REPORT TITLE:
Captive Insurance


DESCRIPTION:
Establishes a new category of captive insurance company for
reinsurers and excess insurers.  Clarifies financial reporting
requirements.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        3192
THE SENATE                              S.B. NO.           
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 or class 2
 
 6 company, and acts only as a reinsurer or excess insurer, or both.
 
 7 Notwithstanding any other provision of this article, a class 5
 
 8 company licensed under this article may reinsure or provide
 
 9 excess insurance, or both, for the risks and lines of insurance
 
10 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 risks of its parent and affiliated companies."
 
17      SECTION 3.  Section 431:19-101.3, Hawaii Revised Statutes,
 
18 is amended to read as follows:
 
19      "[[]§431:19-101.3[]]  Classes of captive insurance.  Each
 
20 captive insurance company formed under this article shall be
 
21 designated and licensed as one of the following classes of
 
22 captive insurance companies:
 
23      (1)  A class 1 company shall be limited to a pure captive
 

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

 
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 1           on a case by case basis, after giving due regard to the
 
 2           company's business plan, including the nature of the
 
 3           risks insured.
 
 4 The foregoing requirements do not limit the commissioner's
 
 5 discretionary authority to require a captive insurance company to
 
 6 possess and maintain a greater amount of capital or surplus in
 
 7 order to preserve the solvency of the company, nor do [such] the
 
 8 requirements limit or diminish any other applicable provision of
 
 9 law that may require a captive insurance company to maintain a
 
10 particular level of capital, surplus, assets, or investments." 
 
11      SECTION 5.  Section 431:19-107, Hawaii Revised Statutes, is
 
12 amended by amending subsections (a), (b), and (c) to read as
 
13 follows:
 
14      "(a)  Each [pure] captive insurance company, other than a
 
15 class 3 company, shall submit to the commissioner a statement of
 
16 financial condition written according to generally accepted
 
17 accounting principles and audited by an independent certified
 
18 public accountant on or before the last day of the sixth month
 
19 following the end of the company's fiscal year.
 
20      (b)  Each [captive insurance company that is not a pure
 
21 captive insurance] class 3 company shall annually file with the
 
22 commissioner the following:
 
23      (1)  Annual statement and audit:
 

 
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 1           (A)  On or before March 1, or such day subsequent
 
 2                thereto as the commissioner upon request and for
 
 3                cause may specify, an annual statement using the
 
 4                National Association of Insurance Commissioners'
 
 5                annual statement blank plus any additional
 
 6                information required by the commissioner, which
 
 7                shall be a true statement of its financial
 
 8                condition, transactions, and affairs as of the
 
 9                immediately preceding December 31.  The reported
 
10                information shall be verified by oaths of at least
 
11                two of the captive's principal officers;
 
12           (B)  On or before June 1, or such day subsequent
 
13                thereto as the commissioner upon request and for
 
14                cause may specify, an audit by a designated
 
15                independent certified public accountant or
 
16                accounting firm of the financial statements
 
17                reporting the financial condition and results of
 
18                the operation of the captive;
 
19           (C)  The annual statement and audit shall be prepared
 
20                in accordance with the National Association of
 
21                Insurance Commissioners' annual statement
 
22                instructions, following the practice and
 
23                procedures prescribed by the National Association
 

 
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 1                of Insurance Commissioners' practices and
 
 2                procedures manuals.  Each risk retention group
 
 3                shall also comply with section 431:3-302; and
 
 4      (2)  On or before each March 1, or such day subsequent
 
 5           thereto as the commissioner upon request and for cause
 
 6           may specify, a risk-based capital report in accordance
 
 7           with section 431:3-402; provided that class 3
 
 8           association captive insurance companies and class 4
 
 9           captive insurance companies shall not be required to
 
10           file their risk-based capital reports with the National
 
11           Association of Insurance Commissioners.
 
12      (c)  The statements required to be filed in subsections (a)
 
13 and (b) shall include but not be limited to actuarially
 
14 appropriate reserves for[:
 
15      (1)  Known claims and expenses associated therewith;
 
16      (2)  Claims incurred but not reported and expenses
 
17           associated therewith;
 
18      (3)  Unearned premiums; and
 
19      (4)  Bad debts, reserves for which shall be shown as
 
20           liabilities.]
 
21 the business underwritten.  An actuarial opinion regarding
 
22 reserves for [known claims and expenses associated therewith and
 
23 claims incurred but not reported and expenses associated
 

 
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 1 therewith] the business underwritten by the company shall be
 
 2 included in the audited statements, except that the actuarial
 
 3 opinion for [captive insurance companies other than pure captive
 
 4 insurance] class 3 companies shall be filed with the annual
 
 5 statement required under subsection (b), on or before March 1
 
 6 each year.  The actuarial opinion shall be given by a member of
 
 7 the American Academy of Actuaries or other qualified loss reserve
 
 8 specialist as defined in the annual statement adopted by the
 
 9 National Association of Insurance Commissioners."
 
10      SECTION 6.  Section 431:19-115, Hawaii Revised Statutes, is
 
11 amended by amending subsection (a) to read as follows:
 
12      "(a)  No insurance laws of this State other than those
 
13 contained in this article, or contained in specific references
 
14 contained in this section or article, shall apply to captive
 
15 insurance companies formed under this article.
 
16      In addition to this article, article 1, article 2, part III
 
17 of article 3, article 4A, parts I and II of article 5, article 6,
 
18 article 11, and article 15 of this chapter shall apply to captive
 
19 insurance companies other than pure captive insurance companies,
 
20 unless these other laws are inconsistent with this article or the
 
21 commissioner by rule, regulation, or order determines, on a case
 
22 by case basis that these other laws should not apply thereto.
 
23      In addition to this article, and except as otherwise
 

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