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HOUSE OF REPRESENTATIVES |
H.B. NO. |
2503 |
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TWENTY-SIXTH LEGISLATURE, 2012 |
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STATE OF HAWAII |
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A BILL FOR AN ACT
RELATING TO CAPTIVE INSURANCE COMPANIES.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. Chapter 431, Hawaii Revised Statutes, is amended by adding to part I of article 19 two new sections to be appropriately designated and to read as follows:
"§431:19-A Rules for controlled unaffiliated business. The commissioner may adopt rules pursuant to chapter 91 establishing standards to ensure that a parent or its affiliated entity is able to exercise control of the risk management function of any controlled unaffiliated business to be insured or reinsured by a pure captive insurance company; provided that, until such time as rules under this section are adopted, the commissioner may approve the coverage of such risks by a pure captive insurance company.
§431:19-B Applicability of other laws to captive insurance companies writing direct workers' compensation insurance policies. Captive insurance companies writing direct workers' compensation insurance policies shall be subject to article 15 and chapter 386. Captive insurance companies writing direct workers' compensation insurance policies shall also be subject to the rules adopted, pursuant to chapter 91, by the commissioner to implement this section."
SECTION 2. Section 431:19-101, Hawaii Revised Statutes, is amended as follows:
(1) By adding nine new definitions to be appropriately inserted and to read as follows:
""Administrator" means the captive insurance administrator established in section 431:19-101.5.
"Class 1 company" means a pure captive insurance company that is designated and licensed in this State to only write business as a reinsurer in this State.
"Class 2 company" means a pure captive insurance company that is designated and licensed in this State to write business as a direct insurer, or as a direct insurer and reinsurer.
"Class 3 company" means an association captive insurance company or risk retention captive insurance company that is designated and licensed in this State.
"Class 4 company" means a sponsored captive insurance company that is designated and licensed in this State.
"Class 5 company" means a reinsurance or excess insurance company that is a captive insurance company designated and licensed in this State pursuant to section 431:19-111.5.
"Controlled unaffiliated business" means, in the case of a pure captive insurance company, any person:
(1) That is not in the corporate system of a parent and its affiliated entities;
(2) That has an existing contractual relationship, or other direct or indirect relationship, with a parent or one of its affiliated entities; and
(3) Whose risks are managed by the pure captive insurance company in accordance with section 431:19-A.
"Governing body" means the board of directors, subscriber's advisory committee, membership, or other entity responsible for the governance of a captive insurance company.
"Organizational document" means a captive insurance company's articles of association, articles of incorporation, articles of organization, subscribers' agreement, bylaws, operating agreement, or any other document that establishes the captive insurance company as a legal entity or prescribes its existence."
(2) By amending the definitions of "affiliated entity", "association", "association captive insurance company", "captive insurance company", "outside captive insurance company", "participant", "protected cell", "pure captive insurance company", "risk retention captive insurance company", and "sponsored captive insurance company" to read as follows:
""Affiliated
entity" means any company, person, or other entity in the same corporate
system as a parent or a member organization by virtue of common ownership,
control, operation, or management[, or, in the case of a pure captive
insurance company, whose risks insured by the pure captive insurance company
are directly or indirectly controlled by the parent or an affiliate of the
parent of a pure captive insurance company].
"Association" means any legal association of individuals, corporations, limited liability companies, partnerships, associations, or other entities, except labor organizations, the member organizations of which or which does itself, whether or not in conjunction with some or all of the member organizations:
(1) Own, control, or hold with power to vote all of the outstanding voting securities of an association captive insurance company incorporated as a stock insurer;
(2) Have complete voting
control over an association captive insurance company incorporated as a mutual
insurer; [or]
(3) Constitute all of
the subscribers of an association captive insurance company formed as a
reciprocal insurer[.]; or
(4) Have complete voting control over an association captive insurance company formed as a limited liability company.
"Association
captive insurance company" means [any] a captive insurance
company that insures risks of the member organizations of the association, and
[their] that may also insure the risks of affiliated [companies.]
entities of the member organizations and the risks of the association
itself.
"Captive
insurance company" means a class 1[,] company, class 2[,]
company, class 3[,] company, class 4[,] company,
or class 5 [captive insurance] company formed or authorized under this
article.
"Outside
captive insurance company" means an insurance company licensed under the
laws of a jurisdiction other than this State and not otherwise admitted to do
business as an insurance company in this State, that insures the risks of its
parent or any affiliated [companies.] entities.
"Participant"
means an entity that meets the requirements of section 431:19-305, and any [affiliates]
affiliated entities thereof that are insured by a sponsored captive
insurance company where the losses of the participant may be limited through a
participant contract to the participant's pro rata share of the assets of one
or more protected cells identified in the participant contract.
