SESSION OF 2025
SUPPLEMENTAL NOTE ON HOUSE BILL NO. 2334
As Amended by House Committee on Insurance
Brief*
HB 2334, as amended, would establish the Protected
Cell Captive Insurance Company Act and amend the Captive
Insurance Act.
Protected Cell Captive Insurance Company Formation;
Definitions (New Sections 2-3)
The Protected Cell Captive Insurance Company Act
(Act) would permit one or more sponsors to form a protected
cell captive insurance company (company). The company
would be incorporated as a stock insurer with the capital
divided into shares and held by stockholders as either a
mutual corporation, a nonprofit corporation with one or more
members, or as a limited liability company.
The Act would define various terms, including the
following:
●“Protected cell” means a a separate account that is
established by a company formed or licensed
pursuant to this Act and in which an identified pool
of assets and liabilities are segregated and
insulated by means of this Act from the remainder
of the company’s assets and liabilities in
accordance with the terms of one or more
participant contracts to fund the liability of the
company with respect to the participants as set
forth in the participant contracts;
____________________
*Supplemental notes are prepared by the Legislative Research
Department and do not express legislative intent. The supplemental
note and fiscal note for this bill may be accessed on the Internet at
https://klrd.gov/ ●“Protected cell captive insurance company” means
any captive insurance company:
○In which the minimum capital and surplus
required by the chapter are provided by one
or more sponsors;
○Formed or licensed under this Act;
○Insures the risks of separate participants
through participant contracts; and
○Funds its liability to each participant through
one or more protected cells and segregates
the assets of each protected cell from the
assets of other protected cells and from the
assets of the company’s general account; and
●“Sponsor” means any person or entity that is
approved by the Insurance Commissioner
(Commissioner) to provide all or part of the capital
and surplus required by this Act and organize and
operate a company.
Application Process (New Section 4)
The bill would list the materials that would be required to
be filed with the Commissioner to apply to become a
company, which include the following:
●Materials that demonstrate how each applicant will
account for loss and expenses at each level with
detail found to be sufficient by the Commissioner
and the reporting process;
●A statement regarding the availability of financial
records of the applicant, including records
pertaining to any protected cells, for inspection or
examination by the Commissioner or their
designated agent;
2- 2334 ●All contracts or sample contracts between the
applicant and any participants; and
●Evidence that expenses shall be allocated to each
protected cell in a fair and equitable manner.
Establishment and Maintenance of Protected Cells (New
Section 5)
The Act would state that a company formed or licensed
pursuant to the Act could establish and maintain one or more
incorporated or unincorporated protected cells to insure risks
of one or more participants with the following conditions:
●A company could establish one or more protected
cells if the Commissioner has approved in writing a
plan of operation (plan) or amendments to a plan
submitted by the company with respect to each
protected cell. A plan includes, but is not limited to,
the specific business objectives and investment
guidelines of the protected cell, except that the
Commissioner may require additional information
in the plan. The Commissioner may put into effect
a plan or amendments to a plan on or before the
date that the approval is signed if the effective date
is not earlier than the date that the plan or
amendments to the plan were filed with the
Department of Insurance (Department);
●Upon the Commissioner’ s written approval of the
plan, the company, in accordance with the
approved plan, may attribute insurance obligations
with respect to its insurance business to the
protected cell;
●A protected cell would have its own distinct name
or designation that would include the words
“protected cell” or “incorporated cell.” An
incorporated cell formed as a series of a limited
3- 2334 liability company would bear a distinct name or
designation as reflected in its formation documents
and include the words “series cell.” Such names or
designations could also be reasonably abbreviated.
●The company would transfer all assets attributable
to a protected cell to one or more separately
established and identified named accounts for the
protected cell. Protected cell assets would be held
in the named accounts for the purpose of satisfying
the obligations of such protected cell;
●An incorporated protected cell could be organized
and operated in any form of business organization
authorized by the Commissioner, including, but not
limited to, an individual series of a limited liability
company as permitted under the Kansas Revised
Limited Liability Company Act. Each incorporated
protected cell of a protected cell captive insurer
(insurer) would be treated as a captive insurer
under this Act and would have the power to enter
into contracts, including an individual series of a
limited liability company. Unless otherwise
permitted by the organizational documents of a
insurer, each incorporated protected cell of the
insurer would have the same directors, secretary,
and registered office as the insurer; and
●All attributions of assets and liabilities between a
protected cell and the general account would be in
accordance with the plan and participant contracts
approved by the Commissioner. No other
attribution of assets or liabilities would be made by
a company between the company ’s general
account and its protected cells. Any attribution of
assets and liabilities between the general account
and a protected cell would be required to be in
cash or in readily marketable securities with
established market values.
