HB999 HD1.DOC

SECTION 1. Section 431:19-111, Hawaii Revised Statutes, is amended to read as follows:

"§431:19-111 Reinsurance. (a) Any captive insurance company may provide reinsurance on risks ceded by any other insurer only upon approval of the reinsurance agreement by the commissioner.

(b) Any captive insurance company may take credit for reserves on risks ceded to a reinsurer; provided that no captive insurance company shall cede risks without the approval of the commissioner.

(c) A risk retention group shall not receive statement credit if all, or a portion, of the risk retention group's policies are ceded through reinsurance arrangements, as determined by the commissioner.

(d) Credit for reinsurance shall be permitted if the reinsurer complies with the applicable provisions of article 4A.

(e) Credit for reinsurance may be permitted if:

(1) The reinsurer:

(A) Maintains an A- or higher A.M. Best rating, or other comparable rating from a nationally recognized statistical rating organization;

(B) Maintains a minimum policyholder surplus in an amount acceptable to the commissioner, based upon a review of the reinsurer's most recent audited financial statements; and

(2) The reinsurer satisfies all of the following requirements and any other requirements deemed necessary by the commissioner:

(A) The captive manager or risk retention group licensed as a captive insurer files the reinsurer's audited financial statements annually, on or before June 30, at the request of the commissioner, or more often at the option of the captive manager or risk retention group; provided that the financial statements shall be analyzed by the commissioner to assess the appropriateness of the reserve credit or the initial and continued financial condition of the reinsurer;

(B) The reinsurer demonstrates to the satisfaction of the commissioner that the reinsurer maintains a ratio of net written premium to surplus and capital of not more than three to one, regardless of where written;

(C) A reinsurer affiliated with the ceding risk retention group does not directly write third‑party business without obtaining prior written approval from the commissioner;

(D) The reinsurer does not use cell arrangements without obtaining prior written approval from the commissioner;

(E) The reinsurer is licensed and domiciled in a jurisdiction acceptable to the commissioner; and

(F) The reinsurer submits to the examination authority of the commissioner.

(f) The commissioner shall require a reinsurer not domiciled in the United States to include language in the reinsurance agreement that states that, if the reinsurer fails to perform its obligations under the terms of a reinsurance agreement, the reinsurer shall submit to the jurisdiction of any court of competent jurisdiction in the United States.

(g) For credit for reinsurance and solvency regulatory purposes, the commissioner may require an approved funds‑held agreement, letter of credit, trust, or other acceptable collateral based upon unearned premium, loss and unpaid loss and loss adjustment expense reserves, and losses incurred but not reported.

(h) Upon application, the commissioner may waive the reinsurance requirements in subsection (e)(2)(B) or (e)(2)(F) if the risk retention group licensed as a captive insurer or reinsurer can demonstrate to the commissioner that:

(1) The reinsurer is sufficiently capitalized based upon an annual review of the reinsurer's most recent audited financial statements;

(2) The reinsurer is licensed and domiciled in a jurisdiction satisfactory to the commissioner; and

(3) The proposed reinsurance agreement adequately protects the risk retention group licensed as a captive insurer and its policyholders.

This waiver shall be included in the plan of operation, or any subsequent revision or amendment of the plan, pursuant to Section 3902(d)(1) of the federal Liability Risk Retention Act of 1986, and the plan shall be submitted by the risk retention group licensed as a captive to the commissioner of each state in which the risk retention group licensed as a captive intends to do business or is currently registered.

(i) Upon application, the commissioner may waive all of the requirements of subsection (e)(2) if the risk retention group licensed as a captive insurer or reinsurer demonstrates to the satisfaction of the commissioner that:

(1) The reinsurer is sufficiently capitalized based upon an annual review of the reinsurer's most recent audited financial statements;

(2) The reinsurer is licensed and domiciled in a jurisdiction satisfactory to the commissioner; and

(3) The proposed reinsurance agreement adequately protects the risk retention group licensed as a captive insurer and its policyholders.

This waiver shall be disclosed in the first note of the risk retention group's annual statutory financial statement.

(j) Any waiver of a requirement under subsection (e)(2) constitutes a change in the risk retention group's plan of operation in each state in which the risk retention group licensed as a captive intends to do business or is currently registered."

SECTION 2. Within sixty days of the effective date of this Act, any approved captive manager or risk retention group licensed as a captive insurer shall make an assessment of the risk retention groups licensed as captives under their management and submit a written report to the insurance commissioner indicating whether the risk retention groups are in compliance with this Act.

Any risk retention group licensed as a captive insurer that fails to submit the report in a timely manner shall be examined, at the risk retention group's expense, to determine compliance with this Act.

SECTION 3. Upon satisfactory demonstration to the insurance commissioner that a delay of implementation will not cause a hazardous financial condition or potential harm to its member policyholders, risk retention groups licensed as captive insurers that require additional time to comply with this Act shall be permitted to take credit for reinsurance for risks ceded to reinsurers not in compliance with this Act for a period not to exceed twelve months from the effective date of this Act.

SECTION 4. New statutory material is underscored.

SECTION 5. This Act shall take effect on July 1, 2013.

HOUSE OF REPRESENTATIVES	H.B. NO.	999
TWENTY-SEVENTH LEGISLATURE, 2013		H.D. 1
STATE OF HAWAII