Captive Insurance; Leased Capital Facility
Establishes requirements for a leased capital facility captive insurance company, including requirements as to formation, application, insurable risks, change in business plan, use and transfer of assets, financial accounting, report filings, and contractual disclosures.
TWENTY-FIRST LEGISLATURE, 2001
STATE OF HAWAII
A BILL FOR AN ACT
relating to captive insurance.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. Chapter 431, Hawaii Revised Statutes, is amended by adding a new section to article 19 to be appropriately designated and to read as follows:
"ß431:19- Leased capital facility. (a) One or more sponsors may form a leased capital facility under this article. A leased capital facility shall only insure the risks of its participants. The risks of the participants shall be insured through participant contracts that segregate each participant or related participantsí liabilities through one or more protected cells.
(b) In addition to the information required by section 431:19-102, each application for a leased capital facility filed with the commissioner shall include the following:
(1) A business plan that sets forth in sufficient detail:
(A) The proposed organizational and operational structure of the leased capital facility;
(B) The mechanisms by which the assets and liabilities of each protected cell will be segregated from those of other protected cells in the leased capital facility; and
(C) A fair and equitable plan for allocating direct and indirect expenses to each protected cell; and
(2) All contracts or sample contracts between the leased capital facility and its participants.
(c) Ownership of or ownership of shares in a leased capital facility shall be limited to the leased capital facility's sponsors and participants; provided that the participants are not required to be owners of or shareholders in a leased capital facility.
(d) No leased capital facility may insure any risks other than those of its participants.
(e) Within each protected cell, the leased capital facility shall only insure the risks of the participant within the protected cell. If more than one participant is insured within a protected cell, all participants insured within that protected cell shall be related by being either partners, joint venturers, or within the same corporate family.
(f) No participant contract shall take effect without the commissioner's written prior approval. The addition of each new protected cell or new participant to a protected cell, and the withdrawal of any protected cell or participant of a protected cell shall constitute a change in the leased capital facility's business plan and shall require the commissioner's prior written approval.
(g) Unless otherwise approved in writing by the commissioner and all of the participants within the protected cell, the assets of a protected cell, including any collateral or other security with respect to the risks insured in that cell, shall only be used for the payment of expenses, claims, and liabilities attributable to the risks insured within that protected cell, and shall have no legal liability for and shall not be used to pay any expenses, claims, or liabilities of or attributable to any other protected cell.
(h) Unless otherwise deemed necessary by the commissioner, the general assets of the leased capital facility shall not be used to pay the insurance claims or insurance liabilities of a protected cell. General assets of the leased capital facility for purposes of this section shall include the capital and surplus contributed by the sponsor to the leased capital facility, but not any capital, surplus, or other assets contributed by the sponsor as a participant in a protected cell of the company.
(i) In addition to being accounted for in consolidated financial statements for the leased capital facility, each protected cell shall be accounted for separately on the books and records of the leased capital facility so as to reflect the financial condition and results of operations of the protected cell, including net income or loss, dividends or other distributions to participants, and other factors that may be provided in the participant contract or required by the commissioner.
(j) Each protected cell within a leased capital facility shall be established and thereafter maintained with sufficient assets, collateral, reinsurance, or other security that, in total, at least equal the reserves and other insurance liabilities attributed to that protected cell.
(k) No sale, exchange, assignment, or other transfer of assets or liabilities may be made by a leased capital facility between or among any of its protected cells without the consent of the affected protected cells.
(l) No sale, exchange, assignment, or other transfer of assets or liabilities, payment of dividend, or distribution may be made from a protected cell to a sponsor or participant without the commissionerís approval, and in no event shall approval be given if the transaction would result in insolvency or financial impairment with respect to a protected cell.
(m) Each sponsored captive insurance company shall annually file with the commissioner financial reports required under this article or by the commissioner, that shall include, without limitation, accounting statements detailing the financial experience of each protected cell.
(n) Each sponsored captive insurance company shall notify the commissioner in writing within ten business days of any protected cell that is insolvent, financially impaired, or otherwise unable to meet its claim or expense obligations.
(o) All contracts or other documentation of insurance or reinsurance issued by the leased capital facility with respect to a protected cell, shall clearly disclose that the assets, collateral, reinsurance, or other security, as applicable, of that protected cell, and only those assets, collateral, reinsurance, or other security, shall be available to pay the insurance obligations of that protected cell; provided that, subject to this article and any other applicable law or regulation, the failure to include this language in the contracts or other documentation shall not be used as the sole basis to circumvent the requirements of this section by creditors, reinsurers, or other claimants.
(p) All financial records of the leased capital facility, including records pertaining to any protected cells, shall be made available for the commissioner or the commissionerís designated agent."
SECTION 2. Chapter 431, Hawaii Revised Statutes, is amended by adding four new definitions to article 19 to be appropriately inserted and to read as follows:
""Participant" means an entity and any partners or joint venture partners thereof, or members within the same corporate family of the entity that are insured by a leased capital facility, where the losses of the participant are limited through a participant contract to the assets of a protected cell. A sponsor may be a participant.
"Participant contract" means a contract under which a leased capital facility insures the risks of a participant and limits the losses of the participant to the assets of a protected cell.
"Protected cell" means a separate account established and maintained by a leased capital facility for one participant.
"Sponsor" means any entity that is approved by the commissioner to provide all or part of the capital and surplus required by applicable law and to organize and operate a leased capital facility."
SECTION 3. Section 431:19-101, Hawaii Revised Statutes, is amended by amending the definition of "leased capital facility" to read:
""Leased capital facility" means a limited membership insurance company formed as a class 4 company under this article that insures the risks of its [
members, but whose owner or owners may, subject to approval of the commissioner, be persons or entities other than the members.] participants."
SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 5. This Act shall take effect upon its approval.