83R6625 SCL-F
By: Carona S.B. No. 734
A BILL TO BE ENTITLED
AN ACT
relating to the licensing of captive insurance companies;
authorizing fees.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subtitle H, Title 6, Insurance Code, is amended
by adding Chapter 964 to read as follows:
CHAPTER 964. CAPTIVE INSURANCE COMPANIES
Sec. 964.001. DEFINITIONS. In this chapter:
(1) "Affiliated company" or "affiliate" means an
entity in the same corporate holding company system as the captive
insurance company, including a parent entity.
(2) "Captive insurance company" means a company that
insures the operational risks of the company's affiliates.
(3) "Operational risk" means any potential financial
loss of an affiliate, except for a loss arising from an insurance
policy issued by the affiliate.
Sec. 964.002. APPLICABILITY OF OTHER LAWS. (a) The
following provisions of this code apply to a captive insurance
company to the extent the provisions do not conflict with this
chapter:
(1) Titles 2 and 3;
(2) Chapter 421, unless the commissioner by order
allows a captive insurance company to establish reserves as
prescribed by generally accepted accounting principles;
(3) Subtitle C, Title 4; and
(4) Chapter 401.
(b) A captive insurance company formed under this chapter is
not subject to Chapter 823, except to the extent that the captive
insurance company is part of an insurance holding company system as
described by Chapter 823.
(c) A captive insurance company operating under this
chapter is subject to the Texas For-Profit Corporation Law, as
cited in Section 1.008, Business Organizations Code, and any other
provision of the Business Organizations Code that governs
for-profit corporations to the extent those laws do not conflict
with this chapter.
Sec. 964.003. AUTHORITY TO WRITE BUSINESS. (a) Except as
provided by this section, a captive insurance company may write any
type of insurance, but may only insure or reinsure the operational
risk of the company's affiliates.
(b) A captive insurance company may not issue or reinsure:
(1) life insurance;
(2) annuities;
(3) accident and health insurance;
(4) title insurance;
(5) mortgage guaranty insurance;
(6) financial guaranty insurance;
(7) residential property insurance;
(8) personal automobile insurance; or
(9) workers' compensation insurance.
(c) A captive insurance company may not issue or reinsure a
type of insurance, including automobile liability insurance, that
is required, under the laws of this state or any political
subdivision of this state, as a prerequisite for obtaining a
license or permit if the law requires that the liability insurance
be issued by an insurer authorized to engage in the business of
insurance in this state.
Sec. 964.004. AUTHORITY TO PROVIDE REINSURANCE. (a) A
captive insurance company may only reinsure risks as described by
this section.
(b) With the commissioner's prior approval, a captive
insurance company may provide reinsurance on risks that it has
authority to insure directly under Section 964.003.
(c) Not later than the 60th day before the effective date of
a proposed reinsurance agreement, the captive insurance company
applying to provide reinsurance under Subsection (b) must file with
the commissioner the agreement and any other documentation and
information necessary for the commissioner to determine that:
(1) the agreement does not violate a law; and
(2) the captive insurance company would be able to
continue to operate in a sound manner.
(d) The commissioner by rule may authorize a shorter
approval period under Subsection (c).
(e) A captive insurance company may not enter into an
agreement filed under Subsection (c) if the commissioner
disapproves the proposed agreement during the approval period.
(f) A change to a reinsurance agreement must be filed for
prior approval under Subsection (c).
(g) Not later than the 30th day after the date a previously
filed reinsurance agreement terminates, the captive insurance
company shall give notice of the termination to the commissioner.
(h) A captive insurance company may take credit for reserves
on risks or portions of risks ceded to reinsurers that comply with
Subtitle F, Title 4.
Sec. 964.005. CERTIFICATE OF AUTHORITY REQUIRED. (a) An
entity may not engage in business as a captive insurance company
unless it holds a certificate of authority to act as a captive
insurance company issued by the department. An insurance company,
when permitted by its organizational document, may apply for a
certificate of authority under this section.
(b) An entity does not qualify for a certificate of
authority under this section unless:
(1) its affiliates have significant operations in this
state, as determined by the commissioner;
(2) its board of directors holds at least one meeting
each year in this state;
(3) it maintains its principal office and records in
this state; and
(4) it complies with Section 804.102.
Sec. 964.006. FORMATION OF CAPTIVE INSURANCE COMPANY. (a)
Any number of persons may form a captive insurance company for the
purpose of engaging in the business of insurance under this
chapter.
