REPORT TITLE:
Captive Insurance


DESCRIPTION:
Expands the definition of captive insurance company, creates four
classes of captive insurance companies with specified capital or
surplus requirements, and exempts newly authorized categories of
captive insurance companies from National Association of
Insurance Commissioners risk-based capital reports filing
requirement.  (CD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        1262
THE SENATE                              S.B. NO.           H.D. 1
TWENTIETH LEGISLATURE, 1999                                C.D. 1
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-    Classes of captive insurance.  Each captive
 
 5 insurance company formed under this article shall be designated
 
 6 and licensed as one of the following classes of captive insurance
 
 7 companies:
 
 8      (1)  A class 1 company shall be limited to a pure captive
 
 9           insurance company that only writes business as a
 
10           reinsurer;
 
11      (2)  A class 2 company shall be limited to a pure captive
 
12           insurance company that is not a class 1 company;
 
13      (3)  A class 3 company shall be any company formed under
 
14           this article as an association captive insurance
 
15           company or a risk retention captive insurance company;
 
16           and
 
17      (4)  A class 4 company shall be a leased capital facility
 
18           formed under this article."
 
19      SECTION 2.  Section 431:19-101, Hawaii Revised Statutes, is
 
20 amended as follows:
 

 
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 1      1.  By adding a new definition to be appropriately inserted
 
 2 and to read:
 
 3      ""Leased capital facility" means a limited membership
 
 4 insurance company formed as a class 4 company under this article
 
 5 that insures the risks of its members, but whose owner or owners
 
 6 may, subject to approval of the commissioner, be persons or
 
 7 entities other than the members."
 
 8      2.  By amending the definition of "captive insurance
 
 9 company" to read as follows:
 
10      ""Captive insurance company" means any pure captive
 
11 insurance company, risk retention captive insurance company, [or]
 
12 association captive insurance company, or leased capital facility
 
13 formed or licensed under this article."
 
14      SECTION 3.  Section 431:19-104, Hawaii Revised Statutes, is
 
15 amended to read as follows:
 
16      "431:19-104  Minimum capital; letter of credit, security.
 
17 (a)  [No pure captive insurance company, association captive
 
18 insurance company, or risk retention captive insurance company]
 
19 Subject to subsection (c), no captive insurance company
 
20 incorporated as a stock insurer shall be issued a license unless
 
21 it shall possess and thereafter maintain unimpaired paid-in
 
22 capital of an amount established and deemed appropriate by the
 
23 commissioner.  [The amount for pure captive insurance companies
 

 
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 1 may differ from the amount for association captive insurance
 
 2 companies and risk retention captive insurance companies.]
 
 3      (b)  The capital may be in the form of cash, in the form of
 
 4 an irrevocable letter of credit issued by a bank chartered by
 
 5 this State or a member bank of the Federal Reserve System, or
 
 6 other security approved by the commissioner. 
 
 7      (c)  Minimum capital or surplus requirements for captive
 
 8 insurance companies shall be as follows:
 
 9      (1)  Class 1:  $100,000;
 
10      (2)  Class 2:  $250,000;
 
11      (3)  Class 3:  $500,000 for risk retention captive insurance
 
12           companies, and $750,000 for association captive
 
13           insurance companies; and 
 
14      (4)  Class 4:  $1,000,000.
 
15 The foregoing requirements do not limit the commissioner's
 
16 discretionary authority to require a captive insurance company to
 
17 possess and maintain a greater amount of capital or surplus in
 
18 order to preserve the solvency of the company, nor do such
 
19 requirements limit or diminish any other applicable provision of
 
20 law that may require a captive insurance company to maintain a
 
21 particular level of capital, surplus, assets, or investments."
 
