REPORT TITLE:
Captive Insurance


DESCRIPTION:
Reclassifies captive insurance companies in terms of their
minimum capital or surplus requirements.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
HOUSE OF REPRESENTATIVES                H.B. NO.1623       
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO CAPTIVE INSURANCE.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  Section 431:19-101, Hawaii Revised Statutes, is
 
 2 amended by adding two new definitions to be appropriately
 
 3 inserted and to read as follows:
 
 4      ""Leased capital facility" means a limited membership
 
 5 insurance company formed as a class 4 company under this article
 
 6 which insures the risks of its members, but whose owner or owners
 
 7 may, subject to approval of the commissioner, be persons or
 
 8 entities other than the members.
 
 9      "Reinsurance facility" means a company formed as a class 5
 
10 company under this article."
 
11      SECTION 2.  Section 431:19-101, Hawaii Revised Statutes, is
 
12 amended by amending the definition of "captive insurance company"
 
13 to read as follows:
 
14      ""Captive insurance company" means any pure captive
 
15 insurance company, risk retention captive insurance company, [or]
 
16 association captive insurance company, leased capital facility,
 
17 or reinsurance facility formed or licensed under this article."
 
18      SECTION 3.  Chapter 431, article 19, Hawaii Revised
 
19 Statutes, is amended by adding a new section to be appropriately
 

 
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 1 designated and to read as follows:
 
 2      "§431:19-    Classes of captive insurance.  Each captive
 
 3 insurance company formed under this article shall be designated
 
 4 and licensed as one of the following classes of captive insurance
 
 5 companies:  class 1, class 2, class 3, class 4, or class 5.
 
 6      (1)  A class 1 company shall be limited to a pure captive
 
 7           insurance company which only writes business as a
 
 8           reinsurer;
 
 9      (2)  A class 2 company shall be limited to a pure captive
 
10           insurance company which is not a class 1 company;
 
11      (3)  A class 3 company shall be any company formed under
 
12           this article as an association captive insurance
 
13           company or a risk retention captive insurance company;
 
14      (4)  A class 4 company shall be a leased capital facility
 
15           formed under this article; and
 
16      (5)  A class 5 company shall be a reinsurance company formed
 
17           under this article for the primary purpose of
 
18           reinsuring liability, property, or life and health
 
19           businesses, and which is not a class 1, class 2, class
 
20           3, or class 4 company."
 
21      SECTION 4.  Section 431:19-104, Hawaii Revised Statutes, is
 
22 amended to read as follows:
 
23      "§431:19-104  Minimum capital; letter of credit, security.
 

 
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 1 (a)  [No pure captive insurance company, association captive
 
 2 insurance company, or risk retention captive insurance company]
 
 3 Subject to subsection (c), no captive insurance company
 
 4 incorporated as a stock insurer shall be issued a license unless
 
 5 it shall possess and thereafter maintain unimpaired paid-in
 
 6 capital of an amount established and deemed appropriate by the
 
 7 commissioner.  [The amount for pure captive insurance companies
 
 8 may differ from the amount for association captive insurance
 
 9 companies and risk retention captive insurance companies.]
 
10      (b)  The capital may be in the form of cash, in the form of
 
11 an irrevocable letter of credit issued by a bank chartered by
 
12 this State or a member bank of the Federal Reserve System, or
 
13 other security approved by the commissioner. 
 
14      (c)  Minimum capital or surplus requirements for captive
 
15 insurance companies shall be as follows:
 
16      (1)  Class 1:  $   100,000;
 
17      (2)  Class 2:  $   250,000;
 
18      (3)  Class 3:  $   500,000;
 
19      (4)  Class 4:  $ 1,000,000; and
 
20      (5)  Class 5:  $50,000,000.
 
21 The foregoing requirements do not limit the commissioner's
 
22 discretionary authority to require a captive insurance company to
 
23 possess and maintain greater amount of capital or surplus in
 

 
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 1 order to preserve the solvency of the company, nor do such
 
 2 requirements limit or diminish any other applicable provision of
 
 3 law which may require a captive insurance company to maintain a
 
 4 particular level of capital, surplus, assets, or investments."
 
 5      SECTION 5.  Section 431:19-105, Hawaii Revised Statutes, is
 
 6 amended by amending subsection (a) to read as follows:
 
 7      "(a)  [No captive insurance company] Subject to section
 
 8 431:19-104(c), no captive insurance company formed other than as
 
 9 a stock insurer shall be issued a license unless it shall possess
 
10 and thereafter maintain a free surplus of an amount established
 
11 and deemed appropriate by the commissioner.  [The amount for pure
 
12 captive insurance companies may differ from the amount for
 
13 association captive insurance companies and risk retention
 
14 captive insurance companies.  The amount for association captive
 
15 insurance companies and risk retention captive insurance
 
16 companies incorporated as stock insurers may differ from the
 
17 amount for association captive insurance companies or risk
 
18 retention captive insurance companies formed as mutual or
 
19 reciprocal insurers.]"
 
20      SECTION 6.  Section 431:19-106, Hawaii Revised Statutes, is
 
21 amended by amending subsections (b) and (c) to read as follows:
 
22      "(b)  [An association captive insurance company, including a
 
23 risk retention captive insurance company,] A captive insurance
 

 
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 1 company, which is other than a pure captive insurance company,
 
 2 may be:
 
 3      (1)  Incorporated as a stock insurer with its capital
 
 4           divided into shares and held by the stockholders;
 
 5      (2)  Incorporated as a mutual insurer without capital stock,
 
 6           the governing body of which is elected by the member
 
 7           organization of its association; or
 
 8      (3)  Organized as a reciprocal insurer, for other than
 
 9           credit life and credit disability insurance and group
 
10           term life insurance, without capital stock, whose
 
11           affairs shall be coordinated through an attorney-in-
 
12           fact as provided in the power of attorney or other
 
13           agreement given to the attorney-in-fact by the
 
14           subscribers.
 
