85R11296 SCL-D
By: Hughes S.B. No. 915
A BILL TO BE ENTITLED
AN ACT
relating to captive insurance companies.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 964.001(a), Insurance Code, is amended
by adding Subdivision (1-a) to read as follows:
(1-a) "Captive exchange" means a reciprocal or
interinsurance exchange formed under this chapter. The term
includes the attorney in fact as defined by Section 942.001 through
which a reciprocal or interinsurance contract as defined by that
section is exchanged.
SECTION 2. Section 964.051(b), Insurance Code, is amended
to read as follows:
(b) A captive insurance company may not issue:
(1) life insurance, except to insure employee benefits
that are subject to the Employee Retirement Income Security Act of
1974 (29 U.S.C. Section 1001 et seq.);
(2) annuities;
(3) accident and health insurance for the company's
parent and affiliates, except to insure employee benefits that are
subject to the Employee Retirement Income Security Act of 1974 (29
U.S.C. Section 1001 et seq.);
(4) title insurance;
(5) mortgage guaranty insurance;
(6) financial guaranty insurance;
(7) residential property insurance;
(8) personal automobile insurance; or
(9) workers' compensation insurance.
SECTION 3. Section 964.052, Insurance Code, is amended by
adding Subsection (f) to read as follows:
(f) A captive insurance company may cede risks to or take
credit for reserves on risks ceded to a nonaffiliated reinsurer if
the reinsurer:
(1) holds a certificate of authority to transact
insurance or reinsurance in a jurisdiction that is:
(A) on the list of qualified jurisdictions of the
National Association of Insurance Commissioners; and
(B) acceptable to the commissioner;
(2) maintains minimum capital and surplus, or the
equivalent, of $250 million as of the end of the preceding year; and
(3) maintains a financial strength rating of B+ or its
equivalent from a national or international rating agency that:
(A) has registered with the Securities and
Exchange Commission;
(B) is designated as a nationally recognized
statistical rating organization;
(C) is on the list of Credit Rating Providers by
the Securities Valuation Office of the National Association of
Insurance Commissioners; and
(D) is acceptable to the commissioner.
SECTION 4. Sections 964.053(b), (d), and (e), Insurance
Code, are amended to read as follows:
(b) A captive insurance company may be formed and operated
as a captive exchange in accordance with Subchapter C or in any form
of business organization authorized under the Business
Organizations Code except a risk retention group or general
partnership. A captive exchange [insurance company] may only be
formed as a nonprofit corporation if it is controlled by a nonprofit
corporation.
(d) The board of directors or governing body of a captive
insurance company formed in this state must have at least three
members, and at least one of the members must be a resident of this
state. If the captive insurance company is a captive exchange, the
principal office of the attorney in fact must be in this state.
(e) The certificate of formation, [or] bylaws, or governing
document of a captive insurance company must authorize a quorum of
the board of directors or governing body to consist of not fewer
than one-third of the fixed number of directors or members of the
governing body.
SECTION 5. Section 964.055(a), Insurance Code, is amended
to read as follows:
(a) An entity may not engage in business as a captive
insurance company domiciled in this state unless it holds a
certificate of authority issued by the department to act as a
captive insurance company. A captive insurance company, when
permitted by its certificate of formation or governing document,
may apply for a certificate of authority under this chapter.
SECTION 6. Section 964.056(c), Insurance Code, is amended
to read as follows:
(c) The capital and surplus required by 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 and not secured by a guarantee from an
affiliate, 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 a county or municipality 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.
SECTION 7. Section 964.057(a), Insurance Code, is amended
to read as follows:
(a) To obtain a certificate of authority for a captive
insurance company, the incorporators or organizers must pay to the
commissioner an application fee and file with the commissioner an
application for the 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 certificate of
formation or other documentation demonstrating the captive
insurance company's valid formation;
(4) an affidavit by the incorporators, organizers, 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 certificate of formation or other
documentation demonstrating the captive insurance company's valid
formation is true and correct; and
(5) if the application provides for the issuance of
shares of stock or other type of equity instrument without par
value, a certificate authenticated by the incorporators or officers
stating:
(A) the number of shares or other type of equity
instrument without par value that are subscribed; and
(B) the actual consideration received by the
captive insurance company for those shares or other type of equity
instrument.
SECTION 8. Sections 964.059(a) and (d), Insurance Code, are
amended to read as follows:
(a) The commissioner shall determine whether:
(1) the capital structure of the applicant meets the
requirements of this chapter;
(2) the officers or members [directors] of the
applicant's governing body [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.
(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 provided for in the applicant's
certificate of formation or other governing document;
(2) certify and file the approved document with the
department; and
(3) issue a certified copy of the certificate of
authority to the applicant's incorporators or officers.
