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| 45 | 46 | | |
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| 46 | 47 | | An Act |
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| 47 | 48 | | |
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| 48 | 49 | | |
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| 49 | 50 | | |
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| 50 | 51 | | amending sections 20-1098, 20-1098.01, 20-1098.08, 20-1098.15, 20-1098.19 and 20-1098.21, Arizona Revised Statutes; relating to captive insurers. |
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| 55 | 56 | | |
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| 56 | 57 | | (TEXT OF BILL BEGINS ON NEXT PAGE) |
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| 60 | 61 | | Be it enacted by the Legislature of the State of Arizona: Section 1. Section 20-1098, Arizona Revised Statutes, is amended to read: START_STATUTE20-1098. Definitions In this article, unless the context otherwise requires: 1. "Affiliate" has the same meaning prescribed in section 20-481. 2. "Agency captive insurer" means a captive insurer that is owned by one or more business entities that are licensed in any state as insurance producers or managing general agents and that only insure risks on policies placed through their owners. 3. "Alien captive insurer" means any insurer that is formed to write insurance business for its affiliates and that is licensed pursuant to the laws of an alien jurisdiction that imposes statutory or regulatory standards that are acceptable to the director on companies transacting the business of insurance in such a jurisdiction. 4. "Association" means any lawfully formed association of individuals or business entities that has been in existence for at least one year and that is organized for a primary purpose other than procuring or providing insurance for its members. 5. "Association captive insurer" means a captive insurer that is completely under the direct or indirect voting control of an association. 6. "Branch business" means any insurance business that is transacted by a branch captive insurer in this state. 7. "Branch captive insurer" means an alien captive insurer or a foreign captive insurer that establishes a business unit with a principal place of business in this state and that is licensed pursuant to this chapter to transact the business of insurance through a the business unit. with a principal place of business in this state. 8. "Branch operations" means any business operations of a branch captive insurer in this state. 9. "Business entity" means any legal entity other than an individual or sole proprietorship. 10. "Captive insurer" means any pure captive insurer, agency captive insurer, group captive insurer or protected cell captive insurer that is domiciled in this state and that is formed and licensed under this article. 11. "Controlled unaffiliated business" means an individual or business entity that satisfies all of the following: (a) Is not an affiliate of the captive insurer providing coverage or reinsurance. (b) Has a contractual relationship with an affiliate of the captive insurer providing coverage or reinsurance. (c) Whose risk management function that is related to the covered risk of loss is controlled by an affiliate of the captive insurer providing coverage or reinsurance. 12. "Deductible reimbursement" means insurance coverage that reimburses the insured for the deductible it paid under a separate commercial insurance policy issued to the same insured, without other conditions related to the underlying loss. 13. "Direct or directly", when used in this article to describe the transaction of insurance business by a captive insurer, means a transaction in which the captive insurer issues an insurance policy that provides primary coverage to the insured under the policy and that does not provide reinsurance coverage to another insurer. 14. "Foreign captive insurer" means 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 in that state that are acceptable to the director. 14. 15. "Group captive insurer" means any of the following: (a) A risk retention group. (b) An industry group captive insurer. (c) An association captive insurer. 15. 16. "Industry group" means two or more business entities or persons that are engaged in businesses or activities similar or related with respect to the liability that they are exposed to by virtue of any related, similar or common business, trade, product, services, premises or operations. 16. 17. "Industry group captive insurer" means a captive insurer that is completely under the direct or indirect voting control of an industry group. 17. 18. "Manager" means a person who is experienced in the field of captive insurance and who maintains all documents relating to a captive insurer's operations, transactions and affairs in this state and assists the captive insurer in its management and compliance with this article. 18. 19. "Member" means any individual or business entity that belongs to a group captive insurer. 19. 20. "Participant" means an entity and any affiliates of the entity that are insured by a protected cell captive insurer pursuant to a participant contract. 20. 21. "Participant contract" means a contract by which a protected cell captive insurer insures risks of one or more participants and limits losses under the contract to the assets of a protected cell. 21. 22. "Protected cell" means a separate account that is established and maintained by a protected cell captive insurer pursuant to a participant contract. 22. 23. "Protected cell captive insurer" means a captive insurer: (a) In which the minimum capital and surplus required by applicable law is provided by one or more sponsors. (b) That is formed and licensed under this article. (c) That insures the risks of participants through participant contracts. (d) That segregates liability under a participant contract through one or more protected cells. 23. 24. "Pure captive insurer" means a captive insurer that insures only the risks of its affiliates and controlled unaffiliated business. 24. 25. "Risk retention group" means a captive insurer that is organized pursuant to the liability risk retention act of 1986 (15 United States Code sections 3901 and 3902) and chapter 14 of this title. 25. 26. "Sponsor" means an entity that meets the requirements of section 20-1098.06 and that the director has approved to provide all or part of the capital and surplus required by applicable law to operate a protected cell captive insurer. END_STATUTE Sec. 2. Section 20-1098.01, Arizona Revised Statutes, is amended to read: START_STATUTE20-1098.01. Licensing; authority A. If allowed by its articles of incorporation, bylaws or other organizational document, an applicant may apply to the director for a license to transact captive insurance, except that: 1. A pure captive insurer shall not insure risks other than the risks of its affiliates and controlled unaffiliated business. 2. A group captive insurer, other than a risk retention group, shall not insure risks other than the risks of its group members, its affiliates and controlled unaffiliated business. A risk retention group shall insure only the risks of its group members. 