"Protected
cell" means a separate account established by a sponsored captive
insurance company formed or licensed under this [part] article in
which assets are maintained for one or more participants in accordance with the
terms of one or more participant contracts to fund the liability of the
sponsored captive insurance company assumed on behalf of the participants as
set forth in the participant contracts.
"Risk
retention captive insurance company" means a captive insurance company [which]
that is formed as a "risk retention group" as defined in
chapter 431K.
"Sponsored
captive insurance company" means [any] a captive insurance
company [in]:
(1) In
which the minimum required capital and surplus is provided by one or more
sponsors [and];
(2) That
is formed or licensed under this article[. A sponsored captive insurance
company];
(3) That
insures the risks only of its participants through separate participant
contracts; and [may fund]
(4) That may fund its liability to each participant through one or more protected cells. A sponsored captive insurance company segregates the assets of each protected cell from the assets of other protected cells and from the assets of the sponsored captive insurance company's general account."
SECTION 3. Section 431:19-101.2, Hawaii Revised Statutes, is amended to read as follows:
"§431:19-101.2
Confidential treatment. (a) Except as otherwise provided in [subsection
(b),] this section, all nonpublic information in a captive insurance
company's application for licensure, its business plan, or of its parent or the
parent's member organizations, and all other nonpublic information disclosed to
the commissioner pursuant to this article, shall be given confidential
treatment and shall not be made public by the commissioner.
(b) If the commissioner determines that the interest of the policyholders, shareholders, or the public will be served by making the information public, then after giving the captive insurance company and its parent or the parent's member organizations that would be affected thereby, three days written notice of intent, and unless otherwise contrary to law, the commissioner may make public all or any part of the nonpublic information in a manner that the commissioner deems appropriate; provided that the commissioner may disclose nonpublic information to courts of competent jurisdiction, and insurance departments or regulatory agencies of other competent jurisdictions without prior notification to the person to whom the information pertains.
(c) This section shall not apply to risk retention captive insurance companies. The confidentiality provisions of section 431:2-209 shall apply to risk retention captive insurance companies.
[(c)] (d)
For purposes of this section:
"Equity securities" means:
(1) A share in a corporation, whether or not transferable or denominated a "stock", or similar security evidencing an ownership interest in the person;
(2) The interest of a limited partner in a limited partnership;
(3) The interest of a partner in a partnership, including a joint venture; or
(4) A warrant or right, other than a right to convert, to purchase, sell, or subscribe to a share, security, or interest of a kind specified in paragraph (1), (2), or (3).
"Nonpublic information" means information that, prior to disclosure to the commissioner pursuant to this article is, or was:
(1) Not a public record as defined in rule 1001(5) of section 626-1; or
(2) Not a government record that must be disclosed under section 92F-12;
provided that in the case of a person whose equity securities are collectively owned and held by thirty-six or more persons, "nonpublic information" does not include financial information disclosed to owners and holders of equity securities."
SECTION 4. Section 431:19-101.5, Hawaii Revised Statutes, is amended to read as follows:
"§431:19-101.5
Captive insurance administrator. [(a)] There shall
be established within the [office of the commissioner,] insurance
division a captive insurance administrator, who shall be solely responsible
for assisting the commissioner in [the] monitoring, [regulation, and
development of] regulating, and developing captive insurance
companies under this article. The commissioner, with the approval of the
director of commerce and consumer affairs, shall appoint the administrator who
shall be designated as a deputy commissioner and shall be exempt from chapter
76, notwithstanding section 431:2-105(b)[.] to the contrary.
The administrator shall serve at the pleasure of the director of commerce and
consumer affairs and shall report directly to the commissioner.
[(b)
"Administrator", where used in this article, means the captive
insurance administrator.]"
SECTION 5. Section 431:19-101.8, Hawaii Revised Statutes, is amended as follows:
(1) By amending subsection (a) to read as follows:
"(a) The
commissioner may establish a separate fund designated as the captive insurance
administrative fund to be expended by the commissioner to carry out the
commissioner's duties and obligations under this article [19 of
chapter 431]."
(2) By amending subsection (d) to read as follows:
"(d) Sums
from the fund expended by the commissioner shall be used to defray any
administrative costs, including personnel costs[,] associated with the
captive programs of the insurance division, and costs incurred by
supporting offices, branches, divisions, and departments. [Any] Notwithstanding
any law to the contrary [notwithstanding], the commissioner may use
the moneys in the fund to employ or retain, by contract or otherwise[,] and
without regard to chapter 76, hearings officers, attorneys, investigators,
accountants, examiners, and other necessary professional, technical, and
support personnel to implement and carry out the purposes of this
article [19 of chapter 431]; provided that any position, except any
attorney position, that is subject to chapter 76 prior to July 1, 1999, shall
remain subject to chapter 76."
