Bill Text: IA SF549 | 2023-2024 | 90th General Assembly | Amended

NOTE: There are more recent revisions of this legislation. Read Latest Draft

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Bill Title: A bill for an act relating to captive insurance companies, and including applicability provisions. (Formerly SF 509, SF 424.) Effective date: 07/01/2023, 01/01/2025. Applicability date: 01/01/2025.

Spectrum: Committee Bill

Status: (Passed) 2023-06-01 - Signed by Governor. S.J. 1087. [SF549 Detail]

Download: Iowa-2023-SF549-Amended.html

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Senate File 549 - Reprinted
SENATE FILE 549
BY COMMITTEE ON WAYS AND MEANS
(SUCCESSOR TO SF 509)
(SUCCESSOR TO SF 424)
(As Amended and Passed by the Senate March 14, 2023 )
A BILL FOR
An Act relating to captive insurance companies, and including
applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
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Section 1. NEW SECTION . 432.1A Tax on premiums —— captive
insurance companies.
1. a. Each captive company under chapter 521J shall pay
on or before March 1 of each year a tax on the direct premiums
collected or contracted for on policies or contracts of
insurance written by the captive company during the immediately
preceding calendar year, after deducting from the direct
premiums the amounts paid to policyholders as return premiums,
including dividends on unabsorbed premiums or premium deposits
returned or credited to policyholders.
b. The tax due under paragraph “a” on direct premiums
collected or contracted for by a captive company shall be
calculated as follows:
(1) Seven-twentieths of one percent on the first twenty
million dollars of direct premiums.
(2) One-quarter of one percent on each dollar of direct
premiums after the first twenty million dollars collected under
subparagraph (1).
2. a. Each captive company under chapter 521J shall pay
on or before March 1 of each year a tax on assumed reinsurance
premiums. A reinsurance tax shall not apply to premiums for
risks or portions of risks that are subject to taxation on a
direct basis pursuant to subsection 1.
b. A reinsurance premium tax shall not be payable by a
captive company in connection with the receipt by the captive
company of assets in exchange for the assumption of loss
reserves and other liabilities of another insurer under common
ownership and control if the transaction is part of a plan
to discontinue the operations of the other insurer, and if
the intent of the parties to the transaction is to renew or
maintain the other insurer’s business with the captive company.
c. The amount of reinsurance tax due from a captive company
under paragraph “a” shall be calculated as follows:
(1) Two-tenths of one percent on the first twenty million
dollars of assumed reinsurance premiums.
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(2) One-eighth of one percent on the twenty million
dollars of assumed reinsurance premiums collected after the
first twenty million dollars of assumed reinsurance premiums
collected under subparagraph (1).
(3) Five percent on each dollar of assumed reinsurance
premiums collected after the twenty millions dollars collected
under subparagraph (1) and the twenty million dollars collected
under subparagraph (2).
3. a. (1) Except as provided in subparagraphs (2) and
(3), if the aggregate taxes as calculated under subsections
1 and 2 that are payable by a captive company are less than
five thousand dollars for any one tax year, the captive company
shall pay five thousand dollars in tax for that tax year.
(2) If a captive company is subject to the minimum tax under
subparagraph (1) in the calendar year in which the company is
first granted a certificate of authority under section 521J.2,
the tax shall be prorated as follows:
(a) If a certificate of authority is first granted in the
first quarter of the calendar year, the tax shall be five
thousand dollars.
(b) If a certificate of authority is first granted in the
second quarter of the calendar year, the tax shall be three
thousand seven hundred fifty dollars.
(c) If a certificate of authority is first granted in
the third quarter of the calendar year, the tax shall be two
thousand five hundred dollars.
(d) If a certificate of authority is first granted in the
fourth quarter of the calendar year, the tax shall be one
thousand five hundred dollars.
(3) If a captive company that is subject to the minimum tax
under subparagraph (1) surrenders the company’s certificate of
authority in the year that the captive company is subject to
the minimum tax, the tax shall be prorated on a quarterly basis
as follows:
(a) If the certificate of authority is surrendered in
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the first quarter of the calendar year, the tax shall be one
thousand dollars.
