Senate File 509 - Introduced SENATE FILE 509 BY COMMITTEE ON COMMERCE (SUCCESSOR TO SF 424) A BILL FOR An Act relating to captive insurance companies, and including 1 applicability provisions. 2 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 3 TLSB 1871SV (1) 90 ko/rn
S.F. 509 Section 1. NEW SECTION . 432.1A Tax on premiums captive 1 insurance companies. 2 1. a. Each captive company under chapter 521J shall pay 3 on or before March 1 of each year a tax on the direct premiums 4 collected or contracted for on policies or contracts of 5 insurance written by the captive company during the immediately 6 preceding calendar year, after deducting from the direct 7 premiums the amounts paid to policyholders as return premiums, 8 including dividends on unabsorbed premiums or premium deposits 9 returned or credited to policyholders. 10 b. The tax due under paragraph a on direct premiums 11 collected or contracted for by a captive company shall be 12 calculated as follows: 13 (1) Four-tenths percent on the first twenty million dollars 14 of direct premiums. 15 (2) Three-tenths percent on each dollar of direct premiums 16 after the first twenty million dollars collected under 17 subparagraph (1). 18 2. a. Each captive company under chapter 521J shall pay 19 on or before March 1 of each year a tax on assumed reinsurance 20 premiums. A reinsurance tax shall not apply to premiums for 21 risks or portions of risks that are subject to taxation on a 22 direct basis pursuant to subsection 1. 23 b. A reinsurance premium tax shall not be payable by a 24 captive company in connection with the receipt by the captive 25 company of assets in exchange for the assumption of loss 26 reserves and other liabilities of another insurer under common 27 ownership and control if the transaction is part of a plan 28 to discontinue the operations of the other insurer, and if 29 the intent of the parties to the transaction is to renew or 30 maintain the other insurers business with the captive company. 31 c. The amount of reinsurance tax due from a captive company 32 under paragraph a shall be calculated as follows: 33 (1) Two hundred twenty-five ten-thousandths percent on the 34 first twenty million dollars of assumed reinsurance premiums. 35 -1- LSB 1871SV (1) 90 ko/rn 1/ 36
S.F. 509 (2) Fifteen-hundredths percent on the twenty million 1 dollars of assumed reinsurance premiums collected after the 2 first twenty million dollars of assumed reinsurance premiums 3 collected under subparagraph (1). 4 (3) Five percent on each dollar of assumed reinsurance 5 premiums collected after the twenty millions dollars collected 6 under subparagraph (1) and the twenty million dollars collected 7 under subparagraph (2). 8 3. a. (1) Except as provided in subparagraphs (2) and 9 (3), if the aggregate taxes as calculated under subsections 10 1 and 2 that are payable by a captive company are less than 11 five thousand dollars for any one tax year, the captive company 12 shall pay five thousand dollars in tax for that tax year. 13 (2) If a captive company is subject to the minimum tax under 14 subparagraph (1) in the calendar year in which the company is 15 first granted a certificate of authority under section 521J.2, 16 the tax shall be prorated as follows: 17 (a) If a certificate of authority is first granted in the 18 first quarter of the calendar year, the tax shall be five 19 thousand dollars. 20 (b) If a certificate of authority is first granted in the 21 second quarter of the calendar year, the tax shall be three 22 thousand seven hundred fifty dollars. 23 (c) If a certificate of authority is first granted in 24 the third quarter of the calendar year, the tax shall be two 25 thousand five hundred dollars. 26 (d) If a certificate of authority is first granted in the 27 fourth quarter of the calendar year, the tax shall be one 28 thousand five hundred dollars. 29 (3) If a captive company that is subject to the minimum tax 30 under subparagraph (1) surrenders the companys certificate of 31 authority in the year that the captive company is subject to 32 the minimum tax, the tax shall be prorated on a quarterly basis 33 as follows: 34 (a) If the certificate of authority is surrendered in 35 -2- LSB 1871SV (1) 90 ko/rn 2/ 36
S.F. 509 the first quarter of the calendar year, the tax shall be one 1 thousand dollars. 2 (b) If the certificate of authority is surrendered in the 3 second quarter of the calendar year, the tax shall be two 4 thousand five hundred dollars. 5 (c) If the certificate of authority is surrendered in the 6 third quarter of the calendar year, the tax shall be three 7 thousand seven hundred fifty dollars. 8 (d) If the certificate of authority is surrendered in the 9 fourth quarter of the calendar year, the tax shall be five 10 thousand dollars. 11 b. Each protected cell in a protected cell captive company 12 shall be considered separately in determining the aggregate 13 tax to be paid by the protected cell captive company. If the 14 protected cell captive company insures any risks in addition 15 to the protected cells, the determination of the aggregate tax 16 shall, in addition to the protected cells, also include the 17 premium on all insured risks. 18 c. Each series of members of a limited liability company 19 formed as a special purpose captive company shall be considered 20 separately under this section, except that the minimum tax as 21 described in paragraph a shall be considered in the aggregate. 22 4. Under this section, a captive company, other than a 23 protected cell captive company, shall not be required to pay 24 aggregate taxes that exceed one hundred thousand dollars in any 25 one tax year. 26 5. Two or more captive companies under common ownership 27 and control shall be taxed as a single captive company. For 28 the purposes of this subsection, common ownership and control 29 means either of the following: 30 a. In the case of a stock corporation, the direct or 31 indirect ownership of eighty percent or more of the outstanding 32 voting stock of two or more corporations by the same 33 shareholder or shareholders. 34 b. In the case of a mutual insurer, the direct or indirect 35 -3- LSB 1871SV (1) 90 ko/rn 3/ 36
S.F. 509 ownership of eighty percent or more of the surplus, and the 1 voting power of two or more insurers, by the same member or 2 members. 3 6. Only the branch business of a branch captive company 4 shall be subject to taxation under this section. 5 7. The tax provided for in this section shall be calculated 6 on an annual basis notwithstanding a policy or a contract 7 of insurance, or a contract of reinsurance, that is issued 8 on a multiyear basis. In the case of a multiyear policy or 9 a multiyear contract, the premium shall be prorated for the 10 purpose of calculating the appropriate tax. 11 Sec. 2. Section 507C.3, Code 2023, is amended by adding the 12 following new subsection: 13 NEW SUBSECTION . 8. Captive companies under chapter 521J. 14 Sec. 3. NEW SECTION . 521J.1 Definitions. 15 As used in this chapter, unless the context otherwise 16 requires: 17 1. Affiliated company means a company that is in the 18 same corporate system as a parent, an industrial insured, or 19 a member based on common ownership, control, operation, or 20 management. 21 2. Association means a legal entity comprised of sole 22 proprietorships or of business entities that has been in 23 continuous existence for a minimum of one consecutive year, 24 unless the one-year requirement is waived by the commissioner, 25 and all of the members collectively, or the legal entity 26 itself, meets either of the following requirements: 27 a. Owns, controls, or holds with power to vote all of 28 the outstanding voting securities of an association captive 29 company incorporated as a stock insurer; or has complete voting 30 control over an association captive company incorporated as a 31 mutual insurer; or constitutes all of the subscribers of an 32 association captive company formed as a reciprocal insurer. 33 b. Owns, controls, or holds with power to vote all of the 34 outstanding ownership interests of an association captive 35 -4- LSB 1871SV (1) 90 ko/rn 4/ 36