3. An agency captive insurer shall not: (a) Insure any risks other than those placed by or through its owners. (b) Directly insure life or disability insurance risks without the approval of the director. The insurance risks that the director may approve are limited to employer group term life insurance, employer group disability income insurance and reimbursement of employer health plan deductibles. The director may require the business written by an agency captive insurer to be any of the following: (i) Fronted by an insurer that holds a certificate of authority under the laws of any state. (ii) Reinsured by a reinsurer authorized, accredited or approved by the director. (iii) Secured by a trust fund in the United States for the benefit of policyholders and claimants or funded by an irrevocable letter of credit or other arrangement that is acceptable to the director. The director may require the agency captive insurer to increase the funding of any security arrangement established under this item. If the form of security is a letter of credit, the letter of credit shall be issued or confirmed by a bank approved by the director. A trust maintained pursuant to this item shall be established in a form and on terms approved by the director. 4. A protected cell captive insurer shall not insure any risks other than those prescribed in its participant contracts. B. The following apply to the transaction of insurance by a captive insurer on a direct basis: 1. A captive insurer shall not directly insure any of the following types of insurance business: (a) Hospital service corporations, medical service corporations, dental service corporations, optometric service corporations or hospital, medical, dental and optometric service corporations as defined in section 20-822. (b) Health care services organizations as defined in section 20-1051. (c) Prepaid dental plan organizations as defined in section 20-1001. (d) Prepaid legal insurance contracts as defined in section 20-1097. (e) Business of title insurance as defined in section 20-1562. (f) Personal motor vehicle or homeowner's insurance coverage or any component of that insurance coverage. (g) Mortgage guaranty insurance as defined in section 20-1541. (h) Workers' compensation or employers' liability insurance policies except in connection with a self-insurance program as prescribed in this subsection. 2. A pure captive insurer shall not provide direct coverage of workers' compensation or employers' liability in this state unless the coverage is provided under a self-insurance program that is approved by the industrial commission of Arizona pursuant to section 23-961. A captive insurance program that is authorized by section 23-961 is subject to and shall comply with all requirements of title 23, chapter 6 that are applicable to self-insurance. 3. A pure captive insurer shall not provide direct coverage of workers' compensation or employers' liability insurance in another state unless the coverage is provided under a self-insurance program that is qualified as a self-insurance program under the applicable state or federal law, as determined by the agency or other entity that has jurisdiction over the self-insurance program. 4. An agency captive insurer directly insuring life or disability income insurance risk as specified in subsection A, paragraph 3 of this section: (a) Shall mark each policy and certificate with a conspicuously stamped or written notice in bold-faced type that states the following: This policy is issued by an insurer that is not a member of an Arizona insurance guaranty fund. If the insurer that issued this policy becomes insolvent, insureds or claimants will not be eligible for insurance guaranty fund protection pursuant to title 20, Arizona Revised Statutes. (b) May insure only life and disability income insurance risks as specified in subsection A, paragraph 3 of this section for employers that maintain their principal place of business within this state. (c) May not be owned or controlled by an insurer that is granted authority by the director to transact insurance in this state. (d) Shall have its financial statements audited by an independent certified public accountant pursuant to section 20-1098.07, subsection B. (e) May not directly insure life or disability income insurance risks as specified in subsection A, paragraph 3 of this section in this state unless all of the following apply: (i) An insurance producer or managing general agent that owns the agency captive insurer remains in regulatory good standing in all states in which it is licensed. (ii) The agency captive insurer insures only the risks of employer group term life insurance, employer group disability income insurance and reimbursement of employer health plan deductibles that are placed by or through an insurance producer or managing general agent that owns the agency captive insurer and, if required by the director, provides the director the form of such policies. (iii) The agency captive insurer discloses to the original policyholder or policyholders, in a form or manner approved by the director, all limitations, rights and obligations held by the agency captive insurer as a result of its affiliation with an insurance producer or managing general agent. 5. This subsection does not prohibit a captive insurer from directly insuring deductible reimbursement risk. 6. This subsection does not prohibit a captive insurer from directly insuring employment practices liability risk. C. A captive insurer shall not accept or cede reinsurance except as provided in section 20-1098.11. D. A captive insurer that writes life insurance or disability insurance shall comply with all applicable state and federal laws. E. A captive insurer shall: 1. Hold at least one meeting of its board of directors or, for reciprocal insurers, its subscribers' advisory committee each year in this state. 2. Maintain its principal place of business in this state. 3. Appoint a resident statutory agent to accept service of process and to otherwise act on its behalf in this state and shall file the appointment with the director. In the case of a captive insurer formed as a corporation or reciprocal insurer, if the statutory agent cannot with reasonable diligence be found at the registered office of the captive insurer, the director is an agent of the captive insurer on whom any process, notice or demand may be served. F. Before receiving a license, an applicant for a captive insurer license shall file with the director the following: 1. If formed as a corporation, a certified copy of its articles of incorporation, articles of organization or other organizational document, a copy of its duly adopted bylaws or other governance rules, a statement under oath of its president and secretary showing its financial condition and any other statement or document required by the director. 2. If formed as a reciprocal insurer, a copy of the power of attorney of its attorney-in-fact, a copy of its subscribers' agreement, a copy of its duly adopted bylaws or other governance rules, a statement under oath of its attorney-in-fact showing its financial condition and any other statement or document required by the director. G. In addition to the information required by subsection F of this section, each applicant for a captive insurer license shall file with the director evidence of all of the following: 1. The amount and liquidity of its assets relative to the risks to be assumed. 2. The adequacy of the expertise, experience and character of the directors and officers of the captive insurer. 3. The overall soundness of its plan of operation. 4. The adequacy of the loss prevention programs of its insureds. 5. The engagement of a competent manager that does business at a location in this state. 6. The establishment of business relationships with any accountants, banks, attorneys and other professionals that are acceptable to the department. 7. The ability of the captive insurer's owners or members to pay claims to third parties if the captive insurer is unable to pay those claims. 8. Other factors deemed relevant by the director in ascertaining whether the proposed captive insurer will be able to meet its policy obligations. H. In addition to the information required by subsections F and G of this section, if the applicant is seeking authority as a protected cell captive insurer, the applicant shall file: 1. A business plan that demonstrates, in a manner acceptable to the director, how the applicant will account for the loss and expense experience of each protected cell and report that information to the director. 