(b) If the certificate of authority is surrendered in the
second quarter of the calendar year, the tax shall be two
thousand five hundred dollars.
(c) If the certificate of authority is surrendered in the
third quarter of the calendar year, the tax shall be three
thousand seven hundred fifty dollars.
(d) If the certificate of authority is surrendered in the
fourth quarter of the calendar year, the tax shall be five
thousand dollars.
b. Each protected cell in a protected cell captive company
shall be considered separately in determining the aggregate
tax to be paid by the protected cell captive company. If the
protected cell captive company insures any risks in addition
to the protected cells, the determination of the aggregate tax
shall, in addition to the protected cells, also include the
premium on all insured risks.
c. Each series of members of a limited liability company
formed as a special purpose captive company shall be considered
separately under this section, except that the minimum tax as
described in paragraph “a” shall be considered in the aggregate.
4. Under this section, a captive company, other than a
protected cell captive company, shall not be required to pay
aggregate taxes that exceed one hundred thousand dollars in any
one tax year.
5. Two or more captive companies under common ownership
and control shall be taxed as a single captive company. For
the purposes of this subsection, “common ownership and control”
means either of the following:
a. In the case of a stock corporation, the direct or
indirect ownership of eighty percent or more of the outstanding
voting stock of two or more corporations by the same
shareholder or shareholders.
b. In the case of a mutual insurer, the direct or indirect
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ownership of eighty percent or more of the surplus, and the
voting power of two or more insurers, by the same member or
members.
6. Only the branch business of a branch captive company
shall be subject to taxation under this section.
7. The tax provided for in this section shall be calculated
on an annual basis notwithstanding a policy or a contract
of insurance, or a contract of reinsurance, that is issued
on a multiyear basis. In the case of a multiyear policy or
a multiyear contract, the premium shall be prorated for the
purpose of calculating the appropriate tax.
Sec. 2. Section 507C.3, Code 2023, is amended by adding the
following new subsection:
NEW SUBSECTION . 8. Captive companies under chapter 521J.
Sec. 3. NEW SECTION . 521J.1 Definitions.
As used in this chapter, unless the context otherwise
requires:
1. “Affiliated company” means a company that is in the
same corporate system as a parent, an industrial insured, or
a member based on common ownership, control, operation, or
management.
2. “Association” means a legal entity comprised of sole
proprietorships or of business entities that has been in
continuous existence for a minimum of one consecutive year,
unless the one-year requirement is waived by the commissioner,
and all of the members collectively, or the legal entity
itself, meets either of the following requirements:
a. Owns, controls, or holds with power to vote all of
the outstanding voting securities of an association captive
company incorporated as a stock insurer; or has complete voting
control over an association captive company incorporated as a
mutual insurer; or constitutes all of the subscribers of an
association captive company formed as a reciprocal insurer.
b. Owns, controls, or holds with power to vote all of the
outstanding ownership interests of an association captive
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company organized as a limited liability company.
3. “Association captive company” means an insurance company
that insures risks of the association’s members and the risks
of the association’s affiliated companies of members.
4. “Branch business” means any insurance business transacted
by a branch captive company in this state.
5. “Branch captive company” means a foreign captive company
authorized by the commissioner by rule to transact the business
of insurance in this state through a business entity with a
principal place of business in this state.
6. “Branch operations” means any business operations of a
branch captive company.
7. “Business entity” means a corporation, a limited
liability company, or other legal entity formed by an
organizational document. “Business entity” does not include a
sole proprietor.
8. “Captive company” means any pure insurance company,
association captive company, protected cell captive company,
special purpose captive company, or industrial insured captive
company formed or authorized under this chapter.
9. “Captive reinsurance company” means a captive insurance
company in this state, as authorized by the commissioner by
rule, that reinsures the risk ceded by any other insurer.
10. “Captive risk retention group” means a captive insurance
risk retention group formed under this chapter and that is
subject to chapter 515E.