S.F. 509 company organized as a limited liability company. 1 3. Association captive company means an insurance company 2 that insures risks of the associations members and the risks 3 of the associations affiliated companies of members. 4 4. Branch business means any insurance business transacted 5 by a branch captive company in this state. 6 5. Branch captive company means a foreign captive company 7 authorized by the commissioner by rule to transact the business 8 of insurance in this state through a business entity with a 9 principal place of business in this state. 10 6. Branch operations means any business operations of a 11 branch captive company. 12 7. Business entity means a corporation, a limited 13 liability company, or other legal entity formed by an 14 organizational document. Business entity does not include a 15 sole proprietor. 16 8. Captive company means any pure insurance company, 17 association captive company, protected cell captive company, 18 special purpose captive company, or industrial insured captive 19 company formed or authorized under this chapter. 20 9. Captive reinsurance company means a captive insurance 21 company in this state, as authorized by the commissioner by 22 rule, that reinsures the risk ceded by any other insurer. 23 10. Captive risk retention group means a captive insurance 24 risk retention group formed under this chapter and that is 25 subject to chapter 515E. 26 11. Cash equivalent means any short-term, highly liquid 27 investment with an original maturity of three months or less 28 that is all of the following: 29 a. Readily convertible to known amounts of cash. 30 b. Close enough to maturity that the investment presents 31 insignificant risk of change in value if interest rates 32 fluctuate. 33 12. Commissioner means the commissioner of insurance. 34 13. Controlled unaffiliated business entity means a 35 -5- LSB 1871SV (1) 90 ko/rn 5/ 36
S.F. 509 business entity or sole proprietorship that meets all of the 1 following requirements: 2 a. The business entity or sole proprietorship is not in a 3 parents corporate system that consists of the parent and any 4 affiliated companies. 5 b. The business entity or sole proprietorship has an 6 existing, controlling contractual relationship with the parent 7 or an affiliated company. 8 c. The business entitys or sole proprietorships risks are 9 managed by a pure captive insurance company. 10 14. Excess workers compensation insurance means, for 11 an employer that has insured or self-insured the employers 12 workers compensation risks in accordance with applicable state 13 or federal law, insurance in excess of a specified per-incident 14 or aggregate limit as established by the commissioner by rule. 15 15. Foreign captive company means a captive insurance 16 company formed under the laws of a jurisdiction other than this 17 state. 18 16. Industrial insured means an insured that meets all of 19 the following requirements: 20 a. The insured procures the insurance of any risk by use 21 of the services of a full-time employee acting as an insurance 22 manager or buyer. 23 b. The insureds aggregate annual premiums for insurance on 24 all risks are at least twenty-five thousand dollars. 25 c. The insured employs a minimum of twenty-five full-time 26 employees. 27 17. Industrial insured captive company means an insurance 28 company that insures the risks of the industrial insureds that 29 is comprised of the industrial insured group and the industrial 30 insured groups affiliated companies. 31 18. Industrial insured group means a group that meets 32 either of the following requirements: 33 a. The group collectively owns, controls, or holds with 34 the power to vote all of the outstanding voting securities of 35 -6- LSB 1871SV (1) 90 ko/rn 6/ 36
S.F. 509 an industrial insured captive company incorporated as a stock 1 insurer; or has complete voting control over an industrial 2 insured captive company incorporated as a mutual insurer. 3 b. The group is a captive risk retention group. 4 19. Member means a sole proprietorship or a business 5 entity that belongs to an association. 6 20. Mutual insurer means a business entity that does not 7 have capital stock, and that has a governing body elected by 8 the insurers policyholders. 9 21. Organizational document means articles of 10 incorporation, articles of organization, a subscribers 11 agreement, a charter, or any other document that can legally 12 establish a business entity in this state. 13 22. Parent means a sole proprietorship, a business entity, 14 or an individual that directly or indirectly owns, controls, 15 or holds with power to vote more than fifty percent of the 16 outstanding voting securities of a captive company. 17 23. Participant means a sole proprietorship or a business 18 entity and any affiliates that are insured by a protected cell 19 captive company and whose losses are limited by a participant 20 contract. 21 24. Participant contract means a contract by which 22 a protected cell captive company insures the risks of a 23 participant and limits the losses of each participant in the 24 contract to the participants share of the assets of one or 25 more protected cells as identified in the participant contract. 26 25. Protected cell means a separate account established 27 by a protected cell captive company formed or authorized 28 under this chapter, in which an identified pool of assets 29 and liabilities are segregated and insulated, as provided in 30 section 521J.17, from the remainder of the protected cell 31 captive companys assets and liabilities in accordance with 32 the terms of one or more participant contracts to fund the 33 liability of the protected cell captive company with respect to 34 the participants. 35 -7- LSB 1871SV (1) 90 ko/rn 7/ 36
S.F. 509 26. Protected cell assets means all assets, contract 1 rights, and general intangibles identified and attributable to 2 a specific protected cell of a protected cell captive company. 3 27. Protected cell captive company means a captive company 4 that meets all of the following requirements: 5 a. The minimum legally required capital and surplus of the 6 company is provided by one or more sponsors. 7 b. The company is formed or authorized under this chapter. 8 c. The company insures the risks of separate participants 9 through participant contracts. 10 d. The company funds the companys liability to each 11 participant through one or more protected cells, and segregates 12 the assets of each protected cell from the assets of other 13 protected cells, and from the assets of the protected cell 14 captive companys general account. 15 e. The company is incorporated or formed as a limited 16 liability company. 17 28. Protected cell liabilities means all liabilities 18 and other obligations identified with and attributable to a 19 specific protected cell of a protected cell captive company. 20 29. Public records means the same as defined in section 21 22.1. 22 30. Pure captive company means an insurance company that 23 insures the risks of the companys parent and the parents 24 affiliated companies, and the risks of controlled unaffiliated 25 business entities. 26 31. Series of members means a group or collection of 27 members of a limited liability company who share interests 28 and who have separate rights, powers, or duties with respect 29 to property, obligations, or profits and losses associated 30 with property or obligations and who are specified in the 31 articles of organization or operating agreement of the limited 32 liability company, or that are specified by one or more members 33 or managers of the limited liability company or other persons 34 as provided in the articles of organization or operating 35 -8- LSB 1871SV (1) 90 ko/rn 8/ 36
S.F. 509 agreement. 1 32. Sole proprietorship means an individual who does 2 business in a noncorporate form. 3 33. Special purpose captive company means a captive 4 company that is formed or authorized under this chapter that 5 does not meet the definition of any other type of captive 6 company as defined in this section, or that is formed by, on 7 behalf of, or for the benefit of a political subdivision of 8 this state. 9 34. Sponsor means an entity that meets the requirements 10 of sections 521J.17 and 521J.18, and that is approved by the 11 commissioner to do all of the following: 12 a. Provide all or part of the capital and surplus required 13 of a protected cell captive company by applicable law. 14 b. Organize and operate a protected cell captive company. 15 Sec. 4. NEW SECTION . 521J.2 Certificate of authority. 16 1. If permitted by its organizational document, a captive 17 company may apply to the commissioner for a certificate of 18 authority to provide property insurance, casualty insurance, 19 life insurance, disability income insurance, surety insurance, 20 marine insurance, health insurance, or a group health plan, 21 with the following exceptions: 22 a. A pure captive company shall not insure any risks other 23 than those of the companys parent and affiliated companies, 24 and of the companys controlled unaffiliated business entities. 25 b. An industrial insured captive company shall only insure 26 risks of the industrial insured company, comprised of the 27 industrial insured group and the industrial insured groups 28 affiliated companies. 29 c. An association captive company shall not insure any risks 30 other than those of the members or affiliated companies of 31 members. 32 d. A special purpose captive company shall not provide 33 insurance or reinsurance for risks unless approved by the 34 commissioner. 35 -9- LSB 1871SV (1) 90 ko/rn 9/ 36