SECTION 9. Section 964.060, Insurance Code, is amended by
adding Subsection (d) to read as follows:
(d) A captive insurance company is exempt from the
requirement to file an actuarial report with the company's annual
report if the company:
(1) has less than $1 million of total direct written
premium or reinsurance assumed; or
(2) has been in operation for less than six months as
of the end of the previous calendar year.
SECTION 10. Section 964.062, Insurance Code, is amended to
read as follows:
Sec. 964.062. AMENDMENTS TO CERTIFICATE OF FORMATION OR
GOVERNING DOCUMENT. A captive insurance company may not amend its
certificate of formation or other governing document unless the
amendment has been filed with and approved by the commissioner.
SECTION 11. The heading to Section 964.063, Insurance Code,
is amended to read as follows:
Sec. 964.063. DIVIDENDS AND DISTRIBUTIONS.
SECTION 12. Section 964.063(a), Insurance Code, is amended
to read as follows:
(a) A captive insurance company shall notify the
commissioner in writing when issuing policyholder dividends or
distributions to policyholders.
SECTION 13. Section 964.065, Insurance Code, is amended to
read as follows:
Sec. 964.065. SUSPENSION OR REVOCATION OF CERTIFICATE OF
AUTHORITY. 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 964.060;
(3) failure to comply with the provisions of its own
charter, [or] bylaws, rules, or other governing document;
(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 books and
records from this state without prior approval of the commissioner;
(8) use of practices that render its operation
detrimental to the public or its condition unsound; or
(9) failure to otherwise comply with the laws of this
state.
SECTION 14. Subchapter B, Chapter 964, Insurance Code, is
amended by adding Section 964.073 to read as follows:
Sec. 964.073. ADJUSTER LICENSE NOT REQUIRED.
Notwithstanding Section 4101.051, a person who acts as an adjuster,
as defined by Section 4101.001, solely on behalf of a captive
insurance company in adjusting a claim of an affiliate or
controlled unaffiliated business insured by the company is not
required to hold a license under Chapter 4101.
SECTION 15. Chapter 964, Insurance Code, is amended by
adding Subchapter C to read as follows:
SUBCHAPTER C. CAPTIVE EXCHANGES
Sec. 964.101. DEFINITIONS. In this subchapter, a term
defined by Section 942.001 has the meaning assigned by that
section.
Sec. 964.102. APPLICABILITY OF OTHER LAW. (a) A captive
exchange is subject to:
(1) this chapter; and
(2) Sections 942.051, 942.053, and 942.054.
(b) To the extent of a conflict, this chapter controls over
other law applicable to a captive exchange under this section.
Sec. 964.103. STATUS OF CAPTIVE EXCHANGES. A captive
exchange is formed as an exchange as provided by this subchapter
and, except as provided by this subchapter, shall operate as a
captive insurance company as provided by this chapter.
Sec. 964.104. ATTORNEY IN FACT REQUIREMENTS. The attorney
in fact of a captive exchange must:
(1) be:
(A) a corporation organized in this state in
accordance with Section 942.051; or
(B) a limited liability company organized in this
state;
(2) on the date of the captive exchange's formation,
have an existing affiliation with all subscribers of the captive
exchange regardless of any affiliation relationship created by the
captive exchange;
(3) have its principal office in this state; and
(4) have at least three members in the governing body
of the attorney in fact and at least one of those members must be a
resident of this state.
Sec. 964.105. ATTORNEY IN FACT POWERS AND DUTIES. (a) The
attorney in fact of a captive exchange shall:
(1) supervise the finances of the captive exchange;
(2) supervise the captive exchange's operations to
ensure the captive exchange's conformity with the captive
exchange's subscriber declaration and power of attorney; and
(3) obtain, as necessary, an audit of the account and
records of the attorney in fact at the expense of the captive
exchange.
(b) The attorney in fact of a captive exchange has any
additional powers and duties conferred by the captive exchange's
subscriber declaration and power of attorney.
Sec. 964.106. RELATIONSHIP REQUIREMENTS. (a) On the date
of the captive exchange's formation, each subscriber of a captive
exchange must have an existing affiliation with each other
subscriber regardless of any affiliation relationship created by
the captive exchange.
(b) On the date of the captive exchange's formation, a
controlled unaffiliated business of the captive exchange must have
an existing contractual relationship with an affiliate that
qualifies as a subscriber.
Sec. 964.107. SUBSCRIBER DECLARATION. A captive exchange
shall file with the department a subscriber declaration that
includes:
(1) the information described by Section 942.053;
(2) the amount of the captive exchange's initial
surplus; and
(3) a provision to authorize a quorum of the governing
body of the captive exchange's attorney in fact to consist of not
fewer than one-third of the fixed number of members of the governing
body.
SECTION 16. This Act takes effect September 1, 2017.