11. “Cash equivalent” means any short-term, highly liquid
investment with an original maturity of three months or less
that is all of the following:
a. Readily convertible to known amounts of cash.
b. Close enough to maturity that the investment presents
insignificant risk of change in value if interest rates
fluctuate.
12. “Commissioner” means the commissioner of insurance.
13. “Controlled unaffiliated business entity” means a
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business entity or sole proprietorship that meets all of the
following requirements:
a. The business entity or sole proprietorship is not in a
parent’s corporate system that consists of the parent and any
affiliated companies.
b. The business entity or sole proprietorship has an
existing, controlling contractual relationship with the parent
or an affiliated company.
c. The business entity’s or sole proprietorship’s risks are
managed by a pure captive insurance company.
14. “Excess workers’ compensation insurance” means, for
an employer that has insured or self-insured the employer’s
workers’ compensation risks in accordance with applicable state
or federal law, insurance in excess of a specified per-incident
or aggregate limit as established by the commissioner by rule.
15. “Foreign captive company” means a captive insurance
company formed under the laws of a jurisdiction other than this
state.
16. “Industrial insured” means an insured that meets all of
the following requirements:
a. The insured procures the insurance of any risk by use
of the services of a full-time employee acting as an insurance
manager or buyer.
b. The insured’s aggregate annual premiums for insurance on
all risks are at least twenty-five thousand dollars.
c. The insured employs a minimum of twenty-five full-time
employees.
17. “Industrial insured captive company” means an insurance
company that insures the risks of the industrial insureds that
is comprised of the industrial insured group and the industrial
insured group’s affiliated companies.
18. “Industrial insured group” means a group that meets
either of the following requirements:
a. The group collectively owns, controls, or holds with
the power to vote all of the outstanding voting securities of
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an industrial insured captive company incorporated as a stock
insurer; or has complete voting control over an industrial
insured captive company incorporated as a mutual insurer.
b. The group is a captive risk retention group.
19. “Member” means a sole proprietorship or a business
entity that belongs to an association.
20. “Mutual insurer” means a business entity that does not
have capital stock, and that has a governing body elected by
the insurer’s policyholders.
21. “Organizational document” means articles of
incorporation, articles of organization, a subscribers’
agreement, a charter, or any other document that can legally
establish a business entity in this state.
22. “Parent” means a sole proprietorship, a business entity,
or an individual that directly or indirectly owns, controls,
or holds with power to vote more than fifty percent of the
outstanding voting securities of a captive company.
23. “Participant” means a sole proprietorship or a business
entity and any affiliates that are insured by a protected cell
captive company and whose losses are limited by a participant
contract.
24. “Participant contract” means a contract by which
a protected cell captive company insures the risks of a
participant and limits the losses of each participant in the
contract to the participant’s share of the assets of one or
more protected cells as identified in the participant contract.
25. “Protected cell” means a separate account established
by a protected cell captive company formed or authorized
under this chapter, in which an identified pool of assets
and liabilities are segregated and insulated, as provided in
section 521J.17, from the remainder of the protected cell
captive company’s assets and liabilities in accordance with
the terms of one or more participant contracts to fund the
liability of the protected cell captive company with respect to
the participants.
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26. “Protected cell assets” means all assets, contract
rights, and general intangibles identified and attributable to
a specific protected cell of a protected cell captive company.
27. “Protected cell captive company” means a captive company
that meets all of the following requirements:
a. The minimum legally required capital and surplus of the
company is provided by one or more sponsors.
b. The company is formed or authorized under this chapter.
c. The company insures the risks of separate participants
through participant contracts.
d. The company funds the company’s liability to each
participant through one or more protected cells, and segregates
the assets of each protected cell from the assets of other
protected cells, and from the assets of the protected cell
captive company’s general account.
e. The company is incorporated or formed as a limited
liability company.
28. “Protected cell liabilities” means all liabilities
and other obligations identified with and attributable to a
specific protected cell of a protected cell captive company.
29. “Public records” means the same as defined in section
22.1.
