Texas 2017 - 85th Regular

Texas Senate Bill SB915 Compare Versions

Only one version of the bill is available at this time.

Old	New	Differences
1	1	85R11296 SCL-D
2	2	By: Hughes S.B. No. 915
3	3
4	4
5	5	A BILL TO BE ENTITLED
6	6	AN ACT
7	7	relating to captive insurance companies.
8	8	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
9	9	SECTION 1. Section 964.001(a), Insurance Code, is amended
10	10	by adding Subdivision (1-a) to read as follows:
11	11	(1-a) "Captive exchange" means a reciprocal or
12	12	interinsurance exchange formed under this chapter. The term
13	13	includes the attorney in fact as defined by Section 942.001 through
14	14	which a reciprocal or interinsurance contract as defined by that
15	15	section is exchanged.
16	16	SECTION 2. Section 964.051(b), Insurance Code, is amended
17	17	to read as follows:
18	18	(b) A captive insurance company may not issue:
19	19	(1) life insurance, except to insure employee benefits
20	20	that are subject to the Employee Retirement Income Security Act of
21	21	1974 (29 U.S.C. Section 1001 et seq.);
22	22	(2) annuities;
23	23	(3) accident and health insurance for the company's
24	24	parent and affiliates, except to insure employee benefits that are
25	25	subject to the Employee Retirement Income Security Act of 1974 (29
26	26	U.S.C. Section 1001 et seq.);
27	27	(4) title insurance;
28	28	(5) mortgage guaranty insurance;
29	29	(6) financial guaranty insurance;
30	30	(7) residential property insurance;
31	31	(8) personal automobile insurance; or
32	32	(9) workers' compensation insurance.
33	33	SECTION 3. Section 964.052, Insurance Code, is amended by
34	34	adding Subsection (f) to read as follows:
35	35	(f) A captive insurance company may cede risks to or take
36	36	credit for reserves on risks ceded to a nonaffiliated reinsurer if
37	37	the reinsurer:
38	38	(1) holds a certificate of authority to transact
39	39	insurance or reinsurance in a jurisdiction that is:
40	40	(A) on the list of qualified jurisdictions of the
41	41	National Association of Insurance Commissioners; and
42	42	(B) acceptable to the commissioner;
43	43	(2) maintains minimum capital and surplus, or the
44	44	equivalent, of $250 million as of the end of the preceding year; and
45	45	(3) maintains a financial strength rating of B+ or its
46	46	equivalent from a national or international rating agency that:
47	47	(A) has registered with the Securities and
48	48	Exchange Commission;
49	49	(B) is designated as a nationally recognized
50	50	statistical rating organization;
51	51	(C) is on the list of Credit Rating Providers by
52	52	the Securities Valuation Office of the National Association of
53	53	Insurance Commissioners; and
54	54	(D) is acceptable to the commissioner.
55	55	SECTION 4. Sections 964.053(b), (d), and (e), Insurance
56	56	Code, are amended to read as follows:
57	57	(b) A captive insurance company may be formed and operated
58	58	as a captive exchange in accordance with Subchapter C or in any form
59	59	of business organization authorized under the Business
60	60	Organizations Code except a risk retention group or general
61	61	partnership. A captive exchange [insurance company] may only be
62	62	formed as a nonprofit corporation if it is controlled by a nonprofit
63	63	corporation.
64	64	(d) The board of directors or governing body of a captive
65	65	insurance company formed in this state must have at least three
66	66	members, and at least one of the members must be a resident of this
67	67	state. If the captive insurance company is a captive exchange, the
68	68	principal office of the attorney in fact must be in this state.
69	69	(e) The certificate of formation, [or] bylaws, or governing
70	70	document of a captive insurance company must authorize a quorum of
71	71	the board of directors or governing body to consist of not fewer
72	72	than one-third of the fixed number of directors or members of the
73	73	governing body.
74	74	SECTION 5. Section 964.055(a), Insurance Code, is amended
75	75	to read as follows:
76	76	(a) An entity may not engage in business as a captive
77	77	insurance company domiciled in this state unless it holds a
78	78	certificate of authority issued by the department to act as a
79	79	captive insurance company. A captive insurance company, when
80	80	permitted by its certificate of formation or governing document,
81	81	may apply for a certificate of authority under this chapter.
