REPORT TITLE:
Captive Insurance


DESCRIPTION:
Authorizes and implements the regulation of captive insurance
company branches. (CD1) 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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THE SENATE                              S.B. NO.           S.D. 1
TWENTIETH LEGISLATURE, 2000                                H.D. 1
STATE OF HAWAII                                            C.D. 1
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO CAPTIVE INSURANCE. 


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

 1 
 2      SECTION 1.  Section 431:19-101, Hawaii Revised Statutes, is
 
 3 amended by adding two new definitions to be appropriately
 
 4 inserted and to read as follows:
 
 5      ""Branch captive insurance company" means an outside captive
 
 6 insurance company licensed under this article by the commissioner
 
 7 to transact the business of insurance in this State through a
 
 8 business unit that has its principal place of business in this
 
 9 State.
 
10      "Outside captive insurance company" means an insurance
 
11 company licensed under the laws of a jurisdiction other than this
 
12 State and not otherwise admitted to do business as an insurance
 
13 company in this State, that insures the risks of its parent or
 
14 any affiliated companies."
 
15      SECTION 2.  Section 431:19-102, Hawaii Revised Statutes, is
 
16 amended by amending subsections (a) and (b) to read as follows:
 
17      "(a)  Any captive insurance company, when permitted by its
 
18 articles of association or charter, may apply to the commissioner
 
19 for a license to do any and all insurance set forth in subsection
 
20 (h); provided that:
 

 
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 1      (1)  No pure captive insurance company may insure any risks
 
 2           other than those of its parent and affiliated
 
 3           companies;
 
 4      (2)  No association captive insurance company may insure any
 
 5           risks other than those of the member organizations of
 
 6           its association, and their affiliated companies;
 
 7      (3)  No captive insurance company may provide personal motor
 
 8           vehicle or homeowner's insurance coverage or any
 
 9           component thereof, other than as employee benefits for
 
10           the employees of a parent, association, or its members,
 
11           and their respective affiliated companies; or as
 
12           reinsurance as may be allowed under this article; and
 
13      (4)  No captive insurance company may accept or cede
 
14           insurance except as provided in section 431:19-111.
 
15      (b)  No captive insurance company shall do any insurance
 
16 business in this State unless:
 
17      (1)  It first obtains from the commissioner a license
 
18           authorizing it to do insurance business in this State;
 
19      (2)  Its board of directors holds at least one meeting each
 
20           year in this State;
 
21      (3)  It maintains its principal place of business in this
 
22           State[;], except that a branch captive insurance
 
23           company need only maintain the principal place of a
 

 
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 1           business unit in this State; and
 
 2      (4)  It appoints a resident agent to accept service of
 
 3           process and to otherwise act on its behalf in this
 
 4           State.  Whenever the agent cannot, with reasonable
 
 5           diligence, be found at the registered office of the
 
 6           captive insurance company, the commissioner shall be an
 
 7           agent of the captive insurance company upon whom any
 
 8           process, notice, or demand may be served."
 
 9      SECTION 3.  Section 431:19-103, Hawaii Revised Statutes, is
 
10 amended to read as follows:
 
11      "431:19-103  Names of companies.  No captive insurance
 
12 company shall adopt a name that is the same, deceptively similar,
 
13 or likely to be confused with or mistaken for any other existing
 
14 business name registered in the State[.], except that the
 
15 commissioner may allow a branch captive insurance company to be
 
16 licensed in this State under a different trade name if the normal
 
17 name of the branch captive insurance company is not available for
 
18 use in this State."
 
19      SECTION 4.  Section 431:19-104, Hawaii Revised Statutes, is
 
20 amended to read as follows:
 
21      "431:19-104  Minimum capital; letter of credit, security.
 
22 (a)  Subject to subsection (c), no captive insurance company
 
23 incorporated as a stock insurer shall be issued a license unless
 

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

 
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 1 in lieu of minimum capital or surplus under this section or
 
 2 section 431:19-105, the commissioner shall determine the amount
 
 3 and form of security to be maintained by the branch captive
 
 4 insurance company in this State after taking into consideration:
 
 5      (1)  The amount of risk written through and retained by the
 
 6           branch captive insurance company in this State;
 
 7      (2)  The financial condition of the outside captive
 
 8           insurance company whose branch office is located in
 
 9           this State;
 
10      (3)  Trusts or other security posted for ceding insurers;
 
11           and
 
12      (4)  Any other factors the commissioner deems appropriate.
 
