Regulations, Vol. 29 Iss. 22 Jul 01, 2013

REGISTRAR'S NOTICE: The State Corporation Commission is claiming an exemption from the Administrative Process Act in accordance with § 2.2-4002 A 2 of the Code of Virginia, which exempts courts, any agency of the Supreme Court, and any agency that by the Constitution is expressly granted any of the powers of a court of record.

Title of Regulation: 5VAC5-30. Uniform Commercial Code Filing Rules (amending 5VAC5-30-20 through 5VAC5-30-70).

Statutory Authority: §§ 8.9A-526 and 12.1-13 of the Code of Virginia.

Effective Date: July 1, 2013.

Agency Contact: Joel Peck, Clerk of the Commission, State Corporation Commission, 1300 East Main Street, P.O. Box 1197, Richmond, VA 23218, telephone (804) 371-9733, FAX (804) 371-9912, or email joel.peck@scc.virginia.gov.

Summary:

The revisions include technical amendments, such as changing "correction statement" to "information statement," changing "filing officer" to "filing office," and amending a website address and clarifying the grounds to refuse a Uniform Commercial Code (UCC) record for filing. Additionally, amendments allow UCC search requests to be delivered by electronic delivery method provided and authorized by the filing office. Further, amendments allow the filing office to accept payment via electronic funds under National Automated Clearing House Association (NACHA) rules for remitters, as well as allow a filing office to void a filing if the filing fee payment is dishonored, declined, refused, reversed, charged back, returned unpaid, or otherwise rejected for any reason and the remitter fails to submit a valid payment for the filing fee and any penalties after notice by the filing office. The revisions also substitute current UCC forms with updated forms adopted by the International Association of Commercial Administrators (IACA). The State Corporation Commission adopted the revised regulations as proposed without changes by an order dated June 6, 2013.

AT RICHMOND, JUNE 6, 2013

COMMONWEALTH OF VIRGINIA, ex rel.

STATE CORPORATION COMMISSION

CASE NO. CLK-2013-00007

Ex Parte: In the matter of Adopting
a Revision to the Rules Governing UCC Filings

ORDER ADOPTING REGULATIONS

On April 2, 2013, the State Corporation Commission ("Commission") entered an Order to Take Notice of a proposal by the Commission to adopt regulations pursuant to § 8.9A-526 of the Code of Virginia. Among other revisions, the proposed regulations, which amend the "Rules Governing UCC Filings" ("Rules") in Title 5, Chapter 30 of the Virginia Administrative Code, provide technical amendments to the Rules and update Uniform Commercial Code ("UCC") forms. The proposed regulations also allow the Office of the Clerk of the Commission to accept electronic delivery of UCC search requests, accept payment via certain electronic funds transfer, and void UCC filings for uncollected filing fee payments.

The Order and proposed regulations were published in the Virginia Register of Regulations on April 22, 2013, posted on the Commission's website, and sent to various interested parties. Interested parties were afforded the opportunity to file written comments or request a hearing on or before May 14, 2013. No comments or requests for a hearing were filed.

NOW THE COMMISSION, upon consideration of the proposed regulations and applicable law, concludes that the proposed regulations should be adopted as proposed.

Accordingly, IT IS ORDERED THAT:

(1) The proposed regulations, as attached hereto, are ADOPTED effective July 1, 2013.

(2) This Order and the attached regulations shall be posted on the Commission's website at http://www.scc.virginia.gov/case.

(3) The Commission's Division of Information Resources shall send a copy of this Order, including a copy of the attached regulations, to the Virginia Registrar of Regulations for publication in the Virginia Register of Regulations.

(4) In order to effectuate the transition in UCC filings under the revised Rules and avoid prejudice to individuals making UCC filings on or around the effective date on July 1, 2013, the Office of the Clerk of the Commission may continue to accept UCC filings made using the current UCC forms through July 31, 2013.

(5) This case is dismissed from the Commission's docket of active cases.

AN ATTESTED COPY HEREOF shall be delivered to the Clerk of the Commission, who shall forthwith mail or e-mail a copy of this Order, including a copy of the attached regulations, to any interested persons as he may designate.

5VAC5-30-20. Definitions.

The following words and terms when used in this chapter shall have the following meanings unless the context clearly indicates otherwise:

"Amendment" means a UCC record that amends the information contained in a financing statement. Amendments also include (i) assignments and (ii) continuation and termination statements.

"Assignment" means an amendment that assigns all or a part of a secured party's power to authorize an amendment to a financing statement.

"Continuation statement" shall have the meaning prescribed by § 8.9A-102(a)(27) of the Code of Virginia.

"~~Correction~~ [ ~~Information statement" means a UCC record that indicates that a financing statement is inaccurate or wrongfully filed.~~ ]

"File number" shall have the meaning prescribed by § 8.9A-102(a)(36) of the Code of Virginia.

"Filing office" means the Clerk's Office of the State Corporation Commission.

"Filing officer" means the Clerk of the State Corporation Commission.

"Filing officer statement" means a statement entered into the UCC information management system to describe the correction of an error or inaccuracy made by the filing office.

"Financing statement" shall have the meaning prescribed by § 8.9A-102(a)(39) of the Code of Virginia.

"Individual" means a natural person, living or deceased.

[ "Information statement" means a UCC record that indicates that a financing statement is inaccurate or wrongfully filed. ]

"Initial financing statement" means a UCC record containing the information required to be in an initial financing statement and that causes the filing office to establish the initial record of existence of a financing statement.

"Organization" means a legal person that is not an individual.

"Personal identifiable information" shall have the meaning prescribed by § 12.1-19 B of the Code of Virginia.