SECTION 6. Section 431:19-102, Hawaii Revised Statutes, is amended by amending subsections (a) through (f) to read as follows:
"(a) [Any
captive insurance company, when] When permitted by an applicant
captive insurance company's [its articles of association, articles of
incorporation, articles of organization, or other] organizational [document,]
documents, the applicant captive insurance company may apply to the
commissioner for a certificate of authority to do any and all insurance set
forth in subsection (h); provided that:
(1) No pure captive
insurance company may insure or reinsure any risks other than those of
its parent [and], affiliated entities[;], and
controlled unaffiliated businesses;
(2) No association
captive insurance company may insure any risks other than those of [the
member organizations of its association and their affiliated entities;] its
association, those of the member organizations of its association, and those of
a member organization's affiliated entities;
(3) [No] Unless
otherwise allowed under section 431:19-102.2, no captive insurance company
may provide personal motor vehicle or homeowner's insurance coverage or any
component thereof, other than as [employee]:
(A) Employee
benefits for the employees of a parent, association, or its members, and their
respective affiliated entities; or [as reinsurance]
(B) Reinsurance as may be allowed under this article; and
(4) No captive insurance company may accept or cede insurance except as provided in section 431:19-111.
(b) No captive insurance company shall do any insurance business in this State unless:
(1) It first obtains from the commissioner a certificate of authority authorizing it to do insurance business in this State;
(2) Its [board of
directors, subscribers' advisory committee, or other] governing body holds
at least one meeting each year in this State;
(3) It maintains its principal place of business and registered office in this State, except that a branch captive insurance company need only maintain the principal place of a business unit in this State; and
(4) It designates a registered resident agent in accordance with chapter 414, 414D, or 428, as applicable, to accept service of process and to otherwise act on its behalf in this State. Whenever the registered resident agent cannot, with reasonable diligence, be found at the registered office of the captive insurance company, the commissioner shall be an agent of the captive insurance company upon whom any process, notice, or demand may be served in accordance with section 431:2-206.
(c) Before [receiving]
an applicant captive insurance company receives a certificate of
authority, [a captive insurance company] the applicant captive
insurance company shall file with the commissioner:
(1) A certified copy
of its organizational documents[, including but not limited to its articles
of incorporation, articles of association, bylaws, subscribers' agreement,
articles of organization, and operating agreement, as applicable];
(2) A statement under oath of:
(A) Any two of its principal officers;
(B) Its attorney-in-fact in the case of a captive insurance company formed as a reciprocal insurer; or
(C) The duly authorized representative of its governing body,
showing its financial condition; and
(3) Any other statements or documents required by the commissioner.
(d) In addition to the information required by subsection (c), each applicant captive insurance company shall file with the commissioner evidence of the following:
(1) The amount and liquidity of its assets relative to the risks to be assumed;
(2) The adequacy of the expertise, experience, and character of the person or persons who will manage it;
(3) The overall
soundness of its plan of operation[;], including the net retained
risk on any one subject of insurance;
(4) The adequacy of the loss prevention programs of its parent or member organizations as applicable; and
(5) Any other factors deemed relevant by the commissioner in ascertaining whether the proposed captive insurance company will be able to meet its policy obligations.
(e) Each [captive
insurance company applying for a certificate of authority under this article]
applicant captive insurance company shall pay to the commissioner a
nonrefundable application fee for examining, investigating, and
processing its application for the certificate of authority. [In addition,
each captive insurance company receiving a] Upon approval of the
application for the certificate of authority, the applicant captive insurance
company shall pay to the commissioner a license fee for the certificate of
authority [from the commissioner shall pay an annual fee therefor for
the year of registration and for each annual renewal thereafter]. Thereafter,
the captive insurance company shall pay to the commissioner an annual renewal
fee. The amount of the nonrefundable application fee [and the
annual certificate of authority fee], license fee, and renewal fee
shall be set forth in rules adopted by the commissioner. In addition, the
commissioner may adopt rules with respect to fees for the issuance of other
documents as may be deemed necessary or requested by captive insurance
companies.
(f) The
commissioner may use independent advisors and consultants to assist in the
review and analysis of a specific application or business plan amendment.
The independent advisory and consulting fee, to be paid by the [captive]
applicant[,] captive insurance company, shall be a reasonable fee
authorized by the commissioner pursuant to section 431:19‑114."
