Assigned to FIN FOR COMMITTEE
ARIZONA STATE SENATE
Fifty-Sixth Legislature, First Regular Session
FACT SHEET FOR H.B. 2005
foreign captive insurers; definition
Purpose
Allows a domestic captive insurer to merge with any other domestic, foreign or alien
captive insurer. Allows a foreign captive insurer to establish a business unit in Arizona and be
licensed as a branch captive insurer as prescribed.
Background
Captive insurance is a form of self-insurance where the captive insurer is wholly owned by
the insured. A captive insurer is any pure captive insurer, agency captive insurer, group captive
insurer or protected cell captive insurer that is formed, licensed and domiciled in Arizona. A
captive insurer may only insure commercial property and casualty, surety and life and disability
risks. The Director of the Department of Insurance and Financial Institutions (DIFI) may not issue
a captive insurance license unless the insurer possesses and maintains prescribed minimum capital
and surplus. As of June 30, 2021, 142 active captive insurers were operating in Arizona. A captive
insurer is exempt from insurance premium taxation, with outlined exceptions.
A branch captive insurer is an alien captive insurer that is licensed to transact insurance
business through a business unit with a principal place of business in Arizona. The Director of
DIFI (Director) may examine the business, transactions and affairs of each captive insurer to
ascertain the captive insurer's financial conditions and ability to fulfill obligations and to ascertain
whether the captive insurer is in compliance with the law. As a condition of licensure, an alien
captive insurer must consent to the Director's examination of the insurer's home jurisdiction affairs.
Within 60 days after its fiscal year-end, a branch captive insurer must file with the Director a copy
of all reports and statements that are required to be filed under the laws of the jurisdiction in which
the alien captive insurer is formed and that are verified by two of the alien captive insurer's
executive officer's oaths (A.R.S. Title 20, Chapter 4, Article 14; DIFI; NAIC).
The Captive Insurance Regulatory and Supervision Fund consists of monies from captive
insurer license and renewal fees and is used to pay the costs of administering the Captive Insurance
Program. Any unencumbered year‐end balance exceeding $200,000 reverts to the state General
Fund after the close of the fiscal year (A.R.S. § 20-1098.18).
If allowing a foreign captive insurer to be licensed as a branch captive insurer in Arizona
results in a change in the amount of licensure fees deposited in the Captive Insurance Regulatory
and Supervision Fund that exceed the threshold over which monies revert to the state General
Fund, there may be a change in revenues that annually revert to the state General Fund.
FACT SHEET
H.B. 2005
Page 2
Provisions
1. Allows a domestic captive insurer to merge or consolidate with any other domestic, foreign or
alien captive insurer, even if the domestic, foreign or alien captive insurer was formed as a
limited liability company or a stock corporation.
2. Allows a foreign captive insurer to establish a business unit in Arizona and become licensed
as a branch captive insurer in Arizona.
3. Requires a foreign captive insurer licensed as a branch captive insurer to consent to the
Director's examination of the insurer's affairs in the home jurisdiction.
4. Removes the specification that an alien captive insurer's consent to examination by the Director
is a condition of licensure.
5. Adds a foreign captive insurer to the entities that must file with the Director a copy of all
prescribed reports and statements required by the laws of its home jurisdiction.
6. Narrows the types of insurers for which the Director may act as a statutory agent on whom
process may be served from a captive insurer formed as a corporation or reciprocal insurer to
only a captive insurer formed as a reciprocal insurer.
7. Defines foreign captive insurer as any captive insurer that is domiciled in and licensed under
the laws of another state that imposes statutory or regulatory standards on captive insurance
companies that are acceptable to the Director.
8. Modifies the definition of branch captive insurer to include a foreign captive insurer that
establishes a business unit with a principal place of business in Arizona and is licensed to
transact insurance business through the business unit.
9. Makes technical and conforming changes.
10. Becomes effective on the general effective date.
House Action
COM 1/17/23 DP 9-1-0-0
3
rd
Read 2/21/23 31-29-0
Prepared by Senate Research
March 2, 2023
MG/ZS/sr