REPORT TITLE:
Captive Insurance


DESCRIPTION:
Permits captive insurance companies to sell personal motor
vehicle and homeowners' insurance on vehicles and property within
and outside the State.  Authorizes and implements the regulation
of captive insurance company branches. (SB3190 HD1) 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        3190
THE SENATE                              S.B. NO.           S.D. 1
TWENTIETH LEGISLATURE, 2000                                H.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 
 2      SECTION 1.  Section 431:19-101, Hawaii Revised Statutes, is
 
 3 amended as follows:
 
 4      1.  By adding two new definitions to be appropriately
 
 5 inserted and to read as follows:
 
 6      ""Branch captive insurance company" means an outside captive
 
 7 insurance company licensed under this article by the commissioner
 
 8 to transact the business of insurance in this State through a
 
 9 business unit that has its principal place of business in this
 
10 State.
 
11      "Outside captive insurance company" means an insurance
 
12 company licensed under the laws of a jurisdiction other than this
 
13 State and not otherwise admitted to do business as an insurance
 
14 company in this State, that insures the risks of its parent or
 
15 any affiliated companies."
 
16      2.  By amending the definition of "captive insurance
 
17 company" to read as follows:
 
18      "Captive insurance company" means [any pure captive
 
19 insurance company, risk retention captive insurance company,
 
20 association] a class 1, class 2, class 3, class 4, or class 5
 

 
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 1 captive insurance company, or leased capital facility formed or
 
 2 licensed under this article."
 
 3      SECTION 2.  Section 431:19-101.3, Hawaii Revised Statutes,
 
 4 is amended to read as follows:
 
 5      "[[]§431:19-101.3[]]  Classes of captive insurance.  Each
 
 6 captive insurance company formed under this article shall be
 
 7 designated and licensed as one of the following classes of
 
 8 captive insurance companies:
 
 9      (1)  A class 1 company shall be limited to a pure captive
 
10           insurance company that only writes business as a
 
11           reinsurer;
 
12      (2)  A class 2 company shall be limited to a pure captive
 
13           insurance company that is not a class 1 company;
 
14      (3)  A class 3 company shall be any company formed under
 
15           this article as an association captive insurance
 
16           company or a risk retention captive insurance company;
 
17           [and]
 
18      (4)  A class 4 company shall be a leased capital facility
 
19           formed under this article[.]; and
 
20      (5)  A class 5 company shall be a branch captive insurance
 
21           company." 
 
22      SECTION 3.  Section 431:19-102, Hawaii Revised Statutes, is
 
23 amended by amending subsections (a) and (b) to read as follows:
 

 
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 1      "(a)  Any captive insurance company, when permitted by its
 
 2 articles of association or charter, may apply to the commissioner
 
 3 for a license to do any and all insurance set forth in subsection
 
 4 (h); provided that:
 
 5      (1)  No pure captive insurance company may insure any risks
 
 6           other than those of its parent and affiliated
 
 7           companies;
 
 8      (2)  No association captive insurance company may insure any
 
 9           risks other than those of the member organizations of
 
10           its association, and their affiliated companies;
 
11      (3)  No captive insurance company may provide personal motor
 
12           vehicle or homeowner's insurance coverage or any
 
13           component thereof, other than as employee benefits for
 
14           the employees of a parent, association, or its members,
 
15           and their respective affiliated companies; or as
 
16           reinsurance as may be allowed under this article; and
 
17      (4)  No captive insurance company may accept or cede
 
18           insurance except as provided in section 431:19-111.
 
19      (b)  No captive insurance company shall do any insurance
 
20 business in this State unless:
 
21      (1)  It first obtains from the commissioner a license
 
22           authorizing it to do insurance business in this State;
 

 
 
 
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 1      (2)  Its board of directors holds at least one meeting each
 
 2           year in this State;
 
 3      (3)  It maintains its principal place of business in this
 
 4           State[;], except that a branch captive insurance
 
 5           company need only maintain the principal place of a
 
 6           business unit in this State; and
 
 7      (4)  It appoints a resident agent to accept service of
 
 8           process and to otherwise act on its behalf in this
 
 9           State.  Whenever the agent cannot, with reasonable
 
10           diligence, be found at the registered office of the
 
11           captive insurance company, the commissioner shall be an
 
12           agent of the captive insurance company upon whom any
 
13           process, notice, or demand may be served."
 
