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BCBSVT Risk Based Capital Order

Docket No. 19-007-I


IN THE MATTER OF:                                              )
Blue Cross and Blue Shield of Vermont                    )                       No. ___________
Risk-Based Capital Range Study                               )


WHEREAS, the Commissioner of the Department (the “Commissioner”) is responsible for administering and enforcing the insurance laws of the State of Vermont, including 8 V.S.A. §§ 10, 11, 12, 15, 3304, and 8302; and

WHEREAS, the Department has consulted with its actuaries and, with them, reviewed materials submitted by Blue Cross and Blue Shield of Vermont relating to its risk-based capital range; and

WHEREAS, the Company cooperated with the Department in its inquiry and review by responding to inquiries and providing documentary evidence and other materials;

NOW THEREFORE, the Commissioner makes findings and conclusions as follows:


Blue Cross and Blue Shield of Vermont (BCBSVT) is a nonprofit licensee of Blue Cross Blue Shield Association, conducting health-insurance business in the State of Vermont.
Risk Based Capital (RBC) is a method of measuring the amount of capital appropriate for an insurance entity to support its overall business operations in consideration of its size and risk profile.
RBC, properly applied, requires companies with differing risk profiles to hold different amounts of capital, and for companies and regulators to modify RBC for a given company over time, as the company’s risk profile and size change.
Since 2011, BCBSVT has targeted an RBC ratio range of 500% to 700%.
Since 2013, BCBSVT’s RBC ratio has been between 558% and 666%, and has been more stable than the ratios for most other similar entities.
As a not-for-profit health insurer, BCBSVT, like other such entities, is generally limited to raising capital from its own operations, while a for-profit entity may have other capital sources.
BCBSVT is a member of the national Blue Cross Blue Shield Association (BCBSA), and therefore is subject to the terms of a BCBSA license.
BCBSVT would face monitoring by BCBSA if its RBC ratio were to fall beneath 375%; BCBSVT has stated that its risk tolerance is for no greater than a 10% chance of a drop to that level over a five-year time horizon, and no greater than a 1% chance of a drop to 200% over that time horizon.
BCBSVT’s stated risk tolerance is reasonable and appropriate in light of the above facts.
BCBSVT’s actuarial consultant recommends, and BCBSVT requests, that the Department approve an RBC ratio target of 590% to 745%.
BCBSVT’s request is based on a recommendation from an actuarial firm that is qualified to complete the actuarial analysis and give such a recommendation, and the firm used reasonable assumptions, considered appropriate risks, and produced a reasonable and appropriate recommendation for the surplus range.
The Commissioner’s retained actuaries are qualified to evaluate the BCBSVT actuarial analysis and have done so employing accepted actuarial methods.
BCBSVT’s requested range is reasonable and appropriate in light of the risk-based capital factors in 8 V.S.A. § 8302(c).


NOW, THEREFORE, based on the Commissioner’s Findings of Fact, the Commissioner orders as follows:

The Commissioner approves BCBSVT’s proposed RBC ratio of 590% to 745%.
BCBSVT shall not, in any regulatory proceeding, state or imply that its RBC ratio target is other than 590% to 745%.
If BCBSVT’s RBC ratio falls below or increases above the approved range, BCBSVT shall promptly develop a plan to move within the range within a reasonable time and shall submit such plan to the Commissioner.
BCBSVT shall review its RBC range at least once every five years, and more frequently if there is a material change affecting the appropriate range.
This Order shall be governed by and construed under the laws of the State of Vermont.

Entered at Montpelier, Vermont this 7th day of February, 2019.


                                                                                    Michael S. Pieciak, Commissioner
                                                                                    Department of Financial Regulation