Amendments › SF 549

Amendment H-1211 to SF 549

Relating to captive insurance companies, and including applicability provisions

Adopted · April 13, 2023Strike everything: replaces the whole bill

Filed April 12, 2023 in the House by

What it changes

By striking everything after the enacting clause and inserting: “Section
NEW SECTION . 432.1A Tax on premiums —— captive insurance companies.
a. Each captive company under chapter 521J shall pay on or before March 1 of each year a tax on the direct premiums collected or contracted for on policies or contracts of insurance written by the captive company during the immediately preceding calendar year, after deducting from the direct premiums the amounts paid to policyholders as return premiums, including dividends on unabsorbed premiums or premium deposits returned or credited to policyholders. b. The tax due under paragraph “a” on direct premiums collected or contracted for by a captive company shall be calculated as follows: (1) Seven-twentieths of one percent on the first twenty million dollars of direct premiums. (2) One-quarter of one percent on each dollar of direct premiums after the first twenty million dollars collected under subparagraph (1).
a. Each captive company under chapter 521J shall pay on or before March 1 of each year a tax on assumed reinsurance premiums. A reinsurance tax shall not apply to premiums for risks or portions of risks that are subject to taxation on a direct basis pursuant to subsection
b. A reinsurance premium tax shall not be payable by a captive company in connection with the receipt by the captive company of assets in exchange for the assumption of loss reserves and other liabilities of another insurer under common ownership and control if the transaction is part of a plan to discontinue the operations of the other insurer, and if the intent of the parties to the transaction is to renew or maintain the other insurer’s business with the captive company. c. The amount of reinsurance tax due from a captive company under paragraph “a” shall be calculated as follows: (1) Two-tenths of one percent on the first twenty million dollars of assumed reinsurance premiums. (2) One-eighth of one percent on the twenty million dollars of assumed reinsurance premiums collected after the first twenty million dollars of assumed reinsurance premiums collected under subparagraph (1). (3) Five percent on each dollar of assumed reinsurance premiums collected after the twenty million dollars collected under subparagraph (1) and the twenty million dollars collected under subparagraph (2).
a. (1) Except as provided in subparagraphs (2) and (3), if the aggregate taxes as calculated under subsections 1 and 2 that are payable by a captive company are less than five thousand dollars for any one tax year, the captive company shall pay five thousand dollars in tax for that tax year. (2) If a captive company is subject to the minimum tax under subparagraph (1) in the calendar year in which the company is first granted a certificate of authority under section 521J.2, the tax shall be prorated as follows: (a) If a certificate of authority is first granted in the first quarter of the calendar year, the tax shall be five thousand dollars. (b) If a certificate of authority is first granted in the second quarter of the calendar year, the tax shall be three thousand seven hundred fifty dollars. (c) If a certificate of authority is first granted in the third quarter of the calendar year, the tax shall be two thousand five hundred dollars. (d) If a certificate of authority is first granted in the fourth quarter of the calendar year, the tax shall be one thousand five hundred dollars. (3) If a captive company that is subject to the minimum tax under subparagraph (1) surrenders the company’s certificate of authority in the year that the captive company is subject to the minimum tax, the tax shall be prorated on a quarterly basis as follows: (a) If the certificate of authority is surrendered in the first quarter of the calendar year, the tax shall be one thousand dollars. (b) If the certificate of authority is surrendered in the second quarter of the calendar year, the tax shall be two thousand five hundred dollars. (c) If the certificate of authority is surrendered in the third quarter of the calendar year, the tax shall be three thousand seven hundred fifty dollars. (d) If the certificate of authority is surrendered in the fourth quarter of the calendar year, the tax shall be five thousand dollars. b. Each protected cell in a protected cell captive company shall be considered separately in determining the aggregate tax to be paid by the protected cell captive company. If the protected cell captive company insures any risks in addition to the protected cells, the determination of the aggregate tax shall, in addition to the protected cells, also include the premium on all insured risks. c. Each series of members of a limited liability company formed as a special purpose captive company shall be considered separately under this section, except that the minimum tax as described in paragraph “a” shall be considered in the aggregate.
