REPORT TITLE:
Captive Insurance


DESCRIPTION:
Establishes classes of captive insurance companies.  

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           1262
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.  Chapter 431:19, Hawaii Revised Statutes, is
 
 2 amended by adding a new section to be appropriately designated
 
 3 and to read as follows:
 
 4      "§431:19-     Classes of captive insurers.  (a)  Each
 
 5 captive insurer formed under this article shall be designated and
 
 6 licensed as either a class 1, class 2, class 3, class 4, or class
 
 7 5 captive insurance company.
 
 8      (b)  A class 1 company shall be limited to a pure captive
 
 9 insurance company that only writes business as a reinsurer.
 
10      (c)  A class 2 company shall be limited to a pure captive
 
11 insurance company that is not a class 1 captive insurance
 
12 company.
 
13      (d)  A class 3 company shall be any company formed under
 
14 this article as an association captive insurance company or a
 
15 risk retention captive insurance company.
 
16      (e)  A class 4 company shall be a leased capital facility
 
17 formed under this article.
 
18      (f)  A class 5 designation shall be a reinsurance company
 
19 formed under this article for the primary purpose of reinsuring
 

 
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 1 liability, property or life and health business, that is not a
 
 2 class 1, class 2, class 3, or class 4 company."
 
 3      SECTION 2.  Section 431:19-101, Hawaii Revised Statutes is
 
 4 amended as follows:
 
 5      1.  By adding two new definitions to be appropriately
 
 6 inserted and to read:
 
 7      ""Leased capital facility" means a limited membership
 
 8 insurance company formed as a class 4 company under this article
 
 9 that insures the risks of its members, but whose owners, subject
 
10 to the approval of the commissioner, may be persons or entities
 
11 other than the members.
 
12      "Reinsurance facility" means a company formed as a class 5
 
13 company under this article."
 
14      2.  By amending the definition of "captive insurance
 
15 company" to read:
 
16      ""Captive insurance company" means any pure captive
 
17 insurance company, risk retention captive insurance company, [or]
 
18 association captive insurance company, leased capital facility,
 
19 or reinsurance facility formed or licensed under this article."
 
20      SECTION 3.  Section 431:19-104, Hawaii Revised Statutes, is
 
21 amended to read as follows:
 
22      "§431:19-104  Minimum capital; letter of credit, security.
 
23 (a)  [No pure captive insurance company, association captive
 

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

 
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 1 effect of any other law that requires a captive insurance company
 
 2 to maintain specified amounts of capital, surplus, assets, or
 
 3 investments."
 
 4      SECTION 4.  Section 431:19-105, Hawaii Revised Statutes, is
 
 5 amended by amending subsection (a) to read as follows:
 
 6      "(a)  [No] Subject to the requirements of section
 
 7 431:19-104(c), no captive insurance company formed other than as
 
 8 a stock insurer shall be issued a license unless it shall possess
 
 9 and thereafter maintain a free surplus of an amount established
 
10 and deemed appropriate by the commissioner.  [The amount for pure
 
11 captive insurance companies may differ from the amount for
 
12 association captive insurance companies and risk retention
 
13 captive insurance companies.  The amount for association captive
 
14 insurance companies and risk retention captive insurance
 
15 companies incorporated as stock insurers may differ from the
 
16 amount for association captive insurance companies or risk
 
17 retention captive insurance companies formed as mutual or
 
18 reciprocal insurers.]"
 
19      SECTION 5.  Section 431:19-106, Hawaii Revised Statutes, is
 
20 amended by amending subsections (b) and (c) to read as follows:
 
21      "(b)  [An association] A captive insurance company,
 
22 [including a risk retention] other than a pure captive insurance
 
23 company, may be:
 

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

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

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

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

 
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 1 not apply thereto.
 
 2      In addition to this article and the articles or portions
 
 3 thereof referenced in this section, chapter 431K shall apply to
 
 4 risk retention captive insurance companies licensed under this
 
 5 article.
 
 6      (b)  The application of the foregoing provisions shall not
 
 7 diminish the commissioner's authority for exemption as may be
 
 8 contained therein or as may be deemed appropriate under the
 
 9 circumstances.
 
10      In addition, the commissioner may adopt rules pursuant to
 
11 chapter 91 as the commissioner deems necessary in connection with
 
12 the financial oversight and regulation of [association captive
 
13 insurance companies, including risk retention] captive insurance
 
14 companies." 
 
15      SECTION 8.  Section 431:19-116, Hawaii Revised Statutes, is
 
16 amended by amending subsection (b) to read as follows:
 
17      "(b)  Each [association captive insurance company licensed
 
18 to do business in this State and each risk retention] captive
 
19 insurance company chartered in this State as other than a pure
 
20 captive insurance company shall pay a tax of one per cent on
 
21 gross premiums for insurance written on all risks or property
 
22 resident, situated, or located within this State, and on risks
 
23 and property situated elsewhere upon which no premium tax is
 

 
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 1 otherwise paid during the year ending on the preceding
 
 2 December 31, less return premiums and less any reinsurance
 
 3 accepted.  The tax shall be due and payable on March 1 of each
 
 4 year."
 
 5      SECTION 9.  Statutory material to be repealed is bracketed.
 
 6 New statutory material is underscored.
 
 7      SECTION 10.  This Act shall take effect upon its approval.
 
 8 
 
 9                           INTRODUCED BY:  _______________________