S.F. 509 e. A captive company or a branch captive company shall not 1 do any of the following: 2 (1) Provide personal lines of insurance, including but not 3 limited to motor vehicle insurance, homeowners insurance, 4 or any component of motor vehicle insurance or homeowners 5 insurance. 6 (2) Accept or cede reinsurance except as established by the 7 commissioner by rule. 8 (3) Provide health insurance coverage or a group health 9 plan unless the captive company or the branch captive company 10 is providing the health insurance coverage or the group health 11 plan only for the parent company and the parent companys 12 affiliated companies. 13 (4) Write workers compensation insurance on a direct 14 basis. 15 f. A protected cell captive company shall not insure any 16 risks other than those of the protected cell captive companys 17 participants. 18 2. A captive company shall not write any insurance business 19 unless the captive company complies with all of the following: 20 a. The captive company first obtains a certificate of 21 authority from the commissioner. 22 b. The captive companys board of directors, board of 23 managing members, or a reciprocal insurers subscribers 24 advisory committee holds at least one annual meeting in this 25 state. 26 c. The captive company maintains its principal place of 27 business in this state. 28 d. The captive company designates a registered agent 29 to accept service of process, files the name and contact 30 information and any subsequent changes regarding the 31 registered agent with the commissioner, and agrees that if the 32 registered agent cannot be found with reasonable diligence, 33 the commissioner may act as an agent of the captive company 34 with respect to any action or proceeding and may be served in 35 -10- LSB 1871SV (1) 90 ko/rn 10/ 36
S.F. 509 accordance with section 505.30. 1 3. a. Prior to receiving a certificate of authority, a 2 captive company formed as a business entity shall do all of the 3 following: 4 (1) File with the commissioner a certified copy of the 5 business entitys organizational documents, a statement under 6 oath of an officer of the business entity showing the business 7 entitys financial condition, and any other statement or 8 document required by the commissioner as established by rule. 9 (2) Submit a description of coverages, deductibles, 10 coverage limits, and rates to the commissioner for approval. 11 (3) Provide a statement to the commissioner that describes 12 all of the following: 13 (a) The character, reputation, and financial standing of 14 the organizers of the business entity. 15 (b) The character, reputation, financial responsibility, 16 insurance experience, and business qualifications of all 17 officers, directors, and managing members of the business 18 entity. 19 (c) Any other information required by the commissioner as 20 established by rule. 21 b. If there is a subsequent material change in the 22 information provided to the commissioner under paragraph 23 a , the captive company shall submit appropriate supporting 24 documentation to the commissioner for approval. The captive 25 company shall not offer any additional lines of insurance until 26 on or after the date on which the commissioner approves the 27 supporting documentation. The captive company shall inform the 28 commissioner of any change in rates within thirty calendar days 29 of the captive companys adoption of a change in rate. 30 c. In addition to the information required under paragraphs 31 a and b , each applicant captive company shall file with the 32 commissioner evidence of all of the following: 33 (1) The amount and liquidity of the captive companys assets 34 relative to the risks to be assumed by the captive company. 35 -11- LSB 1871SV (1) 90 ko/rn 11/ 36
S.F. 509 (2) The adequacy of the expertise, experience, and 1 character of the persons who will manage the captive company. 2 (3) The overall soundness of the captive companys plan of 3 operation. 4 (4) The adequacy of the loss prevention program of the 5 captive companys parent, members, or industrial insureds, as 6 applicable. 7 (5) Any other factors deemed relevant as established by 8 the commissioner by rule to ascertain if the proposed captive 9 company will be able to meet the companys policy obligations. 10 d. In addition to the information required under paragraph 11 a , each applicant that is a protected cell captive company 12 shall file with the commissioner all of the following: 13 (1) A business plan that demonstrates at a level of detail 14 deemed sufficient by the commissioner how the applicant will 15 account for the loss and expense experience of each protected 16 cell, and how the applicant will report the loss and expense 17 experience to the commissioner. 18 (2) A statement that acknowledges that all financial 19 records of the protected cell captive company, including 20 records pertaining to any protected cells, shall be made 21 available, upon request, for inspection or examination by the 22 commissioner or the commissioners designated agent. 23 (3) A copy of each participant contract. 24 (4) Evidence that expenses shall be allocated to each 25 protected cell in a fair and equitable manner. 26 e. In addition to the requirements of paragraph a , a 27 captive company formed as a reciprocal insurer shall file with 28 the commissioner a certified copy of the power of attorney of 29 the reciprocal insurers attorney-in-fact, a certified copy of 30 the reciprocal insurers subscribers agreement, a statement 31 under oath of the reciprocal insurers attorney-in-fact that 32 shows the reciprocal insurers financial condition, and any 33 other statements or documents required by the commissioner as 34 established by rule. 35 -12- LSB 1871SV (1) 90 ko/rn 12/ 36
S.F. 509 f. All documents and information submitted pursuant to this 1 subsection shall be confidential and shall not be made public 2 without the advance written consent of the submitting company, 3 with the following exceptions: 4 (1) The documents and information shall be discoverable by 5 a party in a civil action or in a contested case to which the 6 captive company that submitted the information is a party upon 7 a showing by the party seeking to discover the information that 8 the information sought is relevant to, and necessary for, the 9 furtherance of the action or case; the information sought is 10 unavailable from other nonconfidential sources; and a subpoena 11 issued by a judicial or an administrative officer has been 12 submitted to the commissioner. 13 (2) The commissioner may, in the commissioners discretion, 14 disclose the documents and information to a public official 15 having jurisdiction over the regulation of insurance in another 16 state, or to a public official of the federal government, 17 provided that the public official agrees in writing to maintain 18 the confidentiality of the information, and that the laws of 19 the state in which the public official serves require that the 20 information remain confidential. 21 4. a. Each captive company, individual series of members 22 of a limited liability company, and protected cell shall pay 23 to the commissioner a nonrefundable fee of two hundred dollars 24 for the examination, investigation, and processing of its 25 application for a certificate of authority. The commissioner 26 shall be authorized to retain legal, financial, and examination 27 services from outside the department as necessary for review of 28 the application, the reasonable cost of which may be charged 29 to the applicant. 30 b. (1) Chapter 507 shall apply to examinations conducted 31 under this chapter. 32 (2) Each captive insurance company, each individual series 33 of members of a limited liability company, and each protected 34 cell shall pay an initial registration fee, and an annual 35 -13- LSB 1871SV (1) 90 ko/rn 13/ 36