A captive company, other than a protected cell captive company, shall not be required to pay aggregate taxes under this section that exceed one hundred thousand dollars in any one tax year.
Two or more captive companies under common ownership and control shall be taxed as a single captive company. For the purposes of this subsection, “common ownership and control” means either of the following: a. In the case of a stock corporation, the direct or indirect ownership of eighty percent or more of the outstanding voting stock of two or more corporations by the same shareholder or shareholders. b. In the case of a mutual insurer, the direct or indirect ownership of eighty percent or more of the surplus, and the voting power of two or more insurers, by the same member or members.
Only the branch business of a branch captive company shall be subject to taxation under this section.
The tax provided for in this section shall be calculated on an annual basis notwithstanding a policy or a contract of insurance, or a contract of reinsurance, that is issued on a multiyear basis. In the case of a multiyear policy or a multiyear contract, the premium shall be prorated for the purpose of calculating the appropriate tax. Sec.
Section 507C.3, Code 2023, is amended by adding the following new subsection: NEW SUBSECTION .
Captive companies under chapter 521J. Sec.
NEW SECTION . 521J.1 Definitions. As used in this chapter, unless the context otherwise requires:
“Affiliated company” means a company that is in the same corporate system as a parent, an industrial insured, or a member based on common ownership, control, operation, or management.
“Alien captive company” means a captive company formed under the laws of an alien jurisdiction that imposes statutory or regulatory standards in a form acceptable to the commissioner on companies transacting the business of insurance in such jurisdiction.
“Branch business” means any insurance business transacted by a branch captive company in this state.
“Branch captive company” means an alien captive company authorized by the commissioner by rule to transact the business of insurance in this state through a business entity with its principal place of business in this state.
“Branch operations” means any business operations of a branch captive company.
“Business entity” means a corporation, a limited liability company, or other legal entity formed by an organizational document. “Business entity” does not include a sole proprietorship.
“Captive company” means any pure captive company, protected cell captive company, special purpose captive company, or industrial insured captive company formed or authorized under this chapter.
“Captive reinsurance company” means a captive insurance company in this state, as authorized by the commissioner by rule, that reinsures the risk ceded by any other insurer.
“Captive risk retention group” means a captive insurance risk retention group formed under this chapter and that is subject to chapter 515E.
“Cash equivalent” means any short-term, highly liquid investment with an original maturity of three months or less that is readily convertible to known amounts of cash.
“Commissioner” means the commissioner of insurance.
“Controlled unaffiliated business entity” means a business entity or sole proprietorship that meets all of the following requirements: a. The business entity or sole proprietorship is not in a parent’s corporate system that consists of the parent and any affiliated companies. b. The business entity or sole proprietorship has an existing, controlling contractual relationship with the parent or an affiliated company. c. The business entity’s or sole proprietorship’s risks are managed by a pure captive company or an industrial insured captive company, as applicable.
“Excess workers’ compensation insurance” means, for an employer that has insured or self-insured the employer’s workers’ compensation risks in accordance with applicable state or federal law, insurance in excess of a specified per-incident or aggregate limit as established by the commissioner by rule.
“Industrial insured” means an insured that meets all of the following requirements: a. The insured procures the insurance of any risk by use of the services of a full-time employee acting as an insurance manager or buyer. b. The insured’s aggregate annual premiums for insurance on all risks are at least twenty-five thousand dollars. c. The insured employs a minimum of twenty-five full-time employees.
“Industrial insured captive company” means an insurance company that insures the risks of industrial insureds, comprised of the industrial insured group and the industrial insured group’s affiliated companies and the risks of the controlled unaffiliated business of an industrial insured or its affiliates.
“Industrial insured group” means a group of industrial insureds that meets either of the following requirements: a. The group collectively owns, controls, or holds with the power to vote all of the outstanding voting securities of an industrial insured captive company incorporated as a stock insurer, or has complete voting control over any of the following: (1) An industrial insured captive company incorporated as a mutual insurer. (2) An industrial insured captive company formed as a reciprocal insurer. (3) An industrial insured captive company formed as a limited liability company. b. The group is a captive risk retention group.
