SESSION OF 2025
SUPPLEMENTAL NOTE ON HOUSE BILL NO. 2334
As Amended by Senate Committee of the Whole
Brief*
HB 2334, as amended, would establish the Protected
Cell Captive Insurance Company Act and amend the Captive
Insurance Act.
The bill would be in effect upon publication in the
Kansas Register.
Protected Cell Captive Insurance Company Formation
(New Section 2)
The Protected Cell Captive Insurance Company Act
(Act) would permit one or more sponsors to form a protected
cell captive insurance company (company). A 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 (LLC).
Definitions (New Section 3)
The Act would define various terms, including the
following:
●“Protected cell” would mean a separate account
that is established by a company formed or
licensed pursuant to the Act and in which an
identified pool of assets and liabilities are
____________________
*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/ segregated and insulated by means of the 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;
●“Protected cell captive insurance company” would
mean 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 the 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” would mean any person or entity that is
approved by the Insurance Commissioner
(Commissioner) to provide all or part of the capital
and surplus required by the 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 would include the following:
●Materials that demonstrate how the applicant will
account for loss and expense experience at a level
of detail found to be sufficient by the
Commissioner, and how it will report this
experience;
2- 2334 ●A statement acknowledging that financial records
of the applicant, including records pertaining to any
protected cells, will be made available for
inspection or examination by the Commissioner or
their designated agent;
●All contracts or sample contracts between the
applicant and any participants; and
●Evidence that expenses will be allocated to each
protected cell in a fair and equitable manner.
Establishment and Maintenance of Protected Cells (New
Sections 5 and 7)
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 would include, but not be
limited to, the specific business objectives and
investment guidelines of the protected cell, except
that the Commissioner could require additional
information in the plan. The Commissioner could
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
Kansas Insurance Department (Department);
●Upon the Commissioner’s written approval of the
plan, the company, in accordance with the
approved plan, could attribute insurance
3- 2334 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 LLC
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;
●A 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 LLC 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 the Act
and would have the power to enter into contracts,
including an individual series of a LLC. 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
protected cell captive 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
4- 2334 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.
The Act would not create a legal person separate from a
company unless the protected cell is 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. A 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 a 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.
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
a violation of this provision, but tracing would not be the
exclusive remedy.
5- 2334 When establishing a protected cell, the Act would
require a company to attribute to the protected cell assets a
value that is at least equal to the reserves and other
insurance liabilities attributed to the protected cell. Each
protected cell would be accounted for separately in the
records of the company to reflect the financial condition and
results of operations of the protected cell, net income or loss,
dividends, or other distributions to participants and other
factors as could be provided in the participant contract or
required by the Commissioner.
No asset of a protected cell could be chargeable with
liabilities arising from other insurance business that the
company may conduct. Additionally, no sale, exchange, or
transfer of assets could occur between or among protected
cells without the consent of affected protected cells.
The Commissioner would be required to approve the
sale, exchange, transfer of assets, dividend, or distribution
from one protected cell to another company or participant.
The Commissioner would be prohibited from any approval if it
would result in an insolvency or impairment of a protected
cell.
Prohibition on Combining Cells (New Section 7)
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.
The Commissioner would be allowed to approve the use
of alternative reliable methods of valuation and rating.
Attributions of Assets and Liabilities
The Act would require that all attributions of assets and
liabilities to the protected cells and the general account be in
6- 2334 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, would
reflect the insurance obligations, assets, and liabilities relating
to the reinsurance contract that are attributed to such
protected cell.
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 not be commingled with those of other protected cells
and the company.
7- 2334 Annual Reporting
The Act would require annual filings with the
Commissioner of such financial reports as required by the
Commissioner. Reports would be required to include
accounting statements detailing the financial experience of
each protected cell.
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 a 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 a Company
The Act would allow each company for each protected
cell to write business that would meet the following
conditions:
●Fronted by an insurance company licensed under
the laws of any state;
●Reinsured by a reinsurer authorized or approved
by the Department; or
8- 2334 ●Secured by a trust fund in the United Sates 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 could not be 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
could 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 would 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 a 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.