30. “Pure captive company” means an insurance company that
insures the risks of the company’s parent and the parent’s
affiliated companies, and the risks of controlled unaffiliated
business entities.
31. “Series of members” means a group or collection of
members of a limited liability company who share interests
and who have separate rights, powers, or duties with respect
to property, obligations, or profits and losses associated
with property or obligations and who are specified in the
articles of organization or operating agreement of the limited
liability company, or that are specified by one or more members
or managers of the limited liability company or other persons
as provided in the articles of organization or operating
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agreement.
32. “Sole proprietorship” means an individual who does
business in a noncorporate form.
33. “Special purpose captive company” means a captive
company that is formed or authorized under this chapter that
does not meet the definition of any other type of captive
company as defined in this section, or that is formed by, on
behalf of, or for the benefit of a political subdivision of
this state.
34. “Sponsor” means an entity that meets the requirements
of sections 521J.17 and 521J.18, and that is approved by the
commissioner to do all of the following:
a. Provide all or part of the capital and surplus required
of a protected cell captive company by applicable law.
b. Organize and operate a protected cell captive company.
Sec. 4. NEW SECTION . 521J.2 Certificate of authority.
1. If permitted by its organizational document, a captive
company may apply to the commissioner for a certificate of
authority to provide property insurance, casualty insurance,
life insurance, disability income insurance, surety insurance,
marine insurance, health insurance, or a group health plan,
with the following exceptions:
a. A pure captive company shall not insure any risks other
than those of the company’s parent and affiliated companies,
and of the company’s controlled unaffiliated business entities.
b. An industrial insured captive company shall only insure
risks of the industrial insured company, comprised of the
industrial insured group and the industrial insured group’s
affiliated companies.
c. An association captive company shall not insure any risks
other than those of the members or affiliated companies of
members.
d. A special purpose captive company shall not provide
insurance or reinsurance for risks unless approved by the
commissioner.
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e. A captive company or a branch captive company shall not
do any of the following:
(1) Provide personal lines of insurance, including but not
limited to motor vehicle insurance, homeowner’s insurance,
or any component of motor vehicle insurance or homeowner’s
insurance.
(2) Accept or cede reinsurance except as established by the
commissioner by rule.
(3) Provide health insurance coverage or a group health
plan unless the captive company or the branch captive company
is providing the health insurance coverage or the group health
plan only for the parent company and the parent company’s
affiliated companies.
(4) Write workers’ compensation insurance on a direct
basis.
f. A protected cell captive company shall not insure any
risks other than those of the protected cell captive company’s
participants.
2. A captive company shall not write any insurance business
unless the captive company complies with all of the following:
a. The captive company first obtains a certificate of
authority from the commissioner.
b. The captive company’s board of directors, board of
managing members, or a reciprocal insurer’s subscribers’
advisory committee holds at least one annual meeting in this
state.
c. The captive company maintains its principal place of
business in this state.
d. The captive company designates a registered agent
to accept service of process, files the name and contact
information and any subsequent changes regarding the
registered agent with the commissioner, and agrees that if the
registered agent cannot be found with reasonable diligence,
the commissioner may act as an agent of the captive company
with respect to any action or proceeding and may be served in
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accordance with section 505.30.
3. a. Prior to receiving a certificate of authority, a
captive company formed as a business entity shall do all of the
following:
(1) File with the commissioner a certified copy of the
business entity’s organizational documents, a statement under
oath of an officer of the business entity showing the business
entity’s financial condition, and any other statement or
document required by the commissioner as established by rule.
(2) Submit a description of coverages, deductibles,
coverage limits, and rates to the commissioner for approval.
(3) Provide a statement to the commissioner that describes
all of the following:
(a) The character, reputation, and financial standing of
the organizers of the business entity.
(b) The character, reputation, financial responsibility,
insurance experience, and business qualifications of all
officers, directors, and managing members of the business
entity.