“Mutual insurer” means a business entity that does not have capital stock, and that has a governing body elected by the insurer’s policyholders. “Mutual insurer” includes a nonprofit corporation with members.
“Organizational document” means articles of incorporation, articles of organization, a subscribers’ agreement, a charter, or any other document that can legally establish a business entity in this state.
“Parent” means a sole proprietorship, a business entity, or an individual that directly or indirectly owns, controls, or holds with power to vote more than fifty percent of the outstanding voting securities or membership interests of a captive company.
“Participant” means a sole proprietorship or a business entity and any affiliates that are insured by a protected cell captive company and whose losses are limited by a participant contract to such participant’s pro rata share of the assets of one or more protected cells identified in the participant contract.
“Participant contract” means a contract by which a protected cell captive company insures the risks of a participant and limits the losses of each participant in the contract to the participant’s pro rata share of the assets of one or more protected cells as identified in the contract.
“Protected cell” means a separate account established by a protected cell captive company formed or authorized under this chapter in which an identified pool of assets and liabilities are segregated and insulated, as provided in section 521J.17, from the remainder of the protected cell captive company’s assets and liabilities in accordance with the terms of one or more participant contracts to fund the liability of the protected cell captive company with respect to the participants.
“Protected cell assets” means all assets, contract rights, and general intangibles identified and attributable to a specific protected cell of a protected cell captive company.
“Protected cell captive company” means a captive company that meets all of the following requirements: a. The minimum legally required capital and surplus of the company is provided by one or more sponsors. b. The company is formed or authorized under this chapter. c. The company insures the risks of separate participants through participant contracts. d. The company funds the company’s liability to each participant through one or more protected cells, and segregates the assets of each protected cell from the assets of other protected cells, and from the assets of the protected cell captive company’s general account. e. The company is incorporated or formed as a limited liability company.
“Protected cell liabilities” means all liabilities and other obligations identified with and attributable to a specific protected cell of a protected cell captive company.
“Public records” means the same as defined in section 22.1.
“Pure captive company” means an insurance company that insures the risks of the company’s parent and the parent’s affiliated companies, and the risks of controlled unaffiliated business entities.
“Qualified actuary” means an individual who meets all of the following requirements: a. The individual is a member of the American academy of actuaries. b. The individual is qualified to provide the certifications as described in the United States qualifications standards promulgated by the American academy of actuaries pursuant to the code of professional conduct adopted by the American academy of actuaries, the society of actuaries, the American society of pension professionals and actuaries, the casualty actuarial society, and the conference of consulting actuaries.
“Series of members” means a group or collection of members of a limited liability company who share interests and who have separate rights, powers, or duties with respect to property, obligations, or profits and losses associated with property or obligations, and who are specified in the organizational document or operating agreement of the limited liability company, or that are specified by one or more members or managers of the limited liability company or other persons as provided in the organizational document or operating agreement.
“Sole proprietorship” means an individual who does business in a noncorporate form.
“Special purpose captive company” means a captive company that is formed or authorized under this chapter that does not meet the definition of any other type of captive company as defined in this section, or that is formed by, on behalf of, or for the benefit of a political subdivision of this state.
“Sponsor” means any person that meets the requirements of sections 521J.17 and 521J.18, and that is approved by the commissioner to do all of the following: a. Provide all or part of the capital and surplus required of a protected cell captive company by law. b. Organize and operate a protected cell captive company. Sec.
NEW SECTION . 521J.2 Certificate of authority.
If permitted by its organizational document, a captive company may apply to the commissioner for a certificate of authority to provide property insurance, casualty insurance, life insurance, disability income insurance, surety insurance, marine insurance, health insurance, or a group health plan, with the following exceptions: a. A pure captive company shall only insure risks of the company’s parent and affiliated companies, and of the company’s controlled unaffiliated business entities. b. An industrial insured captive company shall only insure risks of the industrial insured company, comprised of the industrial insured group and the industrial insured group’s affiliated companies, and the controlled unaffiliated business of an industrial insured group or the industrial insured group’s affiliated companies. c. A special purpose captive company shall not provide insurance or reinsurance for risks unless approved by the commissioner. d. A captive company or a branch captive company shall not do any of the following: (1) Provide personal lines of insurance, including but not limited to motor vehicle insurance, homeowner’s insurance, or any component of motor vehicle insurance or homeowner’s insurance on a direct basis. (2) Accept or cede reinsurance except as permitted by the commissioner by rule. (3) Provide health insurance coverage or a group health plan unless the captive company or the branch captive company provides the health insurance coverage or the group health plan only for the parent company and the parent company’s affiliated companies. (4) Write workers’ compensation insurance on a direct basis. (5) Write life insurance on a direct basis. e. A protected cell captive company shall not insure any risks other than those of the protected cell captive company’s participants.