S.F. 509 renewal registration fee, of three hundred dollars. 1 5. If the commissioner is satisfied with the documents 2 and statements that an applicant captive company has filed in 3 compliance with this chapter, and the applicable provisions of 4 Title XII, subtitle 1, the commissioner may grant a certificate 5 of authority to the captive company that permits the company to 6 do the business of insurance in this state. The certificate of 7 authority may be renewed if the applicant is in compliance with 8 this chapter and the certificate must be renewed annually. 9 Sec. 5. NEW SECTION . 521J.3 Captive companies names. 10 A captive company shall not adopt a name that is the same, 11 deceptively similar, or likely to be confused with or mistaken 12 for any other existing business name already registered in this 13 state. 14 Sec. 6. NEW SECTION . 521J.4 Minimum capital and surplus 15 requirements. 16 1. The commissioner shall not issue a certificate of 17 authority to a captive company unless the captive company 18 possesses and maintains unimpaired paid-in capital and surplus 19 that meets the following requirements: 20 a. Is not less than two hundred fifty thousand dollars for 21 a pure captive company. 22 b. Is not less than five hundred thousand dollars for an 23 industrial insured captive company, including a captive risk 24 retention group. 25 c. Is not less than five hundred thousand dollars for an 26 association captive company. 27 d. Is an amount as determined by the commissioner after 28 giving due consideration to the companys business plan, 29 feasibility study, and pro forma documents, including the 30 nature of the risks to be insured, for a special purpose 31 captive company. 32 e. Is not less than five hundred thousand dollars for a 33 protected cell captive company. If, however, the protected 34 cell captive company does not assume any risks, the risks 35 -14- LSB 1871SV (1) 90 ko/rn 14/ 36
S.F. 509 insured by the protected cells are homogenous, and if there are 1 not more than ten cells, the commissioner may reduce the amount 2 to an amount not less than two hundred fifty thousand dollars. 3 f. Is not less than the applicable amount of capital and 4 surplus required in paragraphs a through e , as determined 5 based upon the organizational form of the foreign captive 6 company, for a branch captive company. The minimum capital 7 and surplus shall be jointly held by the commissioner and the 8 branch captive company in a bank of the federal reserve system 9 as approved by the commissioner by rule. 10 g. Is not less than fifty percent of the capital required 11 for that type of captive company for a captive reinsurance 12 company. 13 2. The commissioner may require additional capital and 14 surplus for a captive company under subsection 1 based upon the 15 type, volume, and nature of the insurance business transacted 16 by the captive company. 17 3. The capital and surplus required under subsection 1 and 18 subsection 2, if applicable, shall be in the form of cash, 19 cash equivalent, or an irrevocable letter of credit on a form 20 as prescribed by the commissioner by rule and as issued by 21 a bank chartered by the state of Iowa, a member bank of the 22 federal reserve system, or a bank chartered by another state if 23 approved by the commissioner. 24 Sec. 7. NEW SECTION . 521J.5 Captive companies formation. 25 1. A captive company must be formed or organized as a 26 business entity as provided under this chapter. 27 2. An association captive company, or an industrial insured 28 captive company, shall be formed or organized in one of the 29 following ways: 30 a. Incorporated as a stock insurer with the stock insurers 31 capital divided into shares and held by the stockholders. 32 b. Incorporated as a mutual insurer without capital stock, 33 the governing body of which is elected by the members of the 34 mutual insurers association or associations. 35 -15- LSB 1871SV (1) 90 ko/rn 15/ 36
S.F. 509 c. Organized as a reciprocal insurer as permitted by the 1 commissioner by rule. 2 d. Organized as a manager-managed limited liability company. 3 3. A captive company incorporated or organized in this state 4 shall be incorporated or organized by at least one incorporator 5 or organizer who is a resident of this state. 6 4. The capital stock of a captive company incorporated as a 7 stock insurer may be authorized with no par value. 8 5. a. At least one of the members of the board of directors 9 of a captive company shall be a resident of this state. A 10 captive risk retention group shall have a minimum of five 11 directors. 12 b. A captive company formed as a limited liability company 13 shall have at least one manager who is a resident of the state. 14 A captive risk retention group formed as a limited liability 15 company shall not be required to have a manager who is a 16 resident of this state; however, the company shall maintain a 17 board of directors of which at least one board member shall be 18 a resident of this state. 19 c. A reciprocal insurer shall have at least one member 20 of the subscribers advisory committee who is a resident 21 of this state. A captive risk retention group formed as a 22 reciprocal insurer shall have a minimum of five members of 23 the subscribers advisory committee who are residents of this 24 state. 25 6. a. A captive company formed as a corporation or another 26 business entity shall have the privileges of, and shall be 27 subject to, state laws governing corporations or other business 28 entities, and the applicable provisions of this chapter. 29 b. In the event of a conflict between a state law governing 30 corporations or other business entities and this chapter, this 31 chapter shall control. 32 7. a. A subscribers agreement, or other organizing 33 document of a captive company formed as a reciprocal insurer, 34 shall authorize a quorum of a subscribers advisory committee 35 -16- LSB 1871SV (1) 90 ko/rn 16/ 36
S.F. 509 to consist of at least one-third of the number of members on 1 the advisory committee. 2 b. In addition to this chapter, a captive risk retention 3 group shall be subject to chapter 515E. In the event of a 4 conflict between chapter 515E and this chapter, this chapter 5 shall prevail. 6 8. Except as provided in section 521J.11, applicable 7 provisions of chapter 508B shall apply to a merger, 8 consolidation, conversion, mutualization, or voluntary 9 dissolution by a captive company. 10 9. a. A foreign captive company must apply to the secretary 11 of state for a certificate of authority for the foreign captive 12 companys branch captive company to transact business in this 13 state. 14 b. A branch captive company established under this chapter 15 to write, in this state, only insurance or reinsurance of the 16 employee benefit business of the branch captive companys 17 parent and affiliated companies shall be subject to the federal 18 Employee Retirement Income Security Act of 1974, 29 U.S.C. 19 1001, et seq. 20 c. A branch captive company shall not do any insurance 21 business in this state unless the branch captive company 22 maintains the principal place of business for the companys 23 branch operations in this state. 24 Sec. 8. NEW SECTION . 521J.6 Dividends. 25 1. A captive company shall not pay a dividend out of, or 26 other distribution with respect to, the minimum capital or 27 surplus required under section 521J.4 without the prior written 28 approval of the commissioner. 29 2. The commissioners approval of an ongoing plan for 30 the payment of dividends or other distributions shall be 31 conditioned upon retention, at the time of each payment, of 32 capital surplus in excess of the amounts specified by, or 33 determined in accordance with, a formula as approved by the 34 commissioner by rule. 35 -17- LSB 1871SV (1) 90 ko/rn 17/ 36
S.F. 509 Sec. 9. NEW SECTION . 521J.7 Reports. 1 1. A captive company shall be required to file an annual 2 report with the commissioner under the following circumstances: 3 a. Except as provided in paragraph b , on or before April 4 1 of each year, each captive company and each captive risk 5 retention group shall submit to the commissioner a report on 6 the companys financial condition, in a form and manner as 7 prescribed by the commissioner by rule, and as verified by oath 8 of two of the companys or groups executive officers. 9 b. A captive company, other than a captive risk retention 10 group, may apply to the commissioner to file the report 11 required under paragraph a on a fiscal year-end basis. If 12 the commissioner grants the captive company an alternative 13 reporting date, the company shall comply with all of the 14 following requirements: 15 (1) Subject to subparagraph (2), the report shall be filed 16 no later than ninety calendar days after the close of the 17 companys fiscal year. 18 (2) A report covering the immediately preceding calendar 19 year shall be filed with the commissioner prior to April 1 of 20 each year to provide sufficient information to support the 21 captive companys premium tax return under section 432.1A. 22 c. Each captive company shall use generally accepted 23 accounting principles, unless the commissioner requires the use 24 of statutory accounting principles, for the companys report. 25 The report may include letters of credit that are established, 26 issued, or confirmed by a bank chartered in this state, a 27 member of the federal reserve system, or a bank chartered by 28 another state if acceptable to the commissioner. 29 d. On or before April 1 of each year, each branch captive 30 company shall submit to the commissioner a copy of all reports 31 required to be filed under the laws of the branch captive 32 companys domiciliary jurisdiction, and as verified by oath of 33 two of the branch captive companys executive officers. If the 34 commissioner is satisfied that the annual report filed by the 35 -18- LSB 1871SV (1) 90 ko/rn 18/ 36