82	82	SECTION 6. Section 964.056(c), Insurance Code, is amended
83	83	to read as follows:
84	84	(c) The capital and surplus required by Subsection (a) must
85	85	be in the form of:
86	86	(1) United States currency;
87	87	(2) an irrevocable letter of credit, in a form
88	88	approved by the commissioner and not secured by a guarantee from an
89	89	affiliate, naming the commissioner as beneficiary for the security
90	90	of the captive insurance company's policyholders and issued by a
91	91	bank approved by the commissioner;
92	92	(3) bonds of this state or a county or municipality of
93	93	this state; or
94	94	(4) bonds or other evidences of indebtedness of the
95	95	United States, the principal and interest of which are guaranteed
96	96	by the United States.
97	97	SECTION 7. Section 964.057(a), Insurance Code, is amended
98	98	to read as follows:
99	99	(a) To obtain a certificate of authority for a captive
100	100	insurance company, the incorporators or organizers must pay to the
101	101	commissioner an application fee and file with the commissioner an
102	102	application for the certificate of authority, which must include:
103	103	(1) a financial statement certified by two principal
104	104	officers;
105	105	(2) a plan of operation and projections, which must
106	106	include an actuarial report prepared by a qualified independent
107	107	actuary;
108	108	(3) the captive insurance company's certificate of
109	109	formation or other documentation demonstrating the captive
110	110	insurance company's valid formation;
111	111	(4) an affidavit by the incorporators, organizers, or
112	112	officers of the captive insurance company stating that:
113	113	(A) the capital and surplus are the bona fide
114	114	property of the company; and
115	115	(B) the certificate of formation or other
116	116	documentation demonstrating the captive insurance company's valid
117	117	formation is true and correct; and
118	118	(5) if the application provides for the issuance of
119	119	shares of stock or other type of equity instrument without par
120	120	value, a certificate authenticated by the incorporators or officers
121	121	stating:
122	122	(A) the number of shares or other type of equity
123	123	instrument without par value that are subscribed; and
124	124	(B) the actual consideration received by the
125	125	captive insurance company for those shares or other type of equity
126	126	instrument.
127	127	SECTION 8. Sections 964.059(a) and (d), Insurance Code, are
128	128	amended to read as follows:
129	129	(a) The commissioner shall determine whether:
130	130	(1) the capital structure of the applicant meets the
131	131	requirements of this chapter;
132	132	(2) the officers or members [directors] of the
133	133	applicant's governing body [applicant] have sufficient insurance
134	134	experience, ability, standing, and good record to make success of
135	135	the captive insurance company probable;
136	136	(3) the applicant is acting in good faith; and
137	137	(4) the applicant otherwise satisfies the
138	138	requirements of this chapter.
139	139	(d) If the commissioner does not deny the application under
140	140	Subsection (c), the commissioner shall approve the application and:
141	141	(1) issue to the applicant a certificate of authority
142	142	to engage in business as provided for in the applicant's
143	143	certificate of formation or other governing document;
144	144	(2) certify and file the approved document with the
145	145	department; and
146	146	(3) issue a certified copy of the certificate of
147	147	authority to the applicant's incorporators or officers.
148	148	SECTION 9. Section 964.060, Insurance Code, is amended by
149	149	adding Subsection (d) to read as follows:
150	150	(d) A captive insurance company is exempt from the
151	151	requirement to file an actuarial report with the company's annual
152	152	report if the company:
153	153	(1) has less than $1 million of total direct written
154	154	premium or reinsurance assumed; or
155	155	(2) has been in operation for less than six months as
156	156	of the end of the previous calendar year.
157	157	SECTION 10. Section 964.062, Insurance Code, is amended to
158	158	read as follows:
159	159	Sec. 964.062. AMENDMENTS TO CERTIFICATE OF FORMATION OR
160	160	GOVERNING DOCUMENT. A captive insurance company may not amend its
161	161	certificate of formation or other governing document unless the
162	162	amendment has been filed with and approved by the commissioner.
163	163	SECTION 11. The heading to Section 964.063, Insurance Code,
164	164	is amended to read as follows:
165	165	Sec. 964.063. DIVIDENDS AND DISTRIBUTIONS.
166	166	SECTION 12. Section 964.063(a), Insurance Code, is amended
167	167	to read as follows:
168	168	(a) A captive insurance company shall notify the
169	169	commissioner in writing when issuing policyholder dividends or
170	170	distributions to policyholders.