"Remitter" means a person who tenders a UCC record to the filing ~~officer~~ office for filing, whether the person is a filer or an agent of a filer responsible for tendering the record for filing. "Remitter" does not include a person responsible merely for the delivery of the record to the filing office, such as the postal service or a courier service but does include a service provider who acts as a filer's representative in the filing process.

"Secured party of record" shall have the meaning prescribed by § 8.9A-511 of the Code of Virginia.

"Termination statement" shall have the meaning prescribed by § ~~8.9A-102(a)(79)~~ 8.9A-102(a)(80) of the Code of Virginia.

"Through date" means the most recent date that all submissions for a specified day have been indexed in the UCC information management system.

"UCC" means the Uniform Commercial Code - Secured Transactions (§ 8.9A-101 et seq. of the Code of Virginia).

"UCC information management system" means the information management system used by the filing office to store, index, and retrieve information relating to financing statements.

"UCC record" means an initial financing statement, an amendment, and ~~a correction~~ an information or a filing officer statement, and shall not be deemed to refer exclusively to paper or paper-based writings.

5VAC5-30-30. General filing and search requirements.

A. UCC records may be tendered for filing at the filing office as follows:

1. By personal delivery, at the filing office street address;

2. By courier delivery, at the filing office street address;

3. By postal delivery, to the filing office mailing address; or

4. By electronic delivery method provided and authorized by the filing office.

B. The filing time for a UCC record delivered by personal, courier, or postal delivery is the time the UCC record is date-and-time stamped by the filing office even though the UCC record may not yet have been accepted for filing and may be subsequently rejected. The filing time for a UCC record delivered by authorized electronic delivery method is the date and time the UCC information management system receives the record and determines that all the required elements of the transmission have been received in the required format.

C. UCC search requests may be delivered to the filing office by personal, courier, or postal delivery, or by electronic delivery method provided and authorized by the filing office.

5VAC5-30-40. Forms, fees, and payments.

A. Forms.

1. The filing office shall only accept forms for UCC records that conform to the requirements of this chapter.

~~2. The forms set forth in § 8.9A-521 of the Code of Virginia shall be accepted.~~

3. 2. The forms approved by the International Association of Commercial Administrators as they appear on the filing office's website ~~(http://www.scc.virginia.gov/division/clk/uccfile.aspx)~~ (http://www.scc.virginia.gov/clk/uccfile.aspx) shall be accepted.

4. 3. The filing ~~officer~~ office may approve other forms for acceptance, including additional forms approved by the International Association of Commercial Administrators.

B. Fees.

1. The fee for filing and indexing a UCC record is $20.

2. The fee for submitting a UCC search request is $7.00.

3. The fee for furnishing UCC search copies is $.50 for each page. The fee for affixing the seal of the commission to a certificate is $3.00.

C. Methods of payment. Filing fees and fees for services provided under this chapter may be paid by the following methods:

1. Payment in cash shall be accepted if paid in person at the filing office.

2. Personal checks, cashier's checks and money orders made payable to the State Corporation Commission or Treasurer of Virginia shall be accepted for payment if drawn on a bank acceptable to the filing office or if the drawer is acceptable to the filing office.

3. Payment by credit card acceptable to the filing office or electronic check ~~shall~~ may be accepted for the filing or submission of documents delivered by authorized electronic delivery method.

4. The filing office may accept payment via electronic funds under National Automated Clearing House Association (NACHA) rules from remitters who have entered into appropriate NACHA-approved arrangements for such transfers and who authorize the relevant transfer pursuant to such arrangements and rules.

D. Overpayment and underpayment policies.

1. The filing ~~officer~~ office shall notify the remitter of the amount of any overpayment exceeding $24.99 and send the remitter the appropriate procedure and form for requesting a refund. The filing ~~officer~~ office shall refund an overpayment of $24.99 or less only upon the written request of the remitter. A request for a refund shall be delivered to the filing office within 12 months from the date of payment.

2. Upon receipt of a UCC record with an insufficient filing fee, the filing ~~officer~~ office shall return the record to the remitter with a notice stating the deficiency and may retain the filing fee.

E. Uncollected filing fee payment. A filing may be voided by the filing office if the filing fee payment that is submitted by the remitter is dishonored, declined, refused, reversed, charged back to the commission, returned to the commission unpaid, or otherwise rejected for any reason by a financial institution or other third party, and after notice from the filing office, the remitter fails to submit a valid payment for the filing fee and any penalties.

F. Federal liens. A notice of lien, certificate and other notice affecting a federal tax lien or other federal lien presented to the filing office pursuant to the provisions of the Uniform Federal Lien Registration Act (§ 55-142.1 et seq. of the Code of Virginia) shall be treated as the most analogous UCC record unless the Uniform Federal Lien Registration Act or federal law provides otherwise.

Part II
Record Requirements

5VAC5-30-50. Acceptance and refusal of records; continuation statements.

A. The duties and responsibilities of the filing ~~officer~~ office with respect to the administration of the UCC are ministerial. In accepting for filing or refusing to file a UCC record pursuant to this chapter, the filing ~~officer~~ office does none of the following:

1. Determine the legal sufficiency or insufficiency of a record;

2. Determine that a security interest in collateral exists or does not exist;

3. Determine that information in the record is correct or incorrect, in whole or in part; or

4. Create a presumption that information in the record is correct or incorrect, in whole or in part.

B. The first day on which a continuation statement may be filed is the day of the month corresponding to the date upon which the related financing statement would lapse in the sixth month preceding the month in which the financing statement would lapse. If there is no such corresponding date, the first day on which a continuation statement may be filed is the last day of the sixth month preceding the month in which the financing statement would lapse. The last day on which a continuation statement may be filed is the date upon which the financing statement lapses. If the lapse date falls on a Saturday, Sunday, or other day on which the filing office is not open, then the last day on which a continuation statement may be filed, if tendered for filing by personal, courier, or postal delivery, is the last day the filing office is open prior to the lapse date. An authorized electronic delivery method may be available to file a continuation statement on a Saturday, Sunday, or other day on which the filing office is not open. The relevant anniversary for a February 29 filing date shall be March 1 in the fifth or 30th year following the date of filing.