S.F. 509 foreign branch captive company in the companys domiciliary 1 jurisdiction provides adequate information concerning the 2 financial condition of the branch captive company, the 3 commissioner may waive the requirement for completion of 4 the branch captive insurance companys annual statement for 5 business written in the foreign jurisdiction. 6 2. All reports filed pursuant to this section shall be 7 considered confidential and shall not be a public record under 8 chapter 22. 9 Sec. 10. NEW SECTION . 521J.8 Examinations. 10 1. a. Except for captive risk retention groups as provided 11 under paragraph b , the commissioner may examine the affairs, 12 transactions, accounts, records, and assets of each captive 13 company as the commissioner deems necessary. 14 b. The commissioner shall examine the affairs, transactions, 15 accounts, records, and assets of each captive risk retention 16 group as the commissioner deems necessary, but no less 17 frequently than every five calendar years. 18 2. A report produced pursuant to the examination of a 19 captive risk retention group under this section shall be a 20 public record. 21 3. Except as provided in subsection 4, this section shall 22 apply to all business written by a captive company. 23 4. A branch captive company examination shall only be 24 conducted on the branch business and branch operations if 25 the branch captive company has satisfied the requirements 26 of section 521J.7, subsection 1, paragraph d , to the 27 satisfaction of the commissioner. 28 5. As a condition of authorization of a branch captive 29 company, the foreign captive company shall grant authority to 30 the commissioner for examination of the affairs of the foreign 31 captive company in the foreign captive companys domiciliary 32 jurisdiction. 33 6. The applicable provisions of chapter 507 shall apply to 34 examinations conducted under this chapter. 35 -19- LSB 1871SV (1) 90 ko/rn 19/ 36
S.F. 509 Sec. 11. NEW SECTION . 521J.9 Suspension or revocation. 1 1. A captive companys certificate of authority to conduct 2 the business of insurance in this state may be suspended by the 3 commissioner for any of the following reasons: 4 a. Insolvency or impairment of capital or surplus. 5 b. Failure to meet and maintain the minimum capital and 6 surplus requirements under section 521J.4. 7 c. Refusal or failure to submit an annual report pursuant 8 to section 521J.7, or to submit any other report or statement 9 required by law or by lawful order of the commissioner. 10 d. Failure to comply with the captive companys own charter, 11 bylaws, or other organizational document. 12 e. Failure to submit to an examination as required under 13 section 521J.8. 14 f. Use of methods that render the captive companys 15 operation detrimental, or the companys condition unsound, with 16 respect to the public or to the companys policyholders. 17 g. Failure to pay tax on premiums as required under chapter 18 432.1A. 19 h. Failure to comply with applicable laws of this state. 20 2. a. If the commissioner finds upon examination, hearing, 21 or other review that a captive company has committed an 22 act specified in subsection 1, the commissioner may suspend 23 or revoke the companys certificate of authority if the 24 commissioner deems it in the best interest of the public or of 25 the policyholders of the captive company. 26 b. If the commissioner does not revoke a captive companys 27 certificate of authority during a suspension imposed by the 28 commissioner under paragraph a , the companys certificate of 29 authority may be reinstated if the commissioner finds that the 30 cause of the suspension has been rectified. 31 Sec. 12. NEW SECTION . 521J.10 Excess workers compensation 32 insurance. 33 1. A captive company may provide excess workers 34 compensation insurance to the captive companys parent and 35 -20- LSB 1871SV (1) 90 ko/rn 20/ 36
S.F. 509 affiliated companies unless the laws of the state that has 1 jurisdiction over the transaction prohibits the captive company 2 from providing excess workers compensation insurance. 3 2. A captive company may reinsure workers compensation of 4 a qualified self-insured plan of the captive companys parent 5 and affiliated companies. 6 Sec. 13. NEW SECTION . 521J.11 Captive mergers. 7 1. A merger between captive stock insurers, or a merger 8 between captive mutual insurers, shall meet the requirements 9 of chapter 521 and section 521J.5, as applicable. The 10 commissioner may, at the commissioners discretion, provide 11 notice to the public of a proposed merger prior to approval or 12 disapproval of a merger. 13 2. An association captive company, or an industrial insured 14 group formed as a stock insurer or as a mutual insurer, may be 15 converted to or merged with a reciprocal insurer under this 16 section. 17 3. A plan for conversion or merger shall meet all of the 18 following requirements: 19 a. (1) The plan shall be fair and equitable to the 20 shareholders in the case of a stock insurer, or to the 21 policyholders in the case of a mutual insurer. 22 (2) The plan shall provide for the purchase of the shares 23 of any nonconsenting shareholder of a stock insurer, or of the 24 policyholder interests of any nonconsenting policyholder of a 25 mutual insurer. 26 b. A plan for conversion to a reciprocal insurer must be 27 approved by the commissioner. The commissioner shall not 28 approve a plan unless the plan meets all of the following 29 requirements: 30 (1) The plan provides for a hearing upon notice to the 31 insurer, directors, officers, and stockholders or policyholders 32 who have the right to appear at the hearing, unless the 33 commissioner waives or modifies the requirements for the 34 hearing. 35 -21- LSB 1871SV (1) 90 ko/rn 21/ 36
S.F. 509 (2) (a) In the case of a stock insurer, the plan provides 1 for the conversion of the existing stockholder interests into 2 subscriber interests in the resulting reciprocal insurer 3 proportionate to the existing stockholder interests, and is 4 approved by a majority of the shareholders who are entitled to 5 vote and who are represented at a regular or special meeting at 6 which a quorum is present either in person or by proxy. 7 (b) In the case of a mutual insurer, the plan provides 8 for the conversion of the existing policyholder interests 9 into subscriber interests in the resulting reciprocal insurer 10 proportionate to the existing policyholder interests, and 11 is approved by a majority of the voting interests of the 12 policyholders who are represented at a regular or special 13 meeting at which a quorum is present either in person or by 14 proxy. 15 (3) The plan meets the applicable requirements of section 16 521J.5. 17 c. If the commissioner approves a plan of conversion, the 18 certificate of authority for the converting insurer shall be 19 amended to state that the converting insurer is a reciprocal 20 insurer. The conversion shall be effective and the corporate 21 existence of the converting entity shall cease to exist on the 22 date on which the amended certificate of authority is issued to 23 the attorney-in-fact for the reciprocal insurer. The resulting 24 reciprocal insurer shall file the articles of merger or the 25 articles of conversion with the secretary of state. 26 Sec. 14. NEW SECTION . 521J.12 Captive insurance regulatory 27 and supervision account. 28 1. A captive insurance regulatory and supervision account 29 is established in the state general fund under the control 30 of the division and moneys in the account shall be used to 31 provide the financial means for the division to administer 32 this chapter, and for the reimbursement of reasonable expenses 33 incurred by the division to promote captive insurance in this 34 state. 35 -22- LSB 1871SV (1) 90 ko/rn 22/ 36