SECTION 7. Section 431:19-102.2, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:
"(a) [Notwithstanding
the provisions of section 431:19-102(a), a] A captive insurance
company may be licensed to provide personal lines coverage for unrelated risks
if the commissioner deems that extraordinary circumstances exist [which make
the provision of this] whereby coverage [by a captive insurance
company] would be appropriate and in the best interest of the
public. In determining whether [such] extraordinary circumstances
exist, the commissioner shall consider the following factors:
(1) The extent to which the particular coverage is available in the voluntary market;
(2) The existence of a relationship between the parent of the captive insurance company and the proposed policyholders other than that of insurer to insured;
(3) Whether the captive insurance company has sufficient capitalization to insure the proposed risks; and
(4) Any other factors
[which] the commissioner deems appropriate."
SECTION 8. Section 431:19-102.3, Hawaii Revised Statutes, is amended to read as follows:
"§431:19-102.3 Redomestication; approval as a domestic captive insurer. (a) Any foreign or alien captive insurance company may become a domestic captive insurance company by meeting the following requirements:
(1) [Compliance]
Comply with all of the requirements relating to the organization and
licensing of a domestic captive insurance company of the same type, and any
requirements that the commissioner may adopt by rule;
(2) [The articles
of incorporation or other] Amend and restate its organizational [document
shall be amended] documents in compliance with the laws of this
State [and restated in its entirety before submission to the commissioner.
Before the amended and restated articles of incorporation or other
organizational document is transmitted to the department of commerce and
consumer affairs, the foreign or alien captive insurance company shall petition],
and submit the amended and restated organizational documents for the
commissioner's review; and
(3) Petition
the commissioner to issue a certificate [setting] of general good,
which sets forth the commissioner's finding that the redomestication and
maintenance of the company will promote the general good of the State. In
arriving at the finding, the commissioner shall consider the factors set forth
in section 431:19-106(b)[;].
[(3) The]
(b) Upon issuance of the certificate of general good by the commissioner pursuant
to subsection (a)(3), the foreign or alien captive insurance company shall file
the following [shall be transmitted to] with the department
of commerce and consumer affairs [for filing]:
[(A)] (1)
Articles of redomestication[;], which shall set forth the following:
(A) Name of the company;
(B) Date and location of incorporation or organization;
(C) Street address of the principal office in this State;
(D) Names and titles of the:
(i) Officers and directors of the company; or
(ii) Members of the governing body;
(E) A statement that the company is moving its domicile from its present state or country to this State;
(F) A statement that redomestication will occur upon filing the articles of redomestication and that the company shall be subject to the laws of this State; and
(G) A statement that copies of the articles of incorporation or other organizational document and any amendments certified by the proper officer of the state or country under the laws of which the company is incorporated or organized are attached; provided that if any of these documents are in a foreign language, a translation under oath of the translator shall accompany these documents;
[(B)] (2)
Certificate of general good issued [by the commissioner;] pursuant to
subsection (a)(3);
[(C)] (3)
Certificate of good standing or comparable documentation [duly authenticated]
certified by the proper officer of the [state or country] jurisdiction
under [the laws of] which the foreign or alien captive insurance company
is [incorporated;] incorporated or organized; provided that:
[(i)] (A)
The certificate or documentation shall be dated not earlier than thirty days
prior to the [filing of the articles of redomestication;] date of the
certificate of general good; and
[(ii)] (B)
If the certificate of good standing or documentation is in a foreign language,
a translation under oath of the translator shall accompany the certificate or
documentation;
[(D) Amendments
to the articles of incorporation or other organizational document in compliance
with the laws of this State;
(E) Restatement
of the articles of incorporation or other organizational document in its
entirety; and
(F) Organization
fee; and
(4) The
articles of redomestication shall set forth the following:
(A) Name
of the company;
(B) Date
and location of incorporation or organization;
(C) Street
address of the principal office in this State;
(D) Names
and titles of the:
(i) Officers
and directors of the company; or
(ii) Members
of the governing body;
(E) A
statement that the company is moving its domicile from its present state or
country to this State;
(F) A
statement that redomestication will occur upon filing the articles of
redomestication and that the company shall be subject to the laws of this
State; and
(G) A
statement that copies of the articles of incorporation or other organizational
document and any amendments certified by the proper officer of the state or
country under the laws of which the company is incorporated or organized are
attached; provided that if any of these documents are in a foreign language, a
translation under oath of the translator shall accompany these documents].
(4) The company's organizational documents, which shall be amended and restated in compliance with the laws of this State; and
(5) Nonrefundable application fee.
[(b) The]
(c) Upon payment of the license fee and annual renewal fees, the
domestic captive insurance company shall be entitled to the necessary or
appropriate certificates and licenses to do business in this State and shall be
subject to the authority and jurisdiction of this State. No captive insurance
company redomesticating into this State need merge, consolidate, transfer
assets, or otherwise engage in any other reorganization, other than as
specified in this section.
