Relating to captive insurance companies, and including applicability provisions

This bill is related to captive insurance companies. “Captive company” is defined in the bill as any pure captive insurance company, association captive insurance company, protected cell captive insurance company, special purpose captive insurance company, or industrial insured captive insurance company formed or authorized under the bill. The bill requires each captive company to pay on or before March 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 making deductions from the direct premiums via methodology detailed in the bill to determine the appropriate tax that is due. The bill subjects captive companies to Code chapter 507C (insurers supervision, rehabilitation, and liquidation Act). The bill details the process for a captive company to apply to the commissioner of insurance (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 exceptions as detailed in the bill. 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 Iowa. A captive company is required to possess and maintain unimpaired paid-in capital and surplus that meets the requirements detailed in the bill. A captive company is required to be formed or organized as a business entity as provided under the bill. A captive company shall not pay a dividend out of, or other distribution with respect to, the minimum capital or surplus required to be maintained by the company without the prior written approval of the commissioner. Approval of an ongoing plan for the payment of dividends or other distributions shall be conditioned upon retention, at the time of each payment, of capital surplus in excess of the amounts specified by, or determined in accordance with, a formula as approved by the commissioner. The bill requires a captive company to file an annual report with the commissioner in certain circumstances as detailed in the bill. Each captive company shall use generally accepted accounting principles, unless the commissioner requires the use of statutory accounting principles, for the company’s report. On or before April of each year, each branch captive company shall submit to the commissioner a copy of all reports required to be filed under the laws of the foreign captive insurance company’s domiciliary jurisdiction, verified by oath of two of the foreign captive insurance company’s executive officers. All reports filed under the bill shall be considered confidential and shall not be a public record under Code chapter 22. The commissioner may examine the affairs, transactions, accounts, records, and assets of each captive company as detailed in the bill. A captive company’s certificate to conduct the business of insurance may be suspended by the commissioner for reasons as detailed in the bill. A captive company may provide excess workers’ compensation insurance to the captive company’s parent and affiliated companies, unless the laws of the state having jurisdiction over the transaction prohibit providing excess workers’ compensation insurance. A captive company may reinsure workers’ compensation of a qualified self-insured plan of the captive insurance company’s parent and affiliated companies. A merger between captive stock insurers, or a merger between captive mutual insurers, must meet the applicable requirements of Code chapter 521 and of the bill, except that the commissioner may, at the commissioner’s discretion, provide notice to the public of the proposed merger prior to approval or disapproval of the merger. The bill establishes the captive insurance regulatory and supervision account (account) in the state general fund and moneys in the account shall be used to provide the financial means for the insurance division to administer the bill, and for the reimbursement of reasonable expenses incurred by the insurance division to promote captive insurance in this state. All fees, assessments, fines, and administrative penalties collected under the bill shall be deposited in the account. All payments from the account that are made for the maintenance of staff and associated expenses, including necessary contractual services, shall only be disbursed from the state treasury upon a warrant issued by the commissioner. The balance in the account at the end of each fiscal year shall revert to the general fund. The bill requires that industrial insured captive companies, association captive companies, and captive risk retention groups comply with the investment requirements as established by the commissioner by rule. The commissioner may approve the use of alternative reliable methods of valuation and rating. If a captive company’s admitted assets total less than $5 million the commissioner may approve an investment of up to percent of admitted assets in rated credit instruments in any one investment that meets the requirements as established by the commissioner by rule. A pure captive company, or a protected cell captive company, shall not be subject to any restrictions on allowable investments except as detailed in the bill. Subject to the prior approval of the commissioner, a captive company may provide reinsurance on risks ceded by any other insurer. Any captive company may take credit for reserves on risks or portions of risks ceded to reinsurers as provided under Code chapter 521B. A captive company shall not be required to join a rating organization. A captive company shall not join or contribute financially to any plan, pool, association, or guaranty or insolvency fund in this state. One or more sponsors may form a protected cell captive company and are subject to the requirements detailed in the bill. A sponsor of a protected cell captive company shall be an insurer authorized under the laws of any state, a reinsurer authorized under the laws of any state, a captive company formed or authorized under the bill, an insurance producer licensed in this state and approved by the commissioner, or any other person approved by the commissioner. If delinquency proceedings have been initiated against a protected cell captive company, the assets of a protected cell shall not be used to pay any expenses other than those attributable to the protected cell, and the capital and surplus of the protected cell captive company shall be available at all times to pay expenses of, or claims against, the protected cell captive insurance company. Individuals, business entities, and sponsors may be participants in a protected cell captive company. A participant shall not be required to be a shareholder of a protected cell captive company or a shareholder of the protected cell captive company’s affiliate. The assets of two or more protected cells may be combined for the purposes of investment by a protected cell captive company and combining the assets shall not be construed as defeating the segregation of the protected cells’ assets for accounting or other purposes. The bill defines “dormant captive company” as a captive company, other than a captive risk retention group, that has ceased transacting the business of insurance, including the issuance of insurance policies, and that has no remaining liabilities associated with insurance business transactions or insurance policies issued prior to its filing of an application for a certificate of dormancy. The bill details the requirements for a captive company to apply for a certificate of dormancy. The bill shall not be construed to exempt a captive company, a captive company’s parent, or a captive company’s affiliated companies from compliance with applicable state and federal laws governing workers’ compensation insurance. The commissioner shall adopt rules to implement and administer the bill. The bill repeals Code chapter 521G (protected cell companies) effective January 1, 2025.17 applies to protected cell captive companies formed, authorized, or continued on or after January 1, 2025.