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. Biographical
affidavits would not be required for participants in
unincorporated cells.
9- 2334 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, LLCs,
partnerships, trusts, and other business entities.
A participant would not be required to be a shareholder
of a company. A participant would only be able to insure the
participant’s own risks through a 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. Upon any order of supervision, rehabilitation, or
liquidation of a company, the bill would state the receiver
would manage the assets and liabilities of the company.
Notwithstanding the provisions of the Insurers
Supervision, Rehabilitation and Liquidation Act, the bill would
require that:
●No assets of a protected cell could be used to pay
any expenses or claims other than those
attributable to the protected cell; and
●A company’s capital and surplus would be available
at all times to pay any expenses of or claims
against the company.
Legal Action (New Section 9)
The Act would require pleadings in any legal action
brought by or against a company to specify which protected
cell or cells should be named as a party to the suit. If the
general account is party to the suit, it would be separately
10- 2334 identified in the pleadings as if it were a protected cell. A legal
action brought against a company that does not specify one
or more protected cells would be deemed to be brought
against the general account only. A protected cell that is not
named in the pleadings would not be party to the legal action,
and a protected cell named erroneously or without proper
cause would be entitled to prompt dismissal.
Unless specified by the plan, participant contract, or
other prior contractual agreement, the assets of one
protected cell could not be encumbered or seized to satisfy
the obligations of or a judgment against any other protected
cell. No protected cell would be required to defend the rights
and obligations of another protected cell.
In any legal action involving a company or a protected
cell, any papers, documents, or property of a non-party
protected cell would be afforded the same status during
discovery as those of an unrelated third party. A non-party
protected cell would have standing to appear and petition for
any appropriate relief to protect the confidentiality of its
papers or documents.
Captive Insurance Company Conversion (New Section
10)
The Act would provide a procedure for 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:
11- 2334 ●A series of a LLC would file organizational
documents with the Secretary of State that comply
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 type of incorporated protected cell entity
would file amended organizational documents with
the Secretary of State that comply with Kansas
law; or
●Other entities would file organizational documents
with the Secretary of State that comply with
Kansas law or any other applicable provision
governing formation of that type of entity, including
the date of formation as a cell. The new entity
would possess all assets and liabilities, including
outstanding insurance liabilities, owned by the
predecessor cell.
Revised Certificate of Authority
The Act would permit a captive insurance company to
apply to the Commissioner for conversion to become a
protected cell captive insurance company. Upon 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.
Redomestication of Captive Insurance Companies (New
Section 11)
The bill would provide for a foreign or alien insurer to
become a domestic company by complying with all of the
requirements of the bill relating to the organization and
12- 2334 licensing of a domestic company of the same type with the
approval of the Commissioner. A company redomesticating to
Kansas could be organized under any lawful corporate form
permitted by the bill.
For insurance companies domiciled in foreign or alien
jurisdictions that allow for the redomestication of insurance
companies, the bill would authorize redomestication to
Kansas and would state that the company is no longer a
domestic legal entity of foreign or alien jurisdiction. A
company wishing to redomesticate would be required to file
organizational documents with the Secretary of State that
comply with state law regarding corporations, the Captive
Insurance Act, and the Kansas Uniform Partnership Act, or
any other applicable provision.
The company would be required to file a copy of the
Secretary of State’s acknowledgment letter with the
Commissioner, who would then be required to issue a
certificate of authority, pursuant to the Captive Insurance Act.
Upon the completion of a redomestication, the bill would
consider the captive insurance company to be domiciled in
this state and subject to Kansas law. The captive insurance
company would be deemed to have a formation date
corresponding to its original formation date in the foreign or
alien domicile.