13 The security required by the commissioner may be in the form of
 
14 cash or investments, an irrevocable letter of credit issued by a
 
15 bank chartered in this State or a member bank of the Federal
 
16 Reserve System, a trust, or any other forms of security deemed
 
17 appropriate by the commissioner."
 
18      SECTION 5.  Section 431:19-107, Hawaii Revised Statutes, is
 
19 amended to read as follows:
 
20      "431:19-107  Financial statements and other reports.(a)
 
21 Each pure captive insurance company shall submit to the
 
22 commissioner a statement of financial condition written according
 
23 to generally accepted accounting principles and audited by an
 

 
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 1 independent certified public accountant on or before the last day
 
 2 of the sixth month following the end of the company's fiscal
 
 3 year.
 
 4      (b)  Each captive insurance company that is not a pure
 
 5 captive insurance company shall annually file with the
 
 6 commissioner the following:
 
 7      (1)  Annual statement and audit:
 
 8           (A)  On or before March 1, or such day subsequent
 
 9                thereto as the commissioner upon request and for
 
10                cause may specify, an annual statement using the
 
11                National Association of Insurance Commissioners'
 
12                annual statement blank plus any additional
 
13                information required by the commissioner, which
 
14                shall be a true statement of its financial
 
15                condition, transactions, and affairs as of the
 
16                immediately preceding December 31.  The reported
 
17                information shall be verified by oaths of at least
 
18                two of the captive's principal officers;
 
19           (B)  On or before June 1, or such day subsequent
 
20                thereto as the commissioner upon request and for
 
21                cause may specify, an audit by a designated
 
22                independent certified public accountant or
 
23                accounting firm of the financial statements
 

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

 
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 1           associated therewith;
 
 2      (3)  Unearned premiums; and
 
 3      (4)  Bad debts, reserves for which shall be shown as
 
 4           liabilities.
 
 5 An actuarial opinion regarding reserves for known claims and
 
 6 expenses associated therewith and claims incurred but not
 
 7 reported and expenses associated therewith shall be included in
 
 8 the audited statements, except that the actuarial opinion for
 
 9 captive insurance companies other than pure captive insurance
 
10 companies shall be filed with the annual statement required under
 
11 subsection (b), on or before March 1 each year.  The actuarial
 
12 opinion shall be given by a member of the American Academy of
 
13 Actuaries or other qualified loss reserve specialist as defined
 
14 in the annual statement adopted by the National Association of
 
15 Insurance Commissioners.
 
16      (d)  The commissioner may prescribe the format and frequency
 
17 of other reports which may include, but shall not be limited to,
 
18 summary loss reports and quarterly financial statements.
 
19      (e)  The commissioner may suspend or revoke the certificate
 
20 of authority or fine any captive insurer that fails to file any
 
21 of the documents required by subsections (a) and (b).  The fine
 
22 shall be not more than $500 per day past the due date. 
 
23      (f)  Each branch captive insurance company shall file with
 

 
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 1 the commissioner copies of all reports and financial statements
 
 2 required to be filed by the outside captive insurance company of
 
 3 the branch captive insurance company under the laws of the
 
 4 jurisdiction in which the outside captive insurance company is
 
 5 domiciled.  The copies of the reports and financial statements
 
 6 shall be certified under oath by two officers of the outside
 
 7 captive insurance company and shall be filed with the
 
 8 commissioner no later than thirty days after the reports and
 
 9 financial statements are filed with the insurance regulator of
 
10 the domicile of the outside captive insurance company.  In
 
11 addition to, and at the same time as the foregoing filings with
 
12 the commissioner, the outside captive insurance company shall
 
13 file a statement signed by two of its executive officers, one of
 
14 which must be the president or chief financial officer, setting
 
15 forth the gross premiums written, reinsurance ceded and accepted,
 
16 and reserves and other liabilities associated with the insurance
 
17 business written through the branch captive insurance company in
 
18 this State.
 