2. A statement acknowledging that all financial records of the protected cell captive insurer, including records pertaining to protected cells, shall be available for inspection or examination by the director or the director's designee. 3. Its form for all participant contracts. 4. Evidence that the protected cell captive insurer will allocate expenses fairly and equitably to each protected cell. I. Before the issuance of a license, an applicant shall promptly notify the director of any material change in the information filed pursuant to this section. J. An applicant for a captive insurer license shall pay to the director a nonrefundable fee for the issuance of a captive insurance license pursuant to section 20-167. The captive insurer shall pay the license renewal fee pursuant to section 20-167 when the captive insurer files the annual report prescribed in section 20-1098.07. K. If the director is satisfied that the documents and statements that the applicant has filed comply with this article, the director may grant the applicant a captive insurer license that authorizes the captive insurer to transact captive insurance business in this state. L. The director shall approve or deny an application for a license to transact captive insurance business within thirty days after the director deems the application complete. END_STATUTE Sec. 3. Section 20-1098.08, Arizona Revised Statutes, is amended to read: START_STATUTE20-1098.08. Examinations A. Whenever the director determines it to be prudent, the director may examine the business, transactions and affairs of each captive insurer to ascertain the captive insurer's financial condition and ability to fulfill its obligations and whether the captive insurer has complied with this article. B. Section 20-1098.23 applies to all examination reports, preliminary examination reports or results, working papers, recorded information, documents and copies of any of those reports, results, papers, information or documents produced by, obtained by or disclosed to the director in the course of an examination made under this section. C. The director may use independent contractor examiners pursuant to sections 20-148 and 20-159 to conduct examinations pursuant to this section. All examinations and examination related expenses shall be borne by the captive insurer and shall be paid by the insurance examiners revolving fund pursuant to section 20-159. D. As a condition of licensure, An alien captive insurer or foreign captive insurer that establishes a business unit in this state and that is licensed as a branch captive insurer shall consent to the examination by the director of the affairs of the alien captive insurer or foreign captive insurer in the jurisdiction in which the alien captive insurer or foreign captive insurer is formed. The examination of a branch captive insurer shall be of branch business and branch operations only, during the period the branch captive insurer is formed, and must demonstrate to the director's satisfaction that the alien captive insurer or foreign captive insurer is operating in a sound financial condition pursuant to all the applicable laws and regulations of the jurisdiction. END_STATUTE Sec. 4. Section 20-1098.15, Arizona Revised Statutes, is amended to read: START_STATUTE20-1098.15. Applicability A. Chapter 2, article 6 of this title relating to unfair trade practices and frauds applies to captive insurers, except to the extent the director determines the nature of captive insurance renders particular provisions of chapter 2, article 6 of this title inappropriate. B. All other provisions of this title that are not inconsistent with this article apply to captive insurers, except to the extent the director determines the nature of captive insurance renders particular provisions of this title inappropriate. C. A captive insurer that is formed as a corporation is subject to the applicable provisions of title 10, except as otherwise prescribed in this article. D. A captive insurer that is formed as a limited liability company is subject to the applicable provisions of title 29, except as otherwise prescribed in this article. E. The provisions of article 1 of this chapter relating to mergers, consolidations, conversions, mutualizations and redomestications apply in determining the procedures to be followed by captive insurers in carrying out those transactions, except that the director may waive or modify the requirements for a public notice and hearing prescribed in section 20-731. notwithstanding section 20-731, a domestic captive insurer may merge or consolidate with any other domestic captive insurer, foreign captive insurer or alien captive insurer even if the domestic captive insurer, foreign captive insurer or alien captive insurer was formed as a limited liability company or a stock corporation. F. Chapter 2, article 8 of this title relating to insurance holding company systems applies to risk retention groups as defined in section 20-1098 or 20-2401. G. Chapter 2, article 12 of this title relating to risk-based capital, as modified by the national association of insurance commissioners for risk retention groups, applies to risk retention groups as defined in section 20-1098 or 20-2401. If a risk retention group is subject to regulatory action as prescribed in section 20-488.02, 20-488.03, 20-488.04 or 20-488.05, the regulatory action shall be at the discretion of the director. H. Unless otherwise prescribed by the director based on a risk retention group's business plan, remoteness of the risk and claim frequency, section 20-260, subsection A, relating to individual risk limitation, applies to risk retention groups as defined in section 20-1098 or 20-2401. END_STATUTE Sec. 5. Section 20-1098.19, Arizona Revised Statutes, is amended to read: START_STATUTE20-1098.19. Establishment of branch captive insurer A. An alien captive insurer or FOREIGN captive insurer may establish a business unit in this state and become licensed as a branch captive insurer may be established in this state pursuant to this chapter to write insurance or reinsurance in this state except as provided in section 20-1098.01, subsection B and other than workers' compensation or employers' liability insurance. B. A branch captive insurer shall not conduct any insurance branch business in this state unless it maintains the principal place of business for its branch operations in this state. C. A branch captive insurer shall be a pure captive insurer with respect to operations and minimum capitalization in this state unless otherwise permitted by the director. END_STATUTE Sec. 6. Section 20-1098.21, Arizona Revised Statutes, is amended to read: START_STATUTE20-1098.21. Branch captive insurer reports Within sixty days after its fiscal year end, a branch captive insurer shall 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 or foreign captive insurer is formed and that are verified by oath of two of its executive officers. END_STATUTE |
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| 61 | 62 | | |
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| 62 | 63 | | Be it enacted by the Legislature of the State of Arizona: |
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| 63 | 64 | | |
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| 64 | 65 | | Section 1. Section 20-1098, Arizona Revised Statutes, is amended to read: |
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| 65 | 66 | | |
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| 66 | 67 | | START_STATUTE20-1098. Definitions |
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| 67 | 68 | | |
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| 68 | 69 | | In this article, unless the context otherwise requires: |