C. Except as provided in 5VAC5-30-40 D, if the filing ~~officer~~ office finds grounds to refuse a UCC record for filing, including those set forth in § 8.9A-516 (b) of the Code of Virginia, the filing ~~officer~~ office shall return the record to the remitter and may retain the filing fee.

D. Nothing in this chapter shall prevent the filing ~~officer~~ office from communicating to a filer or a remitter that the filing ~~officer~~ office noticed apparent potential defects in a UCC record, whether or not it was filed or refused for filing. However, the filing office is under no obligation to do so and may not, in fact, have the resources to identify potential defects. The responsibility for the legal effectiveness of filing rests with filers and remitters and the filing office bears no responsibility for such effectiveness.

E. The filing ~~officer~~ office may act in accordance with § 12.1-19 B of the Code of Virginia with respect to submissions that contain personal identifiable information.

F. If a secured party or a remitter demonstrates to the satisfaction of the filing ~~officer~~ office that a UCC record that was refused for filing should not have been refused, the filing ~~officer~~ office shall file the UCC record as provided in this chapter with a filing date and time assigned when the record was originally tendered for filing. The filing ~~officer~~ office shall also file a filing officer statement that states the effective date and time of filing, which shall be the date and time the UCC record was originally tendered for filing.

Part III
Record Filing and Searches

5VAC5-30-60. Filing and data entry procedures.

A. The filing office may correct errors made by its personnel in the UCC information management system at any time. If the correction occurs after the filing ~~officer~~ office has issued a certification, the filing ~~officer~~ office shall file a filing officer statement in the UCC information management system identifying the record to which it relates, the date of the correction, and explaining the nature of the corrective action taken. The record shall be preserved as long as the record of the initial financing statement is preserved in the UCC information management system.

B. An error by a filer or remitter is the responsibility of that person. It can be corrected by filing an amendment or it can be disclosed by filing ~~a correction~~ an information statement pursuant to § 8.9A-518 of the Code of Virginia. ~~A correction statement shall be made only on a Statement of Claim form (Form UCC5).~~

C. 1. A UCC record tendered for filing shall designate whether a name is a name of an individual or an organization. If the name is that of an individual, the ~~first, middle and last names~~ surname, first personal name, additional name or names, and any suffix shall be given.

2. Organization names are entered into the UCC information management system exactly as set forth in the UCC record, even if it appears that multiple names are set forth in the record or if it appears that the name of an individual has been included in the field designated for an organization name.

3. The filing office will only accept forms that designate separate fields for individual and organization names and separate fields for ~~first, middle, and last names~~ the surname, first personal name, additional name or names, and any suffix. Such forms diminish the possibility of filing office error and help assure that filers' expectations are met. However, the inclusion of names in an incorrect field or the failure to transmit names accurately to the filing office may cause a financing statement to be ineffective.

D. The filing ~~officer~~ office shall take no action upon receipt of a notification, formal or informal, of a bankruptcy proceeding involving a debtor included in the UCC information management system.

5VAC5-30-70. Search requests and reports.

A. The filing ~~officer~~ office maintains for public inspection a searchable index for all UCC records. The index shall provide for the retrieval of all filed records by the name of the debtor and by the file number of the initial financing statement.

B. Search requests shall be made only on the ~~National~~ Information Request form (Form UCC11) and shall include:

1. The name of the debtor to be searched, specifying whether the debtor is an individual or organization. A search request will be processed using the exact name provided by the requestor.

2. The name and address of the person to whom the search report is to be sent.

3. Payment of the appropriate fee, which shall be made by a method set forth in this chapter.

C. Search requests may include:

1. A request that copies of records found in the search be included with the search report, and

2. Instructions on the mode of delivery desired, if other than by postal delivery, which shall be followed if the desired mode is acceptable to the filing office.

D. Search results are produced by the application of standardized search logic to the name presented to the filing ~~officer~~ office. The following criteria apply to searches:

1. There is no limit to the number of matches that may be returned in response to the search request.

2. No distinction is made between upper and lower case letters.

3. Punctuation marks and accents are disregarded.

4. "Noise words" are limited to "an," "and," "for," "of," and "the." The word "the" is disregarded. Other noise words appearing anywhere except at the beginning of an organization name are disregarded. Certain business words are modified to a standard abbreviation: company to "co," corporation to "corp," limited to "ltd," incorporated to "inc."

5. All spaces are disregarded.

6. After using the preceding criteria to modify the name to be searched, the search will reveal names of debtors that are contained in unlapsed or all initial financing statements in an alphabetical list.

E. Reports created in response to a search request shall include the following:

1. The date and time the report was generated.

2. Identification of the name searched.

3. The through date as of the date and time the report was generated.

4. For an organization, the name as it appears after application of the standardized search logic.

5. Identification of each unlapsed initial financing statement or all initial financing statements filed on or prior to the report date and time corresponding to the search criteria, by name of debtor, by file number, and by file date and file time.

6. For each initial financing statement on the report, a listing of all related UCC records filed by the filing ~~officer~~ office on or prior to the report date.

7. Copies of all UCC records revealed by the search and requested by the requestor.

F. The filing office may provide access to the searchable index via the Internet that produces search results beyond exact name matches. Search results obtained via the Internet shall not constitute an official search and will not be certified by the filing office.