14      SECTION 4.  Section 431:19-103, Hawaii Revised Statutes, is
 
15 amended to read as follows:
 
16      "§431:19-103  Names of companies.  No captive insurance
 
17 company shall adopt a name that is the same, deceptively similar,
 
18 or likely to be confused with or mistaken for any other existing
 
19 business name registered in the State[.], except that the
 
20 commissioner may allow a branch captive insurance company to be
 
21 licensed in this State under a different trade name if the normal
 
22 name of the branch captive insurance company is not available for
 
23 use in this State."
 

 
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 1      SECTION 5.  Section 431:19-104, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "§431:19-104  Minimum capital; letter of credit, security.
 
 4 (a)  Subject to subsection (c), no captive insurance company
 
 5 incorporated as a stock insurer shall be issued a license unless
 
 6 it shall possess and thereafter maintain unimpaired paid-in
 
 7 capital of an amount established and deemed appropriate by the
 
 8 commissioner.
 
 9      (b)  The capital may be in the form of cash, in the form of
 
10 an irrevocable letter of credit issued by a bank chartered by
 
11 this State or a member bank of the Federal Reserve System, or
 
12 other security approved by the commissioner. 
 
13      (c)  Minimum capital or surplus requirements for captive
 
14 insurance companies shall be as follows:
 
15      (1)  Class 1:  $100,000;
 
16      (2)  Class 2:  $250,000;
 
17      (3)  Class 3:  $500,000 for risk retention captive insurance
 
18           companies, and $750,000 for association captive
 
19           insurance companies; and 
 
20      (4)  Class 4:  $1,000,000.
 
21 The foregoing requirements do not limit the commissioner's
 
22 discretionary authority to require a captive insurance company to
 
23 possess and maintain a greater amount of capital or surplus in
 

 
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 1 order to preserve the solvency of the company, nor do such
 
 2 requirements limit or diminish any other applicable provision of
 
 3 law that may require a captive insurance company to maintain a
 
 4 particular level of capital, surplus, assets, or investments. 
 
 5      (d)  In the case of a branch captive insurance company, and
 
 6 in lieu of minimum capital or surplus under this section or
 
 7 section 431:19-105, the commissioner shall determine the amount
 
 8 and form of security to be maintained by the branch captive
 
 9 insurance company in this State after taking into consideration:
 
10      (1)  The amount of risk written through and retained by the
 
11           branch captive insurance company in this State;
 
12      (2)  The financial condition of the outside captive
 
13           insurance company whose branch office is located in
 
14           this State;
 
15      (3)  Trusts or other security posted for ceding insurers;
 
16           and
 
17      (4)  Any other factors the commissioner deems appropriate.
 
18 The security required by the commissioner may be in the form of
 
19 cash or investments, an irrevocable letter of credit issued by a
 
20 bank chartered in this State or a member bank of the Federal
 
21 Reserve System, a trust, or any other forms of security deemed
 
22 appropriate by the commissioner."
 

 
 
 
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 1      SECTION 6.  Section 431:19-107, Hawaii Revised Statutes, is
 
 2 amended to read as follows:
 
 3      "§431:19-107  Financial statements and other reports.(a)
 
 4 Each pure captive insurance company shall submit to the
 
 5 commissioner a statement of financial condition written according
 
 6 to generally accepted accounting principles and audited by an
 
 7 independent certified public accountant on or before the last day
 
 8 of the sixth month following the end of the company's fiscal
 
 9 year.
 
