REPORT TITLE:
Captive Insurance


DESCRIPTION:
Provides for the establishment of class 5 captive insurance
companies as reinsurance or excess insurance companies.  (HB2983
HD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        2983
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 1        
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 to be appropriately
 
 3 designated and to read as follows:
 
 4      "§431:19-     Class 5 companies.  (a)  A class 5 company
 
 5 under this article is one which is not a class 1, class 2, class
 
 6 3, or class 4 insurance company, and which acts only as a
 
 7 reinsurer, or an excess insurer, or both.  Notwithstanding any
 
 8 other provision of this article, a class 5 company licensed under
 
 9 this article may reinsure or provide excess insurance or both for
 
10 such risks and lines of insurance, as may be approved by the
 
11 commissioner.
 
12      (b)  Notwithstanding section 431:19-107(a), reserves for
 
13 non-United States risks reinsured or insured by a class 5
 
14 company, upon approval of the commissioner, may be determined in
 
15 accordance with the required or approved reserve standards of the
 
16 country in which the ceding insurer is domiciled or the excess
 
17 insurance risks are located.
 
18      (c)  Notwithstanding article 6 and section 431:19-110, where
 
19 the risks reinsured or insured by a class 5 company are non-
 

 
Page 2                                                     2983
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 United States risks, the class 5 company, with the approval of
 
 2 the commissioner, may invest its funds in accordance with the
 
 3 applicable laws and regulations which apply to insurers or
 
 4 reinsurers in the non-United States jurisdictions in which those
 
 5 risks are located, in proportion to the reserves held for those
 
 6 risks."
 
 7      SECTION 2.  Section 431:19-101, Hawaii Revised Statutes, is
 
 8 amended by amending the definitions of "captive insurance
 
 9 company" and "pure captive insurance company" to read as follows:
 
10      ""Captive insurance company" means [any pure captive
 
11 insurance company, risk retention captive insurance company,
 
12 association] a class 1, class 2, class 3, class 4, or class 5
 
13 captive insurance company[, or leased capital facility] formed or
 
14 licensed under this article."
 
15      ""Pure captive insurance company" means any company that
 
16 only insures and/or reinsures risks of its parent and affiliated
 
17 companies."
 
18      SECTION 3.  Section 431:19-101.3, Hawaii Revised Statutes,
 
19 is amended to read as follows:
 
20      "[[]§431:19-101.3[]]  Classes of captive insurance.  Each
 
21 captive insurance company formed under this article shall be
 
22 designated and licensed as one of the following classes of
 
23 captive insurance companies:
 

 
Page 3                                                     2983
                                     H.B. NO.           H.D. 1
                                                        
                                                        

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

 
Page 4                                                     2983
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (5)  Class 5:  Such amount as may be determined by the
 
 2           commissioner on a case-by-case basis, after giving due
 
 3           regard to the company's business plan, including the
 
 4           nature of the risks insured.
 
 5 The foregoing requirements do not limit the commissioner's
 
 6 discretionary authority to require a captive insurance company to
 
 7 possess and maintain a greater amount of capital or surplus in
 
 8 order to preserve the solvency of the company, nor do such
 
 9 requirements limit or diminish any other applicable provision of
 
10 law that may require a captive insurance company to maintain a
 
11 particular level of capital, surplus, assets, or investments."
 
12      SECTION 5.  Section 431:19-107, Hawaii Revised Statutes, is
 
13 amended by amending subsection (c) to read as follows:
 
14      "(c)  The statements required to be filed in subsections (a)
 
15 and (b) shall include but not be limited to actuarially
 
16 appropriate reserves for[:
 
17      (1)  Known claims and expenses associated therewith;
 
18      (2)  Claims incurred but not reported and expenses
 
19           associated therewith;
 
20      (3)  Unearned premiums; and
 
21      (4)  Bad debts, reserves for which shall be shown as
 
22           liabilities.] the business underwritten.
 

 
 
 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 An actuarial opinion regarding reserves for [known claims and
 
 2 expenses associated therewith and claims incurred but not
 
 3 reported and expenses associated therewith] the business
 
 4 underwritten by the company shall be [included in] submitted with
 
 5 the audited financial statements[, except that the actuarial
 
 6 opinion for captive insurance companies other than pure captive
 
 7 insurance companies shall be filed with the annual statement
 
 8 required under subsection (b), on or before March 1 each year.
 
 9 The actuarial opinion shall be given by a member of the American
 
10 Academy of Actuaries or other qualified loss reserve specialist
 
11 as defined in the annual statement adopted by the National
 
12 Association of Insurance Commissioners].  The actuarial opinion
 
13 relating to all captive insurance companies shall be prepared by
 
14 a member of the American Academy of Actuaries or other qualified
 
15 loss reserve specialist as may be deemed appropriate by the
 
16 commissioner, except that in the case of class 3 captive
 
17 insurance companies, the qualified loss reserve specialist shall
 
18 be as defined in the annual statement adopted by the National
 
19 Association of Insurance Commissioners."
 
20      SECTION 6.  Section 431:19-115, Hawaii Revised Statutes, is
 
21 amended by amending subsection (a) to read as follows:
 
22      "(a)  No insurance laws of this State other than those
 
23 contained in this article, or contained in specific references
 

 
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                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 contained in this section or article, shall apply to captive
 
 2 insurance companies formed under this article.
 
 3      In addition to this article, article 1, article 2, part III
 
 4 of article 3, article 4A, parts I and II of article 5, article 6,
 
 5 article 11, and article 15 [of this chapter] shall apply to
 
 6 captive insurance companies other than pure captive insurance
 
 7 companies, unless these other laws are inconsistent with this
 
 8 article or the commissioner by rule[, regulation,] or order
 
 9 determines, on a case by case basis, that these other laws should
 
10 not apply thereto.
 
11      In addition to this article, and except as otherwise
 
12 provided in this article, articles 1, 2, 6, 11, and 15 shall
 
13 apply to class 5 companies, unless these other laws are
 
14 inconsistent with this article or the commissioner by rule or
 
15 order determines, on a case by case basis, that these other laws
 
16 should not apply thereto.
 
17      In addition to this article and the articles or portions
 
18 thereof referenced in this section, chapter 431K shall apply to
 
19 risk retention captive insurance companies licensed under this
 
20 article."
 
21      SECTION 7.  Statutory material to be repealed is bracketed.
 
22 New statutory material is underscored.
 
23      SECTION 8.  This Act shall take effect upon its approval.