[(c)] (d)
Upon redomestication in accordance with this section, the foreign or alien
captive insurance company shall become a domestic captive insurance company
organized under the laws of this State and shall have all the rights,
privileges, immunities, and powers and be subject to all applicable laws,
duties, and liabilities of a domestic captive insurance company of the same
type. The domestic captive insurance company shall possess all rights
that it had prior to the redomestication to the extent permitted by the laws of
this State and shall be responsible and liable for all the liabilities and
obligations that it was subject to prior to the redomestication. All
outstanding policies of the captive insurance company shall remain in full
force and effect."
SECTION 9. Section 431:19-102.4, Hawaii Revised Statutes, is amended by amending subsections (b) through (d) to read as follows:
"(b) Before
transferring its domicile to any other jurisdiction and before the notice of
change in domicile is transmitted to the department of commerce and consumer
affairs, the domestic captive insurance company shall [deliver to the
commissioner a notice of intent to transfer, along with payment of] submit
a written request to the commissioner to redomesticate to another jurisdiction
and a transfer fee of $300[, and petition the commissioner to issue a
certificate of transfer].
(c) [The
notice of change in domicile, the certificate of transfer issued by the
commissioner, the proof of redomestication,] Upon approval of the
written request to redomesticate pursuant to subsection (b), the commissioner
shall issue a certificate of transfer. The domestic captive insurance company
shall submit the certificate of transfer, a notice of change of domicile,
and the filing fee [shall be transmitted] to the department of commerce
and consumer affairs. The notice of change in domicile shall set forth
the following:
(1) Name of the company;
(2) Dates that notice of the company's intent to transfer domicile from this State was published pursuant to the publication requirements of section 1-28.5;
(3) Date of the transfer of its domicile; and
(4) State or country to which its domicile will be transferred.
(d) [Upon
any transfer authorized pursuant to this section, the captive insurance company
shall cease to be domiciled in this State, and its corporate or other legal
existence in this State shall cease upon the issuance of a certificate of
discontinuance by the department of commerce and consumer affairs; provided
that at the time of issuance of the certificate of discontinuance, the captive
insurance company shall pay a certificate fee in accordance with chapter 414.]
Upon meeting the requirements of subsection (c) and upon the issuance of a
certificate of discontinuance by the department of commerce and consumer
affairs, the captive insurance company shall cease to be domiciled in this
State, and its corporate or other legal existence in this State shall cease.
The captive insurance company shall pay a certificate fee at the time the
certificate of discontinuance is issued in accordance with chapter 414."
SECTION 10. Section 431:19-104, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:
"(a) Each captive insurance company licensed pursuant to this article shall possess and thereafter maintain unimpaired capital and surplus in the amount established by the commissioner; provided that:
(1) The commissioner shall take into account the nature and volume of business transacted by each captive insurance company, and any other factors deemed appropriate by the commissioner;
(2) Class 3 [captive
insurance] companies shall be subject to other applicable provisions of
this chapter that may require capital and surplus in excess of those
established by the commissioner; and
(3) Minimum capital and surplus established by the commissioner shall be no less than the following amounts:
(A) Class 1[:]
company: $100,000;
(B) Class 2[:]
company: $250,000;
(C) Class 3[:]
company: $500,000;
(D) Class 4[:]
company: $500,000; and
(E) Class 5[:]
company: An amount as determined by the commissioner on a case by case
basis."
SECTION 11. Section 431:19-106, Hawaii Revised Statutes, is amended by amending subsection (e) to read as follows:
"(e) Captive insurance companies formed under this article shall have the privileges and be subject to the general corporation law, nonprofit corporation law, or limited liability company law of this State as may be applicable, as well as this article. In the event of conflict between any of the foregoing applicable laws of this State and this article, this article shall control."