S.F. 509 2. All fees, assessments, fines, and administrative 1 penalties collected under this chapter shall be deposited in 2 the captive insurance regulatory and supervision account. 3 3. All payments from the captive insurance regulatory 4 and supervision account that are made for the maintenance of 5 staff and associated expenses, including necessary contractual 6 services, shall only be disbursed from the state treasury 7 upon a warrant issued by the commissioner, after receipt by 8 the commissioner of proper documentation regarding services 9 rendered and expenses incurred. 10 4. The balance in the captive insurance regulatory and 11 supervision account at the end of each fiscal year shall revert 12 to the general fund. 13 Sec. 15. NEW SECTION . 521J.13 Legal investments. 14 1. a. Industrial insured captive companies, association 15 captive companies, and captive risk retention groups shall 16 comply with investment requirements as established by the 17 commissioner by rule. The commissioner may approve the use of 18 alternative reliable methods of valuation and rating. 19 b. If a captive companys admitted assets total less 20 than five million dollars, the commissioner may approve an 21 investment of up to twenty percent of the captive companys 22 admitted assets in rated credit instruments in any one 23 investment that meets the requirements as established by the 24 commissioner by rule. 25 2. A pure captive company, or a protected cell captive 26 company, shall not be subject to any restrictions on allowable 27 investments, except that the commissioner may prohibit or limit 28 any investment that threatens the solvency or liquidity of the 29 pure captive company. 30 3. Any captive company may make loans to any of the captive 31 companys affiliates with prior written approval of the 32 commissioner, and each loan must be evidenced by a note in a 33 form as approved by the commissioner by rule. Loans made from 34 minimum capital and surplus funds required by section 521J.4 35 -23- LSB 1871SV (1) 90 ko/rn 23/ 36
S.F. 509 are prohibited. 1 Sec. 16. NEW SECTION . 521J.14 Reinsurance. 2 1. Subject to the prior approval of the commissioner, a 3 captive company may provide reinsurance on risks ceded by any 4 other insurer. 5 2. Any captive company may take credit for reserves on 6 risks, or portions of risks, ceded to reinsurers as provided 7 under chapter 521B. 8 Sec. 17. NEW SECTION . 521J.15 Rating organizations. 9 A captive company shall not be required to join a rating 10 organization. 11 Sec. 18. NEW SECTION . 521J.16 Compulsory organizations. 12 A captive company shall not join or contribute financially 13 to any plan, pool, association, or guaranty or insolvency fund 14 in this state; and a captive company, a captive companys 15 insureds, a captive companys parent, any company affiliated 16 with a captive company, and any member of an association shall 17 not receive any benefit from a plan, pool, association, or 18 guaranty or insolvency fund for claims arising out of the 19 operations of the captive company. 20 Sec. 19. NEW SECTION . 521J.17 Protected cell captive 21 companies. 22 1. One or more sponsors may form a protected cell captive 23 company. 24 2. A protected cell captive company formed or authorized 25 under this chapter shall be subject to all of the following 26 requirements: 27 a. (1) A protected cell captive company may establish one 28 or more protected cells subject to the prior written approval 29 of the commissioner of a plan of operation submitted by the 30 protected cell captive company for each protected cell. The 31 plan of operation shall include but is not limited to the 32 specific business objectives and investment guidelines of the 33 protected cell. 34 (2) Upon the commissioners approval of the protected cell 35 -24- LSB 1871SV (1) 90 ko/rn 24/ 36
S.F. 509 captive companys plan of operation, the company, in accordance 1 with the approved plan of operation, may attribute insurance 2 obligations with respect to its insurance business to the 3 protected cell. 4 (3) A protected cell captive company shall transfer 5 all assets attributable to a protected cell to one or more 6 separately established and separately identified protected cell 7 accounts bearing the name or designation of that protected 8 cell. Each protected cell shall have a distinct name or 9 designation that must include the words protected cell. 10 Protected cell assets shall be held in the protected cell 11 accounts for the purpose of satisfying the obligations of the 12 specific protected cell. 13 (4) Each protected cell must be incorporated. An 14 incorporated protected cell may be organized and operated 15 in any form of business organization as authorized by the 16 commissioner by rule. Each protected cell of a protected 17 cell captive company shall be treated as a captive insurance 18 company under this chapter, except that the limit on maximum 19 yearly aggregate taxes paid under section 432.1A, subsection 4, 20 shall not apply. Unless otherwise permitted by the articles of 21 incorporation or other organizational document of a protected 22 cell captive company, each protected cell of the protected cell 23 captive company must have the same directors, secretary, and 24 registered office as the protected cell captive company. 25 b. All attributions of assets and liabilities between a 26 protected cell and the protected cell captive companys general 27 account shall be in accordance with the plan of operation and 28 the participant contracts as approved by the commissioner. No 29 other attribution of assets and liabilities shall be made by 30 a protected cell captive company between the protected cell 31 captive companys general account and the companys protected 32 cells. Any attribution of assets and liabilities between the 33 general account and a protected cell shall be in cash or in 34 readily marketable securities with established market values. 35 -25- LSB 1871SV (1) 90 ko/rn 25/ 36
S.F. 509 c. The establishment of a protected cell shall create, with 1 respect to that protected cell, a legal person separate from 2 the protected cell captive company. Amounts attributed to a 3 protected cell under this chapter, including assets transferred 4 to a protected cell account, shall be owned by the protected 5 cell and the protected cell captive company shall not be a 6 trustee, or hold itself out to be a trustee, with respect 7 to the protected cell assets of that protected cell account. 8 A protected cell captive company may allow for a security 9 interest to attach to protected cell assets or to a protected 10 cell account if the security interest is in favor of a creditor 11 of the protected cell and is otherwise allowed under applicable 12 law. 13 d. A protected cell captive company may contract with or 14 arrange for an investment adviser, commodity trading adviser, 15 or other third party to manage the protected cell assets of 16 a protected cell if all remuneration, expenses, and other 17 compensation of the third party are paid from the protected 18 cell assets of that protected cell, and not from the protected 19 cell assets of other protected cells or the assets of the 20 protected cell captive companys general account. 21 e. (1) A protected cell captive company shall establish 22 the administrative and accounting procedures necessary to 23 properly identify each protected cell of the protected cell 24 captive company, and the protected cell assets and protected 25 cell liabilities attributable to each protected cell. The 26 directors of a protected cell captive company shall do all of 27 the following: 28 (a) Maintain the assets and liabilities of protected cells 29 separately, and separately identifiable, from the assets and 30 liabilities of the protected cell captive companys general 31 account. 32 (b) Maintain protected cell assets and protected cell 33 liabilities attributable to one protected cell separate, 34 and separately identifiable, from protected cell assets and 35 -26- LSB 1871SV (1) 90 ko/rn 26/ 36
S.F. 509 protected cell liabilities attributable to another protected 1 cell. 2 (2) If a protected cell captive company fails to comply with 3 subparagraph (1), the remedy of tracing shall be applicable to 4 protected cell assets commingled with protected cell assets of 5 other protected cells, or commingled with the assets of the 6 protected cell captive companys general account. The remedy 7 of tracing shall not be the exclusive remedy. 8 f. When establishing a protected cell, a protected cell 9 captive company shall attribute assets with a value at least 10 equal to the reserves attributed to that protected cell to the 11 protected cell. 12 3. Each protected cell shall be accounted for separately 13 on the books and records of the protected cell captive company 14 to reflect the financial condition and result of operations of 15 the protected cell, including but not limited to the net income 16 or loss, dividends or other distributions to participants, and 17 any other factor provided in the participant contract or as 18 required by the commissioner by rule. 19 4. The assets of a protected cell shall not be chargeable 20 with liabilities arising from any other insurance business of 21 the protected cell captive company. 22 5. A sale, exchange, or other transfer of assets shall 23 not be made by a protected cell captive company among any 24 of the companys protected cells without the consent of the 25 participants of each affected protected cell. 26 6. A sale, exchange, transfer of assets, dividend, or 27 distribution shall not be made from a protected cell to a 28 sponsor or to a participant without the commissioners prior 29 written approval, which shall not be given if the sale, 30 exchange, transfer, dividend, or distribution will result in 31 the insolvency or impairment of the protected cell. 32 7. A protected cell captive company shall annually file 33 with the commissioner any financial reports required by the 34 commissioner as established by rule, and shall include, without 35 -27- LSB 1871SV (1) 90 ko/rn 27/ 36