19      If the commissioner is not satisfied that the reports,
 
20 financial statements, and statement required to be filed under
 
21 this subsection fairly and adequately describe the financial
 
22 condition of the outside captive insurance company and the
 
23 business underwritten through the branch captive insurance
 

 
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 1 company in this State, the commissioner may require the branch
 
 2 captive insurance company to file an annual statement pursuant to
 
 3 subsection (a) within a reasonable time after notification of
 
 4 such requirement."
 
 5      SECTION 6.  Section 431:19-108, Hawaii Revised Statutes, is
 
 6 amended to read as follows:
 
 7      "431:19-108  Examinations and investigations.(a)  The
 
 8 commissioner or any examiner authorized by the commissioner may
 
 9 conduct an examination of any captive insurance company as often
 
10 as the commissioner deems appropriate; provided that an
 
11 examination shall be conducted at least once every three years.
 
12 The commissioner or any authorized examiner shall thoroughly
 
13 inspect and examine the captive insurance company's affairs to
 
14 ascertain its financial condition, its ability to fulfill its
 
15 obligations, and whether it has complied with this article.
 
16      (b)  The powers, authorities, and duties relating to
 
17 examinations vested in and imposed upon the commissioner under
 
18 section 431:2-301 through section 431:2-307.5 of the code are
 
19 extended to and imposed upon the commissioner in respect to
 
20 examinations of captive insurance companies.
 
21      (c)  All examination reports conducted by the commissioner,
 
22 or a designated agent of the commissioner, of any pure captive
 
23 insurance company shall remain confidential unless the
 

 
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 1 commissioner determines that the pure captive insurance company
 
 2 is in an adverse financial condition and the commissioner
 
 3 reasonably believes that the interest of the public necessitates
 
 4 the opening of the information contained in the examination
 
 5 report for public inspection.
 
 6      (d)  Each branch captive insurance company shall file
 
 7 annually with the commissioner a certificate of compliance issued
 
 8 by the insurance regulatory authority of the jurisdiction in
 
 9 which the outside captive insurance company of the branch captive
 
10 insurance company is domiciled along with certified copies of any
 
11 examination reports conducted of the outside captive insurance
 
12 company by its domiciliary insurance regulator during the
 
13 preceding calendar year.  These filings shall be made with the
 
14 commissioner by March 1 of each year.  So long as the branch
 
15 captive insurance company complies with the requirements of this
 
16 subsection, and unless otherwise deemed necessary by the
 
17 commissioner, any examination of the branch captive insurance
 
18 company under this subsection shall be only with respect to the
 
19 business underwritten by the branch captive insurance company in
 
20 this State.  If necessary, however, the commissioner may examine
 
21 the outside captive insurance company of any branch captive
 
22 insurance company licensed under this article."
 
23      SECTION 7.  Section 431:19-115, Hawaii Revised Statutes, is
 

 
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 1 amended by amending subsection (a) to read as follows:
 
 2      "(a)  No insurance laws of this State other than those
 
 3 contained in this article, or contained in specific references
 
 4 contained in this section or article, shall apply to captive
 
 5 insurance companies formed under this article.
 
 6      In addition to this article, article 1, article 2, part III
 
 7 of article 3, article 4A, parts I and II of article 5, article 6,
 
 8 article 11, and article 15 of this chapter shall apply to captive
 
 9 insurance companies other than pure captive insurance
 
10 companies[,] and branch captive insurance companies, unless these
 
11 other laws are inconsistent with this article or the commissioner
 
12 by rule, regulation, or order determines, on a case by case basis
 
13 that these other laws should not apply thereto.
 
14      In addition to this article and the articles or portions
 
15 thereof referenced in this section, chapter 431K shall apply to
 
16 risk retention captive insurance companies licensed under this
 
17 article."
 
18      SECTION 8.  Statutory material to be repealed is bracketed.
 
19 New statutory material is underscored.
 
20      SECTION 9. This Act shall take effect upon its approval.