STAND. COM. REP. NO. 436________

                                 Honolulu, Hawaii
                                                   , 1999

                                 RE: H.B. No. 350
                                     H.D. 1




Honorable Calvin K.Y. Say
Speaker, House of Representatives
Twentieth State Legislature
Regular Session of 1999
State of Hawaii

Sir:

     Your Committee on Consumer Protection and Commerce, to which
was referred H.B. No. 350 entitled: 

     "A BILL FOR AN ACT RELATING TO THE GENERAL EXCISE TAXATION
     OF RECIPROCAL INSURERS AND THEIR ATTORNEYS-IN-FACT,"

begs leave to report as follows:

     The purpose of this bill is to resolve an ambiguity in
section 237-29.7, Hawaii Revised Statutes (HRS), by expressly
exempting from the application of the general excise tax law, the
income from the business of an attorney-in-fact on behalf of a
reciprocal insurer.

     Testimony supporting this measure was received from the
Department of Commerce and Consumer Affairs (DCCA), the Hawaii
Captive Insurance Council, and the Medical Insurance Exchange of
California.  The Department of Taxation submitted testimony in
opposition to this bill.

     DCCA testified that under State law, insurance companies
must be formed either as an incorporated stock insurer, an
incorporated mutual insurer, or a reciprocal insurer
(reciprocal).  The reciprocal differs from other insurers because
the law requires that it conduct its business through an
attorney-in-fact (attorney).  The reciprocal accordingly does not
have employees, but rather, reimburses its attorney for the cost
of operating the insurance company.  DCCA stated that like other
insurers, reciprocals pay premium taxes, but unlike other
insurers, the reciprocal is potentially subject to the general

 
 
                                 STAND. COM. REP. NO. 436________
                                 Page 2

 
excise tax because it is not clear whether the general excise tax
exemption for "insurance companies" in section 237-29.7, HRS,
includes the business conducted by an attorney on behalf of a
reciprocal.  DCCA testified that if reciprocals were found to be
subject to the general excise tax, this would place them at a
competitive disadvantage in the State's insurance marketplace and
might adversely affect existing businesses, as well as discourage
future job creation.  DCCA pointed out that this would be
contrary to the purpose of newly enacted amendments to the
captive insurance law, which were intended to allow and encourage
formation of captive insurance companies as reciprocals in the
State.

     Upon further consideration, your Committee concurs with
those supporting the measure.  Your Committee has also made
technical, nonsubstantive amendments for purposes of style,
clarity, and consistency.

     As affirmed by the record of votes of the members of your
Committee on Consumer Protection and Commerce that is attached to
this report, your Committee is in accord with the intent and
purpose of H.B. No. 350, as amended herein, and recommends that
it pass Second Reading in the form attached hereto as H.B. No.
350, H.D. 1, and be referred to the Committee on Finance.

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Consumer
                                   Protection and Commerce,



                                   ______________________________
                                   RON MENOR, Chair