Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-First State Legislature

Regular Session of 2001

State of Hawaii

Sir:

Your Committee on Consumer Protection and Commerce, to which was referred H.B. No. 1243 entitled:

begs leave to report as follows:

The purpose of this measure is to amend the captive insurance laws by allowing one or more sponsors to form a leased capital facility to only ensure the risks of its participants and no one else.

Specifically, this measure requires the risks of the participants to be insured through participant contracts that segregate each participant or related participant's liabilities through one or more protected cells. In other words, this measure requires that within each protected cell, the leased capital facility must only insure the risks of the participant or participants within the protected cell. This bill further specifies that participants within a protected cell must be partners, joint venturers, or entities within the same corporate family.

Furthermore, this measure installs various safeguards to protect the public interest, including public filing of business plans, contracts, and financial reports, the Insurance Commissioner's prior written approval for participant contracts, the Commissioner's approval for transfers of assets or liabilities from a protected cell to a sponsor or participant, separate accounting for each protected cell within a leased capital facility, the establishment of adequate reserves, notification to the Commissioner of a protected cell's insolvency or financial impairment, and disclosures from the leased capital facility to the protected cell.

Your Committee finds that this measure will provide existing and prospective captive organizers in Hawaii with another innovative yet prudent approach to financing their domestic and international risks. Specifically, this measure will primarily benefit smaller insureds who want to participate in the benefits of a captive but do not have the resources to operate a captive exclusively for themselves. The segregation of assets and liabilities in a captive, known as protected cell captives, are currently allowed in jurisdictions that are Hawaii's major competitors for the captive insurance business. Thus, this measure will enable Hawaii to keep abreast of industry developments and remain competitive in the business.

Testimony in favor of this measure was received from the Insurance Division and several private entities representing or serving captive insurers. No testimony was received in opposition to this measure.

Your Committee has amended this measure by making technical, nonsubstantive amendments to the amended definition of "leased capital facility" for the purposes of clarity and style.

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. 1243, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 1243, H.D. 1, and be referred to the Committee on Finance.