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| 69 | 70 | | |
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| 70 | 71 | | 1. "Affiliate" has the same meaning prescribed in section 20-481. |
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| 71 | 72 | | |
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| 72 | 73 | | 2. "Agency captive insurer" means a captive insurer that is owned by one or more business entities that are licensed in any state as insurance producers or managing general agents and that only insure risks on policies placed through their owners. |
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| 73 | 74 | | |
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| 74 | 75 | | 3. "Alien captive insurer" means any insurer that is formed to write insurance business for its affiliates and that is licensed pursuant to the laws of an alien jurisdiction that imposes statutory or regulatory standards that are acceptable to the director on companies transacting the business of insurance in such a jurisdiction. |
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| 75 | 76 | | |
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| 76 | 77 | | 4. "Association" means any lawfully formed association of individuals or business entities that has been in existence for at least one year and that is organized for a primary purpose other than procuring or providing insurance for its members. |
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| 77 | 78 | | |
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| 78 | 79 | | 5. "Association captive insurer" means a captive insurer that is completely under the direct or indirect voting control of an association. |
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| 79 | 80 | | |
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| 80 | 81 | | 6. "Branch business" means any insurance business that is transacted by a branch captive insurer in this state. |
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| 81 | 82 | | |
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| 82 | 83 | | 7. "Branch captive insurer" means an alien captive insurer or a foreign captive insurer that establishes a business unit with a principal place of business in this state and that is licensed pursuant to this chapter to transact the business of insurance through a the business unit. with a principal place of business in this state. |
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| 83 | 84 | | |
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| 84 | 85 | | 8. "Branch operations" means any business operations of a branch captive insurer in this state. |
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| 85 | 86 | | |
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| 86 | 87 | | 9. "Business entity" means any legal entity other than an individual or sole proprietorship. |
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| 87 | 88 | | |
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| 88 | 89 | | 10. "Captive insurer" means any pure captive insurer, agency captive insurer, group captive insurer or protected cell captive insurer that is domiciled in this state and that is formed and licensed under this article. |
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| 89 | 90 | | |
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| 90 | 91 | | 11. "Controlled unaffiliated business" means an individual or business entity that satisfies all of the following: |
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| 91 | 92 | | |
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| 92 | 93 | | (a) Is not an affiliate of the captive insurer providing coverage or reinsurance. |
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| 93 | 94 | | |
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| 94 | 95 | | (b) Has a contractual relationship with an affiliate of the captive insurer providing coverage or reinsurance. |
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| 95 | 96 | | |
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| 96 | 97 | | (c) Whose risk management function that is related to the covered risk of loss is controlled by an affiliate of the captive insurer providing coverage or reinsurance. |
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| 97 | 98 | | |
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| 98 | 99 | | 12. "Deductible reimbursement" means insurance coverage that reimburses the insured for the deductible it paid under a separate commercial insurance policy issued to the same insured, without other conditions related to the underlying loss. |
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| 99 | 100 | | |
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| 100 | 101 | | 13. "Direct or directly", when used in this article to describe the transaction of insurance business by a captive insurer, means a transaction in which the captive insurer issues an insurance policy that provides primary coverage to the insured under the policy and that does not provide reinsurance coverage to another insurer. |
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| 101 | 102 | | |
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| 102 | 103 | | 14. "Foreign captive insurer" means 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 in that state that are acceptable to the director. |
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| 103 | 104 | | |
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| 104 | 105 | | 14. 15. "Group captive insurer" means any of the following: |
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| 105 | 106 | | |
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| 106 | 107 | | (a) A risk retention group. |
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| 107 | 108 | | |
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| 108 | 109 | | (b) An industry group captive insurer. |
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| 109 | 110 | | |
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| 110 | 111 | | (c) An association captive insurer. |
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| 111 | 112 | | |
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| 112 | 113 | | 15. 16. "Industry group" means two or more business entities or persons that are engaged in businesses or activities similar or related with respect to the liability that they are exposed to by virtue of any related, similar or common business, trade, product, services, premises or operations. |
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| 113 | 114 | | |
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| 114 | 115 | | 16. 17. "Industry group captive insurer" means a captive insurer that is completely under the direct or indirect voting control of an industry group. |
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| 115 | 116 | | |
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| 116 | 117 | | 17. 18. "Manager" means a person who is experienced in the field of captive insurance and who maintains all documents relating to a captive insurer's operations, transactions and affairs in this state and assists the captive insurer in its management and compliance with this article. |
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| 117 | 118 | | |
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| 118 | 119 | | 18. 19. "Member" means any individual or business entity that belongs to a group captive insurer. |
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| 119 | 120 | | |
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| 120 | 121 | | 19. 20. "Participant" means an entity and any affiliates of the entity that are insured by a protected cell captive insurer pursuant to a participant contract. |