(b) To form a captive insurance company, each incorporator
must adopt and sign the articles of incorporation of the captive
insurance company as provided by this section.
(c) The articles of incorporation of a captive insurance
company must include:
(1) the name of the captive insurance company, which
may not be the same as, deceptively similar to, or likely to be
confused with or mistaken for any other existing business name
registered in this state;
(2) the location of the captive insurance company's
principal business office;
(3) the type of insurance business in which the
captive insurance company proposes to engage;
(4) the number of directors of the captive insurance
company;
(5) the number of authorized shares and the par value
of the captive insurance company's capital stock;
(6) the amount of the captive insurance company's
capital and surplus; and
(7) any other information required by the commissioner
as necessary to explain the captive insurance company's objectives,
management, and control.
(d) The board of directors of a captive insurance company
incorporated in this state must have at least three members, and at
least two of the members must be residents of this state.
(e) The articles of incorporation or bylaws of a captive
insurance company must authorize a quorum of the board of directors
to consist of not fewer than one-third of the fixed number of
directors.
Sec. 964.007. CAPITAL AND SURPLUS REQUIREMENTS. (a) The
department may not issue a certificate of authority to a captive
insurance company unless the company possesses and maintains
unencumbered capital and surplus in an amount determined by the
commissioner by rule based on the type, volume, and nature of the
insurance business transacted.
(b) The amount of capital and surplus determined by the
commissioner under Subsection (a) may not be less than $250,000 or
greater than $5 million.
(c) The minimum capital and surplus required under
Subsection (a) must be in the form of:
(1) United States currency;
(2) an irrevocable letter of credit, in a form
approved by the commissioner, naming the commissioner as
beneficiary for the security of the captive insurance company's
policyholders and issued by a bank approved by the commissioner;
(3) bonds of this state; or
(4) bonds or other evidences of indebtedness of the
United States, the principal and interest of which are guaranteed
by the United States.
Sec. 964.008. APPLICATION FOR CHARTER AND CERTIFICATE OF
AUTHORITY. (a) To obtain a charter and certificate of authority
for a captive insurance company, the incorporators must pay to the
commissioner an application fee and file with the commissioner an
application for the charter and certificate of authority, which
must include:
(1) a financial statement certified by two principal
officers;
(2) a plan of operation and projections, which must
include an actuarial report prepared by a qualified independent
actuary;
(3) the captive insurance company's proposed articles
of incorporation;
(4) an affidavit by the incorporators or officers of
the captive insurance company stating that:
(A) the capital and surplus are the bona fide
property of the company; and
(B) the articles of incorporation are true and
correct; and
(5) if the application provides for the issuance of
shares of stock without par value, a certificate authenticated by
the incorporators or officers stating:
(A) the number of shares without par value that
are subscribed; and
(B) the actual consideration received by the
captive insurance company for those shares.
(b) If the commissioner is not satisfied with the affidavit
filed under Subsection (a)(4), the commissioner may require that
the incorporators or officers provide at their expense additional
evidence as described by Subsection (a) before the commissioner
takes action on the application.
(c) The application fee required under this section is
$1,500 or a greater amount set by the commissioner by rule as
necessary to recover the cost of administering this chapter.
(d) Notwithstanding Subsection (c), for a complete
application filed on or before December 30, 2018, the application
fee may not exceed $1,500 unless the commissioner by rule has raised
the filing fee. This subsection expires January 1, 2019.
Sec. 964.009. EXAMINATION BY COMMISSIONER. (a) After the
application and application fee for a charter and certificate of
authority under Section 964.008 are filed with the department and
the applicant has complied with all legal requirements, the
commissioner shall conduct an examination of the applicant to
determine whether:
(1) the minimum capital stock and surplus requirements
of Section 964.007 are satisfied;
(2) the capital stock and surplus are the bona fide
property of the captive insurance company; and
(3) the captive insurance company has fully complied
with applicable insurance laws.
(b) The commissioner may appoint a competent and
disinterested person to conduct the examination required by this
section. The examiner shall file an affidavit of the examiner's
findings with the commissioner. The commissioner shall record the
affidavit.
Sec. 964.010. ACTION ON APPLICATION. (a) The commissioner
shall determine whether:
(1) the proposed capital structure of the applicant
meets the requirements of this chapter;
(2) the proposed officers or directors of the
applicant have sufficient insurance experience, ability, standing,
and good record to make success of the captive insurance company
probable;
(3) the applicant is acting in good faith; and
(4) the applicant otherwise satisfies the
requirements of this chapter.