22      SECTION 4.  Section 431:19-105, Hawaii Revised Statutes, is
 
23 amended by amending subsection (a) to read as follows:
 

 
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 1      "(a)  [No captive insurance company] Subject to section
 
 2 431:19-104(c), no captive insurance company formed other than as
 
 3 a stock insurer shall be issued a license unless it shall possess
 
 4 and thereafter maintain a free surplus of an amount established
 
 5 and deemed appropriate by the commissioner.  [The amount for pure
 
 6 captive insurance companies may differ from the amount for
 
 7 association captive insurance companies and risk retention
 
 8 captive insurance companies.  The amount for association captive
 
 9 insurance companies and risk retention captive insurance
 
10 companies incorporated as stock insurers may differ from the
 
11 amount for association captive insurance companies or risk
 
12 retention captive insurance companies formed as mutual or
 
13 reciprocal insurers.]"
 
14      SECTION 5.  Section 431:19-106, Hawaii Revised Statutes, is
 
15 amended by amending subsections (b) and (c) to read as follows:
 
16      "(b)  [An association captive insurance company, including a
 
17 risk retention] A captive insurance company, which is other than
 
18 a pure captive insurance company, may be:
 
19      (1)  Incorporated as a stock insurer with its capital
 
20           divided into shares and held by the stockholders;
 
21      (2)  Incorporated as a mutual insurer without capital stock,
 
22           the governing body of which is elected by the member
 
23           organization of its association; or
 

 
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 1      (3)  Organized as a reciprocal insurer, for other than
 
 2           credit life and credit disability insurance and group
 
 3           term life insurance, without capital stock, whose
 
 4           affairs shall be coordinated through an attorney-in-
 
 5           fact as provided in the power of attorney or other
 
 6           agreement given to the attorney-in-fact by the
 
 7           subscribers.
 
 8      (c)  A captive insurance company other than one that is
 
 9 formed as a reciprocal insurer shall have [not less] no fewer
 
10 than three incorporators of whom [not less] no fewer than two
 
11 shall be residents of this State."
 
12      SECTION 6.  Section 431:19-107, Hawaii Revised Statutes, is
 
13 amended by amending subsections (b) and (c) to read as follows:
 
14      "(b)  Each [association captive and risk retention] captive
 
15 insurance company that is not a pure captive insurance company
 
16 shall annually file with the commissioner the following:
 
17      (1)  Annual statement and audit:
 
18           (A)  On or before March 1, or such day subsequent
 
19                thereto as the commissioner upon request and for
 
20                cause may specify, an annual statement using the
 
21                National Association of Insurance Commissioners'
 
22                annual statement blank plus any additional
 
23                information required by the commissioner, which
 

 
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 1                shall be a true statement of its financial
 
 2                condition, transactions, and affairs as of the
 
 3                immediately preceding December 31.  The reported
 
 4                information shall be verified by oaths of at least
 
 5                two of the captive's principal officers;
 
 6           (B)  On or before June 1, or such day subsequent
 
 7                thereto as the commissioner upon request and for
 
 8                cause may specify, an audit by a designated
 
 9                independent certified public accountant or
 
10                accounting firm of the financial statements
 
11                reporting the financial condition and results of
 
12                the operation of the captive;
 
13           (C)  The annual statement and audit shall be prepared
 
14                in accordance with the National Association of
 
15                Insurance Commissioners' annual statement
 
16                instructions, following the practice and
 
17                procedures prescribed by the National Association
 
18                of Insurance Commissioners' practices and
 
19                procedures manuals.  Each risk retention group
 
20                shall also comply with section 431:3-302; and
 
21      (2)  On or before each March 1, or such day subsequent
 
22           thereto as the commissioner upon request and for cause
 
23           may specify, a risk-based capital report in accordance
 

 
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 1           with section 431:3-402[.]; provided that class 3
 
 2           association captive insurance companies and class 4
 
 3           captive insurance companies shall not be required to
 
 4           file their risk-based capital reports with the National
 
 5           Association of Insurance Commissioners.
 
 6      (c)  The statements required to be filed in subsections (a)
 
 7 and (b) shall include[,] but not be limited to[,] actuarially
 
 8 appropriate reserves for:
 
 9      (1)  Known claims and expenses associated therewith;
 
10      (2)  Claims incurred but not reported and expenses
 
11           associated therewith;
 
12      (3)  Unearned premiums; and
 
13      (4)  Bad debts, reserves for which shall be shown as
 
14           liabilities.
 