171	171	SECTION 13. Section 964.065, Insurance Code, is amended to
172	172	read as follows:
173	173	Sec. 964.065. SUSPENSION OR REVOCATION OF CERTIFICATE OF
174	174	AUTHORITY. The commissioner, after notice and an opportunity for
175	175	hearing, may revoke or suspend the certificate of authority of a
176	176	captive insurance company for:
177	177	(1) insolvency or impairment of required capital or
178	178	surplus to policyholders;
179	179	(2) failure to submit an annual report, as required by
180	180	Section 964.060;
181	181	(3) failure to comply with the provisions of its own
182	182	charter, [or] bylaws, rules, or other governing document;
183	183	(4) failure to submit to examination, as required by
184	184	Chapter 401;
185	185	(5) failure to pay the cost of examination, as
186	186	required by Chapter 401;
187	187	(6) failure to pay any tax or fee required by this
188	188	code;
189	189	(7) removal of its principal office or books and
190	190	records from this state without prior approval of the commissioner;
191	191	(8) use of practices that render its operation
192	192	detrimental to the public or its condition unsound; or
193	193	(9) failure to otherwise comply with the laws of this
194	194	state.
195	195	SECTION 14. Subchapter B, Chapter 964, Insurance Code, is
196	196	amended by adding Section 964.073 to read as follows:
197	197	Sec. 964.073. ADJUSTER LICENSE NOT REQUIRED.
198	198	Notwithstanding Section 4101.051, a person who acts as an adjuster,
199	199	as defined by Section 4101.001, solely on behalf of a captive
200	200	insurance company in adjusting a claim of an affiliate or
201	201	controlled unaffiliated business insured by the company is not
202	202	required to hold a license under Chapter 4101.
203	203	SECTION 15. Chapter 964, Insurance Code, is amended by
204	204	adding Subchapter C to read as follows:
205	205	SUBCHAPTER C. CAPTIVE EXCHANGES
206	206	Sec. 964.101. DEFINITIONS. In this subchapter, a term
207	207	defined by Section 942.001 has the meaning assigned by that
208	208	section.
209	209	Sec. 964.102. APPLICABILITY OF OTHER LAW. (a) A captive
210	210	exchange is subject to:
211	211	(1) this chapter; and
212	212	(2) Sections 942.051, 942.053, and 942.054.
213	213	(b) To the extent of a conflict, this chapter controls over
214	214	other law applicable to a captive exchange under this section.
215	215	Sec. 964.103. STATUS OF CAPTIVE EXCHANGES. A captive
216	216	exchange is formed as an exchange as provided by this subchapter
217	217	and, except as provided by this subchapter, shall operate as a
218	218	captive insurance company as provided by this chapter.
219	219	Sec. 964.104. ATTORNEY IN FACT REQUIREMENTS. The attorney
220	220	in fact of a captive exchange must:
221	221	(1) be:
222	222	(A) a corporation organized in this state in
223	223	accordance with Section 942.051; or
224	224	(B) a limited liability company organized in this
225	225	state;
226	226	(2) on the date of the captive exchange's formation,
227	227	have an existing affiliation with all subscribers of the captive
228	228	exchange regardless of any affiliation relationship created by the
229	229	captive exchange;
230	230	(3) have its principal office in this state; and
231	231	(4) have at least three members in the governing body
232	232	of the attorney in fact and at least one of those members must be a
233	233	resident of this state.
234	234	Sec. 964.105. ATTORNEY IN FACT POWERS AND DUTIES. (a) The
235	235	attorney in fact of a captive exchange shall:
236	236	(1) supervise the finances of the captive exchange;
237	237	(2) supervise the captive exchange's operations to
238	238	ensure the captive exchange's conformity with the captive
239	239	exchange's subscriber declaration and power of attorney; and
240	240	(3) obtain, as necessary, an audit of the account and
241	241	records of the attorney in fact at the expense of the captive
242	242	exchange.
243	243	(b) The attorney in fact of a captive exchange has any
244	244	additional powers and duties conferred by the captive exchange's
245	245	subscriber declaration and power of attorney.
246	246	Sec. 964.106. RELATIONSHIP REQUIREMENTS. (a) On the date
247	247	of the captive exchange's formation, each subscriber of a captive
248	248	exchange must have an existing affiliation with each other
249	249	subscriber regardless of any affiliation relationship created by
250	250	the captive exchange.
251	251	(b) On the date of the captive exchange's formation, a
252	252	controlled unaffiliated business of the captive exchange must have
253	253	an existing contractual relationship with an affiliate that
254	254	qualifies as a subscriber.
255	255	Sec. 964.107. SUBSCRIBER DECLARATION. A captive exchange
256	256	shall file with the department a subscriber declaration that
257	257	includes:
258	258	(1) the information described by Section 942.053;
259	259	(2) the amount of the captive exchange's initial
260	260	surplus; and
261	261	(3) a provision to authorize a quorum of the governing
262	262	body of the captive exchange's attorney in fact to consist of not
263	263	fewer than one-third of the fixed number of members of the governing
264	264	body.
265	265	SECTION 16. This Act takes effect September 1, 2017.