SECTION 12. Section 431:19-106.5, Hawaii Revised Statutes, is amended by amending subsections (b) and (c) to read as follows:
"(b) A plan of conversion or merger shall be submitted to and be approved by the commissioner in advance of the proposed conversion or merger. The commissioner shall not approve the plan unless:
(1) The commissioner finds that it is fair, equitable, and consistent with law;
(2) The plan has been
approved[:
(A) In
the case of a stock corporation, by at least two-thirds of the shares entitled
to vote at a duly called regular or special meeting of the shareholders at
which a quorum is present, or by unanimous written consent of the shareholders;
(B) In
the case of a mutual insurer, by at least two-thirds
of the voting interest of the members of the mutual insurer at a duly called
regular or special meeting of the membership at which a quorum is present, or
by unanimous written consent of the members of the mutual insurer;
(C) In
the case of a reciprocal insurer, by at least two-thirds of the voting interest
of the subscribers of the reciprocal insurer at a duly called meeting of the
subscribers of the reciprocal insurer, or by unanimous written consent of the
subscribers;
(D) In
the case of a nonprofit corporation, by at least two-thirds of the voting
interest of the members at a duly called meeting of the members of the corporation,
or by unanimous written consent of the members; or
(E) In
the case of a limited liability company, by at least two-thirds of the voting
interest of the members at a duly called meeting of the members of the limited
liability company, or by unanimous written consent of the members;] by
at least two-thirds of the voting interest or unanimous written consent of the
voting interest of the captive insurance company;
(3) The plan provides for:
(A) The conversion of existing stockholder, member, or subscriber interests into equal or proportionate interests in the new converted or merged insurer, or such other method and basis for the conversion of the stockholder, member, or subscriber interests that is fair and equitable;
(B) The
purchase or other disposition of the shares of any nonconsenting shareholder of
a stock insurer, policyholder interest of any nonconsenting member of a mutual
insurer, membership interest of a limited liability company, or subscriber
surplus account interest, if any, of a subscriber of a reciprocal insurer, in
accordance with either an agreement with any nonconsenting stockholder, member,
or subscriber or with the existing [articles or bylaws] organizational
documents of the insurer relating to the buyback buyout, or the termination
of the stockholder, member, or subscriber interests, if any, or if no such
provisions exist, then in accordance with the laws of this State relating to
the rights of dissenting shareholders; and
(C) The
novation, assignment, transfer, run-off, or other disposition of [in force]
in-force policies insuring any nonconsenting shareholder, member, or
subscriber;
(4) The conversion or merger will leave the resulting converted insurer or surviving insurer of the merger with capital or surplus funds reasonably adequate to preserve the security of its policyholders and an ability to continue to transact business in the classes of insurance in which it is then authorized to transact; and
(5) The commissioner finds that the conversion or merger will promote the general good of the State.
(c) After
approval of the plan of conversion or merger by the commissioner, the
converting or merging insurer shall file with the director of commerce and
consumer affairs, appropriate [articles of amendment, articles of
conversion, or articles of merger, as the case may be; provided that in the
case of the conversion of a reciprocal insurer or limited liability company
insurer to a stock or mutual insurer, the existing reciprocal or limited
liability company insurer shall file articles of incorporation to commence the
corporate existence of the company in the form of a stock or mutual insurer.]
organizational documents to commence the existence of the company in its
converted or merged form. Documents filed with the director of commerce
and consumer affairs pursuant to this subsection shall comply with all
applicable requirements for such documents as may be contained in this article
and chapter 414, 414D, or 428, as to the extent that these laws are applicable
to the conversion or merger."
SECTION 13. Section 431:19-107, Hawaii Revised Statutes, is amended by amending subsections (a) and (b) to read as follows:
"(a) Each captive insurance company other than a [class
3] risk retention captive insurance company shall submit to the
commissioner financial statements reporting the financial condition and the
results of operations of the insurer written according to generally accepted
accounting principles, or other comprehensive basis of accounting as may be
deemed appropriate by the commissioner, and audited by an independent certified
public accountant, or other qualified professional as deemed appropriate by the
commissioner, on or before the last day of the sixth month following the end of
the company's fiscal year.
(b)
Each [class 3] risk retention captive insurance company shall
annually file with the commissioner the following:
(1) Annual statement and audit:
(A) On or before March 1, or such day subsequent thereto as the commissioner upon request and for cause may specify, an annual statement using the National Association of Insurance Commissioners' annual statement blank plus any additional information required by the commissioner, which shall be a true statement of its financial condition, transactions, and affairs as of the immediately preceding December 31. The reported information shall be verified by oaths of at least two of the captive's principal officers;
(B) On or before June 1, or such day subsequent thereto as the commissioner upon request and for cause may specify, an audit by a designated independent certified public accountant or accounting firm of the financial statements reporting the financial condition and results of the operation of the captive; and
(C) The annual statement and audit shall be prepared in accordance with the National Association of Insurance Commissioners' annual statement instructions, accounting practices and procedures manual, and rules adopted by the commissioner following the practices and procedures prescribed by the National Association of Insurance Commissioners; and
(2) On or before each
March 1, or such day subsequent thereto as the commissioner upon request and
for cause may specify, a risk-based capital report in accordance with section
431:3-402; provided that [a class 3] an association captive
insurance company shall not be required to file risk-based capital reports with
the National Association of Insurance Commissioners."
SECTION 14. Section 431:19-108, Hawaii Revised Statutes, is amended as follows:
(1) By amending its title to read as follows:
"§431:19-108
Examinations [and], investigations[.],
and financial surveillance."
