit meeting applicable standards of issuer acceptability as of the dates of their issuance (or confirmation) shall, notwithstanding the issuing (or confirming) institution's subsequent failure to meet Code of Colorado Regulations 151 applicable standards of issuer acceptability, continue to be acceptable as security until their expiration, extension, renewal, modification or amendment, whichever first occurs; or 4. Any other form of security acceptable to the commissioner.

B. An admitted asset or a reduction from liability for reinsurance ceded to an unauthorized assuming insurer pursuant to this section shall be allowed only when the requirements of Section 14 and the applicable portions of Sections 11, 12 and 13 of this regulation have been satisfied. Section 11 Trust Agreements Qualified under Section 10 A. As used in this section:

1. 1. "Beneficiary" means the entity for whose sole benefit the trust has been established and any successor of the beneficiary by operation of law. If a court of law appoints a successor in interest to the named beneficiary, then the named beneficiary includes and is limited to the court appointed domiciliary receiver (including conservator, rehabilitator or liquidator).
   1. 2. "Grantor" means the entity that has established a trust for the sole benefit of the beneficiary. When established in conjunction with a reinsurance agreement, the grantor is the unlicensed, unaccredited assuming insurer.
      1. 3. "Obligations," as used Subsection B(11) of this section means:
         1. a. Reinsured losses and allocated loss expenses paid by the ceding company, but not recovered from the assuming insurer;
         2. b. Reserves for reinsured losses reported and outstanding;
         3. c. Reserves for reinsured losses incurred but not reported; and d. Reserves for allocated reinsured loss expenses and unearned premiums.

B. Required conditions.

1. 1. The trust agreement shall be entered into between the beneficiary, the grantor and a trustee, which shall be a Qualified Financial Institution.
   1. 2. The trust agreement shall create a trust account into which assets shall be deposited.
      1. 3. All assets in the trust account shall be held by the trustee at the trustee's office in the United States.
      2. 4. The trust agreement shall provide that:
         1. a. The beneficiary shall have the right to withdraw assets from the trust account at any time, without notice to the grantor, subject only to written notice from the beneficiary to the trustee;
         2. b. No other statement or document is required to be presented to withdraw assets, except that the beneficiary may be required to acknowledge receipt of withdrawn assets;
         3. c. It is not subject to any conditions or qualifications outside of the trust agreement; and Code of Colorado Regulations 152 d. It shall not contain references to any other agreements or documents except as provided for in Paragraph (11) of this subsection.
      3. 5. The trust agreement shall be established for the sole benefit of the beneficiary.
      4. 6. The trust agreement shall require the trustee to:
         1. a. Receive assets and hold all assets in a safe place;
         2. b. Determine that all assets are in such form that the beneficiary, or the trustee upon direction by the beneficiary, may whenever necessary negotiate any such assets, without consent or signature from the grantor or any other person or entity;
         3. c. Furnish to the grantor and the beneficiary a statement of all assets in the trust account upon its inception and at intervals no less frequent than the end of each calendar quarter;
         4. d. Notify the grantor and the beneficiary within ten (10) days, of any deposits to or withdrawals from the trust account;
         5. e. Upon written demand of the beneficiary, immediately take any and all steps necessary to transfer absolutely and unequivocally all right, title and interest in the assets held in the trust account to the beneficiary and deliver physical custody of the assets to the beneficiary; and f. Allow no substitutions or withdrawals of assets from the trust account, except on written instructions from the beneficiary, except that the trustee may, without the consent of but with notice to the beneficiary, upon call or maturity of any trust asset, withdraw such asset upon condition that the proceeds are paid into the trust account.
      5. 7. The trust agreement shall provide that at least thirty (30) days, but not more than forty-five (45) days, prior to termination of the trust account, written notification of termination shall be delivered by the trustee to the beneficiary.
      6. 8. The trust agreement shall be made subject to and governed by the laws of the state in which the trust is domiciled.
      7. 9. The trust agreement shall prohibit invasion of the trust corpus for the purpose of paying commission to, or reimbursing the expenses of, the trustee. In order for a letter of credit to qualify as an asset of the trust, the trustee shall have the right and the obligation pursuant to the deed of trust or some other binding agreement (as duly approved by the commissioner), to immediately draw down the full amount of the letter of credit and hold the proceeds in trust for the beneficiaries of the trust if the letter of credit will otherwise expire without being renewed or replaced.
      8. 10. The trust agreement shall provide that the trustee shall be liable for its negligence, willful misconduct or lack of good faith. The failure of the trustee to draw against the letter of credit in circumstances where such draw would be required shall be deemed to be negligence and/or willful misconduct.
      9. 11. Notwithstanding other provisions of this regulation, when a trust agreement is established in conjunction with a reinsurance agreement covering risks other than life, annuities and accident and health, where it is customary practice to provide a trust agreement for a specific purpose, the trust agreement may provide that the ceding insurer shall undertake Code of Colorado Regulations 153 to use and apply amounts drawn upon the trust account, without diminution because of the insolvency of the ceding insurer or the assuming insurer, only for the following purposes:
         1. a. To pay or reimburse the ceding insurer for the assuming insurer's share under the specific reinsurance agreement regarding any losses and allocated loss expenses paid by the ceding insurer, but not recovered from the assuming insurer, or for unearned premiums due to the ceding insurer if not otherwise paid by the assuming insurer;
         2. b. To make payment to the assuming insurer of any amounts held in the trust account that exceed 102 percent of the actual amount required to fund the assuming insurer's obligations under the specific reinsurance agreement; or c. Where the ceding insurer has received notification of termination of the trust account and where the assuming insurer's entire obligations under the specific reinsurance agreement remain unliquidated and undischarged ten (10) days prior to the termination date, to withdraw amounts equal to the obligations and deposit those amounts in a separate account, in the name of the ceding insurer in any Qualified Financial Institution apart from its general assets, in trust for such uses and purposes specified in Subparagraphs (a) and (b) above as may remain executory after such withdrawal and for any period after the termination date.
      10. 12. Notwithstanding other provisions of this regulation, when a trust agreement is established to meet the requirements of Section 10 in conjunction with a reinsurance agreement covering life, annuities or accident and health risks, where it is customary to provide a trust agreement for a specific purpose, the trust agreement may provide that the ceding insurer shall undertake to use and apply amounts drawn upon the trust account, without diminution because of the insolvency of the ceding insurer or the assuming insurer, only for the following purposes:
          1. a. To pay or reimburse the ceding insurer for:
          2. (1) The assuming insurer's share under the specific reinsurance agreement of premiums returned, but not yet recovered from the assuming insurer, to the owners of policies reinsured under the reinsurance agreement on account of cancellations of the policies; and (2) The assuming insurer's share under the specific reinsurance agreement of surrenders and benefits or losses paid by the ceding insurer, but not yet recovered from the assuming insurer, under the terms and provisions of the policies reinsured under the reinsurance agreement;
          3. b. To pay to the assuming insurer amounts held in the trust account in excess of the amount necessary to secure the credit or reduction from liability for reinsurance taken by the ceding insurer; or c. Where the ceding insurer has received notification of termination of the trust and where the assuming insurer's entire obligations under the specific reinsurance agreement remain unliquidated and undischarged ten (10) days prior to the termination date, to withdraw amounts equal to the assuming insurer's share of liabilities, to the extent that the liabilities have not yet been funded by the assuming insurer, and deposit those amounts in a separate account, in the name of the ceding insurer in any Qualified Financial Institution apart from its general assets, in trust for the uses and purposes specified in Subparagraphs (a) and (b) Code of Colorado Regulations 154 of this paragraph as may remain executory after withdrawal and for any period after the termination date.
      11. 13. The reinsurance agreement may, but need not, contain the provisions required in Subsection D(1)(b) of this section, so long as these required conditions are included in the trust agreement.
      12. 14. Notwithstanding any other provisions in the trust instrument, if the grantor of the trust has been declared insolvent or placed into receivership, rehabilitation, liquidation or similar proceedings under the laws of its state or country of domicile, the trustee shall comply with an order of the commissioner with regulatory oversight over the trust or court of competent jurisdiction directing the trustee to transfer to the commissioner with regulatory oversight or other designated receiver all of the assets of the trust fund. The assets shall be applied in accordance with the priority statutes and laws of the state in which the trust is domiciled applicable to the assets of insurance companies in liquidation. If the commissioner with regulatory oversight determines that the assets of the trust fund or any part thereof are not necessary to satisfy claims of the U. S. beneficiaries of the trust, the assets or any part of them shall be returned to the trustee for distribution in accordance with the trust agreement

C. Permitted conditions.

1. 1. The trust agreement may provide that the trustee may resign upon delivery of a written notice of resignation, effective not less than ninety (90) days after the beneficiary and grantor receive the notice and that the trustee may be removed by the grantor by delivery to the trustee and the beneficiary of a written notice of removal, effective not less than ninety
   1. (90) days after the trustee and the beneficiary receive the notice, provided that no such resignation or removal shall be effective until a successor trustee has been duly appointed and approved by the beneficiary and the grantor and all assets in the trust have been duly transferred to the new trustee.
      1. 2. The grantor may have the full and unqualified right to vote any shares of stock in the trust account and to receive from time to time payments of any dividends or interest upon any shares of stock or obligations included in the trust account. Any interest or dividends shall be either forwarded promptly upon receipt to the grantor or deposited in a separate account established in the grantor's name.
      2. 3. The trustee may be given authority to invest, and accept substitutions of, any funds in the account, provided that no investment or substitution shall be made without prior approval of the beneficiary, unless the trust agreement specifies categories of investments acceptable to the beneficiary and authorizes the trustee to invest funds and to accept substitutions that the trustee determines are at least equal in market value to the assets withdrawn and that are consistent with the restrictions in Subsection D(1)(b) of this section.
      3. 4. The trust agreement may provide that the beneficiary may at any time designate a party to which all or part of the trust assets are to be transferred. Transfer may be conditioned upon the trustee receiving, prior to or simultaneously, other specified assets.
      4. 5. The trust agreement may provide that, upon termination of the trust account, all assets not previously withdrawn by the beneficiary shall, with written approval by the beneficiary, be delivered over to the grantor.

D. Additional conditions applicable to reinsurance agreements: Code of Colorado Regulations 155

1. 1. A reinsurance agreement may contain provisions that:
   1. a. Require the assuming insurer to enter into a trust agreement and to establish a trust account for the benefit of the ceding insurer, and specifying what the agreement is to cover;
      1. b. Stipulate that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash in United States dollars, certificates of deposit issued by a United States bank and payable in United States dollars, and investments permitted by Section 10-1-102(2), C.R.S. or any combination of the above, provided investments in or issued by an entity controlling, controlled by or under common control with either the grantor or the beneficiary of the trust shall not exceed five percent (5%) of total investments. The reinsurance agreement may further specify the types of investments to be deposited. Where a trust agreement is entered into in conjunction with a reinsurance agreement covering risks other than life, annuities and accident and health, then the trust agreement may contain the provisions required by this paragraph in lieu of including such provisions in the reinsurance agreement;
         1. c. Require the assuming insurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may whenever necessary negotiate these assets without consent or signature from the assuming insurer or any other entity;
         2. d. Require that all settlements of account between the ceding insurer and the assuming insurer be made in cash or its equivalent; and e. Stipulate that the assuming insurer and the ceding insurer agree that the assets in the trust account, established pursuant to the provisions of the reinsurance agreement, may be withdrawn by the ceding insurer at any time, notwithstanding any other provisions in the reinsurance agreement, and shall be utilized and applied by the ceding insurer or its successors in interest by operation of law, including without limitation any liquidator, rehabilitator, receiver or conservator of such company, without diminution because of insolvency on the part of the ceding insurer or the assuming insurer, only for the following purposes:
         3. (1) To pay or reimburse the ceding insurer for:
         4. (a) The assuming insurer's share under the specific reinsurance agreement of premiums returned, but not yet recovered from the assuming insurer, to the owners of policies reinsured under the reinsurance agreement because of cancellations of such policies;
         5. (b) The assuming insurer's share of surrenders and benefits or losses paid by the ceding insurer pursuant to the provisions of the policies reinsured under the reinsurance agreement; and (c) Any other amounts necessary to secure the credit or reduction from liability for reinsurance taken by the ceding insurer;

Code of Colorado Regulations 156

1. (2) To make payment to the assuming insurer of amounts held in the trust account in excess of the amount necessary to secure the credit or reduction from liability for reinsurance taken by the ceding insurer.
   1. 2. The reinsurance agreement also may contain provisions that:
      1. a. Give the assuming insurer the right to seek approval from the ceding insurer, which shall not be unreasonably or arbitrarily withheld, to withdraw from the trust account all or any part of the trust assets and transfer those assets to the assuming insurer, provided:
         1. (1) The assuming insurer shall, at the time of withdrawal, replace the withdrawn assets with other qualified assets having a market value equal to the market value of the assets withdrawn so as to maintain at all times the deposit in the required amount; or (2) After withdrawal and transfer, the market value of the trust account is no less than 102 percent of the required amount.
         2. b. Provide for the return of any amount withdrawn in excess of the actual amounts required for Paragraph (1)(e) of this subsection (D), and for interest payments at a rate not in excess of the prime rate of interest on the amounts held pursuant to Paragraph (1)(e) of this subsection (D);
         3. c. Permit the award by any arbitration panel or court of competent jurisdiction of:
         4. (1) Interest at a rate different from that provided in Subparagraph (b) of this paragraph (2);
         5. (2) Court or arbitration costs;
         6. (3) Attorney's fees; and (4) Any other reasonable expenses.
      2. 3. Financial reporting. A trust agreement may be used to reduce any liability for reinsurance ceded to an unauthorized assuming insurer in financial statements required to be filed with this department in compliance with the provisions of this regulation when established on or before the date of filing of the financial statement of the ceding insurer. Further, the reduction for the existence of an acceptable trust account may be up to the current fair market value of acceptable assets available to be withdrawn from the trust account at that time, but such reduction shall be no greater than the specific obligations under the reinsurance agreement that the trust account was established to secure.
      3. 4. Existing agreements. Notwithstanding the effective date of this regulation, any trust agreement or underlying reinsurance agreement in existence prior to January 1, 2007 will continue to be acceptable until December 31, 2007, at which time the agreements will have to fully comply with this regulation for the trust agreement to be acceptable.
      4. 5. The failure of any trust agreement to specifically identify the beneficiary as defined in Subsection A of this section 11 shall not be construed to affect any actions or rights that the commissioner may take or possess pursuant to the provisions of the laws of this state.

Section 12 Letters of Credit Qualified under Section 10 Code of Colorado Regulations 157 A. The letter of credit must be clean, irrevocable, unconditional and issued or confirmed by a Qualified Financial Institution. The letter of credit shall contain an issue date and expiration date and shall stipulate that the beneficiary need only draw a sight draft under the letter of credit and present it to obtain funds and that no other document need be presented. The letter of credit also shall indicate that it is not subject to any condition or qualifications outside of the letter of credit. In addition, the letter of credit itself shall not contain reference to any other agreements, documents or entities, except as provided in Subsection I(1) of this section. As used in this section, "beneficiary" means the domestic insurer for whose benefit the letter of credit has been established and any successor of the beneficiary by operation of law. If a court of law appoints a successor in interest to the named beneficiary, then the named beneficiary includes and is limited to the court appointed domiciliary receiver (including conservator, rehabilitator or liquidator).

B. The heading of the letter of credit may include a boxed section containing the name of the applicant and other appropriate notations to provide a reference for the letter of credit. The boxed section shall be clearly marked to indicate that such information is for internal identification purposes only.

C. The letter of credit shall contain a statement to the effect that the obligation of the Qualified Financial Institution under the letter of credit is in no way contingent upon reimbursement with respect thereto.

D. The term of the letter of credit shall be for at least one year and shall contain an "evergreen clause" that prevents the expiration of the letter of credit without due notice from the issuer. The "evergreen clause" shall provide for a period of no less than thirty (30) days notice prior to expiration date or nonrenewal.

E. The letter of credit shall state whether it is subject to and governed by the laws of this state or the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce (Publication 500), or any successor publication, and all drafts drawn thereunder shall be presentable at an office in the United States of a Qualified Financial Institution.

F. If the letter of credit is made subject to the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce (Publication 500), or any successor publication, then the letter of credit shall specifically address and provide for an extension of time to draw against the letter of credit in the event that one or more of the occurrences specified in Article 17 of Publication 500 or any other successor publication, occur.

G. The letter of credit shall be issued or confirmed by a Qualified Financial Institution authorized to issue letters of credit.

H. If the letter of credit is issued by a Qualified Financial Institution authorized to issue letters of credit, other than a Qualified Financial Institution as described in Subsection G of this section, then the following additional requirements shall be met:

1. 1. The issuing Qualified Financial Institution shall formally designate the confirming Qualified Financial Institution as its agent for the receipt and payment of the drafts; and 2. The "evergreen clause" shall provide for thirty (30) days notice prior to expiration date for nonrenewal.

I. Reinsurance agreement provisions.

1. 1. The reinsurance agreement in conjunction with which the letter of credit is obtained may contain provisions that:

Code of Colorado Regulations 158

1. a. Require the assuming insurer to provide letters of credit to the ceding insurer and specify what they are to cover;
   1. b. Stipulate that the assuming insurer and ceding insurer agree that the letter of credit provided by the assuming insurer pursuant to the provisions of the reinsurance agreement may be drawn upon at any time, notwithstanding any other provisions in the agreement, and shall be utilized by the ceding insurer or its successors in interest only for one or more of the following reasons:
      1. (1) To pay or reimburse the ceding insurer for:
         1. (a) The assuming insurer's share under the specific reinsurance agreement of premiums returned, but not yet recovered from the assuming insurers, to the owners of policies reinsured under the reinsurance agreement on account of cancellations of such policies;
         2. (b) The assuming insurer's share, under the specific reinsurance agreement, of surrenders and benefits or losses paid by the ceding insurer, but not yet recovered from the assuming insurers, under the terms and provisions of the policies reinsured under the reinsurance agreement; and (c) Any other amounts necessary to secure the credit or reduction from liability for reinsurance taken by the ceding insurer;
         3. (2) Where the letter of credit will expire without renewal or be reduced or replaced by a letter of credit for a reduced amount and where the assuming insurer's entire obligations under the specific reinsurance remain unliquidated and undischarged ten (10) days prior to the termination date, to withdraw amounts equal to the assuming insurer's share of the liabilities, to the extent that the liabilities have not yet been funded by the assuming insurer and exceed the amount of any reduced or replacement letter of credit, and deposit those amounts in a separate account in the name of the ceding insurer in a Qualified Financial Institution apart from its general assets, in trust for such uses and purposes specified in Subsection I(1)(b)(i) of this section as may remain after withdrawal and for any period after the termination date.
         4. c. All of the provisions of Paragraph (1) of this subsection shall be applied without diminution because of insolvency on the part of the ceding insurer or assuming insurer.
      2. 2. Nothing contained Paragraph (1) of this subsection shall preclude the ceding insurer and assuming insurer from providing for:
         1. a. An interest payment, at a rate not in excess of the prime rate of interest, on the amounts held pursuant to Paragraph (1)(b) of this regulation; or b. The return of any amounts drawn down on the letters of credit in excess of the actual amounts required for the above or any amounts that are subsequently determined not to be due.