NOTICE: The following forms used in administering the regulation were filed by the agency. The forms are not being published; however, online users of this issue of the Virginia Register of Regulations may click on the name to access a form. The forms are also available from the agency contact or may be viewed at the Office of the Registrar of Regulations, General Assembly Building, 2nd Floor, Richmond, Virginia 23219.

FORMS (5VAC5-30)

~~UCC Financing Statement, Form UCC1, (rev. 5/02).~~

~~UCC Financing Statement Addendum, Form UCC1Ad, (rev. 5/09).~~

~~UCC Financing Statement Additional Party, Form UCC1AP, (rev. 5/02).~~

~~UCC Financing Statement Amendment, Form UCC3, (rev. 5/02).~~

~~UCC Financing Statement Amendment Addendum, Form UCC3Ad, (rev. 7/98).~~

~~UCC Financing Statement Amendment Additional Party, Form UCC3AP, (rev. 5/02).~~

~~Statement of Claim, Form UCC5, (rev. 5/09).~~

~~National Information Request, Form UCC11, (rev. 5/01).~~

UCC Financing Statement, Form UCC1 (rev. 4/11).

UCC Financing Statement Addendum, Form UCC1Ad (rev. 4/11).

UCC Financing Statement Additional Party, Form UCC1AP (rev. 8/11).

UCC Financing Statement Amendment, Form UCC3 (rev. 4/11).

UCC Financing Statement Amendment Addendum, Form UCC3Ad (rev. 4/11).

UCC Financing Statement Amendment Additional Party, Form UCC3AP (rev. 8/11).

UCC Information Statement, Form UCC5 (rev. 7/12).

UCC Information Request, Form UCC11 (rev. 7/12).

Title of Regulation: 6VAC20-20. Rules Relating to Compulsory Minimum Training Standards for Law-Enforcement Officers (amending 6VAC20-20-21, 6VAC20-20-50).

Statutory Authority: § 9.1-102 of the Code of Virginia.

Public Hearing Information: No public hearings are scheduled.

Public Comment Deadline: July 31, 2013.

Effective Date: August 15, 2013.

Agency Contact: Stephanie Morton, Law Enforcement Program Coordinator, Department of Criminal Justice Services, 1100 Bank Street, 12th Floor, Richmond, VA 23219, telephone (804) 786-8003, or email stephanie.morton@dcjs.virginia.gov.

Basis: The legal authority of the Department of Criminal Justice Services, under the direction of the Criminal Justice Services Board, to establish compulsory minimum training standards subsequent to employment as a law-enforcement officer in (i) permanent positions and (ii) temporary or probationary status, and establish the time required for the completion of such training is found in § 9.1-102 of the Code of Virginia.

Purpose: The purpose of this regulatory action is to remove the reference to the 1997 document regarding performance outcomes and replace it with the department's website link to the document regarding compulsory minimum training standards. The requested revisions are essential to protect the safety and welfare of citizens to ensure that law-enforcement officers are receiving the most current training. Currently, when training standards must be revised, the department has to seek such changes through the standard regulatory process. This process requires a minimum of 12 to 18 months for completion, which is far too lengthy a wait when dealing with public and officer safety issues.

Rationale for Using Fast-Track Process: This amendment will not affect the department's constituents. This change will allow the department to seek changes to the compulsory minimum training standards through the process listed within 6VAC20-20. Changes in training standards must go before the Law Enforcement Curriculum Review Committee, which is comprised of regional, state, and independent criminal justice training academy directors. Upon recommendation for approval by the Law Enforcement Curriculum Review Committee, the recommendation is then presented to the Committee on Training of the Criminal Justice Services Board, and the Criminal Justice Services Board must give the final approval.

Substance: This action amends the language of the regulation by removing the reference to the 1997 document regarding performance outcomes and replacing that language with the department's website link to the document regarding compulsory minimum training standards.

Issues: The advantage is that any recruit completing the compulsory minimum training standards through a certified criminal justice training academy will be receiving the most current training standards approved by the Criminal Justice Services Board. There are no disadvantages since the oversight committee is composed of knowledgable and experienced persons who make recommendations to members appointed to serve by the Governor through the Criminal Justice Services Board and feel these revisions are in the best interest of the department's constituents and the Commonwealth.

Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. The Board of Criminal Justice Services (Board) proposes to amend its training regulations for law enforcement officers. Specifically, the Board proposes to:

• Add information to these regulations that will direct interested parties to the complete training standards guidelines on the Department of Criminal Justice Services (DCJS) website and

• Eliminate reference to performance outcomes in these regulations because they are now in DCJS guidelines and are subject to annual change.

Result of Analysis. The benefits likely exceed the costs for all proposed changes.

Estimated Economic Impact. Current regulations explicitly enumerate performance outcomes. Because these performance outcomes are policy statements and are subject to annual change, the Board proposes to strike them from these regulations and, instead promulgate regulatory language that directs interested parties to a complete list of performance outcomes on the DCJS website. Because performance outcomes can change every year, but it would take two years on average to change them in regulation, this regulatory change is likely to provide the benefit of clarity to interested parties.

Businesses and Entities Affected. DCJS reports that individuals who are interested in pursuing careers as law enforcement officers are subject to the training requirements in these proposed regulations.

Localities Particularly Affected. No localities will be particularly affected by these proposed regulatory changes.

Projected Impact on Employment. This regulatory action will likely have no impact on employment in the Commonwealth.

Effects on the Use and Value of Private Property. This regulatory action will likely have no effect on the use or value of private property in the Commonwealth.

