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OLR Bill Analysis
SB 1038
AN ACT CONCERNING CAPTIVE INSURANCE COMPANIES.
SUMMARY
Generally, a captive insurer is an insurance company formed to
insure or reinsure the risks of its owners, parent company, or affiliated
company. The law allows several different types of captive insurers to
be licensed and operate in the state.
This bill allows all captive insurers to accept or transfer risk through
parametric contracts (i.e., any agreement to make a payment based on a
specified triggering event rather than the value of the loss). It also
expressly requires captive insurers that use these contracts to comply
with applicable state and federal laws and regulations.
A sponsored captive is a captive insurance company (1) in which the
minimum paid-in capital and surplus is provided by one or more
sponsors, (2) that insures its participants through separate participant
contracts, and (3) that funds its liability to each participant through
protected cells, and separates each cellʼs assets from the assets of other
cells and the captive insurer as a whole. The bill allows these protected
cells to, with the insurance commissioner’s prior written approval,
establish separate accounts and allocate assets to them, subject to certain
requirements.
Lastly, the bill exempts dormant captive insurers from captive
insurance premium taxes. Captives must pay taxes on direct premiums
and reinsurance premiums collected or contracted, with a varying rate
based on the amount of premiums. The annual minimum aggregate tax
is generally $7,500. By law, pure, sponsored, and industrial captive
insurers that have stopped doing business and have no more liabilities
can apply to the insurance commissioner for a certificate of dormancy. 2023SB-01038-R000384-BA.DOCX
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Dormant captive insurers have lower statutory minimum capital and
surplus requirements.
EFFECTIVE DATE: October 1, 2023
SPONSORED CAPTIVE PR OTECTED CELL SEPARAT E
ACCOUNTS
Under the bill, a sponsored captive’s protected cells can establish
separate accounts and allocate assets to them to insure the risks of
participants or participants’ controlled unaffiliated business. The bill
establishes several requirements that generally maintain the accounts’
independence from other accounts and protected cells. Under the bill:
1. the income and gains and losses (realized or unrealized) from
assets allocated to a separate account must be credited to or
charged against the account, without regard to the protected
cell’s other income, gains, or losses;
2. the protected cell owns the allocations to a separate account and
it cannot be, or hold itself out to be, a trustee of them;
3. assets allocated to a protected cell must be valued based on the
rules otherwise applicable to the protected cell’s assets, unless
otherwise approved by the insurance commissioner; and
4. the portion of assets in any protected cell equal to the reserves
and other contract liabilities of a particular account cannot be
charged against liabilities from any of the protected cell’s other
business (pursuant to applicable contracts).
The bill prohibits selling, exchanging, or transferring assets between
any of the protected cell’s separate accounts or between any other
investment account and the protected cell’s separate accounts, unless
the transfer is made:
1. into a separate account to establish it or support the operation of
its contracts, and
2. whether into or from a separate account, in cash or by a transfer 2023SB-01038-R000384-BA.DOCX
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of securities that has a readily determinable market value and is
approved by the commissioner.
The bill allows the commissioner to approve other transfers if he
determines they are equitable.
Governance
A protected cell, if needed to comply with state or federal law, may
allow people with interests in separate accounts (including an account
that is a management investment company or unit investment trust)
appropriate voting and other rights needed to conduct the account’s
business. This includes special rights and procedures on investment
policy, investment advisory services, and selecting (1) independent
public accountants and (2) a committee to manage the account’s
business. (The bill specifies that these committee members do not need
to be affiliated with the protected cell.)
COMMITTEE ACTION
Insurance and Real Estate Committee
Joint Favorable
Yea 12 Nay 0 (03/16/2023)