Section 13 Other Security Code of Colorado Regulations 159 A ceding insurer may take credit for unencumbered funds withheld by the ceding insurer in the United States subject to withdrawal solely by the ceding insurer and under its exclusive control. Section 14 Reinsurance Contract Credit will not be granted, neither as an asset nor reduction from liability, to a domestic ceding insurer for reinsurance effected with assuming insurers meeting the requirements of Sections 5, 6, 7, 8 or 10 of this regulation or otherwise in compliance with Section 10-3-118, C.R.S. after the adoption of this regulation unless all premium tax payable by the ceding insurer on the reinsured policies has been paid as required by Section 10-3-209, C.R.S. and the reinsurance agreement:

A. Includes a proper insolvency clause pursuant to Section 10-3-531, C.R.S.; and B. Includes a provision pursuant to Section 10-3-118(4)(h), C.R.S. whereby the assuming insurer, if an unauthorized assuming insurer, has submitted to the jurisdiction of an alternative dispute resolution panel or court of competent jurisdiction within the United States, has agreed to comply with all requirements necessary to give the court or panel jurisdiction, has designated an agent upon whom service of process may be effected, and has agreed to abide by the final decision of the court or panel; and Section 15 Contracts Affected All new and renewal reinsurance transactions entered into after January 1, 2007 shall conform to the requirements of the Act and this regulation if credit is to be given to the ceding insurer for such reinsurance.

Section 16 Severability If any provision of this regulation or the application of it to any person or circumstance is for any reason held to be invalid, the remainder of this regulation and the application of the provisions to persons or circumstances other than those to which it is held invalid, shall not be affected. Section 17 Enforcement Noncompliance with this Regulation may result, after proper notice and hearing, in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance or other laws which include the imposition of fines, issuance of cease and desist orders, and/or suspensions or revocations of license. Among others, the penalties provided for in Section 10-3-118, C.R.S. may be applied Section 18 Effective Date This regulation is effective January 1, 2007 Section 19 History This regulation replaces, in part, Regulation 3-3-2.

Appendix A: References to U.S.C.A (United States Code Annotated) The United States Annotated Codes (“Codes” ) referenced in this regulation are available for review at the State Library. The Code, as applicable to this regulation, is the applicable Code as of January 1, 2007. This regulation does not include later amendments to or editions of the Code. For questions regarding the Code, please contact:

Code of Colorado Regulations 160 Chief Actuary Colorado Division of Insurance 1560 Broadway, Suite 850 Denver, Colorado 80227 Form AR-1. Certificate of Assuming Insurer NEW REGULATIOn 3-3-4 LIFE AND HEALTH REINSURANCE AGREEMENTS Section 1. Authority Section 2. Scope and Purpose Section 3. Applicability Section 4. Definitions Section 5. Accounting Requirements Section 6. Written Agreements Section 7. Existing Agreements Section 8 Filings Section 9. Exemptions Section 10. Severability Section 11. Enforcement Section 12. Effective Date Section 13. History Section 1 Authority This regulation is promulgated under the authority of § § 10-1-109(1), 10-3-118(6), 10-3-529(4), 10-3- 1110, 10-6-129, 10-14-505 and 10-16-109, C.R.S.

Section 2 Scope and Purpose Code of Colorado Regulations 161 A. The Colorado Division of Insurance recognizes that licensed insurers routinely enter into reinsurance agreements for many legitimate purposes. These purposes can include relief to the ceding insurer from strain to surplus.

B. However, it is improper for a licensed insurer, in the capacity of ceding insurer, to enter into reinsurance agreements for the principal purpose of producing significant surplus aid for the ceding insurer, typically on a temporary basis, while not transferring all of the significant risks inherent in the business being reinsured. If, in substance or effect, the expected potential liability to the ceding insurer remains basically unchanged by the reinsurance transaction, notwithstanding certain risk elements in the reinsurance agreement, such as catastrophic mortality or extraordinary survival, the agreements violate:

1. 1. Section 10-3-109, C.R.S. relating to financial statements that do not properly reflect the financial condition of the ceding insurer;
   1. 2. Section 10-3-118, C.R.S. relating to reinsurance credit for reinsurance, thus resulting in a ceding insurer improperly reducing liabilities or establishing assets for reinsurance ceded; and 3. Section 10-1-110(1)(i), C.R.S. and regulation 3-1-7 relating to creating a situation that may be hazardous to policyholders and the people of this State.

C. The purpose of this regulation is to establish requirements for acceptable reinsurance agreements to ensure that ceding insurers operate in a sound financial manner, correctly report their financial condition on required financial statements, and properly reduce liabilities or establish assets for reinsurance ceded. These requirements are necessary to protect the ceding insurers’ policy and contract holders and the people of the State of Colorado. Section 3 Applicability This regulation shall apply to all domestic life, fraternal and health insurers and to all other licensed life, fraternal and health insurers that are not subject to a substantially similar regulation in their domiciliary state. This regulation shall also similarly apply to licensed property and casualty insurers with respect to their accident and health business. This regulation shall not apply to assumption reinsurance subject to Section 7 of Article 3 of Title 10, C.R.S.; yearly renewable term reinsurance; or certain nonproportional reinsurance such as stop loss or catastrophe reinsurance. Section 4 Definitions A. “Annual Statement” means the NAIC convention blank life, fraternal or health financial annual statement.

B. “Credit for Reinsurance” means any reduction of liability, establishment of asset or contra-liability, or any combination thereof.

C. “Credit Quality risk” means the risk that invested assets supporting the reinsured business will decrease in value. The main hazards are that assets will default or that there will be a decrease in earning power. It excludes market value declines due to changes in interest rates. It is commonly referred to as the “C1” risk.

D. “Division” means the Colorado Division of Insurance E. “Disintermediation Risk” means the risk that interest rates rise and policy loans and surrenders increase, or that maturing contracts do not renew at anticipated rates of renewal. If asset durations are greater than the liability durations the mismatch will increase. Policyholders will Code of Colorado Regulations 162 move their funds into new products offering higher rates. The company may have to sell assets at a loss to provide for these withdrawals. It is commonly included in the “C3” risk.

F. “Financial Statement” means any monthly, quarterly or Annual Statement that is submitted to the Division.

G. “Lapse Risk” means the risk that the policy will voluntarily terminate prior to the recoupment of a statutory surplus strain experienced at issue of the policy.

H. “LTC” means Long-Term Care Insurance.

I. “LTD” means Long-Term Disability Insurance.

J. “Reinvestment Risk” means the risk that interest rates will fall and funds reinvested (coupon payments or monies received upon asset maturity or call) will therefore earn less than expected. If asset durations are less than liability durations, the mismatch will increase. It is commonly included in the “C3” risk.

Section 5 Accounting Requirements All ceding insurers are responsible for establishing appropriate statutory gross reserves and reflecting appropriate credit for reinsurance, if any, for their reinsured business. A reinsurance agreement that does not comply with this regulation will be considered as a valid contract, unless terminated or voided by the parties to the agreement, where all terms and obligations are in effect, but no credit for reinsurance is permitted to be taken by the ceding insurer. The ceding insurer shall comply with the applicable provisions of law and this regulation before taking any credit for reinsurance in any financial statement for any reinsurance agreement.

A. No insurer subject to this regulation shall, for reinsurance ceded, reduce any liability or establish any asset in any financial statement filed with the Colorado Division of Insurance if, by the terms of the reinsurance agreement, in substance or effect, any of the following conditions exist:

1. 1. Renewal expense allowances provided or to be provided to the ceding insurer by the reinsurer in any accounting period, are not sufficient to cover anticipated allocable renewal expenses of the ceding insurer on the portion of the business reinsured, unless a liability is established for the present value of the shortfall (using assumptions equal to the applicable statutory reserve basis on the business reinsured). Those expenses include commissions, premium taxes and direct expenses including, but not limited to, billing, valuation, claims and maintenance expected by the company at the time the business is reinsured;
   1. 2. The ceding insurer can be deprived of surplus or assets at the reinsurer's option or automatically upon the occurrence of some event, such as the insolvency of the ceding insurer, except that termination of the reinsurance agreement by the reinsurer for nonpayment of reinsurance premiums or other amounts due, such as modified coinsurance reserve adjustments, interest and adjustments on funds withheld, and tax reimbursements, shall not be considered to be such a deprivation of surplus or assets;
      1. 3. The ceding insurer is required to reimburse the reinsurer for negative experience under the reinsurance agreement, except that neither offsetting experience refunds against current and prior years' losses under the agreement nor payment by the ceding insurer of an amount equal to the current and prior years' losses under the agreement upon voluntary termination of in force reinsurance by the ceding insurer shall be considered such a reimbursement to the reinsurer for negative experience. Voluntary termination does not include situations where termination occurs because of unreasonable provisions that Code of Colorado Regulations 163 allow the reinsurer to reduce its risk under the agreement. An example of such a provision is the right of the reinsurer to increase reinsurance premiums or risk and expense charges to excessive levels forcing the ceding company to prematurely terminate the reinsurance treaty;
      2. 4. The ceding insurer must, at specific points in time scheduled in the agreement, terminate or automatically recapture all or part of the reinsurance ceded;
      3. 5. The reinsurance agreement involves the possible payment by the ceding insurer to the reinsurer of amounts other than from income realized from the reinsured policies. For example, it is improper for a ceding company to pay reinsurance premiums, or other fees or charges to a reinsurer that are greater than the direct premiums collected by the ceding company;
      4. 6. The treaty does not transfer all of the significant risk inherent in the business being reinsured. The following table identifies for a representative sampling of products or type of business, the risks which are considered to be significant. For products not specifically included, the risks determined to be significant shall be consistent with this table. Risk categories:
         1. a. Morbidity.
         2. b. Mortality.
         3. c. Lapse.
         4. d. Credit Quality Risk.
         5. e. Reinvestment Risk.
         6. f. Disintermediation Risk.

            + Significant 0 Insignificant RISK CATEGORY a b c d e f Health Insurance - other than LTC /LTD + 0 + 0 0 0 Health Insurance – LTC/LTD + 0 + + + 0 Immediate Annuities 0 + 0 + + 0 Single Premium Deferred Annuities 0 0 + + + + Flexible Premium Deferred Annuities 0 0 + + + + Guaranteed Interest Contracts 0 0 0 + + + Other Annuity Deposit Business 0 0 + + + + Single Premium Whole Life 0 + + + + + Code of Colorado Regulations 164 Traditional Non-Par Permanent 0 + + + + + Traditional Non-Par Term 0 + + 0 0 0 Traditional Par Permanent 0 + + + + + Traditional Par Term 0 + + 0 0 0 Adjustable Premium Permanent 0 + + + + + Indeterminate Premium Permanent 0 + + + + + Universal Life Flexible Premium 0 + + + + + Universal Life Fixed Premium 0 + + + + + Universal Life Fixed Premium (dump-in premiums allowed) 0 + + + + + 7.

         7. a. The credit quality, reinvestment, or disintermediation risk is significant for the business reinsured and the ceding company does not (other than for the classes of business excepted in Paragraph (7)(b)) either transfer the underlying assets to the reinsurer or legally segregate such assets in a trust or escrow account or otherwise establish a mechanism satisfactory to the commissioner which legally segregates, by contract or contract provision, the underlying assets.
         8. b. Notwithstanding the requirements of Paragraph (7)(a), the assets supporting the reserves for the following classes of business and any classes of business that do not have a significant credit quality, reinvestment or disintermediation risk may be held by the ceding company without segregation of such assets:
         9. (1) Health Insurance - LTC/LTD (2) Traditional Non-Par Permanent (3) Traditional Par Permanent (4) Adjustable Premium Permanent (5) Indeterminate Premium Permanent (6) Universal Life Fixed Premium (no dump-in premiums allowed)
      5. 8. The formula for determining the reserve interest rate adjustment does not use a formula that reflects the ceding company's investment earnings and/or fails to incorporate all realized and unrealized gains and losses reflected in the statutory statement. The following is an acceptable formula:
         1. Rate = 2 * (I + CG) / (X + Y - I – CG)

Code of Colorado Regulations 165 Where: I is the net investment income as identified in the Annual Statement. CG is capital gains less capital losses as identified in the Annual Statement. X is the current year cash and invested assets plus investment income due and accrued less borrowed money, all as identified in the Annual Statement. Y is the same as X but for the prior year.

1. 9. Settlements are made less frequently than quarterly or payments due from the reinsurer are not made in cash within ninety (90) days of the settlement date.
   1. 10. The ceding insurer is required to make representations or warranties not reasonably related to the business being reinsured.
      1. 11. The ceding insurer is required to make representations or warranties about future performance of the business being reinsured.
      2. 12. The reinsurance agreement is entered into for the principal purpose of producing significant surplus aid for the ceding insurer, typically on a temporary basis, while not transferring all of the significant risks inherent in the business reinsured and, in substance or effect, the expected potential liability to the ceding insurer remains basically unchanged.
      3. 13. The reinsurance agreement contains provisions whereby the obligation of the assuming insurer to pay claims is conditioned upon some other event, such as the payment of reinsurance considerations. This does not preclude the reinsurer’s ability to terminate the agreement for breach or default of contract terms,

B. The following situations require the establishment of additional liabilities or limitations to credits taken by the ceding insurer.

1. 1. Credit for reinsurance shall be allowed only to the degree of the risk transferred.
   1. 2. The ceding insurer shall not take any credit for reinsurance in excess of the gross reserve it has established for the portion of the business or risks being reinsured.
      1. 3. If commissions or other similar allowances received or credited to the ceding insurer are required to be repaid to the reinsurer, other than from emerging profits of the portion of the business reinsured, based on contract provisions or on future experience of the reinsured business, a liability shall be established or the credit for reinsurance reduced by the maximum amount of such future tentative repayment.
      2. 4. If the reinsurance agreement provides for financial guarantees by the ceding insurer to the reinsurer, a liability shall be established for the present value of such guarantee (using assumptions equal to the applicable statutory reserve basis on the business reinsured).

C. Notwithstanding Subsection (5) (A), an insurer subject to this regulation may, with the prior approval of the commissioner, take such credit for reinsurance or establish such asset as the commissioner may deem consistent with Section 10-3-118, C.R.S, regulation 3-3-3 or other actuarial interpretations or standards adopted by the Division.

D.

1. 1. Agreements entered into after the effective date of this regulation which involve the reinsurance of business issued prior to the effective date of the agreements, along with Code of Colorado Regulations 166 any subsequent amendments thereto, shall be filed by the ceding company with the commissioner within thirty (30) days from its date of execution. Each filing shall include data detailing the financial impact of the transaction. The ceding insurer's actuary who signs the financial statement’s actuarial opinion with respect to valuation of reserves shall consider this regulation and any applicable actuarial standards of practice when determining the proper credit in financial statements filed with this Division. The actuary should maintain adequate documentation and be prepared upon request to describe the actuarial work performed for inclusion in the financial statements and to demonstrate that such work conforms to this regulation.
   1. 2. Any increase in surplus net of federal income tax resulting from arrangements described in Subsection (5)(D)(1) shall be identified separately on the insurer's Annual Statement as a surplus item, and listed as an aggregate write-ins for gains and losses in surplus in the Capital and Surplus Account of the Annual Statement’s Balance Sheet. Further, the surplus increase shall be recognized as income and shall be reflected on a net of tax basis in the "Reinsurance ceded" line, on the Statement of Income page of the Annual Statement as earnings emerge from the business reinsured. For example, on the last day of calendar year N, company XYZ pays a $20 million initial commission and expense allowance to company ABC for reinsuring an existing block of business. Assuming a 34% tax rate, the net increase in surplus at inception is $13.2 million ($20 million - $6.8 million) that is reported on the "Aggregate write-ins for gains and losses in surplus" line in the Capital and Surplus account. $6.8 million (34% of $20 million) is reported as income on the "Commissions and expense allowances on reinsurance ceded" line of the Summary of Operations.
      1. At the end of year N+1 the business has earned $4 million. ABC has paid $.5 million in profit and risk charges in arrears for the year and has received a $1 million experience refund. Company ABC's annual statement would report $1.65 million (66% of ($4 million - $1 million - $.5 million) up to a maximum of $13.2 million) on the "Commissions and expense allowance on reinsurance ceded" line of the Summary of Operations, and -$1.65 million on the "Aggregate write-ins for gains and losses in surplus" line of the Capital and Surplus account. The experience refund would be reported separately as a miscellaneous income item in the Summary of Operations. Section 6 Written Agreements

A. No reinsurance agreement or amendment to any agreement may be used to take any credit for reinsurance in any financial statement filed with the Division, unless the agreement, amendment or a binding letter of intent has been duly executed by both parties no later than the "as of date" of the financial statement.

B. In the case of a letter of intent, a reinsurance agreement or an amendment to a reinsurance agreement must be executed within a reasonable period of time, not exceeding ninety (90) days from the execution date of the letter of intent, in order for credit to be granted for the reinsurance ceded.

C. The reinsurance agreement shall contain provisions that provide that:

1. 1. The agreement shall constitute the entire agreement between the parties with respect to the business being reinsured thereunder and that there are no understandings between the parties other than as expressed in the agreement; and 2. Any change or modification to the agreement shall be null and void unless made by amendment to the agreement and signed by both parties.