4- 2334 The Act would not create a legal person separate from
the company except in an incorporated cell. The assets would
be owned by the protected cell. A company would not be able
to represent itself as a trustee regarding the assets of a
protected cell. The company could allow for a security interest
to attach to the assets of account when in favor of a creditor
of a protected cell and otherwise allowed under applicable
laws.
Investment Management
The Act would permit the company to contract with or
arrange for an investment advisor, commodity trading advisor,
or other third party to manage the protected cell’s assets
when all remuneration, expenses, and other compensation
are paid from the assets of the protected cell only.
The Act would allow the combination of the assets of
two or more protected cells for the purposes of investment
and such combination would not be construed as defeating
the segregation of such assets for accounting or other
purposes (New Section 7).
Administrative and Accounting Procedure Requirements
The Act would require that the company have
administrative and accounting procedures in place that would
properly identify each protected cell’s assets and liabilities
while keeping them separate and separately identifiable from
the company’s general accounts and attributable to one
protected cell that is also separately identifiable from any
other protected cell’s assets and liabilities. The Act would
require that the remedy of tracing be available in the event of
any commingling but would not be the exclusive remedy.
The Act would require the valuing of assets and liabilities
of each protected cell, identify that liabilities could not be
charged to the protected cell from other company business,
5- 2334 nor that the sale, exchange, or transfer of assets could occur
without the consent of affected protected cells.
The Commissioner would be allowed to approve the
use of alternative reliable methods of valuation and rating
(New Section 7).
The Commissioner would be required to approve the
sale, exchange, transfer of assets, dividend, or distribution
from one protected cell to another protected cell. The
Commissioner would not be prohibited from any approval if it
would result in an insolvency or impairment to a protected
cell.
The Act would require that all attributions of assets and
liabilities to the protected cells and the general account be in
accordance with the plan approved by the Commissioner,
including the performance under a reinsurance contract.
The Act would clarify no other attribution of assets or
liabilities would be made by a company between its general
account and any protected cell or between any protected
cells.
Reinsurance Contract
The Act would require all companies attribute all
insurance obligations, assets, and liabilities relating to a
reinsurance contract entered into with respect to a protected
cell to such protected cell. The bill would provide the
performance under such reinsurance contract and any tax
benefits, losses, refunds, or credits allocated pursuant to a
tax allocation agreement to which the company is a party,
including any payments made by or due to be made to the
company pursuant to the terms of such agreement, shall
reflect the insurance obligations, assets, and liabilities relating
to the reinsurance contract that are attributed to such
protected cell.
6- 2334 Conservation, Rehabilitation, and Liquidation of a Company
The bill would provide that in connection with
conservation, rehabilitation, and liquidation of a company, the
assets and liabilities of a protected cell would, to the extent
that the Commissioner determines that such assets and
liabilities are separable, at all times be kept separate from
and shall not be commingled with those of other protected
cells and companies.
Annual Reporting
The Act would require annual filings with the
Commissioner of such financial reports as required by the
Commissioner.
Insolvency Notice
The Act would require written notification to the
Commissioner of any protected cell’s insolvency within ten
business days of such insolvency or inability to meet its claim
or expense obligations.
Changes within Protected Cell
The Act would require the Commissioner to approve
each participant contract in writing prior to the contract taking
effect. The Act would also require that the addition of each
new protected cell as well as the withdrawal or termination of
an existing protected cell would be considered a change in
the plan and would require the Commissioner’s written
approval before the change could occur.
