REPORT TITLE:
Captive Insurance


DESCRIPTION:
Establishes a new category of captive insurance company for
reinsurers and excess insurers.  Clarifies financial reporting
requirements for all categories of captives and the laws
applicable to class 5 companies.  (SD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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THE SENATE                              S.B. NO.           S.D. 1
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            
                                                             
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                   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 be appropriately designated
 
 3 and to read as follows:
 
 4      "431:19-    Class 5 companies.  (a)  A class 5 company
 
 5 under this article is one that is not a class 1, class 2, class
 
 6 3, or class 4 company, and acts only as a reinsurer or 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 the risks and
 
10 lines of insurance approved by the commissioner.
 
11      (b)  Notwithstanding section 431:19-107(a), reserves for
 
12 risks located outside of the United States reinsured or insured
 
13 by a class 5 company, upon approval of the commissioner, may be
 
14 determined in accordance with the required or approved reserve
 
15 standards of the country in which the ceding insurer is domiciled
 
16 or the excess insurance risks are located.
 
17      (c)  Notwithstanding article 6 of this chapter and section
 
18 431:19-110, where the risks reinsured or insured by a class 5
 
19 company are located outside of the United States, the class 5
 

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

 
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 1      (1)  A class 1 company shall be limited to a pure captive
 
 2           insurance company that only writes business as a
 
 3           reinsurer;
 
 4      (2)  A class 2 company shall be limited to a pure captive
 
 5           insurance company that is not a class 1 company;
 
 6      (3)  A class 3 company shall be any company formed under
 
 7           this article as an association captive insurance
 
 8           company or a risk retention captive insurance company;
 
 9           [and]
 
10      (4)  A class 4 company shall be a leased capital facility
 
11           formed under this article[.]; and
 
12      (5)  A class 5 company shall be a reinsurance or excess
 
13           insurance company formed under section 431:19-  ."
 
14      SECTION 4.  Section 431:19-104, Hawaii Revised Statutes, is
 
15 amended by amending subsection (c) to read as follows:
 
16      "(c)  [Minimum] The minimum capital or surplus requirements
 
17 for captive insurance companies [shall be] are as follows:
 
18      (1)  Class 1:  $100,000;
 
19      (2)  Class 2:  $250,000;
 
20      (3)  Class 3:  $500,000 for risk retention captive insurance
 
21           companies, and $750,000 for association captive
 
22           insurance companies; [and] 
 

 
 
 
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 1      (4)  Class 4:  $1,000,000[.]; and
 
 2      (5)  Class 5:  An amount as determined by the commissioner
 
 3           on a case by case basis, after giving due regard to the
 
 4           company's business plan, including the nature of the
 
 5           risks insured.
 
 6 The foregoing requirements do not limit the commissioner's
 
 7 discretionary authority to require a captive insurance company to
 
 8 possess and maintain a greater amount of capital or surplus in
 
 9 order to preserve the solvency of the company, nor do [such] the
 
10 requirements limit or diminish any other applicable provision of
 
11 law that may require a captive insurance company to maintain a
 
12 particular level of capital, surplus, assets, or investments." 
 
13      SECTION 5.  Section 431:19-107, Hawaii Revised Statutes, is
 
14 amended by amending subsection (c) to read as follows:
 
15      "(c)  The statements required to be filed in subsections (a)
 
16 and (b) shall include but not be limited to actuarially
 
17 appropriate reserves for[:
 
18      (1)  Known claims and expenses associated therewith;
 
19      (2)  Claims incurred but not reported and expenses
 
20           associated therewith;
 
21      (3)  Unearned premiums; and
 
22      (4)  Bad debts, reserves for which shall be shown as
 
23           liabilities.]
 

 
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 1 the business underwritten.  An actuarial opinion regarding
 
 2 reserves for [known claims and expenses associated therewith and
 
 3 claims incurred but not reported and expenses associated
 
 4 therewith] the business underwritten by the company shall be
 
 5 included in the audited statements, except that the actuarial
 
 6 opinion for [captive insurance companies other than pure captive
 
 7 insurance] class 3 companies shall be filed with the annual
 
 8 statement required under subsection (b), on or before March 1
 
 9 each year.  The actuarial opinion shall be given by a member of
 
10 the American Academy of Actuaries or other qualified loss reserve
 
11 specialist as defined in the annual statement adopted by the
 
12 National Association of Insurance Commissioners[.]; provided that
 
13 all captive insurance companies, other than a class 3 company,
 
14 may, alternatively, utilize an actuarial opinion prepared by a
 
15 loss reserve specialist deemed appropriate by the commissioner."
 
16      SECTION 6.  Section 431:19-115, Hawaii Revised Statutes, is
 
17 amended by amending subsection (a) to read as follows:
 
18      "(a)  No insurance laws of this State other than those
 
19 contained in this article, or contained in specific references
 
20 contained in this section or article, shall apply to captive
 
21 insurance companies formed under this article.
 
22      In addition to this article, article 1, article 2, part III
 
23 of article 3, article 4A, parts I and II of article 5, article 6,
 

 
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 1 article 11, and article 15 of this chapter shall apply to captive
 
 2 insurance companies other than pure captive insurance companies,
 
 3 unless these other laws are inconsistent with this article or the
 
 4 commissioner by rule, regulation, or order determines, on a case
 
 5 by case basis that these other laws should not apply thereto.
 
 6      In addition to this article, and except as otherwise
 
 7 provided in this article, article 1, article 2, article 6,
 
 8 article 11, and article 15 of this chapter shall apply to class 5
 
 9 companies, unless these other laws are inconsistent with this
 
10 article or the commissioner by rule, regulation, or order
 
11 determines, on a case by case basis that these other laws should
 
12 not apply thereto.
 
13      In addition to this article and the articles or portions
 
14 thereof referenced in this section, chapter 431K shall apply to
 
15 risk retention captive insurance companies licensed under this
 
16 article."
 
17      SECTION 7.  Statutory material to be repealed is bracketed.
 
18 New statutory material is underscored.
 
19      SECTION 8.  This Act shall take effect upon its approval.