Code of Colorado Regulations 167 Section 7 Existing Agreements Insurers subject to this regulation shall reduce to zero by December 31, 2007 any credit for reinsurance established with respect to reinsurance agreements entered into prior to the effective date of this regulation which, under the provisions of this regulation would not be entitled to recognition of the credit for reinsurance; provided, however, that the reinsurance agreements shall have been in compliance with laws or regulations in existence immediately preceding the effective date of this regulation. Section 8 Filings Per Section 10-3-118 (2), C.R.S., complete copies of all reinsurance contracts and agreements and other information desired shall be filed with the commissioner at the commissioner’s request. Any information requested by the commissioner must be submitted no later than 20 days after receipt of the request. Insurers who fail to submit the requested information may be assessed a penalty up to $100 per day for each day after the date the information is due.

Section 9 Exceptions A. A reinsurance agreement is not required to transfer all contract benefits contained in the underlying business reinsured. Transfer of less than all contract benefits is permitted if the reinsurance agreement is otherwise in compliance with this regulation and the benefits being reinsured: (i) are independent, distinct and severable from the contract benefits not transferred, and (ii) the reserves, and therefore the credit for reinsurance available to be taken by the ceding insurer, for the benefits transferred are independently calculated, distinct and severable from the reserves of the remaining contract benefits not transferred.

B. A ceding insurer, with the prior written approval of the commissioner, may have alternative terms or conditions in a reinsurance agreement, that are not otherwise in compliance with this regulation, if such alternatives are reasonably necessary for the protection of the public and the insured policyholders and substantially comply with the intent and provisions of this regulation. Section 10 Severability If any provision of this regulation or the application of it to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected Section 11 Enforcement Noncompliance with this regulation may result, after proper notice and hearing, in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance or other laws which include the imposition of fines, issuance of cease and desist orders, and/or suspensions or revocations of license. Among others, the penalties provided for in Section 10-3-1108, C.R.S. may be applied.

Section 12 Effective Date This regulation is effective January 1, 2007.

Section 13 History This regulation replaces, in part, Regulation 3-3-2.

NEW REGULATION 3-3-5 PROPERTY AND CASUALTY REINSURANCE Agreements Section 1. Authority Code of Colorado Regulations 168 Section 2. Scope and Purpose Section 3. Applicability Section 4. Definitions Section 5. Accounting Requirements Section 6. Written Agreements Section 7. Existing Agreements Section 8. Filings Section 9. Other Requirements Section 10. Exceptions Section 11. Severability Section 12. Enforcement Section 13. Effective Date Section 14. History Section 1. Authority This regulation is promulgated under the authority of § § 10-1-109(1), 10-3-118(6), 10-3-529(4), 10-6- 129, 8-44-205(a), 24-10-115.5, and 29-13-102, C.R.S.

Section 2. Scope and Purpose A. The Colorado Division of Insurance recognizes that licensed insurers routinely enter into reinsurance agreements for many legitimate purposes. These purposes can include relief to the ceding insurer from strain to surplus, and may legitimately limit the amount of risk transferred from the ceding company to the assuming company.

B. However, it is improper for a licensed insurer to consider any contract as a reinsurance agreement if the principal purpose is not true risk transfer. If, in substance or effect, the expected potential liability of the ceding insurer remains basically unchanged by the reinsurance transaction, notwithstanding certain risk elements in the reinsurance agreement, such as catastrophic loss, the contracts violate:

1. 1. Section 10-3-109, C.R.S. relating to financial statements that do not properly reflect the financial condition of the ceding insurer;
   1. 2. Section 10-3-118, C.R.S. relating to credit for reinsurance, thus resulting in a ceding insurer improperly reducing liabilities or establishing assets for reinsurance ceded; and 3. Section 10-1-110(1)(i), C.R.S and regulation 3-1-7 relating to creating a situation that may be hazardous to policyholders and the people of this State.

C. The purpose of this regulation is to establish requirements for acceptable reinsurance agreements to ensure that ceding insurers operate in a sound financial manner, correctly report their financial Code of Colorado Regulations 169 condition on required financial statements, and properly reduce liabilities or establish assets for reinsurance ceded. These requirements are necessary to protect the ceding insurers’ policy and contract holders and the people of the State of Colorado. Section 3 Applicability This regulation shall apply to all domestic property and casualty insurers; title insurers; captive insurers, Pinnacol Insurance, and pools. However, any accident and health business issued by these insurers is specifically excluded from this regulation, and is, instead, subject to the requirements of Colorado Insurance Regulation 3-3-4.

Section 4 Definitions A. “Annual Statement” means the NAIC convention blank property and casualty financial annual statement.

B. “Credit for reinsurance” means any reduction of liability, establishment or asset or contra-liability, or any combination thereof.

C. “Division” means the Colorado Division of Insurance D. “Financial Statement” means any monthly, quarterly or Annual Statement that is submitted to the Division.

Section 5 Accounting Requirements All ceding insurers are responsible for establishing appropriate statutory gross reserves and reflecting appropriate credit, if any, for reinsurance ceded. A reinsurance agreement that does not comply with this regulation will be considered as a valid contract, unless terminated or voided by the parties to the contract, where all terms and obligations are in effect, but no credit for reinsurance is permitted to be taken by the ceding insurer. The ceding insurer shall comply with the applicable provisions of law and this regulation before taking any credit for reinsurance in any statutory financial statement for any particular reinsurance agreement.

A. The essential element of a reinsurance agreement is the transfer of risk. Unless the agreement contains this essential element of risk transfer, no credit shall be recorded. Therefore, no insurer subject to this regulation shall, for reinsurance ceded, establish any credit for reinsurance in any financial statement filed with the Colorado Division of Insurance if, by the terms of the reinsurance agreement, in substance or effect, any of the following conditions exist:

1. 1. Single or multi year agreements in which the premium charged is, or can be reasonably assumed to be, equal to the present value of the maximum insured loss;
   1. 2. The ceding insurer is required to make representations or warranties not reasonably related to the business being reinsured;
      1. 3. The ceding insurer is required to make representations or warranties about future performance of the business being reinsured;
      2. 4. The reinsurance agreement is entered into for the principal purpose of producing significant financial statement enhancement for the ceding insurer, typically on a temporary basis, while not transferring significant insurance risk under the reinsured portion of the underlying insurance agreement and, in substance or effect, the expected potential liability to the ceding insurer remains basically unchanged; Code of Colorado Regulations 170 5. Provisions exist whereby the obligation of the assuming insurer to pay claims is conditioned upon some event or situation unrelated to the performance of the underlying business and were not taken into account in the risk transfer analysis. These provisions include such situations as the payment of reinsurance considerations, or performance under a separate contract or agreement being a condition precedent to the payment of claims. This does not preclude the reinsurer’s ability to terminate the agreement for breach or default of contract terms.

B. The following situations require the establishment of additional liabilities or limitations to the credit for reinsurance taken by the ceding insurer.

1. 1. The ceding insurer shall not take any credit for reinsurance in excess of the gross reserve it has established for the portion of the business or risks being reinsured.
   1. 2. If commissions or other similar allowances received or credited to the ceding insurer are required to be repaid to the reinsurer, other than from emerging profits of the portion of the business reinsured, based on contract provisions or on future experience of the reinsured business, a liability shall be established or the credit for reinsurance reduced by the maximum amount of such future tentative repayment;
      1. 3. For multi-year agreements in which the renewal ceding commission percentage is less than the first year ceding commission percentage, and the agreement requires the ceding insurer to perform administrative, claim or maintenance services on the ceded business: if the renewal commission provided or to be provided to the ceding insurer by the reinsurer is materially less than the cost to the ceding insurer to perform the duties required in connection with the portion of the business reinsured, a liability is to be established for the present value of the shortfall.

C. Notwithstanding Subsection (5) (A), an insurer subject to this regulation may, with the prior written approval of the commissioner, take such credit for reinsurance as the commissioner may deem consistent with Section 10-3-118, C.R.S, Regulation 3-3-3 or other actuarial interpretations or standards adopted by the Division.

Section 6 Written Agreements The reinsurance agreement shall contain provisions that provide that:

A. The agreement shall constitute the entire contract and agreement between the parties with respect to the business being reinsured thereunder and that there are no understandings between the parties other than as expressed in the agreement; and B. Any change or modification to the agreement shall be null and void unless made by amendment to the agreement and signed by both parties.

C. The dual signature requirement of this section does not apply to facultative reinsurance agreements signed by the reinsurer.

Section 7 Existing Agreements Insurers subject to this regulation shall reduce to zero by December 31, 2007 any credit for reinsurance established with respect to reinsurance agreements entered into prior to the effective date of this regulation which, under the provisions of this regulation would not be entitled to recognition of the credit for reinsurance; provided, however, that the reinsurance agreements shall have been in compliance with laws or regulations in existence immediately preceding the effective date of this regulation. Code of Colorado Regulations 171 Section 8 Filings Per Section 10-3-118 (2), C.R.S., complete copies of all reinsurance contracts and agreements and other information desired shall be filed with the commissioner at the commissioner’s request. Any information requested by the commissioner must be submitted no later than 20 days after receipt of the request. Insurers who fail to submit the requested information may be assessed a penalty up to $100 per day for each day after the date the information is due.

Section 9 Other requirements All companies subject to this regulation shall provide immediate notification to the commissioner upon the exhausting or impending exhaustion of any reinsurance coverage which is necessary for the ceding insurer to comply with the provisions of Section 10-3-102 (3), C.R.S. or Section 10-11-112, C.R.S. Section 10 Exceptions A. A reinsurance agreement is not required to transfer all contract benefits contained in the underlying business reinsured. Transfer of less than all contract benefits is permitted if the reinsurance contract is otherwise in compliance with this regulation and the benefits being reinsured: (i) are independent, distinct and severable from the contract benefits not transferred, and (ii) the reserves, and therefore the credit for reinsurance available to be taken by the ceding insurer, for the benefits transferred are independently calculated, distinct and severable from the reserves of the remaining contract benefits not transferred.

B. A ceding insurer, with the prior written approval of the Commissioner, may have alternative terms or conditions in a reinsurance agreement, that are not otherwise in compliance with this regulation, if such alternatives are reasonably necessary for the protection of the public and the insured policyholders and substantially comply with the intent and provisions of this regulation. Section 11 Severability If any provision of this regulation or the application of it to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected Section 12 Enforcement Noncompliance with this Regulation may result, after proper notice and hearing, in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance or other laws which include the imposition of fines, issuance of cease and desist orders, and/or suspensions or revocations of license. Among others, the penalties provided for in Section 10-3-1108, C.R.S. may be applied.

Section 13. Effective Date This regulation is effective January 1, 2007.

Section 14. History This regulation replaces, in part, Regulation 3-3-2.

Regulation 3-4-1 HOLDING COMPANY SYSTEM Section 1 Authority Section 2 Scope and Purpose Code of Colorado Regulations 172 Section 3 Applicability Section 4 Definitions Section 5 Forms - General Requirements Section 6 Forms - Incorporation by Reference, Summaries and Omissions Section 7 Forms - Information Unknown or Unavailable and Extension of Time to Furnish Section 8 Forms - Additional Information and Exhibits Section 9 Subsidiaries of Domestic Insurers Section 10 Acquisition of Control - Statement Filing Section 11 Amendments to Form A Section 12 Acquisition of Section 10-3-803(1), C.R.S. Insurers Section 13 Pre-Acquisition Notification Section (Form E) Section 14 Annual Registration of Insurers - Statement Filing Section 15 Summary of Registration - Statement Filing Section 16 Alternative and Consolidated Registrations Section 17 Disclaimers and Termination of Registration Section 18 Transactions Subject to Prior Notice - Notice Filing Section 19 Dividends and Other Distributions Section 20 Adequacy of Surplus Section 21 Severability Section 22 Enforcement Section 23 Effective Date Section 24 History Section 1 Authority This regulation is promulgated pursuant to the authority of § §10-1-109(1) & 10-3-808, C.R.S. Section 2 Scope and Purpose The purpose of this regulation is to set forth rules and procedural requirements which the Commissioner deems necessary to carry out the provisions of the Insurance Holding Company Systems Act, Part 8 of Article 3 of Title 10 of the Colorado Revised Statutes. The information called for by this regulation is hereby declared to be necessary and appropriate in the public interest and for the protection of the policyholders in this State.

Code of Colorado Regulations 173 Section 3 Applicability This regulation shall apply to all Colorado domestic insurers as well as to each domestic group captive insurer, fraternal benefit society, health maintenance organization, prepaid dental care plan organization, non-profit hospital, medical-surgical and health service corporation, and title insurance company. Section 4 Definitions A. "Executive officer" means chief executive officer, chief operating officer, chief financial officer, treasurer, secretary, controller, and any other individual performing functions corresponding to those performed by the foregoing officers under whatever title.

B. "Foreign insurer" shall include an alien insurer except where clearly noted otherwise.

C. "Ultimate controlling person" means that person which is not controlled by any other person.

D. Unless the context otherwise requires, other terms found in these regulations and in §10-3-801, C.R.S. are used as defined in the said section. Other nomenclature or terminology is according to the Insurance Code, or industry usage if not defined by the Code. Section 5 Forms - General Requirements A. Forms A, B, C, D, and E are intended to be guides in the preparation of the statements required by § §10-3-803, 10-3-804, and 10-3-805, C.R.S. They are not intended to be blank forms which are to be filled in. Statements filed shall contain the numbers and captions of all items, but the text of the items may be omitted provided the answers thereto are prepared in such a manner as to indicate clearly the scope and coverage of the items. All instructions, whether appearing under the items of the form or elsewhere therein, are to be omitted. Unless expressly provided otherwise, if any item is inapplicable or the answer thereto is in the negative, an appropriate statement to that effect shall be made.

B. Three complete copies of each Form A statement and one complete copy of Form B, C, D, and E statements including exhibits and all other papers and documents filed as a part thereof, shall be filed with the Commissioner. A copy of Form C shall be filed in each state in which an insurer is authorized to do business, if the Commissioner of that state has notified the insurer of its request in writing, in which case the insurer has ten days from receipt of the notice to file such form. At least one of the copies shall bear an original signature in the manner prescribed on the form. If the signature of any person is affixed pursuant to a power of attorney or other similar authority, a copy of such power of attorney or other authority shall also be filed with the statement.

C. Statements should be prepared on paper 8 1/2"x11" (or 8 1/2" x 14") in size and bound. Exhibits and financial statements, unless specifically prepared for the filing, may be submitted in their original size. All copies of any statement, financial statements, or exhibits shall be clear, easily readable and suitable for photocopying. Debits in credit categories and credits in debit categories shall be designated so as to be clearly distinguishable as such on photocopies. Statements shall be in the English language and monetary values shall be stated in United States currency. If any exhibit or other paper or document filed with the statement is in a foreign language, it shall be accompanied by a translation into the English language and any monetary value shown in a foreign currency shall be converted into United States currency.

Section 6 Forms - Incorporation by Reference, Summaries and Omissions A. Information required by any item of Form A, Form B, Form D, or Form E may be incorporated by reference in answer to or partial answer to any other item. Information contained in any financial statement, annual report, proxy statement, statement filed with a governmental authority, or any Code of Colorado Regulations 174 other document may be incorporated by reference in answer or partial answer to any item of Form A, Form B, Form D, or Form E provided such document or paper is filed as an exhibit to the statement. Excerpts of documents may be filed as exhibits if the documents are extensive. Documents currently on file with the Commissioner which were filed within one year need not be attached as exhibits. References to information contained in exhibits or in documents already on file shall clearly identify the material and shall specifically indicate that such material is to be incorporated by reference in answer to the item. Matter shall not be incorporated by reference in any case where such incorporation would render the statement incomplete, unclear or confusing.

B. Where an item requires a summary or outline of the provisions of any document, only a brief statement shall be made as to the pertinent provisions of the document. In addition to such statement, the summary or outline may incorporate by reference particular parts of any exhibit or document currently on file with the Commissioner which was filed within one year and may be qualified in its entirety by such reference. In any case where two or more documents required to be filed as exhibits are substantially identical in all material respects except as to the parties thereto, the dates of execution, or other details, a copy of only one of such documents need be filed with a schedule identifying the omitted documents and setting forth the material details in which such documents differ from the documents a copy of which is filed. Section 7 Forms-Information Unknown or Unavailable and Extension of Time to Furnish A. Information required need be given only insofar as it is known or reasonably available to the person filing the statement. If any required information is unknown and not reasonably available to the person filing, either because the obtaining thereof would involve unreasonable effort or expense, or because it rests peculiarly within the knowledge of another person not affiliated with the person filing, the information may be omitted, subject to the following conditions:

1. 1. the person filing shall give such information on the subject as it possesses or can acquire without unreasonable effort or expense, together with the sources thereof; and 2. the person filing shall include a statement either showing that unreasonable effort or expense would be involved or indicating the absence of any affiliation with the person within whose knowledge the information rests and stating the result of a request made to such person for the information.

B. If it is impractical to furnish any required information, document or report at the time it is required to be filed, there may be filed with the Commissioner a separate document:

1. 1. identifying the information, document or report in question;
   1. 2. stating why the filing thereof at the time required is impractical; and 3. requesting an extension of time for filing the information, document or report to a specified date. The request for extension shall be deemed granted unless the Commissioner within 60 days after receipt thereof enters an order denying the request. Section 8 Forms - Additional Information and Exhibits In addition to the information expressly required to be included in Form A, Form B, Form C, Form D, and Form E there shall be added such further material information, if any, as may be necessary to make the information contained therein not misleading. The person filing may also file such exhibits as it may desire in addition to those expressly required by the statement. Such exhibits shall be so marked as to indicate clearly the subject matters to which they refer. Changes to Forms A, B, C, D, or E shall include on the top of the cover page the phrase: "Change No. (insert number) to" and shall indicate the date of the change and not the date of the original filing.

Code of Colorado Regulations 175 Section 9 Subsidiaries of Domestic Insurers The authority to invest in subsidiaries under §10-3-802(2), C.R.S. is in addition to any authority to invest in subsidiaries which may be contained in any other provision of the Insurance Code. Section 10 Acquisition of Control - Statement Filing A person required to file a statement pursuant to §10-3-803, C.R.S. shall furnish the required information on Form A, hereby made a part of this regulation (appendix A). Such person shall also furnish the required information on Form E, hereby made a part of this Regulation (appendix E) and described in Section 12, at least 30 calendar days prior to the Form A filing. A person acquiring control of a foreign insurer licensed in Colorado, where such foreign insurer is subject to substantially the same requirements in its state of domicile as is contained herein, shall file a copy of the approval order issued by the state of domicile.

Notwithstanding the above, the Commissioner may request the complete Form A filing be submitted. Section 11 Amendments to Form A The applicant shall promptly advise the Commissioner of any changes in the information so furnished on Form A arising subsequent to the date upon which such information was furnished but prior to the Commissioner's disposition of the application.

