O F F I C E O F L E G I S L A T I V E R E S E A R C H
P U B L I C A C T S U M M A R Y
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PA 23-15—SB 1038
Insurance and Real Estate Committee
Finance, Revenue and Bonding Committee
AN ACT CONCERNING CA PTIVE INSURANCE COMP ANIES
SUMMARY: Generally, a captive insurer is an insurance company formed to
insure or reinsure the risks of its owners, parent company, or affiliated company.
This act allows captive insurers to accept or transfer risk through parametric
contracts (i.e., any agreement to make a payment based on a specified triggering
event without proof of a loss or obligation to indemnify). It also expressly requires
captive insurers that use these contracts to comply with applicable state and federal
laws and regulations.
Existing law allows several different types of captive insurers to be licensed
and operate in the state. One type, a sponsored captive insurer, is an 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 cell’s assets from that of other cells and the captive insurer as a
whole. The act allows these protected cells to establish, with the insurance
commissioner’s prior written approval, separate accounts and allocate assets to
them, subject to certain requirements.
Lastly, the act exempts dormant captive insurers from captive insurance
premium taxes. Captive insurers 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 under existing law is
generally $7,500. By law, pure, sponsored, and industrial captive insurers that have
stopped doing business and have no more liabilities may apply to the insurance
commissioner for a certificate of dormancy, which allows them to meet lower
capital and surplus requirements.
EFFECTIVE DATE: October 1, 2023
SEPARATE ACCOUNTS FO R A SPONSORED CAPTIVE INSURER’S
PROTECTED CELL
Conditions for Establishing Separate Accounts
Under the act, with the commissioner’s prior written approval, a sponsored
captive insurer’s protected cell can establish separate accounts and allocate assets
to them to insure the risks of participants or their controlled unaffiliated business
under the following conditions:
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 O L R P U B L I C A C T S U M M A R Y
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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 separate account must be valued based on the
Connecticut laws and regulations 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).
Sale, Exchange, or Transfer of Assets Between Separate Accounts
The act 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 of securities that has a readily
determinable market value and is approved by the commissioner.
The act allows the commissioner to approve other transfers if he determines
they are equitable.
Governance
If needed to comply with state or federal law, the act permits a protected cell to
allow people with interests in separate accounts (including an account that is a
management investment company or unit investment trust) to 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 the
selection of independent public accountants and a committee to manage the
account’s business. (The act specifies that these committee members do not need
to be affiliated with the protected cell.)