10      (b)  Each captive insurance company that is not a pure
 
11 captive insurance company shall annually file with the
 
12 commissioner the following:
 
13      (1)  Annual statement and audit:
 
14           (A)  On or before March 1, or such day subsequent
 
15                thereto as the commissioner upon request and for
 
16                cause may specify, an annual statement using the
 
17                National Association of Insurance Commissioners'
 
18                annual statement blank plus any additional
 
19                information required by the commissioner, which
 
20                shall be a true statement of its financial
 
21                condition, transactions, and affairs as of the
 
22                immediately preceding December 31.  The reported
 
23                information shall be verified by oaths of at least
 
24                two of the captive's principal officers;
 

 
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 1           (B)  On or before June 1, or such day subsequent
 
 2                thereto as the commissioner upon request and for
 
 3                cause may specify, an audit by a designated
 
 4                independent certified public accountant or
 
 5                accounting firm of the financial statements
 
 6                reporting the financial condition and results of
 
 7                the operation of the captive;
 
 8           (C)  The annual statement and audit shall be prepared
 
 9                in accordance with the National Association of
 
10                Insurance Commissioners' annual statement
 
11                instructions, following the practice and
 
12                procedures prescribed by the National Association
 
13                of Insurance Commissioners' practices and
 
14                procedures manuals.  Each risk retention group
 
15                shall also comply with section 431:3-302; and
 
16      (2)  On or before each March 1, or such day subsequent
 
17           thereto as the commissioner upon request and for cause
 
18           may specify, a risk-based capital report in accordance
 
19           with section 431:3-402; provided that class 3
 
20           association captive insurance companies and class 4
 
21           captive insurance companies shall not be required to
 
22           file their risk-based capital reports with the National
 
23           Association of Insurance Commissioners.
 

 
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 1      (c)  The statements required to be filed in subsections (a)
 
 2 and (b) shall include but not be limited to actuarially
 
 3 appropriate reserves for:
 
 4      (1)  Known claims and expenses associated therewith;
 
 5      (2)  Claims incurred but not reported and expenses
 
 6           associated therewith;
 
 7      (3)  Unearned premiums; and
 
 8      (4)  Bad debts, reserves for which shall be shown as
 
 9           liabilities.
 
10 An actuarial opinion regarding reserves for known claims and
 
11 expenses associated therewith and claims incurred but not
 
12 reported and expenses associated therewith shall be included in
 
13 the audited statements, except that the actuarial opinion for
 
14 captive insurance companies other than pure captive insurance
 
15 companies shall be filed with the annual statement required under
 
16 subsection (b), on or before March 1 each year.  The actuarial
 
17 opinion shall be given by a member of the American Academy of
 
18 Actuaries or other qualified loss reserve specialist as defined
 
19 in the annual statement adopted by the National Association of
 
20 Insurance Commissioners.
 
21      (d)  The commissioner may prescribe the format and frequency
 
22 of other reports which may include, but shall not be limited to,
 
23 summary loss reports and quarterly financial statements.
 

 
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 1      (e)  The commissioner may suspend or revoke the certificate
 
 2 of authority or fine any captive insurer that fails to file any
 
 3 of the documents required by subsections (a) and (b).  The fine
 
 4 shall be not more than $500 per day past the due date. 
 
 5      (f)  Each branch captive insurance company shall file with
 
 6 the commissioner copies of all reports and financial statements
 
 7 required to be filed by the outside captive insurance company of
 
 8 the branch captive insurance company under the laws of the
 
 9 jurisdiction in which the outside captive insurance company is
 
10 domiciled.  The copies of the reports and financial statements
 
11 shall be certified under oath by two officers of the outside
 
12 captive insurance company and shall be filed with the
 
13 commissioner no later than thirty days after the reports and
 
14 financial statements are filed with the insurance regulator of
 
15 the domicile of the outside captive insurance company.  In
 
16 addition to, and at the same time of the foregoing filings with
 
17 the commissioner, the outside captive insurance company shall
 
18 file a statement signed by two of its executive officers, one of
 
19 which must be the president or chief financial officer, setting
 
20 forth the gross premiums written, reinsurance ceded and accepted,
 
21 and reserves and other liabilities associated with the insurance
 
22 business written through the branch captive insurance company in
 
23 this State.
 