Section 12 Acquisition of Section 10-3-803(1), C.R.S. Insurers A. If the person being acquired is deemed to be a "domestic insurer" solely because of the provisions of §10-3-803(1), C.R.S., the name of the domestic insurer on the cover page should be indicated as follows:

1. "ABC Insurance Company, a subsidiary of XYZ Holding Company".

B. Where a §10-3-803(1), C.R.S. insurer is being acquired, references to "the insurer" contained in Form A shall refer to both the domestic subsidiary insurer and the person being acquired. Section 13 Pre-Acquisition Notification Section (Form E) If a domestic insurer, including any person controlling a domestic insurer, is proposing a merger or acquisition pursuant to §10-3-803, C.R.S., that person shall file a pre-acquisition notification form, Form E, with information regarding market share (appendix E). In addition to the information required by Form E, the Commissioner may require an expert opinion as to the competitive impact of the proposed acquisition.

Section 14 Annual Registration of Insurers - Statement Filing An insurer required to file a complete annual registration statement pursuant to §10-3-804, C.R.S. shall furnish the required information on Form B, hereby made a part of this regulation (appendix B). This statement shall be filed within one hundred twenty days of the ultimate controlling person's fiscal year end.

An amendment to Form B shall be filed within 15 calendar days after the end of any month in which there is a material change to the information provided in the annual registration statement. Code of Colorado Regulations 176 Amendments shall be filed in the Form B format with only those items which are being amended reported. Each amendment shall include at the top of the cover page "Amendment No. [insert number] to Form B for [insert year]" and shall indicate the date of the change and not the date of the original filings. Annual registration statements for Colorado domestic companies not received by the required filing date shall be subject to a penalty of up to $100.00 per day. Section 15 Summary of Registration - Statement Filing An insurer required to file an annual registration statement pursuant to §10-3-804, C.R.S. is also required to furnish information required on Form C, hereby made a part of this regulation (appendix C). An insurer shall file a copy of Form C in each state in which the insurer is authorized to do business, if requested by the Commissioner of that state.

Section 16 Alternative and Consolidated Registrations A. Any authorized insurer may file a registration statement on behalf of any affiliated insurer or insurers which are required to register under §10-3-804, C.R.S. A registration statement may include information not required by the provisions of Part 8 of Article 3 of Title 10, C.R.S. regarding any insurer in the insurance holding company system even if such insurer is not authorized to do business in this State. In lieu of filing a registration statement on Form B, the authorized insurer may file a copy of the registration statement or similar report which it is required to file in its State of domicile, provided:

1. 1. the statement or report contains substantially similar information required to be furnished on Form B; and 2. the filing insurer is the principal insurance company in the insurance holding company system.

B. The question of whether the filing insurer is the principal insurance company in the insurance holding company system is a question of fact and an insurer filing a registration statement or report in lieu of Form B on behalf of an affiliated insurer, shall set forth a brief statement of facts which will substantiate the filing insurer's claim that it, in fact, is the principal insurer in the insurance holding company system.

C. With the prior approval of the Commissioner, an unauthorized insurer may follow any of the procedures which could be done by an authorized insurer under paragraph A above.

D. Any insurer may take advantage of the provisions of §10-3-804(6) & (7), C.R.S. without obtaining the prior approval of the Commissioner. The Commissioner, however, reserves the right to require individual filings if he deems such filings necessary in the interest of clarity, ease of administration or the public good.

Section 17 Disclaimers and Termination of Registration A disclaimer of affiliation or a request for termination of registration claiming that a person does not, or will not upon the taking of some proposed action, control another person (hereinafter referred to as the "subject") shall contain the following information:

1. 1. the number of authorized, issued and outstanding voting securities of the subject;
   1. 2. with respect to the person whose control is denied and all affiliates of such person, the number and percentage of shares of the subject's voting securities which are held of record or known to be beneficially owned, and the number of such shares concerning which there is a right to acquire, directly or indirectly;

Code of Colorado Regulations 177

1. 3. all material relationships and bases for affiliation between the subject and the person whose control is denied and all affiliates of such person;
   1. 4. a statement explaining why such person should not be considered to control the subject. Section 18 Transactions Subject to Prior Notice - Notice Filing An insurer required to give notice of a proposed transaction pursuant to §10-3-805(4)(a), C.R.S. shall furnish the required information on Form D, hereby made a part of this regulation (appendix D). Section 19 Dividends and Other Distributions

A. Extraordinary Dividends Requests for approval of extraordinary dividends or any other extraordinary distribution to shareholders pursuant to §10-3-805(3), C.R.S., shall be received by the Commissioner at least thirty (30) days prior to the anticipated date of payment and shall include the following:

1. 1. the amount of the proposed dividend;
   1. 2. the date established for payment of the dividend;
      1. 3. a statement as to whether the dividend is to be in cash or other property and, if in property, a description thereof, its cost, and its fair market value together with an explanation of the basis for valuation;
      2. 4. a copy of the calculations determining that the proposed dividend is extraordinary. The work paper shall include the following information:
         1. a. the amounts, dates and form of payment of all dividends or distributions (including regular dividends but excluding distributions of the insurer’s own securities) paid within the period of 12 consecutive months ending on the date fixed for payment of the proposed dividend for which approval is sought and commencing on the day after the same day of the same month in the last preceding year;
         2. b. surplus as regards policyholders (total capital and surplus) as of the 31st day of December next preceding;
         3. c. if the insurer is a life insurer, the net gain from operations for the 12-month period ending the 31st day of December next preceding;
         4. d. if the insurer is not a life insurer, the net income less realized capital gains for the 12- month period ending the 31st day of December next preceding and the two preceding 12-months periods;
         5. e. if the insurer is not a life insurer, the dividends paid to stockholders excluding distributions of the insurer's own securities in the preceding two calendar years;
         6. f. a summary of each factor outlined in §10-3-805(2)(a)(I)-(XII), C.R.S.; and g. a summary of each condition listed in Section III of Colorado Regulation 3-1-7 (3 CCR 702-3).

Code of Colorado Regulations 178

1. 5. a balance sheet and statement of income for the period intervening from the last annual statement filed with the Commissioner and the end of the month preceding the month in which the request for dividend approval is submitted; and 6. a brief statement as to the effect of the proposed dividend upon the insurer's surplus and the reasonableness of surplus in relation to the insurer's outstanding liabilities and the adequacy of surplus relative to the insurer's financial needs.

B. Dividend Distributions by Colorado Domestic Companies Shareholder dividends shall be reported to the Division of Insurance by a domestic insurer as required by §10-3-805(4.5), C.R.S., on a form prescribed by the Commissioner. The form may require such information as to allow the Division to make the determinations required under §10-3-805(4.5), C.R.S. Section 20 Adequacy of Surplus The factors set forth in §10-3-805(2), C.R.S. are not intended to be an exhaustive list. In determining the adequacy and reasonableness of an insurer's surplus no single factor is necessarily controlling. The Commissioner, instead, will consider the net effect of all of these factors plus other factors bearing on the financial condition of the insurer. In comparing the surplus maintained by other insurers, the Commissioner will consider the extent to which each of these factors varies from company to company and in determining the quality and liquidity of investments in subsidiaries, the Commissioner will consider the individual subsidiary and may discount or disallow its valuation to the extent that the individual investments so warrant.

Dividend distributions will generally not be approved if the remaining surplus would result in a level which is less than 150% of the Company Action Level risk-based capital calculation. Section 21 Severability If any provision of this regulation or the application of it to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected. Section 22 Enforcement Noncompliance with this regulation may result in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance, or other laws, which include the imposition of civil penalties, issuance of cease and desist orders, and/or suspensions or revocation of license, subject to the requirements of due process.

Section 23 Effective Date This amended regulation shall be effective on July 1, 2012. Section 24 History Amended, effective April 30, 1995.

Amended, effective April 1, 2001.

Amended effective July 1, 2012.

APPENDIX A Code of Colorado Regulations 179 FORM A STATEMENT REGARDING THE ACQUISITION OF CONTROL OF OR MERGER WITH A DOMESTIC INSURER Name of Domestic Insurer BY Name of Acquiring Person (Applicant)

1. Filed with the Insurance Department of ______________________________________________________________________________ (State of domicile of insurer being acquired)
   1. Dated: ________________, _______ Name, Title, address and telephone number of Individual to Whom Notices and Correspondence Concerning this Statement Should be Addressed:

______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ITEM 1. INSURER AND METHOD OF ACQUISITION State the name and address of the domestic insurer to which this application relates and a brief description of how control is to be acquired.

ITEM 2. IDENTITY AND BACKGROUND OF THE APPLICANT (a) State the name and address of the applicant seeking to acquire control over the insurer.

(b) If the applicant is not an individual, state the nature of its business operations for the past five years or for such lesser period as such person and any predecessors thereof shall have been in existence. Briefly describe the business intended to be done by the applicant and the applicant's subsidiaries.

(c) Furnish a chart or listing clearly presenting the identities of the inter-relationships among the applicant and all affiliates of the applicant. No affiliate need be identified if its total assets are equal to less than 1/2 of 1% of the total assets of the ultimate controlling person affiliated with the applicant. Indicate in such chart or listing the percentage of voting securities of each such person which is owned or controlled by the applicant or by any other such person. If control of any person is maintained other than by the ownership or control of voting securities, indicate the basis of such control. As to each person specified in such chart or listing indicate the type of organization (e.g. corporation, trust, partnership) and the state or other jurisdiction of domicile. If court proceedings involving a reorganization or liquidation are pending with respect to any such person, indicate which person, and set forth the title of the court, nature of proceedings and the date when commenced.

ITEM 3. IDENTITY AND BACKGROUND OF INDIVIDUALS ASSOCIATED WITH THE APPLICANT Code of Colorado Regulations 180 State the following with respect to (1) the applicant if (s)he is an individual or (2) all persons who are directors, executive officers or owners of 10% or more of the voting securities of the applicant if the applicant is not an individual.

(a) Name and business address;

(b) Present principal business activity, occupation or employment including position and office held and the name, principal business and address of any corporation or other organization in which such employment is carried on;

(c) Material occupations, positions, offices or employment during the last five years, giving the starting and ending dates of each and the name, principal business and address of any business corporation or other organization in which each such occupation, position, office or employment was carried on; if any such occupation, position, office or employment required licensing by or registration with any federal, state or municipal governmental agency, indicate such fact, the current status of such licensing or registration, and an explanation of any surrender, revocation, suspension or disciplinary proceedings in connection therewith.

(d) Whether or not such person has ever been convicted in a criminal proceeding (excluding minor traffic violations) during the last ten years and, if so, give the date, nature of conviction, name and location of court, and penalty imposed or other disposition of the case. Such biographical information shall be furnished on the NAIC biographical affidavit form (available upon request). A full fingerprint set for each person shall accompany each such form. ITEM 4. NATURE, SOURCE AND AMOUNT OF CONSIDERATION (a) Describe the nature, source and amount of funds or other considerations used or to be used in effecting the merger or other acquisition of control. If any part of the same is represented or is to be represented by funds or other consideration borrowed or otherwise obtained for the purpose of acquiring, holding or trading securities, furnish a description of the transaction, the names of the parties thereto, the relationship, if any, between the borrower and the lender, the amounts borrowed or to be borrowed, and copies of all agreements, promissory notes and security arrangements relating thereto.

(b) Explain the criteria used in determining the nature and amount of such consideration.

(c) If the source of the consideration is a loan made in the lender's ordinary course of business and if the applicant wishes the identity of the lender to remain confidential, he must specifically request that the identity be kept confidential.

ITEM 5. FUTURE PLANS OF INSURER Describe any plans or proposals which the applicant may have to declare an extraordinary dividend, to liquidate such insurer, to sell its assets to or merge it with any person or persons or to make any other material change in its business operations or corporate structure or management. ITEM 6. VOTING SECURITIES TO BE ACQUIRED State the number of shares of the insurer's voting securities which the applicant, its affiliates and any person listed in Item 3 plan to acquire, and the terms of the offer, request, invitation, agreement or acquisition, and a statement as to the method by which the fairness of the proposal was arrived at. ITEM 7. OWNERSHIP OF VOTING SECURITIES Code of Colorado Regulations 181 State the amount of each class of any voting security of the insurer which is beneficially owned or concerning which there is a right to acquire beneficial ownership by the applicant, its affiliates or any person listed in Item 3.

ITEM 8. CONTRACTS, ARRANGEMENTS, OR UNDERSTANDINGS WITH RESPECT TO VOTING SECURITIES OF THE INSURER Give a full description of any contracts, arrangements or understandings with respect to any voting security of the insurer in which the applicant, its affiliates or any person listed in Item 3 is involved, including but not limited to transfer of any of the securities, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or guarantees of profits, division of losses or profits, or the giving or withholding of proxies. Such description shall identify the persons with whom such contracts, arrangements or understandings have been entered into. ITEM 9. RECENT PURCHASES OF VOTING SECURITIES Describe any purchases of any voting securities of the insurer by the applicant, its affiliates or any person listed in Item 3 during the 12 calendar months preceding the filing of this Statement. Include in such description the dates of purchase, the names of the purchasers, and the consideration paid or agreed to be paid therefore. State whether any such shares so purchased are hypothecated. ITEM 10. RECENT RECOMMENDATIONS TO PURCHASE Describe any recommendations to purchase any voting security of the insurer made by the applicant, its affiliates or any person listed in Item 3, or by anyone based upon interviews or at the suggestion of the applicant, its affiliates or any person listed in Item 3 during the 12 calendar months preceding the filing of this statement.

ITEM 11. AGREEMENTS WITH BROKER-DEALERS Describe the terms of any agreement, contract or understanding made with any broker-dealer as to solicitation of voting securities of the insurer for tender and the amount of any fees, commissions or other compensation to be paid to broker-dealers with regard thereto. ITEM 12. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial statements and exhibits shall be attached to this statement as an appendix, but list under this item the financial statements and exhibits so attached.

(b) The financial statements shall include the annual financial statements of the persons identified in Item 2(c) for the preceding five fiscal years (or for such lesser period as such applicant and its affiliates and any predecessors thereof shall have been in existence), and similar information covering the period from the end of such person's last fiscal year, if such information is available. Such statements may be prepared on either an individual basis, or, unless the Commissioner otherwise requires, on a consolidated basis if such consolidated statements are prepared in the usual course of business. The annual financial statements of the applicant shall be accompanied by the certificate of an independent certified public accountant to the effect that such statements present fairly the financial position of the applicant and the results of its operations for the year then ended, in conformity with generally accepted accounting principles or with requirements of insurance or other accounting principles prescribed or permitted under law. If the applicant is an insurer which is actively engaged in the business of insurance, the financial statements need not be certified, provided they are based on the Annual Statement of such person filed with the insurance department of the person's domiciliary state and are in accordance with the requirements of insurance or other accounting principles prescribed or permitted under the law and regulations of such state.

Code of Colorado Regulations 182 (c) File as exhibits copies of all tender offers for, requests or invitations for, tenders of, exchange offers for, and agreements to acquire or exchange any voting securities of the insurer and (if distributed) of additional soliciting material relating thereto, any proposed employment, consultation, advisory or management contracts concerning the insurer, annual reports to the stockholders of the insurer and the applicant for the last two fiscal years, and any additional documents or papers required by Form A or by this Regulation sections 4 and 6. ITEM 13. SIGNATURE AND CERTIFICATION Signature and certification required as follows:

SIGNATURE Pursuant to the requirements of Section 10-3-803, C.R.S. has caused this application to be duly signed on its behalf in the City of and State of on the _________day of ____________, 20___. (SEAL)

Name of Applicant BY (Name) (Title)

Attest:

(Signature of Officer)

(Title)

CERTIFICATION The undersigned deposes and says that (s)he has duly executed the attached application dated ________________, 20______, for and on behalf of ________________________________; that (s)he is the (Name of Applicant) (Title of Officer) of such company and that (s)he is authorized to execute and file such instrument. Deponent further says that (s)he is familiar with such instrument and the contents thereof, and that the facts therein set forth are true to the best of his/her knowledge, information and belief.

(Signature)

1. (Type or print name beneath)

APPENDIX B FORM B INSURANCE HOLDING COMPANY SYSTEM ANNUAL REGISTRATION STATEMENT Filed with the Insurance Department of the State of By Name of Registrant On Behalf of Following Insurance Companies Code of Colorado Regulations 183 Name Address Date: ________________, 20___ Name, Title, Address and telephone number of Individual to Whom Notices and Correspondence Concerning This Statement Should Be Addressed:

ITEM 1. IDENTITY AND CONTROL OF REGISTRANT Furnish the exact name of each insurer registering or being registered (hereinafter called "the Registrant"), the home office address and principal executive offices of each; the date on which each Registrant became part of the insurance holding company system; and the method(s) by which control of each Registrant was acquired and is maintained.

ITEM 2. ORGANIZATIONAL CHART Furnish a chart or listing clearly presenting the identities of and interrelationships among all affiliated persons within the insurance holding company system. No affiliate need be shown if its total assets are equal to less than 1/2 of 1% of the total assets of the ultimate controlling person within the insurance holding company system unless it has assets valued at or exceeding $1,000,000. The chart or listing should show the percentage of each class of voting securities of each affiliate which is owned, directly or indirectly, by another affiliate. If control of any person within the system is maintained other than by the ownership or control of voting securities, indicate the basis of such control. As to each person specified in such chart or listing indicate the type of organization (e.g., corporation, trust, partnership) and the state or other jurisdiction of domicile.

ITEM 3. THE ULTIMATE CONTROLLING PERSON As to the ultimate controlling person in the insurance holding company system furnish the following information:

(a) Name.

(b) Home office address.

(c) Principal executive office address.

(d) The organizational structure of the person, i.e., corporation, partnership, individual, trust, etc.

(e) The principal business of the person.

(f) The name and address of any person who holds or owns 10% or more of any class of voting security, the class of such security, the number of shares held of record or known to be beneficially owned, and the percentage of class so held or owned.