(2) By amending subsection (a) to read as follows:
"(a) The
commissioner or any authorized examiner may conduct an examination, investigation,
or financial surveillance of any captive insurance company as often as the
commissioner deems appropriate[,]; provided that unless the
commissioner requires otherwise:
(1) An examination shall be conducted at least once every five years for all captive insurance companies, except as provided in paragraph (2); and
(2) An examination of
a [class 3] risk retention captive insurance company shall be conducted
no later than three years after its formation and at least once every five
years thereafter.
The commissioner or any authorized examiner shall thoroughly inspect and examine the captive insurance company's affairs to ascertain its financial condition, its ability to fulfill its obligations, and whether it has complied with this article."
SECTION 15. Section 431:19-109, Hawaii Revised Statutes, is amended to read as follows:
"§431:19-109
Grounds and procedures for suspension and revocation of certificate of
authority[.]; fines. (a) The commissioner may suspend or
revoke the certificate of authority of a captive insurance company to do
business in this State [may be suspended or revoked by the commissioner]
for any of the following reasons:
(1) Insolvency or impairment of capital or surplus;
(2) Failure to meet the requirements of section 431:19-104;
(3) Refusal or failure to submit an annual report, as required by section 431:19-107 or any other report or statement required by law or by lawful order of the commissioner;
(4) Failure to comply
with the provisions of its own [articles of incorporation, articles of
association, or bylaws;] organizational documents;
(5) Failure to submit to examination or any legal obligation relative thereto, as required by section 431:19-108;
(6) Refusal or failure to pay the cost of examination pursuant to section 431:19-108;
(7) Use of methods that, although not otherwise specifically prohibited by law, nevertheless render its operation detrimental or its condition unsound with respect to the public or to its policyholders;
(8) Failure to maintain actuarially appropriate loss reserves as determined by the commissioner; provided that the commissioner shall issue at least one warning to the captive insurance company to correct the problem prior to suspending or revoking the certificate of authority; and
(9) Failure otherwise to comply with the laws of this State.
(b) [If]
Notwithstanding any other law to the contrary, if the commissioner, upon
examination, hearing, or other evidence, finds that any captive insurance
company has committed any of the acts specified in subsection (a), the
commissioner may suspend [or] the certificate of authority,
revoke the certificate of authority, or impose a fine upon notice to remedy
any violation, or any combination of these actions, if the commissioner
deems it in the best interest of the public and the policyholders of such
captive insurance company[, notwithstanding any other law]."
SECTION 16. Section 431:19-110, Hawaii Revised Statutes, is amended by amending subsections (a) and (b) to read as follows:
"(a) Except for [class 3] risk retention captive
insurance companies, captive insurance companies licensed under this article
shall be allowed to maintain investments in accordance with a strategic
investment policy adopted and monitored by the captive insurance company's
governing body, and approved by the commissioner; provided that in addition to
the minimum capital and surplus requirements prescribed in section 431:19-104(b),
[and the requirements prescribed in subsection (b),] each captive
insurance company with an approved strategic investment policy shall
maintain investments in one or more of the following
forms, which aggregate not less than one hundred per cent of reserves as
required by this [code] chapter or the commissioner:
(2) Irrevocable letter of credit issued by a bank chartered by this State or a member bank of the Federal Reserve System;
(3) Investments in accordance with a strategic investment policy adopted and monitored by the captive insurance company’s governing body, and approved by the commissioner;
(4) Premiums in the course of collection; or
(5) Other forms approved by the commissioner.
(b) Each
captive insurance company that does not maintain a strategic investment policy
as described in subsection (a) and [class 3] risk retention captive
insurance companies shall be subject to the restrictions on allowable
investments provided under sections 431:6-101 to 431:6-501; provided
that the commissioner may approve other assets, investments, and investment
provisions as the commissioner deems appropriate."
SECTION 17. Section 431:19-111.5, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:
"(a) A
class 5 company under this article is one that is not a class 1[,] company,
class 2[,] company, class 3[,] company, or class 4
company, and acts only as a reinsurer or excess insurer, or both.
Notwithstanding any other provision of this article, a class 5 company
authorized under this article may reinsure or provide excess insurance, or
both, for the risks and lines of insurance approved by the commissioner."
SECTION 18. Section 431:19-113, Hawaii Revised Statutes, is amended to read as follows:
"§431:19-113
Exemption from compulsory associations. No captive insurance company shall
be permitted to join or contribute financially to any plan, pool, association,
or guaranty or insolvency fund in this State, except as provided under chapter
386, nor shall any captive insurance company, its insured, or its parent or any
affiliated [company,] entity, or any member organization of its
association, receive any benefit from any such plan, pool, association, or
guaranty or insolvency fund for claims arising out of the operations of such
captive insurance company."