Small Businesses: Costs and Other Effects. These proposed regulatory changes are unlikely to have any effect on small businesses in the Commonwealth.

Small Businesses: Alternative Method that Minimizes Adverse Impact. These proposed regulatory changes are unlikely to have any effect on small businesses in the Commonwealth.

Real Estate Development Costs. This regulatory action will likely have no effect on real estate development costs in the Commonwealth.

Legal Mandate. The Department of Planning and Budget (DPB) has analyzed the economic impact of this proposed regulation in accordance with § 2.2-4007.04 of the Administrative Process Act and Executive Order Number 14 (10). Section 2.2-4007.04 requires that such economic impact analyses include, but need not be limited to, a determination of the public benefit, the projected number of businesses or other entities to whom the regulation would apply, the identity of any localities and types of businesses or other entities particularly affected, the projected number of persons and employment positions to be affected, the projected costs to affected businesses or entities to implement or comply with the regulation, and the impact on the use and value of private property. Further, if the proposed regulation has an adverse effect on small businesses, § 2.2-4007.04 requires that such economic impact analyses include (i) an identification and estimate of the number of small businesses subject to the regulation; (ii) the projected reporting, recordkeeping, and other administrative costs required for small businesses to comply with the regulation, including the type of professional skills necessary for preparing required reports and other documents; (iii) a statement of the probable effect of the regulation on affected small businesses; and (iv) a description of any less intrusive or less costly alternative methods of achieving the purpose of the regulation. The analysis presented above represents DPB's best estimate of these economic impacts.

Agency's Response to Economic Impact Analysis: The Department of Criminal Justice Services concurs generally with the economic impact analysis of the Department of Planning and Budget on the proposed Regulations Relating to Compulsory Minimum Training Standards for Law-Enforcement Officers.

Summary:

The proposed amendment replaces the reference to the December 1997 document regarding performance outcomes with the Department of Criminal Justice Services' website link to the document regarding compulsory minimum training standards for law-enforcement officers.

6VAC20-20-21. Performance outcomes and minimum hours required.

A. The performance outcomes are detailed in the document entitled "Performance Outcomes for Compulsory Minimum Training For Law Enforcement Officers," December 1997, which is incorporated by reference and made a part of this chapter. Pursuant to the provisions of subdivision 2 of § 9.1-102 of the Code of Virginia, the board establishes the standards for Compulsory Minimum Training Standards for Law-Enforcement Officers. The complete document may be found on the Department of Criminal Justice Services' website at http://www.dcjs.virginia.gov.

B. Academy training.

1. Category 1 - Professionalism

2. Category 2 - Legal Issues

3. Category 3 - Communications

4. Category 4 - Patrol

5. Category 5 - Investigations

6. Category 6 - Defensive Tactics/Use of Force

7. Category 7 - Weapons Use

8. Category 8 - Driver Training

9. Category 9 - Physical Training (Optional)

ACADEMY TRAINING HOURS - 480 (excluding Category 9)

C. Field training.

Category 10 - Field Training

FIELD TRAINING HOURS - 100

TOTAL MINIMUM TRAINING STANDARDS HOURS - 580 (excluding Category 9)

6VAC20-20-50. Compliance with compulsory minimum training standards.

A. The compulsory minimum training standards shall be accomplished by satisfactory completion of the academy training objectives and criteria at a certified training academy and the successful completion of field training objectives unless otherwise provided by 6VAC20-20-30 B.

B. Officers attending approved training are required to attend all classes and shall not be placed on duty or call except in cases of emergency.

C. The Criminal Justice Services Board will provide a transition period for implementation of this chapter. The transition period shall begin February 4, 1998. During the transition period, certified training academies may conduct law-enforcement entry-level training using the performance objectives within the "Compulsory Minimum Training Standards for Law-Enforcement Officers," effective July 6, 1983, or the performance outcomes and training objectives. Accordingly, any certified training academy may institute a curriculum transition by replacing existing performance objectives with the revised performance outcomes and training objectives. Effective July 1, 1999, all entry-level training programs shall meet the requirements of 6VAC20-20-21.

DOCUMENTS INCORPORATED BY REFERENCE (6VAC20-20)

~~Performance Outcomes for Compulsory Minimum Training for Law Enforcement Officers, December 1997, Department of Criminal Justice Services.~~

REGISTRAR'S NOTICE: The State Corporation Commission is claiming an exemption from the Administrative Process Act in accordance with § 2.2-4002 A 2 of the Code of Virginia, which exempts courts, any agency of the Supreme Court, and any agency that by the Constitution is expressly granted any of the powers of a court of record.

Titles of Regulations: 14VAC5-280. Rules Establishing Standards for Life, Annuity, and Accident and Sickness Reinsurance Agreements (amending 14VAC5-280-10, 14VAC5-280-30, 14VAC5-280-40, 14VAC5-280-70).

14VAC5-290. Rules Establishing Standards for Companies Deemed to Be in Hazardous Financial Condition (amending 14VAC5-290-30).

Statutory Authority: §§ 12.1-13 and 38.2-223 of the Code of Virginia.

Public Hearing Information: A public hearing will be held upon request.

Public Comment Deadline: August 6, 2013.

Agency Contact: Raquel Pino-Moreno, Principal Insurance Analyst, Bureau of Insurance, State Corporation Commission, P.O. Box 1157, Richmond, VA 23218, telephone (804) 371-9499, FAX (804) 371-9511, or email raquel.pino-moreno@scc.virginia.gov.