(g) If court proceedings involving a reorganization or liquidation are pending, indicate the title and location of the court, the nature of proceedings and the date when commenced. ITEM 4. BIOGRAPHICAL INFORMATION Furnish the following information, on the NAIC biographical affidavit form (form available upon request), for the directors and executive officers of the ultimate controlling person: the individual's name and address, his or her principal occupation and all offices and positions held during the past five years, and any conviction of crimes other than minor traffic violations during the past ten years. Code of Colorado Regulations 184 ITEM 5. TRANSACTIONS AND AGREEMENTS Briefly describe the following agreements in force, and transactions currently outstanding or which have occurred during the last calendar year between the Registrant and its affiliates:

(1) loans, other investments, or purchases, sales or exchanges of securities of the affiliates by the Registrant or of the Registrant by its affiliates;

(2) purchases, sales or exchanges of assets;

(3) transactions not in the ordinary course of business;

(4) guarantees or undertakings for the benefit of an affiliate which result in an actual contingent exposure of the Registrant's assets to liability, other than insurance contracts entered into in the ordinary course of the Registrant's business;

(5) all management agreements, service contracts and all cost-sharing arrangements;

(6) reinsurance agreements;

(7) dividends and other distributions to shareholders;

(8) consolidated tax allocation agreements; and (9) any pledge of the Registrant's stock and/or of the stock of any subsidiary or controlling affiliate, for a loan made to any member of the insurance holding company system. No information need be disclosed if such information is not material for purposes of §10-3-804, C.R.S. Sales, purchases, exchanges, loans or extensions of credit, investments or guarantees involving one-half of 1% or less of the Registrant's admitted assets as of the 31st day of December next preceding shall not be deemed material. (Note: Commissioner may by rule, regulation or order provide otherwise).

1. The description shall be in a manner as to permit the proper evaluation thereof by the Commissioner, and shall include at least the following: the nature and purpose of the transaction, the nature and amounts of any payments or transfers of assets between the parties, the identity of all parties to such transaction, and relationship of the affiliated parties to the Registrant. ITEM 6. LITIGATION OR ADMINISTRATIVE PROCEEDINGS A brief description of any litigation or administrative proceedings of the following types, either then pending or concluded within the preceding fiscal year, to which the ultimate controlling person or any of its directors or executive officers was a party or of which the property of any such person is or was the subject; give the names of the parties and the court or agency in which such litigation or proceeding is or was pending:

(a) Criminal prosecutions or administrative proceedings by any government agency or authority which may be relevant to the trustworthiness of any party thereto; and (b) Proceedings which may have a material effect upon the solvency or capital structure of the ultimate holding company including, but not necessarily limited to, bankruptcy, receivership or other corporate reorganizations.

ITEM 7. STATEMENT REGARDING PLAN OR SERIES OF TRANSACTIONS Code of Colorado Regulations 185 The insurer shall furnish a statement that transactions entered into since the filing of the prior year's annual registration statement are not part of a plan or series of like transactions, the purpose of which is to avoid statutory threshold amounts and the review that might otherwise occur. ITEM 8. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial statements and exhibits should be attached to this statement as an appendix, but list under this item the financial statements and exhibits so attached.

(b) The financial statements shall include the annual financial statements of the ultimate controlling person in the insurance holding company system as of the end of the person's latest fiscal year. If at the time of the initial registration, the annual financial statements for the latest fiscal year are not available, annual statements for the previous fiscal year may be filed, along with similar financial information for the subsequent period. Such financial statements may be prepared on either an individual basis, or unless the Commissioner otherwise requires, on a consolidated basis if such consolidated statements are prepared in the usual course of business. Unless the Commissioner otherwise permits, the annual financial statements shall be accompanied by the certificate of an independent certified public accountant to the effect that such statements present fairly the financial position of the ultimate controlling person and the results of its operations for the year then ended, in conformity with generally accepted accounting principles or with requirements of insurance or other accounting principles prescribed or permitted under law. If the ultimate controlling person is an insurer which is actively engaged in the business of insurance, the annual financial statements need not be certified, provided they are based on the Annual Statement of such insurer filed with the insurance department of the insurer's domiciliary State and are in accordance with requirements of insurance or other accounting principles prescribed or permitted under the law and regulations of such state.

(c) Exhibits shall include copies of the latest annual reports to shareholders of the ultimate controlling person and proxy material used by the ultimate controlling person; and any additional documents or papers required by Form B or this Regulation.

ITEM 9. FORM C REQUIRED A Form C, Summary of Registration Statement, must be prepared and filed with this Form B. ITEM 10. SIGNATURE AND CERTIFICATION Signature and certification required as follows:

SIGNATURE Pursuant to the requirements of Section 10-3-804, C.R.S., the Registrant has caused this annual registration statement to be duly signed on its behalf in the City of and State of on the __________ day of _______________, 20_____ (SEAL)

Name of Registrant BY (Name) (Title)

Code of Colorado Regulations 186 Attest:

(Signature of Officer)

(Title)

CERTIFICATION The undersigned deposes and says that (s)he has duly executed the attached application dated _______________, 20____, for and on behalf of _________________________; that (s)he is the (Name of Company) (Title of Officer) of such company and that (s)he is authorized to execute and file such instrument. Deponent further says that (s)he is familiar with such instrument and the contents thereof, and that the facts therein set forth are true to the best of his/her knowledge, information and belief. (Signature)

(Type or print name beneath)

APPENDIX C FORM C SUMMARY OF REGISTRATION STATEMENT Filed with the Insurance Department of the State of By Name of Registrant On Behalf of Following Insurance Companies Name Address Date: _____________________, 20_____ Name, Title, Address and telephone number of Individual to Whom Notices and Correspondence Concerning This Statement Should Be Addressed:

Furnish a brief description of all items in the current annual registration statement which represent changes from the prior year's annual registration statement. The description shall be in a manner as to permit the proper evaluation thereof by the Commissioner, and shall include specific references to Item numbers in the annual registration statement and to the terms contained therein. Changes occurring under Item 2 of Form B insofar as changes in the percentage of each class of voting securities held by each affiliate is concerned, need only be included where such changes are ones which result in ownership or holdings of 10 percent or more of voting securities, loss or transfer of control, or acquisition or loss of partnership interest.

Changes occurring under Item 4 of Form B need only be included where: an individual is, for the first time, made a director or executive officer of the ultimate controlling person; a director or executive officer terminates his or her responsibilities with the ultimate controlling person; or in the event an individual is named president of the ultimate controlling person.

If a transaction disclosed on the prior year's annual registration statement has been changed, the nature of such change shall be included. If a transaction disclosed on the prior year's annual registration Code of Colorado Regulations 187 statement has been effectuated, furnish the mode of completion and any flow of funds between affiliates resulting from the transaction.

The insurer shall furnish a statement that transactions entered into since the filing of the prior year's annual registration statement are not part of a plan or series of like transactions whose purpose it is to avoid statutory threshold amounts and the review that might otherwise occur. SIGNATURE AND CERTIFICATION Signature and certification required as follows:

SIGNATURE Pursuant to the requirements of Section 10-3-804, C.R.S., the Registrant has caused this summary of registration statement to be duly signed on its behalf in the City of and State of on the _______ day of _____________, 20______ (SEAL)

Name of Registrant BY (Name) (Title)

Attest:

(Signature of Officer)

(Title)

CERTIFICATION The undersigned deposes and says that (s)he has duly executed the attached application dated _______________, 20________, for and on behalf of ____________________; that (s)he is the (Name of Company) (Title of Officer) of such company and that (s)he is authorized to execute and file such instrument. Deponent further says that (s)he is familiar with such instrument and the contents thereof, and that the facts therein set forth are true to the best of his/her knowledge, information and belief. (Signature)

(Type or print name beneath)

APPENDIX D FORM D PRIOR NOTICE OF A TRANSACTION Filed with the Insurance Department of the State of By Name of Registrant On Behalf of Following Insurance Companies Code of Colorado Regulations 188 Name Address Date: ____________________, 20______ Name, Title, Address and telephone number of Individual to Whom Notices and Correspondence Concerning This Statement Should Be Addressed:

ITEM 1. IDENTITY OF PARTIES TO TRANSACTION Furnish the following information for each of the parties to the transaction:

(a) Name.

(b) Home office address.

(c) Principal executive office address.

(d) The organizational structure, i.e. corporation, partnership, individual, trust, etc.

(e) A description of the nature of the parties' business operations.

(f) Relationship, if any, of other parties to the transaction to the insurer filing the notice, including any ownership or debtor/creditor interest by any other parties to the transaction in the insurer seeking approval, or by the insurer filing the notice in the affiliated parties.

(g) Where the transaction is with a non-affiliate, the name(s) of the affiliate(s) which will receive, in whole or in substantial part, the proceeds of the transaction. ITEM 2. DESCRIPTION OF THE TRANSACTION Furnish the following information for each transaction for which notice is being given:

(a) A statement as to whether notice is being given under §10-3-805(4)(a), C.R.S.

(b) A statement of the nature of the transaction.

(c)The proposed effective date of the transaction.

ITEM 3. SALES, PURCHASES, EXCHANGES, LOANS, EXTENSIONS OF CREDIT, GUARANTEES OR INVESTMENTS Furnish a brief description of the amount and source of funds, securities, property or other consideration for the sale, purchase, exchange, loan, extension of credit, guarantee, or investment, whether any provision exists for purchase by the insurer filing notice, by any party to the transaction, or by any affiliate of the insurer filing notice, a description of the terms of any securities being received, if any, and a description of any other agreements relating to the transaction such as contracts or agreements for services, consulting agreements and the like. If the transaction involves other than cash, furnish a description of the consideration, its cost and its fair market value, together with an explanation of the basis for evaluation.

If the transaction involves a loan, extension of credit or a guarantee, furnish a description of the maximum amount which the insurer will be obligated to make available under such loan, extension of credit or guarantee, the date on which the credit or guarantee will terminate, and any provisions for the accrual of or deferral of interest.

Code of Colorado Regulations 189 If the transaction involves an investment, guarantee or other arrangement, state the time period during which the investment, guarantee or other arrangement will remain in effect, together with any provisions for extensions or renewals of such investments, guarantees or arrangements. Furnish a brief statement as to the effect of the transaction upon the insurer's surplus. No notice need be given if the maximum amount which can at any time be outstanding or for which the insurer can be legally obligated under the loan, extension of credit or guarantee is less than, (a) in the case of non-life insurers, the lesser of 3% of the insurer's admitted assets or 25% of surplus as regards policyholders or, (b) in the case of life insurers, 3% of the insurer's admitted assets, each as of the 31st day of December next preceding.

ITEM 4. LOANS OR EXTENSIONS OF CREDIT TO A NON-AFFILIATE If the transaction involves a loan or extension of credit to any person who is not an affiliate, furnish a brief description of the agreement or understanding whereby the proceeds of the proposed transaction, in whole or in substantial part, are to be used to make loans or extensions of credit to, to purchase the assets of, or to make investments in, any affiliate of the insurer making such loans or extensions of credit, and specify in what manner the proceeds are to be used to loan to, extend credit to, purchase assets of or make investments in any affiliate. Describe the amount and source of duns, securities, property or other consideration for the loan or extension of credit and, if the transaction is one involving consideration other than cash, a description of its cost and its fair market value together with an explanation of the basis for evaluation. Furnish a brief statement as to the effect of the transaction upon the insurer's surplus. No notice need be given if the loan or extension of credit is one which equals less than, in the case of non-life insurers, the lesser of 3% of the insurer's admitted assets or 25% of surplus as regards policyholders or, with respect to life insurers, 3% of the insurer's admitted assets, each as of the 31st day of December next preceding.

ITEM 5. REINSURANCE If the transaction is a reinsurance agreement or modification thereto, as described by §10-3- 805(4)(a)(III), C.R.S., furnish a description of the known and/or estimated amount of liability to be ceded and/or assumed in each calendar year, the period of time during which the agreement will be in effect, and a statement whether an agreement or understanding exists between the insurer and non-affiliate to the effect that any portion of the assets constituting the consideration for the agreement will be transferred to one or more of the insurer's affiliates. Furnish a brief description of the consideration involved in the transaction, and a brief statement as to the effect of the transaction upon the insurer's surplus.

No notice need be given for reinsurance agreements or modifications thereto if the reinsurance premium or a change in the insurer's liabilities in connection with the reinsurance agreement or modification thereto is less than 5% of the insurer's surplus as regards policyholders, as of the 31st day of December next preceding.

ITEM 6. MANAGEMENT AGREEMENTS, SERVICE AGREEMENTS AND COST-SHARING ARRANGEMENTS For management and service agreements, furnish:

(a) a brief description of the managerial responsibilities, or services to be performed.

(b) a brief description of the agreement, including a statement of its duration, together with brief descriptions of the basis for compensation and the terms under which payment or compensation is to be made.

Code of Colorado Regulations 190 For cost-sharing arrangements, furnish:

(a) a brief description of the purpose of the agreement.

(b) a description of the period of time during which the agreement is to be in effect.

(c) a brief description of each party's expenses or costs covered by the agreement.

(d) a brief description of the accounting basis to be used in calculating each party's costs under the agreement.

ITEM 7. SIGNATURE AND CERTIFICATION Signature and certification required as follows:

SIGNATURE Pursuant to the requirements of Section 10-3-805, C.R.S., has caused this notice to be duly signed on its behalf in the City of and State of on the ________ day of _____________, 20____. (SEAL)

Name of Applicant BY (Name) (Title)

Attest:

(Signature of Officer)

(Title)

CERTIFICATION The undersigned deposes and says that (s)he has duly executed the attached application dated ________________, 20______, for and on behalf of _____________________; that (s)he is the (Name of Applicant) (Title of Officer) of such company and that (s)he is authorized to execute and file such instrument. Deponent further says that (s)he is familiar with such instrument and the contents thereof, and that the facts therein set forth are true to the best of his/her knowledge, information and belief. (Signature)

Type or print name beneath)

APPENDIX E FORM E PRE-NOTIFICATION FORM REGARDING THE POTENTIAL COMPETITIVE IMPACT OF A PROPOSED MERGER OR ACQUISITION BY A DOMESTIC INSURER Name of Applicant Name of Other Person Code of Colorado Regulations 191 Involved in Merger or Acquisition Filed with the Insurance Department of ______________________________________________________________________________ Dated: ___________________, 20_____ Name, title, address and telephone number person completing this statement: _____________________________________________________________________________ _ _____________________________________________________________________________ _ _____________________________________________________________________________ _ _____________________________________________________________________________ _ ITEM 1. NAME AND ADDRESS State the names and addresses of the persons who hereby provide notice of their involvement in a pending acquisition or change in corporate control.

ITEM 2. NAMES AND ADDRESSES OF AFFILIATED COMPANIES State the names and addresses of the persons affiliated with those listed in Item 1. Describe their affiliations.

ITEM 3. NATURE AND PURPOSE OF THE PROPOSED MERGER OR ACQUISITION State the nature and purpose of the proposed merger or acquisition. ITEM 4. NATURE OF BUSINESS State the nature of the business performed by each of the persons identified in response to Item 1 and Item 2.

ITEM 5. MARKET AND MARKET SHARE State specifically what market and market share in each relevant insurance market the persons identified in Item 1 and Item 2 currently enjoy in this state. Provide historical market and market share data for each person identified in Item 1 and Item 2 for the past five years and identify the source of such data. For purposes of this question, market means direct written insurance premium in this state for a line of business as contained in the annual statement required to be filed by insurers licensed to do business in this state.

ITEM 6. SIGNATURE AND CERTIFICATION Signature and certification required as follows:

Code of Colorado Regulations 192 SIGNATURE Pursuant to the requirements of Section 10-3-803, C.R.S. has caused this application to be duly signed on its behalf in the City of and State of on the ________ day of _____________, 20____. (SEAL)

Name of Applicant BY (Name) (Title)

Attest:

(Signature of Officer)

(Title)

CERTIFICATION The undersigned deposes and says that (s)he has duly executed the attached application dated _________________, 20______, for and on behalf of ___________________; that (s)he is the (Name of Applicant) (Title of Officer) of such company and that (s)he is authorized to execute and file such instrument. Deponent further says that (s)he is familiar with such instrument and the contents thereof, and that the facts therein set forth are true to the best of his/her knowledge, information and belief. (Signature)

(Type or print name beneath)

Regulation 3-5-1 TITLE INSURANCE Section 1 Authority Section 2 Scope and Purpose Section 3 Applicability Section 4 Definitions Section 5 Rules Regarding Rates and Fees Section 6 Rules Regarding Standards of Conduct for Title Insurance Entities Section 7 Rules Regarding Consumer Protections Section 8 Rules Regarding Agent Licensing Section 9 Rules Regarding Fiduciary Duties Section 10 Enforcement Section 11 Severability Code of Colorado Regulations 193 Section 12 Incorporated Materials Section 13 Effective Date Section 14 History Appendix A Good Funds Agreement Section 1 Authority This regulation is promulgated pursuant to the authority of § § 10-1-109 , 10-2-104, 10-3-1110, 10-4- 404(1), 10-11-118, and 10-11-124 (2), C.R.S.

Section 2 Scope and Purpose The purposes of this regulation are: (1) to interpret and implement the title insurance code found in article 11 of title 10 of the Colorado Revised Statutes; (2) to promote the public welfare by proscribing practices which, if not proscribed, could result in excessive , inadequate, or unfairly discriminatory rates for title insurance, and which practices, if not proscribed, could allow unlawful inducements, deceptive trade practices, and discriminatory acts, all of which are detrimental to the consumer and, in the aggregate, may threaten the solvency of title insurance companies and title insurance agents; and (3) to ensure to the consumers the benefits of competition in the area of title insurance. In Colorado, the majority of real estate transactions require a policy of title insurance. In most instances, a consumer makes the selection of a title entity not through comparison-shopping, but rather through a referral or recommendation from a real estate broker, lawyer, developer, lender, or mortgage broker. Thus, the competition for title insurance business is not at the level of the ultimate consumer, but rather at the level of the referring parties – the settlement producers. Further, increasing consumer understanding of title insurance is difficult. Since most consumers will only need to purchase title insurance a few times in their lives, there is little economic incentive on the average consumer’s part to learn about title insurance. These factors may cause a consumer to be vulnerable to excessive rates, deceptive trade practices, and discriminatory acts. This regulation addresses the issues above. Its purpose is protecting the consumer, and to ensure that the title industry is freely and fairly competitive and provides valuable products and services to consumers at reasonable rates.

Section 3 Applicability This regulation governs title entities and does not extend the regulatory authority of the Colorado Division of Insurance (“Division” ) to any person other than title entities or persons transacting the business of title insurance.

Section 4 Definitions A. "Affiliate” means a person who directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with a title entity.

B. “Affiliated business arrangements” shall have the same meaning as set forth in § 10-11-102 (1), C.R.S. Affiliated business arrangements are distinct from controlled business arrangements, which are defined by § 10-2-401(4), C.R.S.