Business Written by the Company
The Act would allow each company for each protected
cell to write business that would meet the following
conditions:
7- 2334 ●Fronted by an insurance company licensed under
the laws of any state;
●Reinsured by a reinsurer authorized or approved
by the Kansas Department of Insurance; or
●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 Commissioner. The
amount of security provided shall be not less than
the reserves associated with those liabilities that
are neither fronted nor reinsured, including
reserves for losses, allocated loss adjustment
expenses, incurred but not reported losses, and
unearned premiums for business written through
the participant’ s protected cell. The Commissioner
may require the company to increase the funding
of any security arrangement established under this
subsection. 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
Commissioner. A trust maintained pursuant to this
subsection would be established in a form and
upon such terms approved by the Commissioner.
Separation of Protected Cells due to Company’s Insolvency
The Act would provide a methodology for the
Commissioner to separate solvent protected cells from a
insolvent company pursuant to an acceptable plan of
operation.
8- 2334 Unincorporated and Incorporated Protected Cells
The Act would permit the companies formed or licensed
under the Act to establish and operate both incorporated and
unincorporated protected cells. The Act would require
biographical affidavits for owners of incorporated cells,
including series members of a series LLC.
Participants in a Company (New Section 6)
The Act would allow a sponsor to be a participant in a
company as well as associations, corporations, limited liability
companies, partnerships, trusts, and other business entities.
A participant would not be required to be a shareholder
of the company. A participant would only be able to insure the
participant’s own risks through the company unless otherwise
approved by the Commissioner.
Application of Insurers Supervision, Rehabilitation, and
Liquidation Act (New Section 8)
The Act would clarify that the Insurers Supervision,
Rehabilitation and Liquidation Act would be applicable to a
company and provides the methodology for how it would be
utilized under the Act.
Legal Action (New Section 9)
The Act would provide the methodology for bringing
legal action against a company and provide for dismissal,
discovery, standing to appear, and other appropriate relief in
legal actions.
9- 2334 Captive Insurance Company Conversion (New Section
10)
The Act would provide a procedure for the conversion of
a company or a protected cell of a company to be converted
to any form of Captive Insurance Company that is allowed in
Kansas Insurance Law with consent of the Commissioner.
The Commissioner would be able to issue to the converting
protected cell a certificate of authority with an effective date of
its original date of formation as a protected cell.
The bill would establish the following criteria for
determining the filing or submission requirements for certain
companies:
●For a series of a limited liability company:
Organizational documents filed with the Secretary
of State (SOS) that are in compliance with Kansas
law and include the date of formation as a series.
Any new entity would possess all assets and
liabilities, including outstanding insurance liabilities,
owned by the predecessor;
●Any other incorporated protected cell entity:
Amended organizational documents filed with the
SOS that are in compliance with Kansas Law; or
●Other entities would file organization documents
with the SOS that are in compliance with Kansas
Law or any other applicable provision governing
formation of that type of entity and would need to
include the date of formation of the new entity. The
new entity would possess all assets and liabilities,
including outstanding insurance liabilities, owned
by the predecessor.
Revised Certificate of Authority
The Act would permit a captive insurance company to
apply to the Commissioner to become a company. Upon
10- 2334 approval by the Commissioner and the filing of amended
organizational documents with the SOS, the captive
insurance company would be issued a revised certificate of
authority. The effective date of the revised certificate of
authority would remain the same as the effective date of the
prior captive insurance company.
Amendments to the Captive Insurance Company Act
(Sections 11–15)
The bill would also amend the Captive Insurance
Company Act (CIC Act). The CIC Act would permit a captive
insurance company (CIC) to continue to apply to the
Commissioner for a certificate of authority but would clarify
the following exceptions as follows:
●A pure CIC would not insure any risks other than
those of its parent and affiliated companies, any
controlled unaffiliated business, or combination
thereof; and
●A CIC could provide workers’ compensation
insurance, insurance in the nature of workers’
compensation insurance, and the reinsurance of
such policies unless prohibited by federal law, the
Kansas Insurance Law, or any other state having
jurisdiction over the transaction.
The bill would also add the following exceptions:
●A CIC could provide excess or stop-loss accident
and health insurance unless prohibited by federal
law or the laws of the State of Kansas having
jurisdiction over the transaction; and
●Any CIC could provide workers’ compensation
insurance, insurance in the nature of workers’
compensation insurance, and reinsurance of such
policies unless prohibited by federal law, the laws
11- 2334 of the State of Kansas or any other state having
jurisdiction over the transaction.