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| 121 | 122 | | |
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| 122 | 123 | | 20. 21. "Participant contract" means a contract by which a protected cell captive insurer insures risks of one or more participants and limits losses under the contract to the assets of a protected cell. |
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| 123 | 124 | | |
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| 124 | 125 | | 21. 22. "Protected cell" means a separate account that is established and maintained by a protected cell captive insurer pursuant to a participant contract. |
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| 125 | 126 | | |
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| 126 | 127 | | 22. 23. "Protected cell captive insurer" means a captive insurer: |
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| 127 | 128 | | |
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| 128 | 129 | | (a) In which the minimum capital and surplus required by applicable law is provided by one or more sponsors. |
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| 129 | 130 | | |
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| 130 | 131 | | (b) That is formed and licensed under this article. |
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| 131 | 132 | | |
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| 132 | 133 | | (c) That insures the risks of participants through participant contracts. |
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| 133 | 134 | | |
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| 134 | 135 | | (d) That segregates liability under a participant contract through one or more protected cells. |
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| 135 | 136 | | |
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| 136 | 137 | | 23. 24. "Pure captive insurer" means a captive insurer that insures only the risks of its affiliates and controlled unaffiliated business. |
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| 137 | 138 | | |
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| 138 | 139 | | 24. 25. "Risk retention group" means a captive insurer that is organized pursuant to the liability risk retention act of 1986 (15 United States Code sections 3901 and 3902) and chapter 14 of this title. |
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| 139 | 140 | | |
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| 140 | 141 | | 25. 26. "Sponsor" means an entity that meets the requirements of section 20-1098.06 and that the director has approved to provide all or part of the capital and surplus required by applicable law to operate a protected cell captive insurer. END_STATUTE |
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| 141 | 142 | | |
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| 142 | 143 | | Sec. 2. Section 20-1098.01, Arizona Revised Statutes, is amended to read: |
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| 143 | 144 | | |
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| 144 | 145 | | START_STATUTE20-1098.01. Licensing; authority |
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| 145 | 146 | | |
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| 146 | 147 | | A. If allowed by its articles of incorporation, bylaws or other organizational document, an applicant may apply to the director for a license to transact captive insurance, except that: |
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| 147 | 148 | | |
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| 148 | 149 | | 1. A pure captive insurer shall not insure risks other than the risks of its affiliates and controlled unaffiliated business. |
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| 149 | 150 | | |
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| 150 | 151 | | 2. A group captive insurer, other than a risk retention group, shall not insure risks other than the risks of its group members, its affiliates and controlled unaffiliated business. A risk retention group shall insure only the risks of its group members. |
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| 151 | 152 | | |
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| 152 | 153 | | 3. An agency captive insurer shall not: |
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| 153 | 154 | | |
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| 154 | 155 | | (a) Insure any risks other than those placed by or through its owners. |
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| 155 | 156 | | |
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| 156 | 157 | | (b) Directly insure life or disability insurance risks without the approval of the director. The insurance risks that the director may approve are limited to employer group term life insurance, employer group disability income insurance and reimbursement of employer health plan deductibles. The director may require the business written by an agency captive insurer to be any of the following: |
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| 157 | 158 | | |
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| 158 | 159 | | (i) Fronted by an insurer that holds a certificate of authority under the laws of any state. |
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| 159 | 160 | | |
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| 160 | 161 | | (ii) Reinsured by a reinsurer authorized, accredited or approved by the director. |
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| 161 | 162 | | |
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| 162 | 163 | | (iii) Secured by a trust fund in the United States for the benefit of policyholders and claimants or funded by an irrevocable letter of credit or other arrangement that is acceptable to the director. The director may require the agency captive insurer to increase the funding of any security arrangement established under this item. If the form of security is a letter of credit, the letter of credit shall be issued or confirmed by a bank approved by the director. A trust maintained pursuant to this item shall be established in a form and on terms approved by the director. |
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| 163 | 164 | | |
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| 164 | 165 | | 4. A protected cell captive insurer shall not insure any risks other than those prescribed in its participant contracts. |
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| 165 | 166 | | |
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| 166 | 167 | | B. The following apply to the transaction of insurance by a captive insurer on a direct basis: |
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| 167 | 168 | | |
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| 168 | 169 | | 1. A captive insurer shall not directly insure any of the following types of insurance business: |
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| 169 | 170 | | |
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| 170 | 171 | | (a) Hospital service corporations, medical service corporations, dental service corporations, optometric service corporations or hospital, medical, dental and optometric service corporations as defined in section 20-822. |
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| 171 | 172 | | |
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| 172 | 173 | | (b) Health care services organizations as defined in section 20-1051. |
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| 173 | 174 | | |
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| 174 | 175 | | (c) Prepaid dental plan organizations as defined in section 20-1001. |
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| 175 | 176 | | |