 
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 1      If the commissioner is not satisfied that the reports,
 
 2 financial statements, and statement required to be filed under
 
 3 this subsection fairly and adequately describe the financial
 
 4 condition of the outside captive insurance company and the
 
 5 business underwritten through the branch captive insurance
 
 6 company in this State, the commissioner may require the branch
 
 7 captive insurance company to file an annual statement pursuant to
 
 8 subsection (a) within a reasonable time after notification of
 
 9 such requirement."
 
10      SECTION 7.  Section 431:19-108, Hawaii Revised Statutes, is
 
11 amended to read as follows:
 
12      "§431:19-108  Examinations and investigations.(a)  The
 
13 commissioner or any examiner authorized by the commissioner may
 
14 conduct an examination of any captive insurance company as often
 
15 as the commissioner deems appropriate; provided that an
 
16 examination shall be conducted at least once every three years.
 
17 The commissioner or any authorized examiner shall thoroughly
 
18 inspect and examine the captive insurance company's affairs to
 
19 ascertain its financial condition, its ability to fulfill its
 
20 obligations, and whether it has complied with this article.
 
21      (b)  The powers, authorities, and duties relating to
 
22 examinations vested in and imposed upon the commissioner under
 
23 section 431:2-301 through section 431:2-307.5 of the code are
 

 
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 1 extended to and imposed upon the commissioner in respect to
 
 2 examinations of captive insurance companies.
 
 3      (c)  All examination reports conducted by the commissioner,
 
 4 or a designated agent of the commissioner, of any pure captive
 
 5 insurance company shall remain confidential unless the
 
 6 commissioner determines that the pure captive insurance company
 
 7 is in an adverse financial condition and the commissioner
 
 8 reasonably believes that the interest of the public necessitates
 
 9 the opening of the information contained in the examination
 
10 report for public inspection.
 
11      (d)  Each branch captive insurance company shall file
 
12 annually with the commissioner a certificate of compliance issued
 
13 by the insurance regulatory authority of the jurisdiction in
 
14 which the outside captive insurance company of the branch captive
 
15 insurance company is domiciled along with certified copies of any
 
16 examination reports conducted of the outside captive insurance
 
17 company by its domiciliary insurance regulator during the
 
18 preceding calendar year.  These filings shall be made with the
 
19 commissioner by March 1 of each year.  So long as the branch
 
20 captive insurance company complies with the requirements of this
 
21 subsection, and unless otherwise deemed necessary by the
 
22 commissioner, any examination of the branch captive insurance
 
23 company under this subsection shall be only with respect to the
 

 
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 1 business underwritten by the branch captive insurance company in
 
 2 this State.  If necessary, however, the commissioner may examine
 
 3 the outside captive insurance company of any branch captive
 
 4 insurance company licensed under this article."
 
 5      SECTION 8.  Section 431:19-115, Hawaii Revised Statutes, is
 
 6 amended by amending subsection (a) to read as follows:
 
 7      "(a)  No insurance laws of this State other than those
 
 8 contained in this article, or contained in specific references
 
 9 contained in this section or article, shall apply to captive
 
10 insurance companies formed under this article.
 
11      In addition to this article, article 1, article 2, part III
 
12 of article 3, article 4A, parts I and II of article 5, article 6,
 
13 article 11, and article 15 of this chapter shall apply to captive
 
14 insurance companies other than pure captive insurance
 
15 companies[,] and branch captive insurance companies, unless these
 
16 other laws are inconsistent with this article or the commissioner
 
17 by rule, regulation, or order determines, on a case by case basis
 
18 that these other laws should not apply thereto.
 
19      In addition to this article and the articles or portions
 
20 thereof referenced in this section, chapter 431K shall apply to
 
21 risk retention captive insurance companies licensed under this
 
22 article."
 

 
 
 
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 1      SECTION 9.  Statutory material to be repealed is bracketed.
 
 2 New statutory material is underscored.
 
 3      SECTION 10. This Act shall take effect upon its approval.