(c) Any other information required by the commissioner as
established by rule.
b. If there is a subsequent material change in the
information provided to the commissioner under paragraph
“a” , the captive company shall submit appropriate supporting
documentation to the commissioner for approval. The captive
company shall not offer any additional lines of insurance until
on or after the date on which the commissioner approves the
supporting documentation. The captive company shall inform the
commissioner of any change in rates within thirty calendar days
of the captive company’s adoption of a change in rate.
c. In addition to the information required under paragraphs
“a” and “b” , each applicant captive company shall file with the
commissioner evidence of all of the following:
(1) The amount and liquidity of the captive company’s assets
relative to the risks to be assumed by the captive company.
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(2) The adequacy of the expertise, experience, and
character of the persons who will manage the captive company.
(3) The overall soundness of the captive company’s plan of
operation.
(4) The adequacy of the loss prevention program of the
captive company’s parent, members, or industrial insureds, as
applicable.
(5) Any other factors deemed relevant as established by
the commissioner by rule to ascertain if the proposed captive
company will be able to meet the company’s policy obligations.
d. In addition to the information required under paragraph
“a” , each applicant that is a protected cell captive company
shall file with the commissioner all of the following:
(1) A business plan that demonstrates at a level of detail
deemed sufficient by the commissioner how the applicant will
account for the loss and expense experience of each protected
cell, and how the applicant will report the loss and expense
experience to the commissioner.
(2) A statement that acknowledges that all financial
records of the protected cell captive company, including
records pertaining to any protected cells, shall be made
available, upon request, for inspection or examination by the
commissioner or the commissioner’s designated agent.
(3) A copy of each participant contract.
(4) Evidence that expenses shall be allocated to each
protected cell in a fair and equitable manner.
e. In addition to the requirements of paragraph “a” , a
captive company formed as a reciprocal insurer shall file with
the commissioner a certified copy of the power of attorney of
the reciprocal insurer’s attorney-in-fact, a certified copy of
the reciprocal insurer’s subscribers’ agreement, a statement
under oath of the reciprocal insurer’s attorney-in-fact that
shows the reciprocal insurer’s financial condition, and any
other statements or documents required by the commissioner as
established by rule.
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f. All documents and information submitted pursuant to this
subsection shall be confidential and shall not be made public
without the advance written consent of the submitting company,
with the following exceptions:
(1) The documents and information shall be discoverable by
a party in a civil action or in a contested case to which the
captive company that submitted the information is a party upon
a showing by the party seeking to discover the information that
the information sought is relevant to, and necessary for, the
furtherance of the action or case; the information sought is
unavailable from other nonconfidential sources; and a subpoena
issued by a judicial or an administrative officer has been
submitted to the commissioner.
(2) The commissioner may, in the commissioner’s discretion,
disclose the documents and information to a public official
having jurisdiction over the regulation of insurance in another
state, or to a public official of the federal government,
provided that the public official agrees in writing to maintain
the confidentiality of the information, and that the laws of
the state in which the public official serves require that the
information remain confidential.
4. a. Each captive company, individual series of members
of a limited liability company, and protected cell shall pay
to the commissioner a nonrefundable fee of two hundred dollars
for the examination, investigation, and processing of its
application for a certificate of authority. The commissioner
shall be authorized to retain legal, financial, and examination
services from outside the department as necessary for review of
the application, the reasonable cost of which may be charged
to the applicant.
b. (1) Chapter 507 shall apply to examinations conducted
under this chapter.
(2) Each captive insurance company, each individual series
of members of a limited liability company, and each protected
cell shall pay an initial registration fee, and an annual
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renewal registration fee, of three hundred dollars.
5. If the commissioner is satisfied with the documents
and statements that an applicant captive company has filed in
compliance with this chapter, and the applicable provisions of
Title XII, subtitle 1, the commissioner may grant a certificate
of authority to the captive company that permits the company to
do the business of insurance in this state. The certificate of
authority may be renewed if the applicant is in compliance with
this chapter and the certificate must be renewed annually.
Sec. 5. NEW SECTION . 521J.3 Captive companies —— names.