C. "Associate" shall have the same meaning as set forth in § 10-11-102 (2.5), C.R.S. Code of Colorado Regulations 194 D. “Available for immediate withdrawal as a matter of right” has the same meaning as in § 38-35-125 (1) (c), C.R.S.

E. “Closing agent” means any and all persons contracted to perform closing and settlement services on behalf of a title entity.

F. “Closing instructions” or “written instructions” shall mean a document, signed by all necessary parties to a transaction, which purports to direct a title entity in the completion of settlement services.

G. “Commitment” or “title commitment” shall mean a report furnished in connection with an application for title insurance, which is a statement of the requirements, terms, and conditions upon which the title insurance company is willing to insure an interest in subject property.

H. “Core title services” shall have the same meaning as set forth in the United States Department of Housing and Urban Development (HUD) RESPA Statement of Policy 1996-4.

I. “Farm package” means a compilation of information pertaining to ownership and characteristics of property within a specific geographic area provided in any format, e.g., labels, envelopes, postcards and/or electronic media. Farm package materials generally include, but are not limited to, names and addresses, profiles, property characteristics, demographic information, and/or census information.

J. “Fee” means, for purposes of this regulation only, the price other than the Rates (see subparagraph O below) assessed to a consumer by a title entity in rendering services pursuant to the business of title insurance as defined in § 10-11-102, C.R.S.

K. "Financial institution" has the same meaning as set forth in § 38-35-125, C.R.S.

L. “Generic exceptions” shall mean broad exceptions on a commitment or policy of title insurance that do not refer to specific documents and are not “standard or preprinted exceptions” .

M. “Ownership and encumbrance report” (“O&E” ) means information identifying the last recorded owner, legal description and recorded deeds of trust or mortgages of a particular real property address available from public records.

N. “Person” has the same meaning as that in § 10-2-103(8), C.R.S.

O. “Rate” , for purposes of this regulation, means expenses as defined in § 10-4-402(1.5), C.R.S., together with the pure premium rate as defined in §-10-4-402 (2.4), C.R.S. and includes production expenses and commissions, and in accordance with § 10-4-403, C.R.S.

P. “Settlement producer” shall have the same meaning as set forth in § 10-11-102 (6.5), C.R.S., and does not include insurance producers as defined in § 10-2-103 (6), C.R.S.

Q. “Settlement services” shall have the same meaning as in §10-11-102(6.7), C.R.S .

R. “Standard or preprinted exceptions” shall mean those regional exceptions on title commitments and policies dealing with parties in possession, survey matters, mechanics liens, unpatented mining claims, patent reservations, water rights, mineral rights, taxes, and rights or encumbrances not appearing in the public record, as approved by the title insurance company.

S. “TBD commitment” shall mean a commitment furnished prior to a full application for title insurance, in which all parties and/or details concerning a transaction are not yet known (e.g. buyer, seller, sales amount, loan amount, etc.)

Code of Colorado Regulations 195 T. “Title insurance agent” shall have the same meaning as in § 10-11-102(9), C.R.S.

U. "Title insurance company” shall have the same meaning as in § 10-11-102(10), C.R.S.

V. "Title entity" shall mean title insurance agents, title insurance agencies and title insurance companies.

Section 5 Rules Regarding Rates and Fees A. Every title entity shall make readily available for inspection by the public a schedule of effective rates and fees and applicable rules for regularly issued title insurance policies and regularly imposed closing and settlement charges, including endorsements, guarantees and other forms of insurance coverage. Either the schedule or a notice explaining the schedules’ availability shall be displayed in a public place in the title entity’s offices. Copies of such schedules shall be furnished to the public upon request. The title entity may impose a reasonable charge for the copies and shall provide the copies within a reasonable time.

B. All rate cards and schedules of effective rates and fees shall denote, in a clear and conspicuous manner, the title insurance company that has filed the insurance premiums shown.

C. All title insurance companies shall submit a complying filing electronically to the Division, including justification for any new or amended rate or fee and an effective date that is at least thirty (30) days after the date the division receives the filing electronically. The justification for the new or amended rate or fee shall include but not be limited to:

1. 1. The expense provisions and demonstrate how these provisions are accounted for in the final rate or fee;
   1. 2. Expected loss and loss ratios;
      1. 3. Rate history listing the effective date and amount of any rate or fee changes made in the past three (3) years;
      2. 4. Methodologies and material assumptions in developing the rate or fee;
      3. 5. Any other determining factor used to develop the final rate or fee.

D. All title agencies shall submit a complying filing directly to the Division, including justification for any new or amended fee with an effective date that is at least thirty (30) days after the date the division receives the filing. The justification for the new or amended fee shall include but not be limited to:

1. 1. The expense provisions and demonstrate how these provisions are accounted for in the final fee;
   1. 2. Actual expenses associated with the fee;
      1. 3. Any other determining factor used to develop the final fee.

E. The title entity may charge additional fees when unusual conditions are encountered, special or unusual risks are insured against and for special services rendered in connection with the issuance of a title policy and/or closing and settlement services. If additional fees are charged the title entity shall, in its rate schedule, disclose the terms and conditions for imposing said additional fees.

Code of Colorado Regulations 196 F. Title entities may place on file different rates, fees, or rules for title policies and/or closing and settlement services covering property in different counties, and shall include the effective date of the rates, fees or rules in the schedule.

G. No rate or fee can be charged unless it is on the currently effective schedule at the time that the commitment and/or policy or closing and settlement service is contracted. Title insurance companies may not use different rates for different title insurance agents for the same risk in the same county.

H. Schedules shall not apply to title commitments and/or policies or closing and settlement services contracted for prior to the effective date of such schedule.

I. No title entity shall quote any rate or fee or closing and settlement service charge to any person which is more or less than that currently available to others for the same type of title policy or service in a like amount, covering property in the same county and involving the same factors as set forth in its then current schedule of rates and fees.

J. Notwithstanding the foregoing, a title insurance company shall not be responsible for a title agent’s failure to comply with this Section 5, unless that title company failed to meet the reasonableness standard set forth in Section 7(M) of this regulation.

Section 6 Rules Regarding Standards of Conduct for Title Insurance Entities A. In addition to any and all acts which may be proscribed elsewhere in Title 10, no title entity shall pay, furnish, or agree to pay or furnish, either directly or indirectly, or through affiliates or associates, any commission or any part of the fees or charges or remuneration in any form, in connection with any past, present, or future title insurance business, any closing and settlement services or any other title insurance business except for services actually rendered, as defined in § 10-11- 108(1)(d) and (2), C.R.S., to or on behalf of any of the following:

1. 1. Any settlement producer;
   1. 2. Any owner or prospective owner, lessee or prospective lessee of real property or any interest in the real property;
      1. 3. Any obligee or prospective obligee of any obligation secured or to be secured either in whole or in part by real property or any interest in the real property; or, 4. Any person who is acting as or who is in the business of acting as agent, representative, attorney or employee of any of the persons described in 1, 2 or 3 above, or any other party to the instant transaction.

B. The factors the Division will consider when determining whether remuneration for the referral of title insurance business exists or will exist, include, but are not limited to:

1. 1. Whether the costs of any settlement producer is being or will be defrayed by the title entity’s actions;
   1. 2. Whether the remuneration is being or will be given to a discrete settlement producer as opposed to a bona fide association of settlement producers;
      1. 3. Whether a pattern or practice of referrals to the title entity exists or will exist; and 4. Consideration of the advertising value of the remuneration to the title entity. Code of Colorado Regulations 197

C. While it is expressly recognized that advertising, marketing, or maintenance and development of client relationships are bona fide business practices, Colorado law prohibits such expenditures when they are remuneration for the referral of title insurance business.

D. The following is a partial, but not all-inclusive, list of acts and practices which the Division considers per se unlawful inducements proscribed by § 10-11-108, C.R.S.:

1. 1. Giving, or attempting to give to a settlement producer discounts primarily based on the volume of business the settlement producer refers, or may refer, to the title entity. Notwithstanding the foregoing, discounts are permitted only where justified in the title entity’s rate filing made pursuant to § 10-4-404, C.R.S., the discount is properly filed with the Division, and the filing does not directly or indirectly include or result in any form of prohibited remuneration under § 10-11-108 C.R.S.
   1. 2. Violation of Section 7(I) of this regulation concerning “good funds” .
      1. 3. Except as otherwise permitted in Section 7 of this regulation, the disbursement of closing and settlement services funds before all necessary conditions of the transaction have been met.
      2. 4. Furnishing a title commitment without charge or at a reduced charge, unless, within a reasonable time after the date of issuance, appropriate title insurance coverage is issued for which the scheduled rates and fees are paid. Any title commitment charge must have a reasonable relation to the cost of production of the commitment and cannot be less than the minimum rate or fee for the type of policy applied for, as set forth in the insurer's current schedule of rates and fees. This provision does not apply where a title commitment is furnished in good faith in furtherance of a bona fide sale, purchase or loan transaction that for good reason is not consummated.
      3. 5. Furnishing a TBD commitment without a charge that bears a reasonable relation to the cost of production of the TBD commitment. Any such charge must be properly filed and justified in accordance with Section 5 of this regulation. While such charge for the production of a TBD commitment must be made at the time the TBD commitment is provided, nothing in this provision shall prohibit a company from crediting a charge paid for a TBD commitment to the final premiums or fees paid upon the consummation of the transaction contemplated by such TBD commitment.
      4. 6. Paying for, furnishing, providing, subsidizing, waiving or offering to pay, furnish, provide, subsidize or waive, to or for any of the persons described above in this Section 6 all or any portion of the following:
         1. a. Advertising or promotional material or activity, including, but not limited to, any obligation, product, service, seminar, convention or publication for the benefit of any settlement producer, or ostensibly for the benefit of the title entity, the end result of which is the substantial subsidization of an obligation, product, service, seminar, convention or publication of any settlement producer. This prohibition applies to advertisements placed in subdivision or tract brochures, multiple listing services or books, exchange bulletins, newsletters, information sheets, programs, announcements and periodicals or similar matter associated with meetings, seminars or conventions of such settlement producers as well as registers and directories of such persons;
         2. b. Any and all fees or costs, including but not limited to room, registration, and speaker fees associated with classes, seminars, conventions, or any form of continuing Code of Colorado Regulations 198 education on behalf of or for the benefit of any settlement producer, except as permitted in section 6(F)(5) of this regulation;
         3. c. The cancellation fee for a title commitment or other fee before or after inducing such settlement producer to cancel an order with another title entity;
         4. d. Furniture, equipment, office supplies, telephones, or automobiles, including any portion of the cost of renting, leasing, operating or maintaining the above- mentioned items, unless such title entity pays no more than its allocable share of the actual costs for such goods and services commensurate with the actual usage of such goods services, and facilities actually furnished;
         5. e. Rent to or from any settlement producer for premises wherever situated, regardless of the purpose, at a rent that is materially in excess of or materially below market value when compared with the amount paid per square foot for comparable space in the geographic area;
         6. f. Incentives, gifts, prizes, retreats, transportation and vacations, including, but not limited to other similar things of value;
         7. g. Salary, compensation or services, except for services actually rendered, including, but not limited to:
         8. (1) All or any part of the time or productive effort of any employee or affiliate of the title entity (e.g., office manager, escrow officer, secretary, clerk, messenger) to any settlement producer at less than the fair market value of the services;
         9. (2) Compensation of a settlement producer or associate of a settlement producer;
         10. (3) The salary or any part of the salary of a relative of any settlement producer which payment is in excess of the reasonable value of the work actually performed by such relative on behalf of the title entity; and (4) Services by any settlement producer, which services are required to be performed by such settlement producer in his or her professional capacity, and for which the settlement producer would not normally charge the title entity.
      5. 7. Paying a settlement producer or other person described in Section 6 of this regulation to make an inspection and appraisal of property, except for services actually rendered.
      6. 8. Any transaction in which any person receives, or is to receive, securities of the title entity or its affiliates at prices below the normal market price, or bonds or debentures which guarantee a higher than normal interest rate, whether or not the consummation of such transaction is directly or indirectly related to the number of closing and settlement services or title orders coming to the title entity through the efforts of such person.
      7. 9. Charging less than the scheduled rate or fee for a specified title or closing and settlement service, or for a policy of title insurance.
      8. 10. Waiving, or offering to waive, all or any part of the title entity's established rate or fee for services which are not the subject of rates or fees filed with the Commissioner or are required to be maintained on the entity’s schedules of rates and fees. Code of Colorado Regulations 199 11. Furnishing information, including but not limited to, farm packages, o&es, appraisals, estimates of income production potential, information kits or similar packages containing information about one or more parcels of real property without both making a charge that is commensurate with the actual cost of the work performed and the material furnished, and making a good faith effort to collect payment in the amount of such charge. While such charge for the production of an ownership and encumbrance report must be made at the time the report is provided, nothing in this provision shall prohibit a company from crediting a charge paid for an ownership and encumbrance report to the final premiums or fees paid upon the consummation of the transaction contemplated by such ownership and encumbrance report.
      9. 12. Subsidizing the production of free o&es, farm packages, information kits or similar packages containing information about one or more parcels of real property, whether through sponsorship, advertising, or any other direct or indirect method of payment to a company or organization that is able to produce such materials but is not subject to the rules and regulations of the division.
      10. 13. Designing, producing, printing, distributing or causing to be designed, produced, printed, or distributed on behalf of any settlement producer postcards, flyers, home information books, business cards, or any other product used to market to prospective clients without both making a charge that is commensurate with the actual cost of the work performed and the material furnished, and making a good faith effort to collect payment in the amount of such charge.
      11. 14. Accumulating, crediting or deferring the charge for a title policy or closing and settlement services in order to qualify the charge for said policy and a later transaction for a lower rate, except to the extent that a properly filed and justified rate or fee is in place for a deferred rate.
      12. 15. Making or guaranteeing or offering to make or guarantee, directly or indirectly, any loan to any settlement producer, regardless of the terms of the note or guarantee.
      13. 16. Guaranteeing, or offering to guarantee, the performance or services of any settlement producer.
      14. 17. Providing, or offering to provide, either directly or indirectly, a "compensating balance" or deposit in a lending institution either for the express or implied purpose of influencing the extension of credit by such lending institution to any settlement producer, or for the express or implied purpose of influencing the placement or channeling of title insurance business by such lending institution.
      15. 18. Paying for, or offering to pay for, the fees or charges of an outside professional (e.g., an attorney, engineer, appraiser, or surveyor) whose services are required by any settlement producer to structure or complete a particular transaction.
      16. 19. Providing, or offering to provide, non-title insurance services (e.g. computerized bookkeeping, forms management, computer programming, REO or foreclosure services, or any similar non-title insurance benefit) to any settlement producer at less than the fair market value of the services.
      17. 20. Paying for or furnishing, or offering to pay for or furnish, any business form to any settlement producer other than a form regularly used in the conduct of the title entity's business which form is furnished solely for the convenience of the title entity and does not constitute a direct monetary benefit to any settlement producer. Code of Colorado Regulations 200 21. Advancing or paying into escrow, or offering to advance or pay into escrow, any of the title entity funds or "closing short", except as provided in Section 7.
      18. 22. Charging less than the actual cost of the closing and settlement service of the title entity.

E. Affiliated Business Arrangements:

1. 1. Section 10-11-124 (1)(a), C.R.S. permits an affiliated business arrangement where the person referring the business to the affiliated business arrangement receives payment only in the form of a return on an investment and where it does not violate the provisions of § 10-11- 108 (1), C.R.S. Affiliated business arrangements which are tied to the referral of title insurance business are a per se unlawful inducement proscribed by § 10-11-108 (1), C.R.S., and constitute a violation of § 10-11-124 (1) (a), C.R.S. The Division will make determinations as to compliance with these sections on a case-by-case basis. Prohibited arrangements include, but are not limited to the following:
   1. a. Arrangements in which the amount of the return on the ownership interest is directly or indirectly conditioned on the number of or premium volume of referrals made, such as where owners or stockholders receive dividends or bonuses based on the number of referrals generated or achievement of certain referral plans or goals;
      1. b. Arrangements in which the ownership interests themselves are conditioned on the referrals, such as where the stock certificates are distributed based on the number of or premium volume of the referrals made in the past or to be made in the future;
         1. c. Arrangements in which owners or stockholders receive anything of value that is directly tied to the referral of business;
         2. d. Arrangements in which employees, agents, or associates of the owners or stockholders receive incentives, inducements, or other things of value directly tied to the referral of business;
         3. e. Arrangements in which the cost of the ownership opportunity is not equivalent for all investors;
         4. f. Arrangements in which no formal business plan is developed and/or the formation of such arrangement is designed to obscure kickbacks in the form of dividends or other considerations and not for a bona fide business reason.
      2. 2. “Sham” affiliated business arrangements are prohibited.
         1. a. In considering whether or not a title entity is a legitimate affiliated business arrangement or a “sham” affiliated business arrangement the factors the Division will consider include but are not limited to the following:
         2. (1) Whether the title entity is structured and operated in a manner that evidences a good faith effort to conform to applicable title insurance laws.
         3. (2) Whether the title entity maintains a separate and distinct, verifiable physical location. In the event the title entity shares office space with a settlement producer, the Division shall consider the factors set forth in Paragraph F (7) (a) through (e) of this Section, inclusive, in determining compliance Code of Colorado Regulations 201 with this provision. In the event the title entity shares office space with another title entity the Division shall consider the following factors:
         4. (a) Whether the title entity’s space is clearly and conspicuously identified separately from another title entity’s space;
         5. (b) Whether the title entity’s space can be readily locked and secured independently from another title entity’s space; and (c) Whether the title entity’s space is directly and easily accessible to the public without entering another title entity’s primary workspace, such as where the title entity’s entrance leads to or from a common area or the exterior of the premises.
         6. (3) Whether the title entity was established with at least the minimum capitalization required pursuant to § 10-11-116 (2 ), C.R.S. and maintains such minimum capitalization at all times.
         7. (4) Whether the title entity shares employees with another title entity, settlement producer or other affiliated entity.