(b) In evaluating the application, the commissioner shall
consider:
(1) the amount and liquidity of the applicant's assets
relative to the risks to be assumed;
(2) the adequacy of the expertise, experience, and
character of each individual who will manage the applicant;
(3) the overall soundness of the applicant's plan of
operations and the projections contained in that plan;
(4) the adequacy of the loss prevention programs of
the applicant's parent;
(5) whether the applicant's affiliates have
significant operations located in this state; and
(6) any other factors the commissioner considers
relevant to determine whether the proposed captive insurance
company will be able to meet its policy obligations.
(c) If the commissioner determines that the applicant has
not met the standards set out by Subsection (a), the commissioner
shall deny the application in writing, giving the reason for the
denial. On the applicant's request, the commissioner shall hold a
hearing on a denial. Not later than the 30th day after the date the
commissioner receives the applicant's request for a hearing, the
commissioner shall set a hearing date.
(d) If the commissioner does not deny the application under
Subsection (c), the commissioner shall approve the application and:
(1) issue to the applicant a certificate of authority
to engage in business as proposed in the applicant's articles of
incorporation or application;
(2) certify and file the approved documents with the
department; and
(3) issue certified copies of the charter and
certificate of authority to the applicant's incorporators.
(e) A certificate of authority issued to a captive insurance
company under this section may not be sold.
Sec. 964.011. ORGANIZATION AND CORPORATE PROCEDURE. A
captive insurance company may be incorporated as a stock insurer
with its capital divided into shares and held by the stockholders.
Sec. 964.012. ANNUAL REPORT. (a) A captive insurance
company licensed under this chapter is not required to file any
report, except as provided by this section.
(b) A captive insurance company that holds a certificate of
authority to engage in captive insurance business in this state
shall file with the commissioner:
(1) on or before March 1 of each year, a statement of
the company's financial condition, verified by two of its executive
officers and filed in the annual statement format adopted and
published each year by the National Association of Insurance
Commissioners for the lines of business written by the captive
insurance company; and
(2) on or before June 1 of each year, a report of its
financial condition at last year-end with an independent certified
public accountant's opinion of the company's financial condition.
(c) A captive insurance company may make a written
application to the commissioner for filing its annual report
required under this section on a fiscal year-end. If an alternative
filing date is granted, the captive insurance company shall file:
(1) the annual report not later than the 60th day after
the date of the company's fiscal year-end;
(2) the report of its financial condition at last
year-end with an independent certified public accountant's opinion
of the company's financial condition not later than the 150th day
after the date the annual report is due; and
(3) its balance sheet, income statement, and statement
of cash flows, verified by two of its executive officers, before
March 1 of each year to provide sufficient detail to support the
premium tax return.
Sec. 964.013. INVESTMENTS. (a) A captive insurance
company is not subject to a restriction on allowable investments,
except as provided by this section.
(b) A captive insurance company may make loans to its
affiliates with the prior approval of the commissioner. Each loan
must be evidenced by a note approved by the commissioner. A captive
insurance company may not make a loan of the minimum capital and
surplus funds required by this chapter.
(c) The commissioner may prohibit or limit an investment
that threatens the solvency or liquidity of a captive insurance
company.
Sec. 964.014. AMENDMENTS TO CHARTER OR ARTICLES OF
INCORPORATION. A captive insurance company may not amend its
charter or articles of incorporation unless the amendment has been
filed with and approved by the commissioner.
Sec. 964.015. NOTICE OF DIVIDENDS. A captive insurance
company shall notify the commissioner in writing before issuing
policyholder dividends.
Sec. 964.016. PROHIBITION ON JOINING OR CONTRIBUTING TO
CERTAIN ENTITIES AND FUNDS. A captive insurance company may not
join or contribute financially to any plan, pool, association, or
guaranty or insolvency fund in this state, and a captive insurance
company, its insured, or any affiliate is not entitled to receive
any benefit from a plan, pool, association, or guaranty or
insolvency fund for claims arising out of the operations of the
captive insurance company.