Summary:

Chapter 539 of the Acts of Assembly of 2012 incorporated revisions made to the National Association of Insurance Commissioners' Credit for Reinsurance Model Law that reformed the treatment of reinsurance transactions, including allowing for the certification of reinsurers. The proposed amendments to 14VAC5-280 and 14VAC5-290 conform the regulations to those changes by (i) adding health maintenance organizations to the definition of "life and health business" and (ii) deleting references to and provisions based on § 38.2-1316.3 or 38.2-1316.6 of the Code of Virginia, which were repealed by Chapter 539.

AT RICHMOND, JUNE 7, 2013

COMMONWEALTH OF VIRGINIA, ex rel.

STATE CORPORATION COMMISSION

CASE NO. INS-2013-00095

Ex Parte: In the matter of
Amending the Rules Establishing Standards
For Life, Annuity, and Accident and Sickness
Reinsurance Agreements and the Rules Establishing
Standards for Companies Deemed to be in
Hazardous Financial Condition

ORDER TO TAKE NOTICE

Section 12.1-13 of the Code of Virginia ("Code") provides that the State Corporation Commission ("Commission") shall have the power to promulgate rules and regulations in the enforcement and administration of all laws within its jurisdiction, and § 38.2-223 of the Code provides that the Commission may issue any rules and regulations necessary or appropriate for the administration and enforcement of Title 38.2 of the Code.

The rules and regulations issued by the Commission pursuant to § 38.2-223 of the Code are set forth in Title 14 of the Virginia Administrative Code. A copy may also be found at the Commission's website: http://www.scc.virginia.gov/boi/laws.aspx.

The Bureau of Insurance ("Bureau") has submitted to the Commission proposed amendments to rules set forth in Chapters 280 and 290 of Title 14 of the Virginia Administrative Code, entitled Rules Establishing Standards for Life, Annuity, and Accident and Sickness Reinsurance Agreements, 14VAC5-280-10 et seq., and Rules Establishing Standards for Companies Deemed to be in Hazardous Financial Condition, 14VAC5-290-10 et seq. (collectively, "Rules"), respectively, which amend the Rules at 14VAC5-280-10, 14VAC5-280-30, 14VAC5-280-40, 14VAC5-280-70, and 14VAC5-290-30.

The proposed amendments to Chapters 280 and 290 are necessary to implement the provisions of House Bill 1139 passed by the 2012 General Assembly. This legislation incorporates revisions made to the National Association of Insurance Commissioners' Credit for Reinsurance Model Law, which reforms the treatment of reinsurance transactions, including allowing for the certification of reinsurers. The proposed revisions to Chapters 280 and 290 include: (i) the addition of a reference to HMOs under the definition of "life and health business" in 14VAC5-280-10, (ii) the deletion of the reference in 14VAC5-280-30 to § 38.2-1316.6 of the Code, which was repealed by House Bill 1139, and the addition of a reference to § 38.2-1316.1 et seq., (iii) the deletion of 14VAC5-280-40 A 2 because this provision pertains to provisions that were in § 38.2-1316.6 of the Code, (iv) the revision of 14VAC5-280-70 to provide consistency with other severability sections, and (v) the deletion of the reference in 14VAC5-290-30 to § 38.2-1316.3 of the Code, which was also repealed by House Bill 1139.

NOW THE COMMISSION is of the opinion that the proposed amendments submitted by the Bureau to amend the Rules at 14VAC5-280-10, 14VAC5-280-30, 14VAC5-280-40, 14VAC5-280-70, and 14VAC5-290-30 should be considered for adoption.

Accordingly, IT IS ORDERED THAT:

(1) The proposed amendments to Rules Establishing Standards for Life, Annuity, and Accident and Sickness Reinsurance Agreements, and Rules Establishing Standards for Companies Deemed to be in Hazardous Financial Condition, which amend the Rules at 14VAC5-280-10, 14VAC5-280-30, 14VAC5-280-40, 14VAC5-280-70, and 14VAC5-290-30 are attached hereto and made a part hereof.

(2) All interested persons who desire to comment in support of or in opposition to, or request a hearing to oppose amending Chapters 280 and 290 of Title 14 of the Virginia Administrative Code, shall file such comments or hearing request on or before August 6, 2013, with Joel H. Peck, Clerk, State Corporation Commission, c/o Document Control Center, P.O. Box 2118, Richmond, Virginia 23218. Interested persons desiring to submit comments electronically may do so by following the instructions at the Commission's website: http://wwwm.scc.virginia.gov/caseinfo.htm. All comments shall refer to Case No. INS-2013-00095.

(3) If no written request for a hearing on the proposal to amend Chapters 280 and 290 of Title 14 of the Virginia Administrative Code is received on or before August 6, 2013, the Commission, upon consideration of any comments submitted in support of or in opposition to the proposal, may amend the Rules.

(4) AN ATTESTED COPY hereof, together with a copy of the proposal to amend rules, shall be sent by the Clerk of the Commission to the Bureau in care of Deputy Commissioner Douglas C. Stolte, who forthwith shall give further notice of the proposal to amend rules by mailing a copy of this Order, together with the proposal, to every entity that is licensed, approved, registered, or accredited in Virginia under the provisions of Title 38.2 of the Code and also subject to solvency regulation in this Commonwealth pursuant to the provisions of Title 38.2 of the Code, as well as to all interested parties.

(5) The Commission's Division of Information Resources forthwith shall cause a copy of this Order, together with the proposal to amend rules, to be forwarded to the Virginia Registrar of Regulations for appropriate publication in the Virginia Register of Regulations.

(6) The Commission's Division of Information Resources shall make available this Order and the attached proposed amendments to the rules on the Commission's website: http://www.scc.virginia.gov/case.

(7) The Bureau shall file with the Clerk of the Commission an affidavit of compliance with the notice requirements of Ordering Paragraph (4) above.

(8) This matter is continued.

14VAC5-280-10. Definitions.