Provisional Certificate of Authority (Section 11)
The bill would amend the CIC Act to permit the
Commissioner to issue a provisional certificate of authority to
any applicant CIC if the Commissioner deems that the public
interest will be served by the issuance of the provisional
certificate.
Before issuing the provisional certificate, the applicant
would have to have filed a completed application and paid all
necessary fees. The Commissioner would also have made a
preliminary finding of acceptability regarding the expertise,
experience, and character of the person who would control
and manage the applicant captive.
The Commissioner could place limits of authority on any
provisional certificate holder as well as revoke a provisional
certificate if the interests of the insureds or the public are
endangered. If the applicant would fail in completing the
regular application for a certificate of authority, the provisional
certificate would terminate by operation of law.
The Commissioner would have the authority to enact
any rules and necessary regulation for a program regarding
the issuance of provisional certificates of authority.
Application and Renewal Fees (Section 11)
Each CIC would pay a nonrefundable fee of up to
$2,500 to the Commissioner for each application. There
would also be an annual renewal fee of up to $2,500 payable
to the Commissioner.
12- 2334 Unimpaired Paid-In Capital and Surplus Requirements
(Section 12)
The bill would amend the CIC Act to reflect the following
unimpaired paid-in capital and surplus requirements of not
less than:
●$250,000 for a pure CIC;
●$500,000 for an association CIC incorporated as a
stock insurer; and
●$100,000 for a protected cell CIC.
Frequency of Examinations (Section 13)
The bill would amend the CIC Act to require the
Commissioner to make or direct to be made at least every
five years a financial examination of any CIC in the process of
organization or applying for admission or doing business in
Kansas.
o Requirement to Join a Policy Form Organization
(Section 14)
The bill would amend the CIC Act to clarify that a CIC
would not be required to join a policy form organization.
Taxation of CIC (Section 15)
The bill would amend the CIC Act to clarify that the tax
provided for in the CIC Act would constitute all taxes
collectible under the laws of Kansas from any CIC, and that
no other occupation tax or any other tax would be levied or
collected from any CIC by the state or any political
subdivision.
13- 2334 Background
The bill was introduced by the House Committee on
Insurance at the request of Representative Tarwater.
House Committee on Insurance
In the House Committee hearing, proponent testimony
was provided by Representative Tarwater and industry
experts from Dickinson Wright and Elevate Risk Solutions.
The conferees stated generally that captive insurance is an
alternative to self insurance and the proposed reforms are a
way to modernize and strengthen the insurance regulatory
framework.
Written-only proponent testimony was provided by a
representative of Employers for Affordable Healthcare.
No other testimony was provided.
The House Committee amended the bill to make the fee
a ceiling amount for the Commissioner.
Fiscal Information
According to the fiscal note prepared by the Division of
the Budget on the bill, as introduced, the Kansas Insurance
Department (Department) states that the bill has the potential
to increase or decrease revenues to its fee funds starting in
FY 2026. The reduction to the captive application and
renewal fees could reduce revenues into its Captive
Insurance Regulation and Supervision Fund. However, the
fee reduction and other changes in the bill could result in
additional CICs being licensed, thus increasing revenues
from application and renewal fees. If there are additional
CICs as a result of the enactment of the bill, then there would
also be an increase in premium taxes collected and deposited
14- 2334 into the State General Fund (SGF). However, the Department
cannot estimate the fiscal effect of the bill.
The Office of Judicial Administration (OJA) states that
the bill could increase the number of cases filed in district
court because it establishes a cause of action. This, in turn,
would increase the time spent by district court judicial and
nonjudicial personnel in processing, researching, and hearing
cases. Enactment of the bill could result in the collection of
docket fees that would be deposited into the SGF. However,
OJA cannot estimate a precise fiscal effect. Any fiscal effect
associated with the bill is not reflected in The FY 2026
Governor’s Budget Report.
The League of Kansas Municipalities and the Kansas
Association of Counties state that the bill would have no fiscal
effect on cities or counties.
Insurance; Protected Cell Captive Insurance Company Act; Captive Insurance Act
15- 2334