STAND. COM. REP. NO. 2501

                                   Honolulu, Hawaii
                                                     , 2000

                                   RE:  S.B. No. 2278
                                        S.D. 1




Honorable Norman Mizuguchi
President of the Senate
Twentieth State Legislature
Regular Session of 2000
State of Hawaii

Sir:

     Your Committee on Commerce and Consumer Protection, to which
was referred S.B. No. 2278 entitled: 

     "A BILL FOR AN ACT RELATING TO CAPTIVE INSURANCE,"

begs leave to report as follows:

     The purpose of this measure is to create an insurance
regulatory mechanism that allows two captive insurance companies
to merge or for a captive insurer to convert into another
corporate form while preserving the regulatory mechanisms and
protecting the public interest.

     Testimony was received from the State Insurance
Commissioner, Marsh Management Services Inc., Hawaii Captive
Insurance Council, Becher + Carlson Risk Management, Inc., Hawaii
Captive Insurance Management, Inc., and Char Hamilton Campbell &
Tom.

     Your Committee finds that a merger of two captive insurers
to form a surviving captive insurer or a conversion of a captive
insurer into another corporate form would promote the public
interest by enhancing the flexibility of a captive insurance
company to change its corporate form.

     Under current law, a captive insurer that is organized as a
stock, mutual, or reciprocal company must dissolve and
re-incorporate to convert to another corporate form.  Your
Committee believes that this should not be necessary since a

 
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captive insurer serves a parent company or association rather
than the general public.

     According to testimony of the State Insurance Commissioner,
the Insurance Division has received several inquiries over the
last few years from existing and prospective captive organizers
about the ability to convert a captive from one allowable
corporate form to another after initial licensure.  Up to now,
there has been no formal authority to allow the conversion of
captive forms.

     Captive insurance companies are a growth industry in Hawaii,
providing employment, paying taxes, and augmenting tourism.
According to testimony, the industry has had positive gains every
year for the past five years.  There are now over sixty-five
captive insurance companies licensed in Hawaii.  Flexibility in
long-term planning for captive insurers is very important to
captive insurers contemplating locating in Hawaii, which would
further support the industry.

     Your Committee has amended this measure on the
recommendation of the State Insurance Commissioner by requiring
that a captive insurance company seeking to convert or merge into
a different form of captive insurer must file a plan of
conversion or merger with the Insurance Division for approval,
providing requirements for the approval, and clarifying the
obligations of the converted insurer or the surviving company.

     As affirmed by the record of votes of the members of your
Committee on Commerce and Consumer Protection that is attached to
this report, your Committee is in accord with the intent and
purpose of S.B. No. 2278, as amended herein, and recommends that
it pass Second Reading in the form attached hereto as S.B.
No. 2278, S.D. 1, and be placed on the calendar for Third
Reading.


 
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                                   STAND. COM. REP. NO. 2501
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                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Commerce and
                                   Consumer Protection,



                                   ______________________________
                                   BRIAN KANNO, Co-Chair



                                   ______________________________
                                   BRIAN T. TANIGUCHI, Co-Chair

 
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