In speaking with others recently about their plans to file UCAA expansion applications this year, I was reminded of some common misunderstandings about seasoning requirements. In case you may not be familiar with them, seasoning requirements are a set of special pre-qualifications that many states impose on companies seeking admission to do business in the state. Their purpose is to ensure that companies have a sufficient track record before they may be allowed to offer coverage in the state. If your company is planning to file UCAA expansion applications this year, it is important to understand both what seasoning requirements are and what they are not. Here are some common misconceptions about them:
Seasoning Requirements are Just Waiting Periods…
With respect to states that have adopted seasoning requirements, the seasoning period, or pre-qualification period, runs from between five years (i.e. Vermont) to one year (i.e. Pennsylvania). A common misconception about the seasoning period is that it is essentially a waiting period; that is, the company need only be in business for the number of years specified in the statute in order to qualify for admission. This is true for some states, but not for all. This is perhaps the single most common misconception about seasoning requirements and I have found the culprit of this to be compliance memos or charts that summarize seasoning requirements like this:
|State||Seasoning Requirement||Minimum Cap&Surplus||Etc.|
|State 1||5 years||$300,000/$150,000|
|State 2||3 years||$1,000,000/$250,000|
|State 3||2 years||$1,500,000/$500,000|
The truth is that many states require companies to not only be in business for the time period specified in the statute or regulation, but also to achieve specific milestones during that time. Delaware, for example, requires companies to not only be in business continuously for three years prior to admission, but also to have achieved at least one year of “profitable” operations during that time (“profitable” being defined in several different ways, see Domestic/Foreign Insurers Bulletin No. 3). Vermont, to use a more extreme example, has adopted a five-year seasoning period requiring companies to not only be in business that long, but also to demonstrate profitability in each of those five years.
…And the Only Thing to do is Wait
On the other side of the coin, another common misconception about seasoning requirements is that there are no exceptions to them. In fact, almost all states with seasoning requirements allow certain exemptions or waivers. These can be grouped into two broad categories: (1) corporate exemptions; and (2) discretionary waivers.
Corporate exemptions are those that apply according to certain facts about the history or ownership of the company. A common example is that in many states, seasoning requirements do not apply if the company is the surviving company of a merger involving a previously admitted company. Equally common are exemptions that apply to wholly owned subsidiaries of currently admitted companies. Even companies that are not wholly owned by their parent company can still qualify for exemptions in some states if the parent company meets certain requirements.
Discretionary waivers are more varied but, as the name implies, apply only at the discretion of the state. Examples of these are statutory or regulatory provisions giving the state insurance commissioner the discretion to consider:
- whether the company’s admission to do business in the state would “enhance competition” (Georgia);
- whether the company provides coverage that is “not readily available” to consumers or which is “under-served” in the state (several states);
- whether, notwithstanding the company’s inability thus far to show compliance with certain financial milestones, it nevertheless has “adequate capital and surplus” (Mississippi) or “surplus strength” (Virginia); and
- (the catchall) whether the admission of the company would be in the “best interest” of consumers in the state (several).
I recently worked on a UCAA expansion application involving a company that fell short of the continuous profitability milestones under the state’s seasoning requirements. But, because the regulations allowed a discretionary waiver based on surplus strength, and because the company’s surplus position was well in excess of the minimum required for admission, we were able to qualify the company for the discretionary waiver and get it admitted.
Seasoning Requirements Apply Only to New Companies
This is related to the misconception that seasoning requirements operate like waiting periods. As discussed above, many states require companies to achieve specific financial milestones during the seasoning period. Seasoning requirements that require consistent years of profitability, for example, can keep many older companies waiting for years if they have experienced volatility in their business over the seasoning period.
Get the facts about the seasoning requirements of the state in which your company may wish to seek admission. Find out the specific seasoning requirements that apply to companies in your line of business. Get help with analyzing the particular requirements before discussing them with the state. Then enlist the help of experienced counsel to ascertain whether your company may qualify for an exception to the rule.
Note from the Author: Whether your company is seeking to expand to new states or seeking additional lines of authority to write new products in states where it is currently licensed, The Lawson Firm (TLF) can help your company achieve its goals faster, more efficiently, and at less overall cost and burden than is normally experienced by companies that choose to go it alone. TLF can manage and help to expedite the application process from start to finish. Please feel free contact me to discuss your company’s needs in this area: Scott Lawson, E: email@example.com, P: +1 (440) 666-9735.♦