The following words and terms, when used in this chapter, shall have the following meaning unless the context clearly indicates otherwise:

"Commission" means State Corporation Commission.

"Insurer" means a cooperative nonprofit life benefit company, a mutual assessment life, accident and sickness insurer, a fraternal benefit society, a health services plan, a dental services plan, or an optometric services plan licensed under Title 38.2 of the Code of Virginia; and also any insurance company, whether known as a life and health insurer, a property and casualty insurer, or a reciprocal, which is licensed in Virginia and authorized to write any class of life insurance, annuities, or accident and sickness insurance.

"Life and health business" means (i) a class of insurance defined by §§ 38.2-102 through 38.2-109 of the Code of Virginia or (ii) any product or service sold or offered by a person organized and licensed in Virginia under Chapter 38 (§ 38.2-3800 et seq., cooperative nonprofit life benefit companies), Chapter 39 (§ 38.2-3900 et seq., mutual assessment life, accident and sickness insurers), Chapter 41 (§ 38.2-4100 et seq., fraternal benefit societies), Chapter 42 (§ 38.2-4200 et seq., health services plans), Chapter 43 (§ 38.2-4300 et seq., health maintenance organizations), or Chapter 45 (§ 38.2-4500 et seq., dental or optometric services plans) of Title 38.2 of the Code of Virginia.

14VAC5-280-30. Scope.

This ~~regulation~~ chapter shall apply to the life and health business of all domestic insurers and to the life and health business of all other licensed insurers who are not subject to substantially similar provisions in their states of domicile or entry.

This ~~regulation~~ chapter shall not apply to assumption reinsurance, yearly renewable term reinsurance or certain nonproportional reinsurance such as stop loss or catastrophe reinsurance; however, nothing herein shall in any way limit or prevent the application of ~~§ 38.2-1316.6~~ Article 3.1 (§ 38.2-1316.1 et seq.) of Chapter 13 or any other provision in Title 38.2 of the Code of Virginia to any type of insurer, business or reinsurance regardless of whether such application entails a standard or principle set forth in this ~~regulation~~ chapter.

14VAC5-280-40. Accounting and actuarial requirements.

A. No insurer subject to this ~~regulation~~ chapter shall, for reinsurance ceded, reduce any liability or establish any asset in any financial statement filed with the commission if, by the terms of the reinsurance agreement, in substance or effect, any of the following conditions exist:

1. The reserve credit taken by the ceding insurer is not in compliance with the laws of this Commonwealth, particularly the provisions of Title 38.2 of the Code of Virginia and related rules, regulations and administrative pronouncements, including actuarial interpretations or standards adopted by the commission.

~~2. The reserve credit taken by the ceding insurer is greater than the amount which the ceding insurer would have reserved on the reinsured portion of the risk if there had been no reinsurance.~~

3. 2. 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 that 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 which 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.

4. 3. The ceding insurer can be deprived of surplus or assets (i) at the reinsurer's option; or (ii) automatically upon the occurrence of some event, such as the insolvency of the ceding insurer or the appointment of a receiver; or (iii) upon the unilateral termination or reduction of reinsurance coverage by the reinsurer or by the terms of the reinsurance contract. 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.

5. 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.

6. 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 which are greater than the direct premiums collected by the ceding company.

7. 6. 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.

8. 7. The terms or operating effect of the reinsurance agreement are such that it does not transfer all of the significant risk inherent in the business being reinsured. The table at Exhibit 1 identifies for a representative sampling of products or types 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.

9. 8. 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 subdivision ~~9 b)~~ 8 b of this subsection) 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 commission which legally segregates, by contract or contract provision, the underlying assets.

b. Notwithstanding the requirements of subdivision 9 8 a of this subsection, the assets supporting the reserves for the following classes of business and any classes of business which do not have a significant credit quality, reinvestment or disintermediation risk may be held by the ceding company without segregation of such assets:

- (1) Health Insurance - Long Term Care/Long Term Disability

- (2) Traditional Nonparticipating Permanent

- (3) Traditional Participating Permanent

- (4) Adjustable Premium Permanent

- (5) Indeterminate Premium Permanent

- (6) Universal Life Fixed Premium (no dump-in premiums allowed)

The associated formula for determining the reserve interest rate adjustment must use a formula which reflects the ceding company's investment earnings and incorporates all realized and unrealized gains and losses reflected in the statutory statement. An acceptable formula appears at Exhibit 2.

~~10.~~ 9. Settlements are made less frequently than quarterly or payments due from the reinsurer are not made in cash within 90 days of the settlement date.

~~11.~~ 10. The ceding insurer is required to make representations or warranties not reasonably related to the business being reinsured.

~~12.~~ 11. The ceding insurer is required to make representations or warranties about future performance of the business being reinsured.

~~13.~~ 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.

B. Compliance with the conditions of subsection A of this section is not to be interpreted to diminish the requirement of Article 3.1 (§ 38.2-1316.1 et seq.) of Chapter 13 of Title 38.2 of the Code of Virginia that the reserve credits taken must be based upon the actual liability assumed by the reinsurer to reimburse the ceding company for benefits that the ceding company is obligated to pay under its direct policies and which gave rise to the requirement of statutory reserves.

C. The ceding insurer's actuary responsible for the valuation of the reinsured business shall consider this ~~regulation~~ chapter and any applicable actuarial standards of practice when determining the proper reinsurance credit in financial statements filed with the commission. The actuary should maintain adequate documentation and be prepared upon request to describe the actuarial work that substantiates the reserves, reserve credits or any other reserve adjustments reported in the financial statement and to demonstrate to the satisfaction of the commission that such work conforms to the provisions of this ~~regulation~~ chapter.

