Relating to captive insurance companies and life captive reinsurance companies, and including civil penalties

This bill relates to captive insurance companies (captive companies) and life captive reinsurance companies (LCRCs). _____ willfully or recklessly publish such tax return. A person who violates the bill shall be guilty of a serious misdemeanor and, in addition to any other penalty, shall be dismissed from state office or discharged from state employment. The bill does not prohibit the department of revenue (DOR) from turning over information and tax returns in the DOR’s possession to duly authorized officers of the United States, or tax officials of other states, pursuant to an agreement between the commissioner of insurance (commissioner) and either the secretary of the treasury of the United States or the secretary’s delegate, or the commissioner of another state. 905 (foreign insurance companies becoming domestic) applies to life insurance companies, and to insurance companies doing business under Code chapter 515.905 also applies to captive companies. The bill amends the definitions of “alien captive company”, “business entity”, “captive company”, “captive reinsurance company”, “captive risk retention group”, and “special purpose captive company” under Code chapter 521J (captive companies). The term “foreign captive company” is defined in the bill. Under current law, 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. Under the bill, a captive company may also apply for a certificate of authority to have the ability to accept or transfer risks by means of a parametric contract. A captive company shall not write any insurance business unless the captive company’s organizational documents, and any subsequent amendments, have been filed and approved by the commissioner prior to being filed with the secretary of state. _____ law requires a captive company to file with the commissioner a certified copy of the business entity’s organizational document. The bill eliminates the requirement that the copy be certified.13(1)(b) that requirements of the commissioner be established by rule. Under current law, all documents and information submitted by a captive company prior to receiving a certificate of authority shall be confidential and shall not be made public without the advance written consent of the submitting company. The bill includes reports as confidential information. Current law requires that each captive company, individual series of members of a limited liability company, and protected cell pay an initial registration fee, and an annual renewal registration fee, of $300. The bill requires each captive company, individual series of members of a limited liability company, and protected cell pay an annual renewal registration fee of $300. Under current law, 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 of no less than $500,000 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 10 cells, the commissioner may reduce the amount to an amount not less than $250. Under the bill, 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 of no less than $100,000 for a protected cell captive company. _____ requirements for a captive company shall be in the form of cash, cash equivalent, or an irrevocable letter of credit. Under the bill, the minimum capital and surplus requirements may also be in the form of marketable securities approved by the commissioner. If the captive company elects to satisfy the minimum requirements with marketable securities, the commissioner may require the captive company to file financial statements or other reports on a more frequent basis than otherwise required. The increased reporting frequency may be imposed to ensure the commissioner can adequately monitor the liquidity, valuation, and market risk associated with the marketable securities. Current law requires a captive company be formed or organized as a business entity under Code chapter 521J. Under the bill, subject to the commissioner’s approval, a captive company may also be formed as a reciprocal insurer under Code chapter 520. The bill eliminates the requirement under current law that a captive risk retention group formed as a reciprocal insurer have a minimum of five members of the subscribers’ advisory committee who are residents of this state. Under the bill, a captive company formed as a reciprocal insurer shall be subject to Code chapter 520 (reciprocal or interinsurance contracts), unless exempt by approval of the commissioner in the captive company’s plan of operation. The bill eliminates the requirement under current law that applicable provisions of Code chapter 508B (conversion from mutual company to stock company) apply to a merger, consolidation, conversion, mutualization, or voluntary dissolution by a captive company. Under current law, a captive company shall file an annual report with the commissioner that meets the requirements of current law. Under the bill, a captive company does not have to file the annual report if directed by the commissioner in the first year of a captive company’s licensure.7 (reports) be considered confidential and not a public record. Under the bill, applicable provisions of Code chapter 508B apply to a merger, consolidation, conversion, mutualization, or voluntary dissolution by a captive company unless provided otherwise. Under current law, if a captive company’s admitted assets total less than $5 million, the commissioner may approve an investment of up to 20 percent of the captive company’s admitted assets in rated credit instruments in any investment. Instead of admitted assets, the bill relies on the total assets disclosed in a captive company’s annual report. Total assets under the bill shall be based on the accounting basis approved by the commissioner, provided that all assets included must be reasonably liquid, realizable, and available to support the obligations of the captive company. Current law requires that each protected cell captive company formed or authorized by Code chapter 521J be incorporated, and