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| 176 | 177 | | (d) Prepaid legal insurance contracts as defined in section 20-1097. |
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| 177 | 178 | | |
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| 178 | 179 | | (e) Business of title insurance as defined in section 20-1562. |
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| 179 | 180 | | |
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| 180 | 181 | | (f) Personal motor vehicle or homeowner's insurance coverage or any component of that insurance coverage. |
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| 181 | 182 | | |
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| 182 | 183 | | (g) Mortgage guaranty insurance as defined in section 20-1541. |
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| 183 | 184 | | |
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| 184 | 185 | | (h) Workers' compensation or employers' liability insurance policies except in connection with a self-insurance program as prescribed in this subsection. |
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| 185 | 186 | | |
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| 186 | 187 | | 2. A pure captive insurer shall not provide direct coverage of workers' compensation or employers' liability in this state unless the coverage is provided under a self-insurance program that is approved by the industrial commission of Arizona pursuant to section 23-961. A captive insurance program that is authorized by section 23-961 is subject to and shall comply with all requirements of title 23, chapter 6 that are applicable to self-insurance. |
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| 187 | 188 | | |
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| 188 | 189 | | 3. A pure captive insurer shall not provide direct coverage of workers' compensation or employers' liability insurance in another state unless the coverage is provided under a self-insurance program that is qualified as a self-insurance program under the applicable state or federal law, as determined by the agency or other entity that has jurisdiction over the self-insurance program. |
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| 189 | 190 | | |
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| 190 | 191 | | 4. An agency captive insurer directly insuring life or disability income insurance risk as specified in subsection A, paragraph 3 of this section: |
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| 191 | 192 | | |
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| 192 | 193 | | (a) Shall mark each policy and certificate with a conspicuously stamped or written notice in bold-faced type that states the following: |
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| 193 | 194 | | |
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| 194 | 195 | | This policy is issued by an insurer that is not a member of an Arizona insurance guaranty fund. If the insurer that issued this policy becomes insolvent, insureds or claimants will not be eligible for insurance guaranty fund protection pursuant to title 20, Arizona Revised Statutes. |
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| 195 | 196 | | |
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| 196 | 197 | | (b) May insure only life and disability income insurance risks as specified in subsection A, paragraph 3 of this section for employers that maintain their principal place of business within this state. |
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| 197 | 198 | | |
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| 198 | 199 | | (c) May not be owned or controlled by an insurer that is granted authority by the director to transact insurance in this state. |
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| 199 | 200 | | |
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| 200 | 201 | | (d) Shall have its financial statements audited by an independent certified public accountant pursuant to section 20-1098.07, subsection B. |
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| 201 | 202 | | |
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| 202 | 203 | | (e) May not directly insure life or disability income insurance risks as specified in subsection A, paragraph 3 of this section in this state unless all of the following apply: |
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| 203 | 204 | | |
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| 204 | 205 | | (i) An insurance producer or managing general agent that owns the agency captive insurer remains in regulatory good standing in all states in which it is licensed. |
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| 205 | 206 | | |
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| 206 | 207 | | (ii) The agency captive insurer insures only the risks of employer group term life insurance, employer group disability income insurance and reimbursement of employer health plan deductibles that are placed by or through an insurance producer or managing general agent that owns the agency captive insurer and, if required by the director, provides the director the form of such policies. |
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| 207 | 208 | | |
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| 208 | 209 | | (iii) The agency captive insurer discloses to the original policyholder or policyholders, in a form or manner approved by the director, all limitations, rights and obligations held by the agency captive insurer as a result of its affiliation with an insurance producer or managing general agent. |
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| 209 | 210 | | |
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| 210 | 211 | | 5. This subsection does not prohibit a captive insurer from directly insuring deductible reimbursement risk. |
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| 211 | 212 | | |
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| 212 | 213 | | 6. This subsection does not prohibit a captive insurer from directly insuring employment practices liability risk. |
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| 213 | 214 | | |
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| 214 | 215 | | C. A captive insurer shall not accept or cede reinsurance except as provided in section 20-1098.11. |
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| 215 | 216 | | |
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| 216 | 217 | | D. A captive insurer that writes life insurance or disability insurance shall comply with all applicable state and federal laws. |
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| 217 | 218 | | |
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| 218 | 219 | | E. A captive insurer shall: |
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| 219 | 220 | | |
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| 220 | 221 | | 1. Hold at least one meeting of its board of directors or, for reciprocal insurers, its subscribers' advisory committee each year in this state. |
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| 221 | 222 | | |
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| 222 | 223 | | 2. Maintain its principal place of business in this state. |
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| 223 | 224 | | |
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| 224 | 225 | | 3. Appoint a resident statutory agent to accept service of process and to otherwise act on its behalf in this state and shall file the appointment with the director. In the case of a captive insurer formed as a corporation or reciprocal insurer, if the statutory agent cannot with reasonable diligence be found at the registered office of the captive insurer, the director is an agent of the captive insurer on whom any process, notice or demand may be served. |