            In determining whether or not an individual is an employee of the title entity, the Division may consider the following factors:

         8. (a) Whether the title entity issues, or causes to be issued, an annual Internal Revenue Service Form W-2 to the employee;
         9. (b) Whether the employee is subject to the title entity's supervision and control;
         10. (c) Whether the employee devotes fixed periods of time exclusively to the business of the title entity or whether the employee is compensated on a fluctuating per-hour basis or per-transaction basis;
         11. (d) Whether the employee is physically located in the office of the title entity.
         12. (5) Whether the title entity performs core title services, by and through its employee(s). In accordance with the HUD Statement of Policy 1996-4 the title entity shall not collect premiums for services not actually performed.
         13. (6) What, if any, title or settlement services the title entity has contracted to other sources.
         14. b. In addition to the above factors the Division will consider the guidelines set forth in the HUD Statement of Policy 1996-2, Sham Controlled Business Arrangements (commonly referred to as the “HUD 10-Step Sham Test” ), which Statement is incorporated herein by reference. The Division may also consider any other relevant facts and circumstances relating to the above factors and to those elements set forth in the 10-Step Sham Test.
      3. 3. An affiliated business arrangement shall comply with the disclosure requirements set forth in § 10-11-124 (1) (b), C.R.S. Such disclosure shall be in accordance with the “Real Estate Code of Colorado Regulations 202 Settlement Procedures Act” , 12 U.S.C. sec 2601, et seq. The title entity shall maintain documentation of such disclosure in its title and/or escrow file for no less than a period of seven (7) years.

F. The following is a partial, but not all-inclusive, list of acts and practices rendered by title entities which the Division does not consider to be per se unlawful inducements proscribed by § 10-11-108, C.R.S., to the extent the activities and information are provided on a non-discriminatory basis, that such acts and practices have not been provided in a manner to circumvent the intent of this regulation, and are in no way conditioned, directly or indirectly, upon referrals:

1. 1. Furnishing a single copy of the last recorded vesting deed for a parcel of real property to a settlement producer. Said deed may be furnished without charge, provided and to the extent that:
   1. a. The document is provided as presented by the public records and nothing of material value is added to the information; and b. The document furnished contains no advertising or promotional material on behalf of the settlement producer to whom the information is provided. Nothing in this regulation prohibits title entities from imposing a reasonable fee for any of the above information, or for additional information, provided the fee is the same for all persons and assessed on a non-discriminatory basis.
      1. 2. Furnishing a copy of an instrument of public record in connection with the issuance of a commitment, including but not limited to a deed, deed of trust, mortgage, judgment, lien, contract, map, plat, declaration of covenants, conditions, and restrictions, or any other document purporting to affect a parcel of real property. Said information may be furnished without charge, provided and to the extent that:
         1. a. The information is given in concert with the issuance of a commitment for title insurance; and b. The information is provided as presented by the public records and nothing of material value is added to the information; and c. The information furnished contains no advertising or promotional material on behalf of the settlement producer to whom the information is provided. Nothing in this regulation prohibits title entities from imposing a reasonable fee for any of the above information, or for additional information, provided the fee is the same for all persons and assessed on a non-discriminatory basis.
      2. 3. Providing an estimated quote for title insurance premiums and settlement service fees for a specific real estate transaction that will be provided to the ultimate consumer in order to compare prices for settlement services. Such a quote need not comply with the reasonable search and examination standards required by § 10-11-106, C.R.S . or Section 7(A ) of this regulation, provided said quote is not binding in the event a reasonable search and examination of the property records reveals a circumstance in which the quoted rate or fee must be amended.
      3. 4. Issuing an insured closing letter or closing protection letter that substantially conforms to an American Land Title Association (“ALTA” ) promulgated form. Code of Colorado Regulations 203 5. Publishing or printing educational information that is primarily related to the business of title insurance or conducting or coordinating educational seminars related to the business of title insurance for the benefit of settlement producers, including the absorption of reasonable costs associated with providing such materials, classes, or seminars, as long as consistent with all other provisions of this regulation, including Section 6(D )(6). Nothing herein shall permit free materials, classes, or seminars on any subject that is not related to the business of title insurance.
      4. 6. Advertising, marketing, and maintenance and development of client relationships, when performed in the bona fide and legitimate promotion of the title entity’s business, as long as consistent with all other provisions of this regulation, including Section 6(D)(6), including but not limited to:
         1. a. Giving things of reasonable value to a bona fide trade or industry association.
         2. b. Providing advertising novelties and promotional gift items that bear the name of the title entity (but not the name of the recipient) to settlement producers, provided and to the extent that:
         3. (1) The items constitute advertising directed impersonally at the general consumer public, and are provided to settlement producers on a non- discriminatory basis; and (2) The items are valued at no more than $10; and (3) Distribution, if by mail, is made on a nonselective basis to all persons known or reasonably believed to be members of the business or professional group in the natural geographic area or political subdivision toward which the advertising effort is directed.
         4. c. Customer entertainment provided that:
         5. (1) It is interactive, personal contact between a title entity representative who is physically present and a settlement producer; and (2) It is conducted to promote title insurance products and services of the title entity; and (3) Any benefit conferred to a settlement producer is incidental to the promotion of the title entity’s title insurance products and services; and (4) The expenditure bears a reasonable relationship to the benefit derived by the title entity from the activity.
      5. 7. Utilizing office space or other accommodations within a settlement producer’s office or business space, provided that rent is paid in accordance with Section 6(D)(6)(e) and the arrangement is consistent with the intent of this regulation. In determining whether an office or accommodations sharing arrangement is permitted under this regulation, the Division shall consider the following factors, including but not limited to:
         1. a. Whether written notice has been provided to the consumer disclosing that an office or accommodations sharing arrangement exists and that the consumer has the right to shop for and use another title entity and/or settlement producer. Such notice shall substantially conform to and comply with the notice requirements of § 10- Code of Colorado Regulations 204 11-124, C.R.S. and the “Real Estate Settlement and Procedures Act” , 12 U.S.C. Sec 2601, et seq.;
         2. b. Whether the title entity’s space is clearly and conspicuously identified separately from the settlement producer’s space;
         3. c. Whether the title entity’s space can be readily locked and secured independently from the settlement producer’s space;
         4. d. Whether the title entity’s space is directly and easily accessible to the public without entering the settlement producer’s primary workspace, such as where the title entity’s entrance leads to or from a common area or the exterior of the premises; and e. Whether the title entity, directly or indirectly pays for or subsidizes the settlement producer’s expenses as proscribed by § 10-11-108, C.R.S. Nothing herein shall be construed in a manner that conflicts with the provisions of § 10-11-108(2) (b), C.R.S.

Section 7 Rules Regarding Consumer Protections A. In order to comply with the requirements of § 10-11-106, C.R.S., no title entity shall issue a commitment for title insurance without first performing, or causing to be performed, a reasonable search and examination of the property records for the property to be insured. A search and examination shall be considered reasonable if it conforms to written standards and practices as determined by the title insurance company that is insuring the transaction. Nothing contained herein shall permit a title insurance company to create written standards and practices that do not comply with sound underwriting principles. Nothing contained herein shall prohibit title insurance companies from developing separate search and examination standards for different types of transactions or geographical areas.

B. Every title entity shall ensure that the title commitment, as may be amended or modified, fully discloses to all recipients of any title insurance commitment the impairments of record concerning the property to be insured, the extent of coverage proposed, all proposed title exceptions, and in a clear and conspicuous manner, shall show whether the title insurance commitment does or does not commit to insure over or delete those exceptions to title specified therein, consistent with § 10-11-106, C.R.S.

C. Every title entity shall ensure that the title commitment, as may be amended or modified, fully discloses the record vested owner as shown by the applicable county real estate records as of the effective date shown on the commitment. If a circumstance exists which requires a person other than the vested owner to be shown, the title entity shall disclose, in a clear and conspicuous manner, the reason(s) for the deviation from the available county real estate records.

D. Every title entity shall ensure that, except for standard or preprinted exceptions, all proposed title exceptions on a title commitment for the issuance of an owners policy of title insurance shall make reference to the recording information of the document to be excepted from coverage. In the case of unrecorded yet known impairments, the title entity may use other identifiable marks on the document, such as date, names of parties, case numbers, etc. Title entities shall not make use of generic exceptions unless there is receipt of written instructions signed by the proposed insured authorizing the use of such exceptions or a request from the proposed insured for a specific policy form has been made which makes use of such exceptions. Code of Colorado Regulations 205 E. Whenever a title entity provides the closing and settlement service that is in conjunction with the issuance of an owners policy of title insurance, it shall update the title insurance commitment from the date of issuance to as reasonably close to the time of closing as permitted by the applicable county real estate records. Such update shall include all impairments of record at the time of closing or as close thereto as permitted by the applicable county real estate records. The title insurance company shall be responsible to the proposed insured(s) subject to the terms and conditions of the title insurance commitment, other than the effective date of the title insurance commitment, for all undisclosed matters that appear of record prior to the time of closing.

F. As soon as reasonably practical prior to closing, every title entity shall notify in writing every prospective insured under an owners title insurance commitment the circumstances under which the title insurance company is responsible for all matters which appear of record prior to the time of recording (commonly referred to as “Gap Coverage” ). This notice shall be clear and conspicuous, reasonably understandable, and designed to call attention to its nature and significance.

G. Every title insurance company shall be responsible to the proposed insured(s) subject to the terms and conditions of the title insurance commitment, other than the effective date of the title insurance commitment, for all matters which appear of record prior to the time of recording whenever the title insurance company, or its agent, conducts the closing and settlement service that is in conjunction with its issuance of an owners policy of title insurance and is responsible for the recording and filing of legal documents resulting from the transaction which was closed.

H. If a title entity undertakes to insure any person or entity against the possible adverse effect of any recorded lien, recorded encumbrance or other recorded interest, in accordance with § 10-11-106, C.R.S. and any other applicable law, it shall:

1. 1. Delete such recorded lien, recorded encumbrance or other recorded interest from the schedule of exceptions in its title commitment and have on hand funds, securities, a bonded obligation, or letter of credit payable to the order of said title entity, adequate to discharge such lien, encumbrance or other interest in the event said lien, encumbrance or other interest is perfected to the detriment or possible detriment of the person or entity insured, or any successor in interest to such person or entity; or 2. Insure over and reflect such recorded lien, recorded encumbrance or other recorded interest in the schedule of exceptions in its title commitment, and receive an appropriate indemnity from the responsible party; or 3. Insure over the defect as long as in accordance with the title entity’s sound underwriting practices and guidelines.
   1. 4. In the event of deletion, or insurance over, of any such defect or exception, the title entity shall not raise as a defense to any claim based on or arising out of such defect or exception that the insured assumed, agreed to, or had knowledge of the said defect or exception.

I. All title insurance entities shall comply with the “good funds law” contained in § 38-35-125, C.R.S. In particular, no title entity that provides closing and settlement services for any real estate transaction shall disburse funds as a part of such services until the funds to be disbursed have been received and are either: Available for immediate withdrawal as a matter of right from the financial institution in which the funds have been deposited; or available for immediate withdrawal as a consequence of the agreement of the financial institution in which the funds are to be deposited or the financial institution upon which the funds are drawn. Any such agreement shall be made with or for the benefit of the person or entity providing closing and settlement services for a real estate transaction.

Code of Colorado Regulations 206

1. 1. Notwithstanding the provisions of this Section 7(I), the entity providing closing and settlement services may advance funds, not to exceed five hundred dollars, on behalf of interested parties for the transaction to pay incidental fees for such items as tax certificates and recording costs or to cover minor changes in the closing adjustments.
   1. 2. A title entity may satisfy the requirements of this Section 7(I) by use of the Good Funds Agreement appended as Attachment C, without substantial amendment or modification. This is the only agreement approved by the Division for such purpose.
      1. 3. Nothing in this Section 7(I) shall be deemed to prohibit the recording of documents before such funds are available provided all necessary parties to the transaction consent in writing thereto.
      2. 4. The requirements of Section 7(I) above may be waived by the seller in the real estate transaction if:
         1. a. It is specified as part of written closing instructions in advance of closing that the seller waives the requirements set forth in Section 7(G) above and that the person or entity conducting the closing, unless such person or entity is the seller, is not to handle the receipt and disbursement of funds as part of the closing; and b. Any holder of a lien encumbering the property up to the time of closing agrees, in writing, to such waiver and further agrees, in writing, to release such lien immediately upon receipt of a check from the closing drawn in the amount of the outstanding indebtedness secured by such lien. Such an agreement shall obligate the lien holder to release such lien regardless of whether the payoff check received has been or will be honored.
      3. 5. Any seller who so requests as part of written closing instructions in advance of closing shall be entitled to receive the proceeds of closing in a cashier’s check or in funds electronically transferred to an account specified by the seller.

J. No title entity shall provide closing and settlement services without receiving written instructions from all necessary parties. All amendments to existing written instructions must be in writing.

K. Every title entity shall be responsible for properly conducting each closing or settlement service and recording such documents as it is directed in writing to record in conjunction therewith, for each transaction in which such title entity charges and collects a fee.

L. Each title entity shall notify in writing, at the time of delivery of the title insurance commitment, every prospective insured in an owner's title insurance commitment for a single family residence (including a condominium or townhouse unit) of that title entity's general requirements for the deletion of an exception or exclusion to coverage relating to unfiled mechanics or materialmans liens, except when said coverage or insurance is extended to the insured under the terms of the policy. This notice shall be clear and conspicuous, reasonably understandable, and designed to call attention to its nature and significance. Notwithstanding the foregoing, nothing contained in this Section 7(L) shall be deemed to impose any requirement upon any title insurance company to provide mechanics or materialmans lien coverage.

M. Each title entity shall exercise reasonable efforts to ensure that the acts of its employees and other authorized agents performed within the scope of the person’s employment , contract, or agency agreement with the title entity, including closing agents and title insurance agencies, comply with all laws and regulations concerning the business of title insurance. Code of Colorado Regulations 207 N. Each title entity shall maintain adequate documentation and records sufficient to show compliance with this regulation and Title 10 of the Colorado Revised Statutes for a period of not less than seven (7) years, except as otherwise permitted by law.

Section 8 Rules Regarding Agent Licensing A. To demonstrate compliance with § 10-11-116(2), C.R.S., the title entity seeking licensure shall submit a notarized letter from an accountant verifying that upon a limited review of the title entity’s books and records performed for this purpose, the accountant reasonably believes the title entity has a net worth at least equal to the minimum amount set forth in § 10-11-116 (2), C.R.S., or the title entity possesses actual paid-in cash capital of at least the amount set forth in § 10-11-116 (2 ), C.R.S.

B. Every title entity shall disclose every affiliated business arrangement in a form acceptable to the Commissioner. Such disclosure shall be completed with every new or renewal license application and within thirty (30) days of any changes of the disclosed information. Section 9 Rules Regarding Fiduciary Duties A. All title entities and their authorized agents in possession of funds received and belonging to others shall maintain the funds in a fiduciary capacity in a separate fiduciary fund account or accounts supported by books and records sufficient to identify such funds. The fiduciary fund account(s) shall be identified as “fiduciary fund” , “trust account” or “escrow account” , or identified similarly. These funds include but are not limited to underwriter portions of title insurance premiums, earnest money deposits, loan proceeds, sellers’ proceeds, and homeowners association dues.

B. All fiduciary funds shall be maintained in an account separate from other monies and assets of the title entity. Commingling of other monies and assets of the title entity with fiduciary funds is prohibited. Notwithstanding the foregoing, nothing herein shall prohibit the advancement of funds authorized pursuant to § 38-35-125 (2), C.R.S.

C. All fiduciary funds shall be deposited within three business days with a state or federal bank, or a savings and loan association whose depositors are insured by an instrumentality of the United States Government, unless otherwise directed in writing by all parties to the transaction that established the need for the fiduciary funds to be deposited with the title entity.

D. Except as otherwise consented to in writing by the parties to a transaction establishing the need for fiduciary funds, a title entity or its authorized agent shall not use such fiduciary funds for any purpose other than the purpose or purposes set forth in the written agreement for which the fiduciary funds were deposited with the title entity.

E. Fiduciary funds shall not be deposited by a title entity into a treasury management account, sweep account, or any other type of investment account unless and until prior, written authorization has been obtained from all necessary parties for whom said funds are being held by the title entity.

F. A title entity shall not earn interest on fiduciary funds unless disclosure is made to all necessary parties to a transaction that interest is or has been earned. Said disclosure must offer the opportunity to receive payment of any interest earned on such funds beyond any administrative fees as may be on file with the division. Said disclosure must be clear and conspicuous, and may be made at any time up to and including closing.

G. Until a title entity receives written instructions pertaining to the holding of fiduciary funds, in a form agreeable to the title entity, it shall comply with the following: Code of Colorado Regulations 208

1. 1. The title entity shall deposit funds into an escrow, trust, or other fiduciary account and hold them in a fiduciary capacity.
   1. 2. The title entity shall use any funds designated as “earnest money” for the consummation of the transaction as evidenced by the contract to buy and sell real estate applicable to said transaction, except as otherwise provided in this section. If the transaction does not close, the title entity shall:
      1. a. Release the earnest money funds as directed by written instructions signed by both the buyer and seller; or b. If acceptable written instructions are not received, uncontested funds shall be held by the title entity for 180 days from the scheduled date of closing, after which the title entity shall return said funds to the payor.
      2. 3. In the event of any controversy regarding the funds held by the title entity (not withstanding any termination of the contract), the title entity shall not be required to take any action unless and until such controversy is resolved. At its option and discretion, the title entity may:
         1. a. Await any proceeding; or b. Interplead all parties and deposit such funds into a court of competent jurisdiction, and recover court costs and reasonable attorney and legal fees; or c. Deliver written notice to the buyer and seller that unless the title entity receives a copy of a summons and complaint or claim (between buyer and seller), containing the case number of the lawsuit or lawsuits, within 120 days of the title entity’s written notice delivered to the parties, title entity shall return the funds to the depositing party.
      3. 4. Nothing herein shall be read as relieving the responsibilities, if any, of any title entity in complying with the Colorado unclaimed property act, § 38-13-101, et seq., C.R.S. Section 10 Enforcement Noncompliance with this Regulation, whether defined or reasonably implied under this regulation 3-5-1, may result, after proper notice and hearing, in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance or other laws which include the imposition of fines, issuance of cease and desist orders, and/or suspensions or revocation of license. Among others, the penalties provided for in § 10-3-1108, C.R.S. may be applied. Section 11 Severability If any of the provisions of this regulation shall be held invalid or unenforceable, this regulation shall be construed as if not containing such provisions and the validity, legality and enforceability of the remaining provisions of this regulation shall not be affected or impaired in any way. Section 12 Incorporated Materials The following are hereby incorporated by reference as written on or before the effective date of this regulation. This rule does not include later amendments to or editions of the incorporated material. A copy of these references may be examined at any state publications depository library. For additional information regarding how to obtain a copy please contact the Colorado Division of Insurance, 1560 Broadway Ste 850, Denver, CO 80202.