SECTION 19. Section 431:19-115, Hawaii Revised Statutes, is amended to read as follows:
"§431:19-115
Laws applicable. (a) No insurance laws of this State other than those
contained in this article, or contained in specific references contained in
this section or article, shall apply to captive insurance companies [formed
under this article. In addition to this article, article 1, article 2,
sections 431:3-302 to 431:3-304, section 431:3-307, article 4A, parts I and II
of article 5, article 6, article 11, and article 15 of this chapter shall apply
to captive insurance companies other than pure captive insurance companies and
branch captive insurance companies, unless these other laws are inconsistent
with this article or the commissioner by rule, regulation, or order determines,
on a case by case basis that these other laws should not apply thereto.
In addition
to this article, and except as otherwise provided in this article, article 1,
article 2, article 6, article 11, and article 15 of this chapter shall apply to
class 5 companies, unless these other laws are inconsistent with this article
or the commissioner by rule, regulation, or order determines, on a case by case
basis that these other laws should not apply thereto.
In addition
to this article and the articles or portions thereof referenced in this
section, chapter 431K shall apply to risk retention captive insurance companies
authorized under this article.
(b) The
application of the foregoing provisions shall not diminish the commissioner's
authority for exemption as may be contained therein or as may be deemed
appropriate under the circumstances.
In addition,
the commissioner may adopt rules pursuant to chapter 91 as the commissioner
deems necessary in connection with the financial oversight and regulation of
captive insurance companies].
(b) In addition to the exceptions set forth in subsection (a):
(1) Sections 431:3-302 to 431:3-304 and 431:3-307;
(2) Articles 1, 2, 4A, 5, 6, 9A, 9B, 9C, 11, 11A, and 15; and
(3) Chapter 431K,
shall apply to risk retention captive insurance companies.
(c) In addition to the exceptions set forth in subsection (a), articles 1, 2, 6, and 15 shall apply to class 5 companies.
(d) If any of the laws specified in this section are inconsistent with this article, this article shall apply unless the commissioner by rule or order determines otherwise on a case-by-case basis.
(e) The application of the foregoing provisions shall not diminish the commissioner's authority for exemption as may be contained therein or as may be deemed appropriate under the circumstances."
SECTION 20. Section 431:19-203, Hawaii Revised Statutes, is amended as follows:
(1) By amending the definition of "counterparty" to read as follows:
""Counterparty" means
the insurer that cedes risk to a special purpose financial captive insurance
company which, unless otherwise approved by the commissioner, shall be the
parent or an affiliated [company] entity of the special purpose
financial captive insurance company."
(2) By repealing the definition of "organizational document".
[""Organizational
document" means the special purpose financial captive insurance company's
articles of incorporation, articles of organization, bylaws, operating
agreement, or any other document that establishes the special purpose financial
captive insurance company as a legal entity or prescribes its existence."]
SECTION 21. Section 431:19-308, Hawaii Revised Statutes, is amended to read as follows:
"[[]§431:19-308[]]
Applicable laws. A sponsored captive insurance company shall be subject to
this part and to part [II.] I. If there is any conflict between
this part and part [II,] I, this part shall control."
SECTION 22. Section 431:19-309, Hawaii Revised Statutes, is amended to read as follows:
"[[]§431:19-309[]]
Existing licenses. Except as otherwise
determined by the commissioner, a captive insurance company that has been
issued a certificate of authority by the commissioner pursuant to section 431:19-102 as
of July 1, 2008, and is licensed as a class 4 [captive] company
shall not be required to re-apply for a certificate of authority under this
part, but shall otherwise be subject to this part as a sponsored captive
insurance company; provided that the commissioner may by order require the
captive insurance company to take any action that the commissioner determines
is reasonably necessary to bring the captive
insurance company into compliance with this part."
SECTION 23. Section 431:19-101.3, Hawaii Revised Statutes, is repealed.
["§431:19-101.3
Classes of captive insurance. Each captive insurance company
formed under this article shall be designated and licensed as one of the
following classes of captive insurance companies:
(1) A class
1 company shall be limited to a pure captive insurance company that only writes
business as a reinsurer;
(2) A class
2 company shall be limited to a pure captive insurance company that is not a
class 1 company;
(3) A class
3 company shall be any company formed under this article as an association
captive insurance company or a risk retention captive insurance company;
(4) A class
4 company shall be a sponsored captive insurance company formed under part III of this article; and
(5) A class
5 company shall be a reinsurance or excess insurance company formed under this
article."]
SECTION 24. In codifying the new sections added by section 1 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.
SECTION 25. Statutory material to be repealed is bracketed and stricken. New material is underscored.
SECTION 26. This Act shall take effect on July 1, 2012.
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INTRODUCED BY: |
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BY REQUEST |
Report Title:
Captive Insurance Companies
Description:
Amends captive insurance company law (article 19, chapter 431, Hawaii Revised Statutes).
The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.