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| 225 | 226 | | |
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| 226 | 227 | | F. Before receiving a license, an applicant for a captive insurer license shall file with the director the following: |
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| 227 | 228 | | |
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| 228 | 229 | | 1. If formed as a corporation, a certified copy of its articles of incorporation, articles of organization or other organizational document, a copy of its duly adopted bylaws or other governance rules, a statement under oath of its president and secretary showing its financial condition and any other statement or document required by the director. |
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| 229 | 230 | | |
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| 230 | 231 | | 2. If formed as a reciprocal insurer, a copy of the power of attorney of its attorney-in-fact, a copy of its subscribers' agreement, a copy of its duly adopted bylaws or other governance rules, a statement under oath of its attorney-in-fact showing its financial condition and any other statement or document required by the director. |
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| 231 | 232 | | |
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| 232 | 233 | | G. In addition to the information required by subsection F of this section, each applicant for a captive insurer license shall file with the director evidence of all of the following: |
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| 233 | 234 | | |
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| 234 | 235 | | 1. The amount and liquidity of its assets relative to the risks to be assumed. |
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| 235 | 236 | | |
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| 236 | 237 | | 2. The adequacy of the expertise, experience and character of the directors and officers of the captive insurer. |
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| 237 | 238 | | |
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| 238 | 239 | | 3. The overall soundness of its plan of operation. |
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| 239 | 240 | | |
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| 240 | 241 | | 4. The adequacy of the loss prevention programs of its insureds. |
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| 241 | 242 | | |
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| 242 | 243 | | 5. The engagement of a competent manager that does business at a location in this state. |
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| 243 | 244 | | |
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| 244 | 245 | | 6. The establishment of business relationships with any accountants, banks, attorneys and other professionals that are acceptable to the department. |
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| 245 | 246 | | |
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| 246 | 247 | | 7. The ability of the captive insurer's owners or members to pay claims to third parties if the captive insurer is unable to pay those claims. |
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| 247 | 248 | | |
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| 248 | 249 | | 8. Other factors deemed relevant by the director in ascertaining whether the proposed captive insurer will be able to meet its policy obligations. |
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| 249 | 250 | | |
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| 250 | 251 | | H. In addition to the information required by subsections F and G of this section, if the applicant is seeking authority as a protected cell captive insurer, the applicant shall file: |
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| 251 | 252 | | |
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| 252 | 253 | | 1. A business plan that demonstrates, in a manner acceptable to the director, how the applicant will account for the loss and expense experience of each protected cell and report that information to the director. |
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| 253 | 254 | | |
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| 254 | 255 | | 2. A statement acknowledging that all financial records of the protected cell captive insurer, including records pertaining to protected cells, shall be available for inspection or examination by the director or the director's designee. |
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| 255 | 256 | | |
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| 256 | 257 | | 3. Its form for all participant contracts. |
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| 257 | 258 | | |
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| 258 | 259 | | 4. Evidence that the protected cell captive insurer will allocate expenses fairly and equitably to each protected cell. |
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| 259 | 260 | | |
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| 260 | 261 | | I. Before the issuance of a license, an applicant shall promptly notify the director of any material change in the information filed pursuant to this section. |
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| 261 | 262 | | |
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| 262 | 263 | | J. An applicant for a captive insurer license shall pay to the director a nonrefundable fee for the issuance of a captive insurance license pursuant to section 20-167. The captive insurer shall pay the license renewal fee pursuant to section 20-167 when the captive insurer files the annual report prescribed in section 20-1098.07. |
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| 263 | 264 | | |
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| 264 | 265 | | K. If the director is satisfied that the documents and statements that the applicant has filed comply with this article, the director may grant the applicant a captive insurer license that authorizes the captive insurer to transact captive insurance business in this state. |
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| 265 | 266 | | |
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| 266 | 267 | | L. The director shall approve or deny an application for a license to transact captive insurance business within thirty days after the director deems the application complete. END_STATUTE |
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| 267 | 268 | | |
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| 268 | 269 | | Sec. 3. Section 20-1098.08, Arizona Revised Statutes, is amended to read: |
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| 269 | 270 | | |
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| 270 | 271 | | START_STATUTE20-1098.08. Examinations |
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| 271 | 272 | | |
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| 272 | 273 | | A. Whenever the director determines it to be prudent, the director may examine the business, transactions and affairs of each captive insurer to ascertain the captive insurer's financial condition and ability to fulfill its obligations and whether the captive insurer has complied with this article. |
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| 273 | 274 | | |
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| 274 | 275 | | B. Section 20-1098.23 applies to all examination reports, preliminary examination reports or results, working papers, recorded information, documents and copies of any of those reports, results, papers, information or documents produced by, obtained by or disclosed to the director in the course of an examination made under this section. |