S.F. 509 limitation, accounting statements detailing the finances of 1 each protected cell. 2 8. A protected cell captive company shall notify the 3 commissioner in writing within twenty business days from the 4 date that a protected cell has become impaired or insolvent, or 5 is otherwise unable to meet its claim or expense obligations. 6 9. A participant contract shall not take effect without the 7 commissioners prior written approval. 8 10. An addition of any new protected cell, or the withdrawal 9 of any participant of an existing protected cell, shall 10 constitute a change in the business plan of the protected cell 11 captive company and the change shall not become effective 12 without the prior written approval of the commissioner. 13 11. With respect to each protected cell, business written 14 by a protected cell captive company shall be fronted by an 15 insurance company authorized under the laws of any state, or as 16 approved by the commissioner. 17 12. If a protected cell captive companys business is 18 reinsured, with respect to each protected cell, the protected 19 cell captive company shall comply with at least one of the 20 following requirements: 21 a. The business shall be reinsured by a reinsurer authorized 22 or approved by the commissioner. 23 b. The business shall be secured by a trust fund that is 24 located in the United States for the benefit of policyholders 25 and claimants, and which is funded by an irrevocable letter of 26 credit or other asset that is acceptable to the commissioner, 27 and that is subject to all of the following: 28 (1) The amount of security provided by the trust fund shall 29 not be less than the reserves associated with the liabilities 30 that are not fronted or reinsured, including but not limited 31 to reserves for losses that are allocated for loss adjustment 32 expenses, incurred but not reported losses, and unearned 33 premiums for business written through the participants 34 protected cell. 35 -28- LSB 1871SV (1) 90 ko/rn 28/ 36
S.F. 509 (2) The commissioner may require the protected cell captive 1 company to increase the funding of any trust. 2 (3) If the form of security in the trust is a letter of 3 credit, the letter of credit shall be established, issued, or 4 confirmed by a bank chartered in this state, a member of the 5 federal reserve system, or a bank chartered by another state if 6 the bank is approved by the commissioner. 7 (4) The commissioner shall approve the form and terms of the 8 trust and trust instrument. 9 Sec. 20. NEW SECTION . 521J.18 Sponsors qualifications. 10 A sponsor of a protected cell captive company must 11 be an insurer authorized under the laws of any state, a 12 reinsurer authorized under the laws of any state, a captive 13 insurance company formed or authorized under this chapter, an 14 insurance producer licensed in this state and approved by the 15 commissioner, or any other person approved by the commissioner. 16 Sec. 21. NEW SECTION . 521J.19 Delinquency. 17 If delinquency proceedings are initiated against a protected 18 cell captive company, the assets of a protected cell shall 19 not be used to pay any expenses other than those attributable 20 to the protected cell, and the capital and surplus of the 21 protected cell captive company shall be available at all times 22 to pay expenses of, or claims against, the protected cell 23 captive company. 24 Sec. 22. NEW SECTION . 521J.20 Participants. 25 Individuals, business entities, and sponsors may be a 26 participant in a protected cell captive company. A participant 27 shall not be required to be a shareholder of a protected cell 28 captive company or of the protected cell captive companys 29 affiliate. 30 Sec. 23. NEW SECTION . 521J.21 Investments combined 31 assets. 32 The assets of two or more protected cells may be combined 33 for the purpose of investment by a protected cell captive 34 company, and combining the protected cells assets shall not 35 -29- LSB 1871SV (1) 90 ko/rn 29/ 36
S.F. 509 be construed as defeating the segregation of the assets for 1 accounting or any other purpose. 2 Sec. 24. NEW SECTION . 521J.22 Dormant captive companies. 3 1. As used in this section, dormant captive company means 4 a captive company, other than a captive risk retention group, 5 that meets all of the following: 6 a. The captive company has ceased transacting the business 7 of insurance, including the issuance of insurance policies. 8 b. The captive company does not have any remaining 9 liabilities associated with its insurance business transactions 10 or insurance policies issued prior to the captive companys 11 filing of an application for a certificate of dormancy under 12 subsection 2. 13 2. Any captive company that is domiciled in this state and 14 that complies with this section may apply to the commissioner 15 for a certificate of dormancy. A certificate of dormancy shall 16 be subject to expiration on or after five calendar years from 17 the date that the certificate is issued, and the commissioner 18 shall not renew a certificate of dormancy. 19 3. a. A captive company that has been issued a certificate 20 of dormancy shall comply with all of the following: 21 (1) The dormant captive company shall possess and maintain 22 unimpaired, paid-in capital and surplus of not less than 23 twenty-five thousand dollars. 24 (2) Within ninety calendar days of the dormant captive 25 companys fiscal year end, the company shall annually submit to 26 the commissioner a report on the companys financial condition, 27 verified by oath of two of the companys executive officers, in 28 the form and manner as established by the commissioner by rule. 29 (3) The dormant captive company shall pay a one thousand 30 dollar dormancy tax, due annually on or before March 1, if 31 for any portion of the immediately preceding calendar year 32 the captive company held a certificate of dormancy. Each 33 series of members and each protected cell shall be considered 34 separate for purposes of paying the annual dormancy tax under 35 -30- LSB 1871SV (1) 90 ko/rn 30/ 36
S.F. 509 a certificate of dormancy. A dormant captive company is not 1 otherwise liable for any annual renewal as provided in section 2 521J.2, subsection 4, paragraph b , subparagraph (2). 3 b. A dormant captive insurance company that has been issued 4 a certificate of dormancy shall not be subject to or liable 5 for the payment of tax under section 432.1A, or be subject to 6 examination under section 521J.8, from the date the certificate 7 is issued through the date the certificate expires. 8 4. Prior to a dormant captive company issuing an 9 insurance policy, the dormant captive company shall apply 10 to the commissioner for approval to surrender the companys 11 certificate of dormancy and to resume conducting the business 12 of insurance. 13 5. A dormant captive companys certificate of dormancy 14 shall be revoked if the company violates this section. 15 Sec. 25. NEW SECTION . 521J.23 Workers compensation 16 compliance with state and federal laws. 17 This chapter shall not be construed to exempt a captive 18 company, a captive companys parent, or a captive companys 19 affiliated companies from compliance with applicable state and 20 federal laws governing workers compensation insurance. 21 Sec. 26. NEW SECTION . 521J.24 Rules. 22 The commissioner shall adopt rules pursuant to chapter 17A 23 to implement and administer the provisions of this chapter. 24 Sec. 27. FUTURE REPEAL. Chapter 521G, Code 2023, is 25 repealed effective January 1, 2025. 26 Sec. 28. APPLICABILITY. The following applies January 1, 27 2025, to protected cell captive companies formed, authorized, 28 or continued on or after that date: 29 The section of this Act enacting section 521J.17. 30 EXPLANATION 31 The inclusion of this explanation does not constitute agreement with 32 the explanations substance by the members of the general assembly. 33 This bill is related to captive insurance companies. 34 Captive company is defined in the bill as any pure captive 35 -31- LSB 1871SV (1) 90 ko/rn 31/ 36