A captive company shall not adopt a name that is the same,
deceptively similar, or likely to be confused with or mistaken
for any other existing business name already registered in this
state.
Sec. 6. NEW SECTION . 521J.4 Minimum capital and surplus
requirements.
1. The commissioner shall not issue a certificate of
authority to a captive company unless the captive company
possesses and maintains unimpaired paid-in capital and surplus
that meets the following requirements:
a. Is not less than two hundred fifty thousand dollars for
a pure captive company.
b. Is not less than five hundred thousand dollars for an
industrial insured captive company, including a captive risk
retention group.
c. Is not less than five hundred thousand dollars for an
association captive company.
d. Is an amount as determined by the commissioner after
giving due consideration to the company’s business plan,
feasibility study, and pro forma documents, including the
nature of the risks to be insured, for a special purpose
captive company.
e. Is not less than five hundred thousand dollars for a
protected cell captive company. If, however, the protected
cell captive company does not assume any risks, the risks
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insured by the protected cells are homogenous, and if there are
not more than ten cells, the commissioner may reduce the amount
to an amount not less than two hundred fifty thousand dollars.
f. Is not less than the applicable amount of capital and
surplus required in paragraphs “a” through “e” , as determined
based upon the organizational form of the foreign captive
company, for a branch captive company. The minimum capital
and surplus shall be jointly held by the commissioner and the
branch captive company in a bank of the federal reserve system
as approved by the commissioner by rule.
g. Is not less than fifty percent of the capital required
for that type of captive company for a captive reinsurance
company.
2. The commissioner may require additional capital and
surplus for a captive company under subsection 1 based upon the
type, volume, and nature of the insurance business transacted
by the captive company.
3. The capital and surplus required under subsection 1 and
subsection 2, if applicable, shall be in the form of cash,
cash equivalent, or an irrevocable letter of credit on a form
as prescribed by the commissioner by rule and as issued by
a bank chartered by the state of Iowa, a member bank of the
federal reserve system, or a bank chartered by another state if
approved by the commissioner.
Sec. 7. NEW SECTION . 521J.5 Captive companies —— formation.
1. A captive company must be formed or organized as a
business entity as provided under this chapter.
2. An association captive company, or an industrial insured
captive company, shall be formed or organized in one of the
following ways:
a. Incorporated as a stock insurer with the stock insurer’s
capital divided into shares and held by the stockholders.
b. Incorporated as a mutual insurer without capital stock,
the governing body of which is elected by the members of the
mutual insurer’s association or associations.
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c. Organized as a reciprocal insurer as permitted by the
commissioner by rule.
d. Organized as a manager-managed limited liability company.
3. A captive company incorporated or organized in this state
shall be incorporated or organized by at least one incorporator
or organizer who is a resident of this state.
4. The capital stock of a captive company incorporated as a
stock insurer may be authorized with no par value.
5. a. At least one of the members of the board of directors
of a captive company shall be a resident of this state. A
captive risk retention group shall have a minimum of five
directors.
b. A captive company formed as a limited liability company
shall have at least one manager who is a resident of the state.
A captive risk retention group formed as a limited liability
company shall not be required to have a manager who is a
resident of this state; however, the company shall maintain a
board of directors of which at least one board member shall be
a resident of this state.
c. A reciprocal insurer shall have at least one member
of the subscribers’ advisory committee who is a resident
of this state. A captive risk retention group formed as a
reciprocal insurer shall have a minimum of five members of
the subscribers’ advisory committee who are residents of this
state.
6. a. A captive company formed as a corporation or another
business entity shall have the privileges of, and shall be
subject to, state laws governing corporations or other business
entities, and the applicable provisions of this chapter.
b. In the event of a conflict between a state law governing
corporations or other business entities and this chapter, this
chapter shall control.
7. a. A subscribers’ agreement, or other organizing
document of a captive company formed as a reciprocal insurer,
shall authorize a quorum of a subscribers’ advisory committee
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to consist of at least one-third of the number of members on
the advisory committee.
b. In addition to this chapter, a captive risk retention
group shall be subject to chapter 515E. In the event of a
conflict between chapter 515E and this chapter, this chapter
shall prevail.