Code of Colorado Regulations 209 A. The HUD policy statement 1996-2, which is the Policy Statement on Sham Controlled Business Arrangements.

B. The HUD policy statement 1996-4, which is the Statement of Enforcement Standards: Title Insurance Practices in Florida; Final Rule.

C. The federal Real Estate Settlement Procedures Act, 12 U.S.C. sec. 2601 et seq.

D. The American Land Title Association (ALTA) Closing Protection Letter & Explanation (revised 01-01- 2008); the ALTA Closing Protection Letter – Limitations (revised 01-01-2008); and the ALTA Closing Protection Letter – Single Transaction Limited Liability (revised 01-01-2008). Section 13 Effective Date This regulation is effective May 1, 2010.

Section 14 History Originally promulgated in 1972 as 72-3.

Amended regulation in 1988 as 88-5.

Amended regulation in 1989 as 89-2.

Amended regulation in 1992 as 3-5-1.

Amended regulation in 1996.

Amended regulation, effective January 1, 2002.

Amended regulation effective August 31, 2005.

Regulation 3-5-1 repealed and repromulgated in full effective January 1, 2007. Regulation 3-5-1 repealed and repromulgated in full effective May 1, 2010. APPENDIX A GOOD FUNDS AGREEMENT THIS GOOD FUNDS AGREEMENT ("Agreement") is entered into as of this ____ day of ___________________________ , by and among ___________________________ ("Mortgage Lender"), ____________________________ ("Closing Agent"), _________________________ ("Bank") and ________________________________________ ("Warehouse Lender"). RECITALS A. Colorado Revised Statutes Section 38-35-125 (the "Statute") establishes certain requirements for the collection and availability of funds which must be satisfied to enable a provider of closing and settlement services for real estate transactions to disburse such funds;

B. The Mortgage Lender is presently engaged in the making of one or more loans ("Loan or Loans") to individuals or entities ("Borrowers") or purchasing Loans made by other lenders. The Loans to which this Agreement pertains shall in every case be evidenced by a promissory note ("Note") executed by the pertinent Borrower and secured by a ___________________________ priority mortgage or deed of trust ("Mortgage") on real property improved by a 1-4 family residence. Code of Colorado Regulations 210 C. The Bank is a "financial institution", as defined in the Statute.

D. The Bank/Warehouse Lender has extended a credit facility to the Mortgage Lender, pursuant to which the Bank/Warehouse Lender has agreed, upon certain terms and conditions, to advance funds (an "Advance") to the Mortgage Lender for the purpose of enabling the Mortgage Lender to make Loans. Each Advance by the Bank/Warehouse Lender shall be secured by the Note and Mortgage executed in connection with the Loan for which the Advance is made. The term "Bank/Warehouse Lender" shall mean (i) the Bank if no separate warehouse lender is a party or

1. (ii) the Warehouse Lender if, the warehouse lender is not the Bank.

E. In order to comply with the Statute, the parties wish to agree upon an arrangement whereby the Closing Agent may, immediately upon the closing of Loans, disburse funds delivered to it in connection with such closings.

F. The Bank may issue Reservation Numbers (as defined below) for Loans to be funded by the Mortgage Lender’s check drawn upon the Bank or its affiliated bank, __________________________________ account # ____________________________ ("Good Funds Account") and the Bank is willing to agree with the Lender and the Closing Agent that it will fund checks drawn upon the Good Funds Account (“Good Funds Check” ) for the funding of Loans and the Closing Agent may disburse the funds immediately upon the closing of Loans, upon the terms set forth in this Agreement.

1. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
   1. 1. Incorporation of Recitals . The Recitals set forth above are hereby incorporated and made a part of this Agreement.
      1. 2. Responsibilities of Mortgage Lender . The Mortgage Lender shall, prior to the closing of a Loan, prepare and deliver to the Closing Agent all necessary Loan documents including, without limitation, a HUD-1 loan settlement statement. Alternatively, if the Closing Agent or any third party prepares the Loan documents, the Mortgage Lender shall review and approve the Loan documents.
      2. 3. Responsibilities of the Closing Agent . The Closing Agent shall be responsible to do the following, at or prior to the closing of each Loan:
         1. (a) During the Bank’s normal business hours, on or before the day of disbursement of funds, the Closing Agent shall obtain from the Bank or its designee by telephone as specified on the signature page, a reservation number which has been issued by the Bank for the Good Funds Check (the "Reservation Number").
         2. (b) The Closing Agent shall verify that the amount of the check delivered to it by the Mortgage Lender and drawn on the Bank does not exceed the face amount of the Loan less all discount points charged in connection with the Loan, as set forth on the HUD-1 settlement statement.
         3. (c) The Closing Agent shall make disbursements in accordance with the HUD-1 settlement statement and do all other things and obtain all other documents that it deems necessary in order to comply with the Mortgage Lender’s closing instructions that are applicable to the Loan and issue a mortgagee’s policy of title insurance in favor of the Mortgage Lender, insuring that the Mortgage is a ___________________________ lien on real property improved by a 1-4 family residence as described therein. The duties of the Closing Agent hereunder shall not include the preparation of legal documents. The Closing Agent shall in each Code of Colorado Regulations 211 case forward the original Mortgage to the proper governmental authority for recording. The Note and all other Loan documents shall be delivered to the Mortgage Lender within two (2) business days after disbursement of funds, unless the Closing Agent is requested and agrees to forward the Loan package to the Bank/Warehouse Lender or its designee as specified on the signature page. For the purposes of perfecting the Bank’s/Warehouse Lender’s security interest therein pursuant to § 4-9-313(c), C.R.S., the Closing Agent shall be the bailee of the Bank/Warehouse Lender and agrees to hold possession of the Note and all other Loan documents for the benefit of the Bank/Warehouse Lender until the Closing Agent delivers the Loan documents to the Mortgage Lender or the Bank/Warehouse Lender.
         4. (d) In the event Loan proceeds are not disbursed within two (2) business days after issuance of a Reservation Number, the Closing Agent shall so notify the Mortgage Lender and return the check to the Mortgage Lender.
      3. 4. Bank’s Agreement to Honor Checks . The Bank shall have no obligation under this Agreement or otherwise to issue a Reservation Number for any check drawn on the Good Funds Account. However, if (1) the Bank does issue a Reservation Number, (2) the Bank has given a Reservation Number to the Closing Agent, and (3) the Closing Agent closes a Loan and disburses funds, then issuance of the Reservation Number shall constitute the warranty by, and unconditional agreement between the Bank and the Closing Agent that:
         1. (a) The Bank shall honor and pay the Good Funds Check upon presentment without reference to amounts on deposit in any account;
         2. (b) Issuance of the Reservation Number constitutes an acceptance or certification of the Good Funds Check by the Bank, pursuant to § 4-3-409, C.R.S.;
         3. (c) The Good Funds Check shall be deemed, with respect to the ability of the Bank to stop payment, to be the equivalent of a cashier’s check issued by the Bank;
         4. (d) Funds represented by the Good Funds Check are not subject to offset by the Bank; and (e) The Bank shall not honor any stop-payment order or direction from the Mortgage Lender with respect to the Good Funds Check.

            Mortgage Lender agrees to pay, and indemnify Closing Agent for, all losses sustained as a result of a dishonor of a Good Funds Check that the Bank is obligated to honor as set out in this paragraph 4. Notwithstanding any other provision of this Agreement, nothing in this Agreement is intended to alter the normal check collection and clearance time periods for a Good Funds Check.

      4. 5. Insured Closing Letter . For the duration of this Agreement, the Closing Agent shall obtain and cause to remain in effect insured closing letters from the Title Insurance Company in form and content acceptable to the Bank/Warehouse Lender (the "Insured Closing Letters"). The Insured Closing Letters shall be addressed to the Bank/Warehouse Lender and to the Mortgage Lender and shall not be cancelable except with ten (10) days prior written notice to the Bank/Warehouse Lender and the Mortgage Lender. A copy of the Insured Closing Letter shall be delivered by the Mortgage Lender to the Bank/Warehouse Lender prior to any request for confirmation pursuant to paragraph 3 (a) hereof. Code of Colorado Regulations 212 6. Termination . This Agreement shall apply to all Loans of the Mortgage Lender which are now or hereafter closed by the Closing Agent for which a Reservation Number is requested and given, prior to termination of this Agreement. This Agreement may be terminated by any party hereto, immediately upon the giving of written notice to all other parties. The rights and obligations of the parties with respect to all Good Funds Checks for which a Reservation Number has been issued by the Bank prior to termination of this Agreement shall survive any such termination.
      5. 7. Notices . All notices which are required or may be given in connection with this Agreement shall be effective upon the earlier of receipt or three (3) days after the same are sent by certified mail, return receipt requested, with postage prepaid, to the addresses contained on the signature page.
      6. 8. Miscellaneous:
         1. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado.
         2. (b) Nothing in this Agreement shall be deemed to supersede or modify the rights and obligations of the Mortgage Lender and the Bank/Warehouse Lender vis- #agrave#-vis each other under any loan agreement or other documents that may currently be in place with respect to the Bank’s/Warehouse Lender’s credit facility with the Mortgage Lender (“Other Agreement or Documents” ), and the Bank/Warehouse Lender shall be entitled to exercise all rights and remedies granted in any such Other Agreements or Documents, as specified therein except that the Bank’s agreement to honor a Good Funds Check under paragraph 4 shall not be altered or impaired by such Other Agreement or Documents.
         3. (c) This Agreement may not be assigned by the Closing Agent or Mortgage Lender without the prior written consent of the Bank and the Warehouse Lender, if any. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Bank and the Warehouse Lender, if any, and upon any permitted successors and assigns of the Closing Agent or the Mortgage Lender.
         4. (d) This Agreement may be amended or modified only by a written instrument executed by the parties hereto and only as permitted by Division of Insurance Regulation 3-5-1.
         5. (e) No right or interest under this Agreement shall be waived except by written instrument executed by the party against whom such waiver is sought. Any waiver of any particular default or failure to perform hereunder or of any provision hereof shall not constitute a waiver of any other default or failure to perform hereunder or of the same default arising again in the future.
         6. (f) In the event of any litigation or arbitration hereunder, the prevailing party shall be entitled to recover its attorneys fees and costs in addition to the award granted by the court or arbitrator.
         7. (g) The rights and remedies of each party under this Agreement shall be cumulative, both as to other rights or remedies under this Agreement and as to rights and remedies otherwise provided or available under other agreements or at law, by statute or in equity. The exercise or partial exercise of any such right or remedy shall not preclude the exercise of any other right or remedy. Code of Colorado Regulations 213 (h) No Closing Agent, Mortgage Lender, or Bank/Warehouse Lender shall be required to enter into this Agreement.

IN WITNESS WHEREOF, the parties have entered into this Good Funds Agreement as of the date first above written.

Bank: Closing Agent:

By By Name: Name:

Title: Title:

Address: Address:

Telephone No.: Telephone No.:

FAX No.: FAX No.:

E-mail E-mail Attention: Attention:

WAREHOUSE LENDER:____________________MORTGAGE LENDER:

By: By:

Name: Name:

Title: Title:

Address: Address:

Telephone No.: Telephone No.:

FAX No.: FAX No.:

E-mail E-mail Attention: Attention:

FOR RESERVATION NUMBERS pursuant to paragraph 3(a) contact: Name: _______________________________________________________________________ Code of Colorado Regulations 214 Address: _____________________________________________________________________ Address: _____________________________________________________________________ Telephone No.: ________________________________________________________________ E-mail: _______________________________________________________________________ Bank Authorization: _____________________________________________________________ Name & Title FOR LOAN DOCUMENT DELIVERY pursuant to paragraph 3(c) deliver to: Name: _______________________________________________________________________ Address: ______________________________________________________________________ Address: ______________________________________________________________________ Telephone No.: _________________________________________________________________ E-mail: ________________________________________________________________________ Bank/Warehouse Lender Authorization: ______________________________________________ Name & Title New Regulation 3-5-2 TITLE INSURER ASSESSMENT [Eff. 1/1/2008] Section 1 Authority Section 2 Scope and Purpose Section 3 Applicability Section 4 Definitions Section 5 Rules Section 6 Severability Section 7 Enforcement Section 8 Effective Date Section 9 History Section 1 Authority This regulation is promulgated and adopted by the Commissioner of Insurance under the authority of § § 10-1-109 and 10-3-207, C.R.S.

Section 2 Scope and Purpose Code of Colorado Regulations 215 The purpose of this regulation is to establish the standard to determine the amount each title insurer shall be assessed in accordance with § 10-3-207, C.R.S.

Section 3 Applicability and Scope This regulation shall apply to all title insurers authorized to conduct business in Colorado on December 31, 2007 and on December 31 of each subsequent year.

Section 4 Definitions A. ” Two full-time equivalents” for the purpose of this regulation means two full-time employees of the Division of Insurance.

B. “Assessment” for the purpose of this regulation means the amount invoiced by the Division of Insurance.

C. “Business of title insurance” has the same meaning as set forth in § 10-11-102(3), C.R.S. Section 5 Rules A. Commencing on or before March 1, 2008 and every March 1 thereafter, each insurer authorized to transact the business of title insurance in Colorado as of December 31 of the previous year, shall pay an assessment.

B. Each title insurer authorized to transact the business of title insurance shall be assessed an annual fee sufficient to support two full-time equivalents within the Division of Insurance. Such fee shall be:

1. 1. Calculated as a pro-rata share of the total premiums derived from the insurer’s title insurance business conducted in Colorado; and 2. Determined based on the written premiums reported on Schedule T of the annual financial statement submitted on or before March 31 of the previous year.

C. The Division of Insurance shall determine the assessment amount and issue invoices to each title insurer no later than February 1 of the year such assessment is due and payable. Section 6 Severability If any provision of this regulation or the application of it to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected. Section 7 Enforcement Noncompliance with this Regulation may result, after proper notice and hearing, in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance or other laws which include the imposition of fines, issuance of cease and desist orders and/or suspension or revocation of license. Among others, the penalties provided for in § 10-3-1108, C.R.S. may be applied. Section 8 Effective Date This regulation shall become effective on January 1, 2008. Section 9 History Code of Colorado Regulations 216 New regulation effective January 1, 2008.

Regulation 3-5-3 CONCERNING CERTIFICATE OF TAXES DUE – ALTERNATIVE DOCUMENTATION PERMITTED Section 1 Authority Section 2 Scope and Purpose Section 3 Applicability Section 4 Definitions Section 5 Rules Section 6 Severability Section 7 Enforcement Section 8 Effective Date Section 9 History Section 1 Authority This regulation is promulgated and adopted by the Commissioner of Insurance under the authority of § § 10-1-109, and 10-11-122, C.R.S.

Section 2 Scope and Purpose The purpose of this regulation is to establish the requirements of alternative documentation a title entity may use and rely upon during the annual period when county treasurers are certifying the tax rolls and cannot issue a certificate of taxes due.

Section 3 Applicability This regulation shall apply to all title insurance entities licensed to transact the business of title insurance in the state of Colorado.

Section 4 Definitions A. "Title insurance agent" shall have the same meaning as defined in § 10-11-102, C.R.S.

B. "Title insurance company" shall have the same meaning as defined in § 10-11-102, C.R.S.

C. "Title Entity" means title insurance agents, title insurance agencies, and title insurance companies. Section 5 Rules A. Alternative Documentation

1. 1. Alternative documentation shall be specific to the residential real property to be insured and provide information and verification of the following, when such item is standard on that county’s certificate of taxes due:

Code of Colorado Regulations 217

1. a. Owner name b. Property address c. Legal description d. Schedule, account or parcel number e. Total current year property tax amounts and payments f. Total current year assessments and mill levy g. Tax distribution including tax entity or authority h. Special Taxing/Improvement Districts including installment amounts i. Special Assessments including installment and/or payoff amounts j. Prior year(s) tax lien(s), delinquencies and tax sale(s) including redemption amounts k. Service liens including payoff amounts
   1. 2. Documentation to support the information in Section 1 can be obtained electronically through the county treasurer website and/or verbally from county treasurer staff.
      1. a. Documentation obtained electronically must contain the date the information was retrieved form the county treasurer’s website and/or the printout from the county treasurer’s website containing the information.
         1. b. Documentation obtained verbally, from county treasurer staff, must contain the date the information was obtained, the name of the person obtaining the information and the name of the county treasurer staff that provided the information.

B. Each title entity shall maintain adequate documentation and records sufficient to show compliance with this regulation for a period of not less than seven (7) years. Section 6 Severability If any provision of this regulation or the application of it to any person or circumstance is for any reason held to be invalid, the remainder of this regulation shall not be affected. Section 7 Enforcement Noncompliance with this regulation may result in the imposition of any of the sanctions made available in the Colorado statutes pertaining to the business of insurance, or other laws, which include the imposition of civil penalties, issuance of cease and desist orders, and/or suspensions or revocation of license, subject to the requirements of due process.

Section 8 Effective Date This regulation shall become effective on October 1, 2013. Section 9 History New regulation effective October 1, 2013.

Code of Colorado Regulations 218 _________________________________________________________________________ Editor’s Notes History Regulation 3-1-3 eff. 10/01/2007.

Regulation 3-5-2 eff. 01/01/2008.

Regulation 3-1-4 eff. 01/01/2010.

Regulation 3-5-1 eff. 05/01/2010.

Regulation 3-1-8 eff. 11/01/2010.

Regulation 3-1-11 eff. 02/01/2012.

Regulation 3-1-12 eff. 03/01/2012.

Regulation 3-1-15 eff. 06/01/2012.

Regulation 3-3-1 eff. 06/01/2012.

Regulations 3-1-10, 3-1-14, 3-4-1 eff. 07/01/2012.

Regulation 3-1-2 eff. 08/01/2012; regulation 3-2-6 repealed eff. 08/01/2012. Regulation 3-1-5 eff. 09/01/2012.

Regulation 3-1-7 eff. 12/01/2012; Regulation 3-2-7 repealed eff. 12/01/2012. Regulation 3-1-9 eff. 01/01/2013.

Regulation 3-1-7 eff. 05/01/2013.

Regulations 3-1-11, 3-1-12 eff. 08/01/2013.

Regulation 3-5-3 eff. 10/01/2013.

Code of Colorado Regulations 219