A captive company shall not write any insurance business unless the captive company complies with all of the following: a. The captive company obtains a certificate of authority from the commissioner prior to writing any insurance business. b. The captive company’s board of directors, board of managing members, or a reciprocal insurer’s subscribers’ advisory committee, holds at least one annual meeting in the state. c. The captive company maintains its principal place of business in the state. d. The captive company designates a registered agent to accept service of process, files the name and contact information and any subsequent changes regarding the registered agent with the commissioner, and agrees that if the registered agent cannot be found with reasonable diligence, the commissioner may act as an agent of the captive company with respect to any action or proceeding and may be served pursuant to section 505.30.
a. Prior to receiving a certificate of authority, a captive company shall do all of the following: (1) File with the commissioner all of the following: (a) A certified copy of the business entity’s organizational document. (b) A statement under oath of an officer of the business entity showing the business entity’s financial condition. (c) Any other statement or document required by the commissioner as established by rule. (2) Submit a description of coverages, deductibles, coverage limits, rates, and any additional information requested by the commissioner to the commissioner for approval. (3) Provide a statement to the commissioner that describes all of the following: (a) The character, reputation, and financial standing of the organizers of the business entity. (b) The character, reputation, financial responsibility, insurance experience, and business qualifications of all officers, directors, and managing members of the business entity. (4) Provide any other information required by the commissioner as established by rule. b. If there is a subsequent material change in the information provided to the commissioner under paragraph “a” , the captive company shall submit appropriate supporting documentation to the commissioner for approval. The captive company shall not offer any additional lines of insurance until on or after the date on which the commissioner approves the supporting documentation. The captive company shall inform the commissioner of any change in rates within thirty calendar days of the captive company’s adoption of a change in rate. c. In addition to the information required under paragraphs “a” and “b” , each applicant captive company shall file with the commissioner evidence of all of the following: (1) The amount and liquidity of the captive company’s assets relative to the risks to be assumed by the captive company. (2) The adequacy of the expertise, experience, and character of the persons who will manage the captive company. (3) The overall soundness of the captive company’s plan of operation. (4) The adequacy of the loss prevention program of the captive company’s parent, members, or industrial insureds, as applicable. (5) Any other factors deemed relevant by the commissioner to ascertain if the proposed captive company will be able to meet the company’s policy obligations. d. In addition to the information required under paragraph “a” , each applicant that is a protected cell captive company shall file with the commissioner all of the following: (1) A business plan that demonstrates, at a level of detail deemed sufficient by the commissioner, how the applicant will account for the loss and expense experience of each protected cell, and how the applicant will report the loss and expense experience of each protected cell to the commissioner. (2) A statement that acknowledges that all financial records of the protected cell captive company, including records pertaining to any protected cells, shall be made available upon request for inspection or examination by the commissioner or the commissioner’s designated agent. (3) A copy of each participant contract. (4) Evidence that expenses will be allocated to each protected cell in a fair and equitable manner. e. In addition to the requirements of paragraph “a” , a captive company formed as a reciprocal insurer shall file with the commissioner a certified copy of the power of attorney of the reciprocal insurer’s attorney-in-fact, a certified copy of the reciprocal insurer’s subscribers’ agreement, a statement under oath of the reciprocal insurer’s attorney-in-fact that shows the reciprocal insurer’s financial condition, and any other statements or documents required by the commissioner as established by rule. f. All documents and information submitted pursuant to this subsection shall be confidential and shall not be made public without the advance written consent of the submitting company, with the following exceptions: (1) The documents and information shall be discoverable by a party in a civil action or in a contested case to which the captive company that submitted the information is a party upon a showing by the party seeking to discover the information that the information sought is relevant to, and necessary for, the furtherance of the action or case; the information sought is unavailable from other nonconfidential sources; and that a subpoena issued by a judicial or an administrative officer has been submitted to the commissioner. (2) The commissioner may, in the commissioner’s discretion, disclose the documents and information to a public official having jurisdiction over the regulation of insurance in another state, or to a public official of the federal government, provided that the public official agrees in writing to maintain the confidentiality of the information, and that the laws of the state in which the public official serves require that the information remain confidential.
