REPORT TITLE:
Captive Insurance


DESCRIPTION:
Provides for the establishment of class 5 captive insurance
companies as reinsurance or excess insurance companies.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        2983
HOUSE OF REPRESENTATIVES                H.B. NO.           
TWENTIETH LEGISLATURE, 2000                                
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, Hawaii Revised Statutes, is amended
 
 2 by adding a new section to article 19 to be appropriately
 
 3 designated and to read as follows:
 
 4      "§431:19-     Class 5 companies.  (a)  A class 5 company
 
 5 under this article is one which is not a class 1 or class 2
 
 6 company, and which acts only as a reinsurer, or an excess
 
 7 insurer, or both.  Notwithstanding any other provision of this
 
 8 article, a class 5 company licensed under this article may
 
 9 reinsure or provide excess insurance or both for such risks and
 
10 lines of insurance, as may be approved by the commissioner.
 
11      (b)  Notwithstanding section 431:19-107(a), reserves for
 
12 non-United States risks reinsured or insured by a class 5
 
13 company, upon approval of the commissioner, may be determined in
 
14 accordance with the required or approved reserve standards of the
 
15 country in which the ceding insurer is domiciled or the excess
 
16 insurance risks are located.
 
17      (c)  Notwithstanding article 6 and section 431:19-110, where
 
18 the risks reinsured or insured by a class 5 company are non-
 
19 United States risks, the class 5 company, with the approval of
 
20 the commissioner, my invest its funds in accordance with the
 

 
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 1 applicable laws and regulations which apply to insurers or
 
 2 reinsurers in the non-United States jurisdictions in which those
 
 3 risks are located, in proportion to the reserves held for those
 
 4 risks."
 
 5      SECTION 2.  Section 431:19-101, Hawaii Revised Statutes, is
 
 6 amended by amending the definitions of "captive insurance
 
 7 company" and "pure captive insurance company" to read as follows:
 
 8      ""Captive insurance company" means [any pure captive
 
 9 insurance company, risk retention captive insurance company,
 
10 association] a class 1, class 2, class 3, class 4, or class 5
 
11 captive insurance company[, or leased capital facility] formed or
 
12 licensed under this article."
 
13      ""Pure captive insurance company" means any company that
 
14 only insures risks of its parent and affiliated companies."
 
15      SECTION 3.  Section 431:19-101.3, Hawaii Revised Statutes,
 
16 is amended to read as follows:
 
17      "[[]§431:19-101.3[]]  Classes of captive insurance.  Each
 
18 captive insurance company formed under this article shall be
 
19 designated and licensed as one of the following classes of
 
20 captive insurance companies:
 
21      (1)  A class 1 company shall be limited to a pure captive
 
22           insurance company that only writes business as a
 

 
 
 
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 1           reinsurer;
 
 2      (2)  A class 2 company shall be limited to a pure captive
 
 3           insurance company that is not a class 1 company;
 
 4      (3)  A class 3 company shall be any company formed under
 
 5           this article as an association captive insurance
 
 6           company or a risk retention captive insurance company;
 
 7           [and]
 
 8      (4)  A class 4 company shall be a leased capital facility
 
 9           formed under this article[.]; and
 
10      (5)  A class 5 company shall be a reinsurance or excess
 
11           insurance company formed under section 431:19-   ."
 
12      SECTION 4.  Section 431:19-104, Hawaii Revised Statutes, is
 
13 amended by amending subsection (c) to read as follows:
 
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 for risk retention captive insurance
 
19           companies, and $750,000 for association captive
 
20           insurance companies; [and]
 
21      (4)  Class 4:  $1,000,000[.]; and
 
22      (5)  Class 5:  Such amount as may be determined by the
 

 
 
 
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 1           commissioner on a case-by-case basis, after giving due
 
 2           regard to the company's business plan, including the
 
 3           nature of the risks insured.
 
 4 The foregoing requirements do not limit the commissioner's
 
 5 discretionary authority to require a captive insurance company to
 
 6 possess and maintain a greater amount of capital or surplus in
 
 7 order to preserve the solvency of the company, nor do such
 
 8 requirements limit or diminish any other applicable provision of
 
 9 law that may require a captive insurance company to maintain a
 
10 particular level of capital, surplus, assets, or investments."
 
11      SECTION 5.  Section 431:19-107, Hawaii Revised Statutes, is
 
12 amended by amending subsections (a), (b), and (c) to read as
 
13 follows:
 
14      "(a)  Each [pure] captive insurance company, other than a
 
15 class 3 company, shall submit to the commissioner a statement of
 
16 financial condition written according to generally accepted
 
17 accounting principles and audited by an independent certified
 
18 public accountant on or before the last day of the sixth month
 
19 following the end of the company's fiscal year.
 
20      (b)  Each [captive insurance company that is not a pure
 
21 captive insurance] class 3 company shall annually file with the
 
22 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
 

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

 
 
 
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 1 An actuarial opinion regarding reserves for [known claims and
 
 2 expenses associated therewith and claims incurred but not
 
 3 reported and expenses associated therewith] for the business
 
 4 underwritten by the company shall be included in the audited
 
 5 statements, except that the actuarial opinion for [captive
 
 6 insurance companies other than pure captive insurance] class 3
 
 7 companies shall be filed with the annual statement required under
 
 8 subsection (b), on or before March 1 each year.  The actuarial
 
 9 opinion shall be given by a member of the American Academy of
 
10 Actuaries or other qualified loss reserve specialist as defined
 
11 in the annual statement adopted by the National Association of
 
12 Insurance Commissioners."
 
13      SECTION 6.  Section 431:19-115, Hawaii Revised Statutes, is
 
14 amended by amending subsection (a) to read as follows:
 
15      "(a)  No insurance laws of this State other than those
 
16 contained in this article, or contained in specific references
 
17 contained in this section or article, shall apply to captive
 
18 insurance companies 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 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 except as otherwise
 
 6 provided in this article, articles 1, 2, 6, 11, and 15 shall
 
 7 apply to class 5 companies, unless these other laws are
 
 8 inconsistent with this article or the commissioner by rule or
 
 9 order determines, on a case by case basis, that these other laws
 
10 should not apply thereto.
 
11      In addition to this article and the articles or portions
 
12 thereof referenced in this section, chapter 431K shall apply to
 
13 risk retention captive insurance companies licensed under this
 
14 article."
 
15      SECTION 7.  Statutory material to be repealed is bracketed.
 
16 New statutory material is underscored.
 
17      SECTION 8.  This Act shall take effect upon its approval.
 
18 
 
19                           INTRODUCED BY:_________________________