15 An actuarial opinion regarding reserves for known claims and
 
16 expenses associated therewith and claims incurred but not
 
17 reported and expenses associated therewith shall be included in
 
18 the audited statements, except that the actuarial opinion for
 
19 [association captive insurance companies and risk retention]
 
20 captive insurance companies other than pure captive insurance
 
21 companies shall be filed with the annual statement required under
 
22 subsection (b), on or before March 1 each year.  The actuarial
 
23 opinion shall be given by a member of the American Academy of
 

 
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 1 Actuaries or other qualified loss reserve specialist as defined
 
 2 in the annual statement adopted by the National Association of
 
 3 Insurance Commissioners."
 
 4      SECTION 7.  Section 431:19-115, Hawaii Revised Statutes, is
 
 5 amended to read as follows:
 
 6      "(a)  No insurance laws of this State other than those
 
 7 contained in this article, or contained in specific references
 
 8 contained in this section or article, shall apply to [pure
 
 9 captive insurance companies, association captive insurance
 
10 companies, and risk retention] captive insurance companies[.]
 
11 formed under this article.
 
12      In addition to this article, article 1, article 2, part III
 
13 of article 3, article 4A, parts I and II of article 5, article 6,
 
14 article 11, and article 15 of this chapter shall apply to
 
15 [association captive insurance companies and risk retention]
 
16 captive insurance companies[,] other than pure captive insurance
 
17 companies, unless these other laws are inconsistent with this
 
18 article or the commissioner by rule, regulation, or order
 
19 determines, on a case by case basis that these other laws should
 
20 not apply thereto.
 
21      In addition to this article and the articles or portions
 
22 thereof referenced in this section, chapter 431K shall apply to
 

 
 
 
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 1 risk retention captive insurance companies licensed under this
 
 2 article.
 
 3      (b)  The application of the foregoing provisions shall not
 
 4 diminish the commissioner's authority for exemption as may be
 
 5 contained therein or as may be deemed appropriate under the
 
 6 circumstances.
 
 7      In addition, the commissioner may adopt rules pursuant to
 
 8 chapter 91 as the commissioner deems necessary in connection with
 
 9 the financial oversight and regulation of [association captive
 
10 insurance companies, including risk retention] captive insurance
 
11 companies."
 
12      SECTION 8.  Section 431:19-116, Hawaii Revised Statutes, is
 
13 amended by amending subsection (b) to read as follows:
 
14      "(b)  Each [association captive insurance company licensed
 
15 to do business in this State and each risk retention] captive
 
16 insurance company chartered in this State as other than a pure
 
17 captive insurance company shall pay a tax of one per cent on
 
18 gross premiums for insurance written on all risks or property
 
19 resident, situated, or located within this State, and on risks
 
20 and property situated elsewhere upon which no premium tax is
 
21 otherwise paid during the year ending on the preceding
 
22 December 31, less return premiums and less any reinsurance
 

 
 
 
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 1 accepted.  The tax shall be due and payable on March 1 of each
 
 2 year."
 
 3      SECTION 9.  Act 190, Session Laws of Hawaii 1994, as amended
 
 4 by Acts 61 and 232, Session Laws of Hawaii 1995, and as amended
 
 5 by Act 358, Session Laws of Hawaii 1997, is amended by amending
 
 6 section 10 to read as follows:
 
 7      "SECTION 10.  This Act shall take effect on June 21, 1994;
 
 8 provided that on June 30, 2000, sections 1 through [4] 3 of this
 
 9 Act and section 431:2-307, Hawaii Revised Statutes, shall be
 
10 repealed, and sections 431:3-302[,] and 431:5-307, [and 431:19-
 
11 107,] Hawaii Revised Statutes, are reenacted in the form in which
 
12 they read on June 20, 1994."
 
13      SECTION 10.  Statutory material to be repealed is bracketed.
 
14 New statutory material is underscored.
 
15      SECTION 11.  This Act shall take effect upon its approval.