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| 275 | 276 | | |
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| 276 | 277 | | C. The director may use independent contractor examiners pursuant to sections 20-148 and 20-159 to conduct examinations pursuant to this section. All examinations and examination related expenses shall be borne by the captive insurer and shall be paid by the insurance examiners revolving fund pursuant to section 20-159. |
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| 277 | 278 | | |
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| 278 | 279 | | D. As a condition of licensure, An alien captive insurer or foreign captive insurer that establishes a business unit in this state and that is licensed as a branch captive insurer shall consent to the examination by the director of the affairs of the alien captive insurer or foreign captive insurer in the jurisdiction in which the alien captive insurer or foreign captive insurer is formed. The examination of a branch captive insurer shall be of branch business and branch operations only, during the period the branch captive insurer is formed, and must demonstrate to the director's satisfaction that the alien captive insurer or foreign captive insurer is operating in a sound financial condition pursuant to all the applicable laws and regulations of the jurisdiction. END_STATUTE |
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| 279 | 280 | | |
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| 280 | 281 | | Sec. 4. Section 20-1098.15, Arizona Revised Statutes, is amended to read: |
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| 281 | 282 | | |
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| 282 | 283 | | START_STATUTE20-1098.15. Applicability |
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| 283 | 284 | | |
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| 284 | 285 | | A. Chapter 2, article 6 of this title relating to unfair trade practices and frauds applies to captive insurers, except to the extent the director determines the nature of captive insurance renders particular provisions of chapter 2, article 6 of this title inappropriate. |
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| 285 | 286 | | |
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| 286 | 287 | | B. All other provisions of this title that are not inconsistent with this article apply to captive insurers, except to the extent the director determines the nature of captive insurance renders particular provisions of this title inappropriate. |
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| 287 | 288 | | |
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| 288 | 289 | | C. A captive insurer that is formed as a corporation is subject to the applicable provisions of title 10, except as otherwise prescribed in this article. |
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| 289 | 290 | | |
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| 290 | 291 | | D. A captive insurer that is formed as a limited liability company is subject to the applicable provisions of title 29, except as otherwise prescribed in this article. |
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| 291 | 292 | | |
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| 292 | 293 | | E. The provisions of article 1 of this chapter relating to mergers, consolidations, conversions, mutualizations and redomestications apply in determining the procedures to be followed by captive insurers in carrying out those transactions, except that the director may waive or modify the requirements for a public notice and hearing prescribed in section 20-731. notwithstanding section 20-731, a domestic captive insurer may merge or consolidate with any other domestic captive insurer, foreign captive insurer or alien captive insurer even if the domestic captive insurer, foreign captive insurer or alien captive insurer was formed as a limited liability company or a stock corporation. |
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| 293 | 294 | | |
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| 294 | 295 | | F. Chapter 2, article 8 of this title relating to insurance holding company systems applies to risk retention groups as defined in section 20-1098 or 20-2401. |
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| 295 | 296 | | |
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| 296 | 297 | | G. Chapter 2, article 12 of this title relating to risk-based capital, as modified by the national association of insurance commissioners for risk retention groups, applies to risk retention groups as defined in section 20-1098 or 20-2401. If a risk retention group is subject to regulatory action as prescribed in section 20-488.02, 20-488.03, 20-488.04 or 20-488.05, the regulatory action shall be at the discretion of the director. |
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| 297 | 298 | | |
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| 298 | 299 | | H. Unless otherwise prescribed by the director based on a risk retention group's business plan, remoteness of the risk and claim frequency, section 20-260, subsection A, relating to individual risk limitation, applies to risk retention groups as defined in section 20-1098 or 20-2401. END_STATUTE |
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| 299 | 300 | | |
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| 300 | 301 | | Sec. 5. Section 20-1098.19, Arizona Revised Statutes, is amended to read: |
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| 301 | 302 | | |
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| 302 | 303 | | START_STATUTE20-1098.19. Establishment of branch captive insurer |
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| 303 | 304 | | |
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| 304 | 305 | | A. An alien captive insurer or FOREIGN captive insurer may establish a business unit in this state and become licensed as a branch captive insurer may be established in this state pursuant to this chapter to write insurance or reinsurance in this state except as provided in section 20-1098.01, subsection B and other than workers' compensation or employers' liability insurance. |
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| 305 | 306 | | |
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| 306 | 307 | | B. A branch captive insurer shall not conduct any insurance branch business in this state unless it maintains the principal place of business for its branch operations in this state. |
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| 307 | 308 | | |
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| 308 | 309 | | C. A branch captive insurer shall be a pure captive insurer with respect to operations and minimum capitalization in this state unless otherwise permitted by the director. END_STATUTE |
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| 309 | 310 | | |
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| 310 | 311 | | Sec. 6. Section 20-1098.21, Arizona Revised Statutes, is amended to read: |
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| 311 | 312 | | |
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| 312 | 313 | | START_STATUTE20-1098.21. Branch captive insurer reports |
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| 313 | 314 | | |
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| 314 | 315 | | Within sixty days after its fiscal year end, a branch captive insurer shall 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 or foreign captive insurer is formed and that are verified by oath of two of its executive officers. END_STATUTE |
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