S.F. 509 insurance company, association captive insurance company, 1 protected cell captive insurance company, special purpose 2 captive insurance company, or industrial insured captive 3 insurance company formed or authorized under the bill. 4 The bill requires each captive company to pay on or before 5 March 1 of each year a tax on the direct premiums collected or 6 contracted for on policies or contracts of insurance written by 7 the captive company during the immediately preceding calendar 8 year, after making deductions from the direct premiums via 9 methodology detailed in the bill to determine the appropriate 10 tax that is due. 11 The bill subjects captive companies to Code chapter 507C 12 (insurers supervision, rehabilitation, and liquidation Act). 13 The bill details the process for a captive company to 14 apply to the commissioner of insurance (commissioner) for 15 a certificate of authority to provide property insurance, 16 casualty insurance, life insurance, disability income 17 insurance, surety insurance, marine insurance, health 18 insurance, or a group health plan, with exceptions as detailed 19 in the bill. 20 A captive company shall not adopt a name that is the same, 21 deceptively similar, or likely to be confused with or mistaken 22 for any other existing business name already registered in 23 Iowa. A captive company is required to possess and maintain 24 unimpaired paid-in capital and surplus that meets the 25 requirements detailed in the bill. 26 A captive company is required to be formed or organized 27 as a business entity as provided under the bill. A captive 28 company shall not pay a dividend out of, or other distribution 29 with respect to, the minimum capital or surplus required to be 30 maintained by the company without the prior written approval of 31 the commissioner. Approval of an ongoing plan for the payment 32 of dividends or other distributions shall be conditioned upon 33 retention, at the time of each payment, of capital surplus in 34 excess of the amounts specified by, or determined in accordance 35 -32- LSB 1871SV (1) 90 ko/rn 32/ 36
S.F. 509 with, a formula as approved by the commissioner. 1 The bill requires a captive company to file an annual report 2 with the commissioner in certain circumstances as detailed in 3 the bill. Each captive company shall use generally accepted 4 accounting principles, unless the commissioner requires the 5 use of statutory accounting principles, for the companys 6 report. On or before April 1 of each year, each branch captive 7 company shall submit to the commissioner a copy of all reports 8 required to be filed under the laws of the foreign captive 9 insurance companys domiciliary jurisdiction, verified by oath 10 of two of the foreign captive insurance companys executive 11 officers. All reports filed under the bill shall be considered 12 confidential and shall not be a public record under Code 13 chapter 22. 14 The commissioner may examine the affairs, transactions, 15 accounts, records, and assets of each captive company as 16 detailed in the bill. 17 A captive companys certificate to conduct the business of 18 insurance may be suspended by the commissioner for reasons as 19 detailed in the bill. 20 A captive company may provide excess workers compensation 21 insurance to the captive companys parent and affiliated 22 companies, unless the laws of the state having jurisdiction 23 over the transaction prohibit providing excess workers 24 compensation insurance. A captive company may reinsure 25 workers compensation of a qualified self-insured plan of the 26 captive insurance companys parent and affiliated companies. 27 A merger between captive stock insurers, or a merger 28 between captive mutual insurers, must meet the applicable 29 requirements of Code chapter 521 and of the bill, except that 30 the commissioner may, at the commissioners discretion, provide 31 notice to the public of the proposed merger prior to approval 32 or disapproval of the merger. 33 The bill establishes the captive insurance regulatory and 34 supervision account (account) in the state general fund and 35 -33- LSB 1871SV (1) 90 ko/rn 33/ 36
S.F. 509 moneys in the account shall be used to provide the financial 1 means for the insurance division to administer the bill, and 2 for the reimbursement of reasonable expenses incurred by 3 the insurance division to promote captive insurance in this 4 state. All fees, assessments, fines, and administrative 5 penalties collected under the bill shall be deposited in the 6 account. All payments from the account that are made for 7 the maintenance of staff and associated expenses, including 8 necessary contractual services, shall only be disbursed from 9 the state treasury upon a warrant issued by the commissioner. 10 The balance in the account at the end of each fiscal year shall 11 revert to the general fund. 12 The bill requires that industrial insured captive companies, 13 association captive companies, and captive risk retention 14 groups comply with the investment requirements as established 15 by the commissioner by rule. The commissioner may approve the 16 use of alternative reliable methods of valuation and rating. 17 If a captive companys admitted assets total less than $5 18 million the commissioner may approve an investment of up to 19 20 percent of admitted assets in rated credit instruments in 20 any one investment that meets the requirements as established 21 by the commissioner by rule. A pure captive company, or a 22 protected cell captive company, shall not be subject to any 23 restrictions on allowable investments except as detailed in the 24 bill. 25 Subject to the prior approval of the commissioner, a captive 26 company may provide reinsurance on risks ceded by any other 27 insurer. Any captive company may take credit for reserves on 28 risks or portions of risks ceded to reinsurers as provided 29 under Code chapter 521B. A captive company shall not be 30 required to join a rating organization. A captive company 31 shall not join or contribute financially to any plan, pool, 32 association, or guaranty or insolvency fund in this state. 33 One or more sponsors may form a protected cell captive 34 company and are subject to the requirements detailed in the 35 -34- LSB 1871SV (1) 90 ko/rn 34/ 36
S.F. 509 bill. A sponsor of a protected cell captive company shall be 1 an insurer authorized under the laws of any state, a reinsurer 2 authorized under the laws of any state, a captive company 3 formed or authorized under the bill, an insurance producer 4 licensed in this state and approved by the commissioner, or any 5 other person approved by the commissioner. 6 If delinquency proceedings have been initiated against a 7 protected cell captive company, the assets of a protected 8 cell shall not be used to pay any expenses other than those 9 attributable to the protected cell, and the capital and surplus 10 of the protected cell captive company shall be available at all 11 times to pay expenses of, or claims against, the protected cell 12 captive insurance company. 13 Individuals, business entities, and sponsors may be 14 participants in a protected cell captive company. A 15 participant shall not be required to be a shareholder of 16 a protected cell captive company or a shareholder of the 17 protected cell captive companys affiliate. 18 The assets of two or more protected cells may be combined for 19 the purposes of investment by a protected cell captive company 20 and combining the assets shall not be construed as defeating 21 the segregation of the protected cells assets for accounting 22 or other purposes. 23 The bill defines dormant captive company as a captive 24 company, other than a captive risk retention group, that has 25 ceased transacting the business of insurance, including the 26 issuance of insurance policies, and that has no remaining 27 liabilities associated with insurance business transactions or 28 insurance policies issued prior to its filing of an application 29 for a certificate of dormancy. The bill details the 30 requirements for a captive company to apply for a certificate 31 of dormancy. 32 The bill shall not be construed to exempt a captive company, 33 a captive companys parent, or a captive companys affiliated 34 companies from compliance with applicable state and federal 35 -35- LSB 1871SV (1) 90 ko/rn 35/ 36
S.F. 509 laws governing workers compensation insurance. 1 The commissioner shall adopt rules to implement and 2 administer the bill. 3 The bill repeals Code chapter 521G (protected cell 4 companies) effective January 1, 2025. 5 The section of the bill enacting Code section 521J.17 6 applies to protected cell captive companies formed, authorized, 7 or continued on or after January 1, 2025. 8 -36- LSB 1871SV (1) 90 ko/rn 36/ 36