Sec. 964.017. SUSPENSION OR REVOCATION OF LICENSE. The
commissioner, after notice and an opportunity for hearing, may
revoke or suspend the certificate of authority of a captive
insurance company for:
(1) insolvency or impairment of required capital or
surplus to policyholders;
(2) failure to submit an annual report, as required by
Section 964.012;
(3) failure to comply with the provisions of its own
charter or bylaws;
(4) failure to submit to examination as required by
Chapter 401;
(5) failure to pay the cost of examination as required
by Chapter 401;
(6) failure to pay any tax or fee required by this
code;
(7) removal of its principal office or records from
this state;
(8) use of practices that render its operation
detrimental to the public or its condition unsound; or
(9) failure to otherwise comply with laws of this
state.
Sec. 964.018. CONFIDENTIALITY. (a) Any information filed
by an applicant or captive insurance company under this chapter,
including an application filed under Section 964.008, is
confidential and privileged for all purposes, including for
purposes of Chapter 552, Government Code, a response to a subpoena,
or evidence in a civil action. Except as provided by Subsections
(b), (c), and (d), the information may not be disclosed without the
prior written consent of the applicant or captive insurance company
to which the information pertains.
(b) The commissioner may publish all or any part of the
information described by Subsection (a) in the manner that the
commissioner considers appropriate if the commissioner, after
notice to the applicant or captive insurance company and its
affected affiliates and an opportunity for hearing, determines that
the interests of the public will be served by the publication of the
information.
(c) If the recipient of the information described by
Subsection (a) has the legal authority to maintain the confidential
or privileged status of the information and verifies that authority
in writing, the commissioner or another person may disclose the
information to any of the following entities functioning in an
official capacity:
(1) a commissioner of insurance or an insurance
department of another state;
(2) an authorized law enforcement official;
(3) a district attorney of this state;
(4) the attorney general;
(5) a grand jury;
(6) members of a supervisory college described by
Section 823.0145;
(7) the National Association of Insurance
Commissioners and its affiliates and subsidiaries; or
(8) another state, federal, or international
insurance agency or analogous financial agency if the entity is
operating in its official capacity and the applicant, captive
insurance company, or corporate system to which the information
relates operates in the entity's jurisdiction.
(d) The commissioner shall enter into written agreements
with the National Association of Insurance Commissioners that must:
(1) specify procedures and protocols regarding the
confidentiality and security of information shared with the
National Association of Insurance Commissioners and its affiliates
and subsidiaries under this section, including procedures and
protocols for sharing by the National Association of Insurance
Commissioners with other state, federal, or international
regulators;
(2) specify that ownership of information shared with
the National Association of Insurance Commissioners and its
affiliates and subsidiaries under this section remains with the
commissioner, and that use of the information by the National
Association of Insurance Commissioners is subject to the direction
of the commissioner;
(3) require prompt notice to an applicant or captive
insurance company whose confidential information is in the
possession of the National Association of Insurance Commissioners
under this section that the information is subject to a request or
subpoena to the National Association of Insurance Commissioners for
disclosure or production; and
(4) require the National Association of Insurance
Commissioners and its affiliates and subsidiaries to give consent
to intervention by an applicant or captive insurance company in any
judicial or administrative action in which the National Association
of Insurance Commissioners and its affiliates and subsidiaries may
be required to disclose confidential information about the
applicant or captive insurance company shared with the National
Association of Insurance Commissioners and its affiliates and
subsidiaries under this section.
(e) The commissioner may use information described by
Subsection (a) in the furtherance of a legal or regulatory action
relating to the administration of this code.
Sec. 964.019. PREMIUM AND MAINTENANCE TAXES. (a) A captive
insurance company is subject to premium taxes under Subtitle B,
Title 3, as applicable to the individual lines of business written
by the captive insurance company, provided that the premium tax
rate imposed on all business written by the captive insurance
company is one half of one percent of the business.
(b) The total amount of premium tax assessed each year may
not exceed $200,000.
(c) A captive insurance company is subject to maintenance
taxes under Subtitle C, Title 3, as applicable to the individual
lines of business written by the captive insurance company.
Sec. 964.020. RULEMAKING AUTHORITY. The commissioner may
adopt reasonable rules as necessary to implement the purposes and
provisions of this chapter.
SECTION 2. As soon as practicable after the effective date
of this Act, but not later than January 1, 2014, the commissioner
shall adopt rules and procedures necessary to implement Chapter
964, Insurance Code, as added by this Act.
SECTION 3. This Act takes effect immediately if it receives
a vote of two-thirds of all the members elected to each house, as
provided by Section 39, Article III, Texas Constitution. If this
Act does not receive the vote necessary for immediate effect, this
Act takes effect September 1, 2013.