D. Notwithstanding subsection A of this section, an insurer subject to this regulation may, with the prior approval of the commission, take such reserve credit or establish such asset as the commission may deem consistent with the laws of this Commonwealth, particularly the provisions of Title 38.2 of the Code of Virginia and related rules, regulations and administrative pronouncements, including actuarial interpretations or standards adopted by the commission. All of the insurer's financial statements filed with the commission pursuant to § 38.2-1300 or § 38.2-1301 of the Code of Virginia shall thereafter disclose the reduction in liability or the establishment of an asset.

E. 1. Each agreement entered into after March 31, 1995, which involves the reinsurance of business issued prior to the effective date of the agreement, along with any subsequent amendments thereto, shall be filed by the ceding insurer with the commission within 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 actuarial opinion with respect to valuation of reserves shall be subject to the standards set forth in subsection C of this section.

2. Any increase in surplus net of federal income tax resulting from arrangements described in subdivision E 1 of this subsection shall be identified separately on the insurer's statutory financial statement as a surplus item (e.g., as part of the aggregate write-ins for gains and losses in surplus in the Capital and Surplus Account reported at page 4 of the Annual Statement) and recognition of the surplus increase as income shall be reflected on a net of tax basis in the "Reinsurance ceded" portions of the Annual Statement (e.g., Exhibit 1 and Summary of Operations for the life insurer's blue blank and the Underwriting Exhibit and Statement of Income for the property and casualty insurer's yellow blank) as earnings emerge from the business reinsured.

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) which 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 life insurer's Summary of Operations or as "Other underwriting expenses incurred" on the property and casualty insurer's Statement of Income).

At the end of year N+1 the business has earned $4 million. ABC has paid $0.5 million in profit and risk charges in arrears for the year and has received a $1 million experience refund. Company ABC's annual statement (blue blank) would report $1.65 million (66% of ($4 million - $1 million - $0.5 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. In addition, the experience refund would be reported separately as a miscellaneous income item in a life insurer's Summary of Operations and the "Other Income" segment of the property and casualty insurer's Underwriting and Investment Exhibit, Statement of Income.

14VAC5-280-70. Severability.

If any provision in this ~~regulation~~ chapter or the application thereof to any person or circumstance is ~~held~~ for any reason held to be invalid, the remainder of the ~~provisions in this regulation~~ chapter and the application of the provision to other persons or circumstances shall not be affected thereby.

14VAC5-290-30. Standards.

The following factors and standards, either singly or a combination of two or more, may be considered in determining whether an insurer's financial condition, method of operation, or manner of doing business in this Commonwealth might be deemed to be hazardous to its policyholders, creditors, or the general public:

1. Adverse findings resulting from any financial condition or market conduct examination conducted pursuant to Article 4 (§ 38.2-1317 et seq.) of Chapter 13 of Title 38.2 of the Code of Virginia or any inspection authorized by the general provisions of § 38.2-200, including inspections of financial statements filed pursuant to §§ 38.2-1300, 38.2-1301, 38.2-1316.2, ~~38.2-1316.3,~~ 38.2-4811, or 38.2-5103 of the Code of Virginia, or reported in any examination or other information submitted pursuant to § 38.2-5103 of the Code of Virginia, or reported in any audit report, and actuarial opinions, reports, or summaries submitted pursuant to §§ 38.2-1315.1 and 38.2-3127.1 of the Code of Virginia;

2. The National Association of Insurance Commissioners' ("NAIC") Insurance Regulatory Information System ("IRIS") and its other financial analysis solvency tools and reports;

3. The ratio of the annual premium volume to surplus or of liabilities to surplus in relation to loss experience and/or the kinds of risks insured;

4. Whether the insurer's asset portfolio when viewed in light of current economic conditions and indications of financial or operation leverage is of sufficient value, liquidity, or diversity to assure the company's ability to meet its outstanding obligations as they mature;

5. Whether the insurer has established reserves and related actuarial items that 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 insurer, when considered in light of the assets held by the insurer 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;

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

7. Whether the insurer's operating loss in the last 12-month period or any shorter period of time, including but not limited to net capital gain or loss, change in nonadmitted assets, and cash dividends paid to shareholders, is greater than 50% of the insurer's remaining surplus as regards policyholders in excess of the minimum required;

8. Whether the insurer's operating loss in the last 12-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;

9. Whether the excess of surplus to policyholders over and above an insurer's statutorily required surplus to policyholders has decreased by more than 50% in the preceding 12-month period or any shorter period of time;

10. The age and collectibility of receivables;

11. Whether a reinsurer, obligor, or any entity within the insurer's insurance holding company system is insolvent, threatened with insolvency, or delinquent in payment of its monetary or other obligations, and which may affect the solvency of the insurer;

12. Contingent liabilities, pledges or guaranties that either individually or collectively involve a total amount that may affect the solvency of the insurer;

13. Whether any affiliate of an insurer is delinquent in the transmitting to, or payment of, net premiums or other amounts due to such insurer;

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

15. Whether the management of an insurer has failed to respond to inquiries relative to the condition of the insurer or has furnished false and misleading information concerning an inquiry;

16. Whether the insurer has failed to meet financial and holding company filing requirements in the absence of a reason satisfactory to the commission;

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

18. Whether the insurer 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;

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

20. Whether management has established reserves and related actuarial values that do not comply with the requirements of Title 38.2 of the Code of Virginia, related rules, regulations, administrative promulgations, and statutory accounting standards, or that are not computed in accordance with presently accepted actuarial standards consistently applied and in accordance with sound actuarial principles and standards of practice;

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

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

23. Any other finding determined by the commission to be hazardous to the insurer's policyholders, creditors, or the general public.