For the purposes of the financial examination required
by the Captive Insurance Act, any examination conducted by
the foreign or alien domicile substantially similar to an
examination completed for companies domiciled in Kansas
would be recognized for the purposes of establishing a period
of time when the next examination would be due.
13- 2334 Amendments to the Captive Insurance Act (Sections 12–
16)
The bill would also amend the Captive Insurance Act (CI
Act). The CI 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 could 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
of the State of Kansas, or any other state having
jurisdiction over the transaction.
14- 2334 Provisional Certificate of Authority (Section 12)
The bill would amend the CI 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 be required to file a completed application and pay all
necessary fees. The Commissioner would be required to
make 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 fails to complete 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 necessary rules and regulations for a program regarding
the issuance of provisional certificates of authority.
Application and Renewal Fees (Section 12)
Each CIC would pay a non-refundable fee of up to
$2,500 to the Commissioner for each application and an
annual renewal fee of up to $2,500, payable to the
Commissioner.
Unimpaired Paid-in Capital and Surplus Requirements
(Section 13)
The bill would amend the CI Act to reflect the following
unimpaired paid-in capital and surplus requirements of not
less than:
15- 2334 ●$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 14)
Current law requires the Commissioner to make or direct
to be made at least every three years a financial examination
of any CIC in the process of organization or applying for
admission or doing business in Kansas. The bill would amend
the frequency of the examination to every five years.
Requirement to Join a Policy Form Organization (Section 15)
The bill would amend the CI Act to clarify that a CIC
would not be required to join a policy form organization.
Premium Tax for Redomesticated Companies and One-year
Exemption (Section 16)
The bill would provide for a company redomesticating
under the Act to only be liable for taxes paid on direct
premiums and assumed reinsurance premiums paid to the
company after redomestication. If a company redomesticated
under the Act after July 1 of any year, the company would
only be subject to 50 percent of the minimum premium tax.
Any redomesticated foreign or alien company would be
required to report all premium taxes due, but could, either in
its first or second year of operations after redomesticating into
Kansas, elect to forgo the payment of premium taxes. A
company choosing to forgo payment of premium taxes that
surrenders its certificate of authority or redomesticates to
another jurisdiction within five years of redomestication in
Kansas would immediately pay an amount equal to the
16- 2334 forgone premium tax plus 10 percent per annum from the
date of the forgone premium.
Taxation of CIC (Section 16)
The bill would clarify that the tax provided for in the CI
Act would constitute all taxes collectible under the laws of
Kansas from any CIC, and no other occupation tax or any
other tax would be levied or collected from any CIC by the
state or any political subdivision.
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 on February 14, 2025,
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 set the
maximum fee amount CICs would be required to pay to the
Commissioner.
17- 2334 Senate Committee on Financial Institutions and
Insurance
In the Senate Committee hearing on March 5, 2025,
proponent testimony was provided by Representative
Tarwater and industry experts from Dickinson Wright and
Pinnacle. Representative Tarwater stated that modernizing
the CI Act and allowing for protected cell captives to operate
in Kansas would allow for many Kansas-based companies
that utilize captive insurance to domicile in Kansas.
The Senate Committee hearing was continued on March
12, 2025. Representative Tarwater and an industry expert
representing Elevate Risk Solutions provided additional
informational testimony.
Written-only proponent testimony was provided by
representatives of Elevate Risk Solutions and Kansas
Employers for Affordable Healthcare.
No other testimony was provided.
The Senate Committee amended the bill to restore
language regarding the ability for captive insurance
companies to provide accident and health insurance and to
make the bill effective upon publication in the Kansas
Register.
Senate Committee of the Whole
The Senate Committee of the Whole amended the bill to
provide for the redomestication of a foreign or alien captive
insurance company and to provide for a redomesticated
foreign or alien insurance company to be exempt from
premium taxes for one year of operations.
18- 2334 Fiscal Information
According to the fiscal note prepared by the Division of
the Budget on the bill, as introduced, the Department states
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 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;
captive insurance; self-insurance; foreign captive insurance company
19- 2334