an incorporated protected cell may be organized and operated in any form of business organization as authorized by the commissioner by rule. The bill requires that each protected cell captive company be formed as a business entity, provided the business entity is separate from the protected cell captive company of which the business entity is a part. Under current law, the commissioner shall adopt rules to implement and administer Code chapter 521J. Under the bill, the commissioner may adopt rules.1A (tax on premiums —— captive companies), a foreign or alien captive company that redomesticates into the state shall only be liable for taxes on premiums paid to the captive company after redomestication and shall report to the commissioner all premium taxes due. _____ the company may elect to forego payment of the premium taxes. If the company that makes such election subsequently surrenders the company’s license or redomesticates to another jurisdiction within five years, the company shall immediately pay to the commissioner a tax in an amount equal to the foregone premium tax plus 10 percent per annum from the date the foregone premium tax would have been originally due.26. An LCRC issued a certificate of authority shall only reinsure the risks of a ceding insurer, shall not otherwise engage in the business of insurance, and may purchase retrocession to cede the risks assumed under a reinsurance contract. An LCRC shall not write any insurance business unless the LCRC complies with the requirements of the bill. All documents and information submitted by an LCRC for purposes of an application for a certificate of authority shall be confidential and shall not be made public without the advance written consent of the submitting LCRC, unless an exception detailed in the bill applies. If the LCRC’s application is complete, the commissioner may issue a certificate of authority to the LCRC upon a finding that the LCRC’s proposed plan of operation provides for a viable operation, is not hazardous to a ceding insurer, and the terms of any reinsurance contract and related transactions of the LCRC comply with the requirements of the bill and all applicable insurance laws and rules of the state. In conjunction with the issuance of the certificate of authority, the commissioner may issue an order regarding any terms and conditions regarding the organization, licensing, and operation of the LCRC that the commissioner deems appropriate. “Ceding insurer” and “life captive reinsurance company” are defined by the bill. _____ An LCRC 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 the state. On the date an LCRC files an application for a certificate of authority, and by March 15 of each succeeding year that an LCRC is in operation and is ceded new business, a qualified actuary shall file with the commissioner a certification that the ceding insurer’s transactions with the LCRC are not used to gain an unfair advantage if pricing of policies and contracts reinsured by the LCRC reflect, at the time the policies and contracts were issued, a reasonable long-term estimate of the cost to the ceding insurer of an alternative third-party transaction and utilize current pricing assumptions. The ceding insurer shall maintain documentation detailing the process by which the qualified actuary arrived at the conclusions in preparation for an examination. The commissioner shall not issue a certificate of authority unless an LCRC possesses and maintains unimpaired paid-in capital and surplus that is not less than $5 million, and the commissioner may require additional capital and surplus based upon the reinsurance business transacted by the LCRC. Minimum capital and surplus shall be in the form of cash or other securities that are investment-grade at the time of acquisition and are acceptable to the commissioner. Except as otherwise provided, Code chapter 521E (risk-based capital requirements for insurers) shall apply to an LCRC. An LCRC must have a plan of operation approved by its board of directors, and, prior to assuming risks under a reinsurance contract, shall submit the plan of operation to the commissioner for approval. The commissioner may approve the plan of operation upon finding that the plan meets the requirements of the bill, and may require amendments to the plan as necessary. Any change in the LCRC’s plan of operation shall require prior approval of the commissioner. _____ bill. An LCRC or an affiliated company may organize an LCRC pursuant to the bill, and an LCRC must be formed as a corporation, may only reinsure risks of the organizing company, and may access alternative forms of financing. An organizing company shall maintain a minimum of 10 percent voting interest and 10 percent equity ownership in the LCRC unless otherwise approved by the commissioner. An LCRC’s organizational documents shall limit the company’s authority to transact the business of reinsurance to only reinsure the risks of a ceding insurer. An organizing company may invest funds from its surplus in an LCRC, and the organizing company’s officers and directors may serve as officers and directors of an LCRC. An LCRC shall be deemed to be licensed to transact the business of reinsurance. An LCRC may, upon approval of the commissioner, purchase reinsurance. Admitted assets of an LCRC include assets approved by the commissioner which shall be deemed to be, and reported as, admitted assets of the LCRC. An LCRC shall not pay a dividend out of, or other distribution with respect to, the minimum capital or surplus without the prior written approval of the commissioner. The commissioner’s 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 and surplus in excess of the amounts specified by, or determined in accordance with, a formula approved by the commissioner. The bill details the reports and notifications by an LCRC required to be filed with the commissioner. The commissioner may examine each LCRC’s compliance with the bill, and may examine the affairs, transactions, accounts, records, and assets of each