a. Each captive company, each individual series of members of a limited liability company, and each protected cell shall pay a nonrefundable fee to the commissioner of two hundred dollars for the examination, investigation, and processing of its application for a certificate of authority. The commissioner shall be authorized to retain legal, financial, and examination services from outside experts as necessary for review of the application, the reasonable cost of which may be charged to the applicant. b. Each captive insurance company, each individual series of members of a limited liability company, and each protected cell shall pay an initial registration fee, and an annual renewal registration fee, of three hundred dollars.
If the commissioner is satisfied with the documents and statements that an applicant captive company has filed in compliance with this chapter, and the applicable provisions of Title XIII, subtitle 1, the commissioner may grant a certificate of authority to the captive company that permits the company to do the business of insurance in this state. The certificate of authority must be renewed annually and may be renewed if the applicant is in compliance with this chapter. Sec.
NEW SECTION . 521J.3 Captive companies —— names. A captive company shall not adopt a name that is the same, deceptively similar, or likely to be confused with or mistaken for any other existing business name already registered in this state. Sec.
NEW SECTION . 521J.4 Minimum capital and surplus requirements.
The commissioner shall not issue a certificate of authority to a captive company unless the captive company possesses and maintains unimpaired paid-in capital and surplus that meets the following requirements: a. Is not less than two hundred fifty thousand dollars for a pure captive company. b. Is not less than five hundred thousand dollars for an industrial insured captive company, including a captive risk retention group. c. Is an amount as determined by the commissioner after giving due consideration to the captive company’s business plan, feasibility study, and pro forma documents, including, for a special purpose captive company, the nature of the risks to be insured. d. Is not less than five hundred thousand dollars for a protected cell captive company. If, however, the protected cell captive company does not assume any risks, the risks insured by the protected cells are homogenous, and there are not more than ten cells, the commissioner may reduce the amount to an amount not less than two hundred fifty thousand dollars. e. Is not less than the applicable amount of capital and surplus required in paragraphs “a” through “d” , as determined based upon the organizational form of the alien captive company, for a branch captive company. The minimum capital and surplus shall be jointly held by the commissioner and the branch captive company in a bank of the federal reserve system as approved by the commissioner by rule. f. Is not less than fifty percent of the capital required for that type of captive company for a captive reinsurance company.
The commissioner may require additional capital and surplus for a captive company under subsection 1 based upon the type, volume, and nature of the insurance business transacted by the captive company.
The capital and surplus required under subsection 1 and subsection 2, if applicable, shall be in the form of cash, cash equivalent, or an irrevocable letter of credit on a form as prescribed by the commissioner by rule and as issued by a bank chartered by the state of Iowa, a member bank of the federal reserve system, or a bank chartered by another state if approved by the commissioner. Sec.
NEW SECTION . 521J.5 Captive companies —— formation.
A captive company must be formed or organized as a business entity as provided under this chapter.
An industrial insured captive company shall be formed or organized in one of the following ways: a. Incorporated as a stock insurer with the stock insurer’s capital divided into shares and held by the stockholders. b. Incorporated as a mutual insurer without capital stock. c. Organized as a reciprocal insurer as permitted by the commissioner by rule. d. Organized as a manager-managed limited liability company.
A captive company incorporated or organized in this state shall be incorporated or organized by at least one incorporator or organizer who is a resident of the state.

Shortened here; the full amendment is in the official document.

Official amendment (PDF) · In the Bill Book