15      (c)  A captive insurance company other than one which is
 
16 formed as a reciprocal insurer shall have not less than three
 
17 incorporators of whom not less than two shall be residents of
 
18 this State."
 
19      SECTION 7.  Section 431:19-107, Hawaii Revised Statutes, is
 
20 amended by amending subsections (b) and (c) to read as follows:
 
21      "(b)  Each [association captive and risk retention] captive
 
22 insurance company which is not a pure captive insurance company
 
23 shall annually file with the commissioner the following:
 

 
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 1      (1)  Annual statement and audit:
 
 2           (A)  On or before March 1, or such day subsequent
 
 3                thereto as the commissioner upon request and for
 
 4                cause may specify, an annual statement using the
 
 5                National Association of Insurance Commissioners'
 
 6                annual statement blank plus any additional
 
 7                information required by the commissioner, which
 
 8                shall be a true statement of its financial
 
 9                condition, transactions, and affairs as of the
 
10                immediately preceding December 31.  The reported
 
11                information shall be verified by oaths of at least
 
12                two of the captive's principal officers;
 
13           (B)  On or before June 1, or such day subsequent
 
14                thereto as the commissioner upon request and for
 
15                cause may specify, an audit by a designated
 
16                independent certified public accountant or
 
17                accounting firm of the financial statements
 
18                reporting the financial condition and results of
 
19                the operation of the captive;
 
20           (C)  The annual statement and audit shall be prepared
 
21                in accordance with the National Association of
 
22                Insurance Commissioners' annual statement
 
23                instructions, following the practice and
 

 
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 1                procedures prescribed by the National Association
 
 2                of Insurance Commissioners' practices and
 
 3                procedures manuals.  Each risk retention group
 
 4                shall also comply with section 431:3-302; and
 
 5      (2)  On or before each March 1, or such day subsequent
 
 6           thereto as the commissioner upon request and for cause
 
 7           may specify, a risk-based capital report in accordance
 
 8           with section 431:3-402[.]; provided that class 3
 
 9           association captive insurance companies and class 4 and
 
10           class 5 captive insurance companies shall not be
 
11           required to file their risk-based capital reports with
 
12           the National Association of Insurance Commissioners.
 
13      (c)  The statements required to be filed in subsections (a)
 
14 and (b) shall include, but not be limited to, actuarially
 
15 appropriate reserves for:
 
16      (1)  Known claims and expenses associated therewith;
 
17      (2)  Claims incurred but not reported and expenses
 
18           associated therewith;
 
19      (3)  Unearned premiums; and
 
20      (4)  Bad debts, reserves for which shall be shown as
 
21           liabilities.
 
22 An actuarial opinion regarding reserves for known claims and
 
23 expenses associated therewith and claims incurred but not
 

 
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 1 reported and expenses associated therewith shall be included in
 
 2 the audited statements, except that the actuarial opinion for
 
 3 [association captive insurance companies and risk retention]
 
 4 captive insurance companies other than pure captive insurance
 
 5 companies shall be filed with the annual statement required under
 
 6 subsection (b), on or before March 1 each year.  The actuarial
 
 7 opinion shall be given by a member of the American Academy of
 
 8 Actuaries or other qualified loss reserve specialist as defined
 
 9 in the annual statement adopted by the National Association of
 
10 Insurance Commissioners."
 
11      SECTION 8.  Section 431:19-115, Hawaii Revised Statutes, is
 
12 amended by amending subsection (a) to read as follows:
 
13      "(a)  No insurance laws of this State other than those
 
14 contained in this article, or contained in specific references
 
15 contained in this section or article, shall apply to [pure
 
16 captive insurance companies, association captive insurance
 
17 companies, and risk retention] captive insurance companies[.]
 
18 formed under this article.
 
19      In addition to this article, article 1, article 2, part III
 
20 of article 3, article 4A, parts I and II of article 5, article 6,
 
21 article 11, and article 15 of this chapter shall apply to
 
22 [association captive insurance companies and risk retention]
 
23 captive insurance companies[,] other than pure captive insurance
 

 
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 1 companies, unless these other laws are inconsistent with this
 
 2 article or the commissioner by rule, regulation, or order
 
 3 determines, on a case by case basis that these other laws should
 
 4 not apply thereto.
 
 5      In addition to this article and the articles or portions
 
 6 thereof referenced in this section, chapter 431K shall apply to
 
 7 risk retention captive insurance companies licensed under this
 
 8 article."
 
 9      SECTION 9.  Section 431:19-116, Hawaii Revised Statutes, is
 
10 amended by amending subsection (b) to read as follows:
 
11      "(b)  Each [association captive insurance company licensed
 
12 to do business in this State and each risk retention] captive
 
13 insurance company chartered in this State as other than a pure
 
14 captive insurance company shall pay a tax of one per cent on
 
15 gross premiums for insurance written on all risks or property
 
16 resident, situated, or located within this State, and on risks
 
17 and property situated elsewhere upon which no premium tax is
 
18 otherwise paid during the year ending on the preceding
 
19 December 31, less return premiums and less any reinsurance
 
20 accepted.  The tax shall be due and payable on March 1 of each
 
21 year."
 
22      SECTION 10.  Statutory material to be repealed is bracketed.
 
23 New statutory material is underscored.
 

 
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 1      SECTION 11.  This Act shall take effect upon its approval.
 
 2 
 
 3                           INTRODUCED BY:  _______________________