LCRC as necessary, but not less frequently than every five years. _____ to and paid by the LCRC examined. If the LCRC fails or refuses to pay, the charges may be recovered in an action brought in the name of the state. Examination requirements shall apply to all business written by an LCRC, and applicable provisions of Code chapter 507 (examination of insurance companies) apply to such examinations. An LCRC’s certificate of authority may be suspended or revoked by the commissioner for any of the reasons described in the bill. If the commissioner does not revoke an LCRC’s certificate of authority during a suspension, the LCRC’s certificate of authority may be reinstated if the commissioner finds that the cause of the suspension has been rectified.107, as applicable. The commissioner may provide notice to the public of a proposed merger prior to approving or disapproving of a merger. A plan for a merger shall be fair and equitable to the shareholders and provide for the purchase of the shares of any nonconsenting shareholder. An LCRC’s investment program shall account for the safety of the company’s assets, investment yield and return, stability in the value of the investment, and liquidity necessary to meet the company’s expected business needs and investment diversification. The assets of an LCRC shall be preserved and administered to satisfy the liabilities and obligations of the LCRC incident to the reinsurance contract, any insurance securitizations, and other related agreements.8 or invest its assets in cash and securities that are investment-grade at the time of acquisition, provided that an LCRC may invest up to 10 percent of its assets in securities or other investments that are not investment-grade except for any of the assets detailed in the bill. _____ be used to fund the LCRC’s obligations to the ceding insurer. The commissioner may reduce the amount of admitted assets previously approved if it is determined that the value of those assets has decreased. A minimum of 30 days prior to reducing the amount of admitted assets, the commissioner shall notify the LCRC and provide an opportunity to remedy the issues. An LCRC shall not make a loan to or an investment in any person, other than as permitted in the plan of operation, without prior written approval of the commissioner and evidenced by documentation approved by the commissioner. An LCRC shall not loan minimum capital and surplus funds. An organizing company shall report its ownership in the LCRC and value the ownership equal to the audited statutory surplus. An LCRC shall not assume or retain exposure to reinsurance losses for the LCRC’s own account that are funded as detailed in the bill. An LCRC may cede risks assumed through a reinsurance contract to reinsurers through the purchase of retrocession, subject to prior approval of the commissioner. An LCRC may enter into contracts and conduct other commercial activities related or incidental to and necessary to fulfill the purposes of a reinsurance contract, an insurance securitization, and the bill. Such contracts and commercial activities must be included in the LCRC’s plan of operation or otherwise be approved in advance by the commissioner and may include the contracts and activities detailed in the bill. Unless approved by the commissioner, a reinsurance contract shall not contain a provision for payment by the LCRC in discharge of its obligations to a person other than the ceding insurer or a receiver of the ceding insurer. An LCRC shall not be required to join a rating organization and shall not join or contribute financially to any plan, pool, association, or guaranty or insolvency fund in this state. An LCRC domiciled in the state may apply to the commissioner for a certificate of dormancy, which shall be valid for five years and may not be renewed.1A. At the discretion of the commissioner, a dormant LCRC may be subject to an annual examination. A dormant LCRC must apply for approval to surrender a certificate of dormancy and resume conducting business prior to issuing an insurance policy. Unless otherwise approved, an LCRC shall maintain the original books, records, documents, accounts, vouchers, and agreements in this state, make them available for examination and inspection by the commissioner upon request, and keep them in the state until the commissioner approves destruction or other disposition of the books, records, documents, accounts, vouchers, and agreements. The LCRC may store and reproduce the books, records, documents, accounts, vouchers, and agreements electronically but shall also be kept in a manner that the commissioner can readily ascertain the LCRC’s financial condition, affairs, and operations; can readily verify the LCRC’s financial statements; and can confirm the LCRC’s compliance with the bill. An LCRC shall not take any of the actions detailed in the bill unless the company provides the commissioner at least 30 days prior written notice and the commissioner expressly approves the action. An LCRC shall submit to the commissioner requests for authorization prior to making payments of interest on, and repayments of principal of, surplus notes and other debt obligations issued by an LCRC. The commissioner shall not approve the payment or repayment if it would jeopardize the ability of the LCRC or another person to fulfill their obligations. An LCRC security shall not be subject to regulation as an insurance or reinsurance contract. An investor in, or holder of, the security shall not be considered to transact in the business of insurance solely based on such interest. _____ agents, representatives, and advisors involved in an insurance securitization shall not be considered to be insurance producers or brokers or to be conducting business as an insurance company, a reinsurance company, or an insurance agency, brokerage, intermediary, advisory, or consulting business, solely by virtue of their underwriting activities in connection with a securitization. The commissioner may adopt rules to implement and administer the bill.