8. Except as provided in section 521J.11, applicable
provisions of chapter 508B shall apply to a merger,
consolidation, conversion, mutualization, or voluntary
dissolution by a captive company.
9. a. A foreign captive company must apply to the secretary
of state for a certificate of authority for the foreign captive
company’s branch captive company to transact business in this
state.
b. A branch captive company established under this chapter
to write, in this state, only insurance or reinsurance of the
employee benefit business of the branch captive company’s
parent and affiliated companies shall be subject to the federal
Employee Retirement Income Security Act of 1974, 29 U.S.C.
§1001, et seq.
c. A branch captive company shall not do any insurance
business in this state unless the branch captive company
maintains the principal place of business for the company’s
branch operations in this state.
Sec. 8. NEW SECTION . 521J.6 Dividends.
1. A captive company shall not pay a dividend out of, or
other distribution with respect to, the minimum capital or
surplus required under section 521J.4 without the prior written
approval of the commissioner.
2. The commissioner’s approval of an ongoing plan for
the payment of dividends or other distributions shall be
conditioned upon retention, at the time of each payment, of
capital surplus in excess of the amounts specified by, or
determined in accordance with, a formula as approved by the
commissioner by rule.
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Sec. 9. NEW SECTION . 521J.7 Reports.
1. A captive company shall be required to file an annual
report with the commissioner under the following circumstances:
a. Except as provided in paragraph “b” , on or before April
1 of each year, each captive company and each captive risk
retention group shall submit to the commissioner a report on
the company’s financial condition, in a form and manner as
prescribed by the commissioner by rule, and as verified by oath
of two of the company’s or group’s executive officers.
b. A captive company, other than a captive risk retention
group, may apply to the commissioner to file the report
required under paragraph “a” on a fiscal year-end basis. If
the commissioner grants the captive company an alternative
reporting date, the company shall comply with all of the
following requirements:
(1) Subject to subparagraph (2), the report shall be filed
no later than ninety calendar days after the close of the
company’s fiscal year.
(2) A report covering the immediately preceding calendar
year shall be filed with the commissioner prior to April 1 of
each year to provide sufficient information to support the
captive company’s premium tax return under section 432.1A.
c. Each captive company shall use generally accepted
accounting principles, unless the commissioner requires the use
of statutory accounting principles, for the company’s report.
The report may include letters of credit that are established,
issued, or confirmed by a bank chartered in this state, a
member of the federal reserve system, or a bank chartered by
another state if acceptable to the commissioner.
d. On or before April 1 of each year, each branch captive
company shall submit to the commissioner a copy of all reports
required to be filed under the laws of the branch captive
company’s domiciliary jurisdiction, and as verified by oath of
two of the branch captive company’s executive officers. If the
commissioner is satisfied that the annual report filed by the
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foreign branch captive company in the company’s domiciliary
jurisdiction provides adequate information concerning the
financial condition of the branch captive company, the
commissioner may waive the requirement for completion of
the branch captive insurance company’s annual statement for
business written in the foreign jurisdiction.
2. All reports filed pursuant to this section shall be
considered confidential and shall not be a public record under
chapter 22.
Sec. 10. NEW SECTION . 521J.8 Examinations.
1. a. Except for captive risk retention groups as provided
under paragraph “b” , the commissioner may examine the affairs,
transactions, accounts, records, and assets of each captive
company as the commissioner deems necessary.
b. The commissioner shall examine the affairs, transactions,
accounts, records, and assets of each captive risk retention
group as the commissioner deems necessary, but no less
frequently than every three calendar years.
2. A report produced pursuant to the examination of a
captive risk retention group under this section shall be a
public record.
3. Except as provided in subsection 4, this section shall
apply to all business written by a captive company.
4. A branch captive company examination shall only be
conducted on the branch business and branch operations if
the branch captive company has satisfied the requirements
of section 521J.7, subsection 1, paragraph “d” , to the
satisfaction of the commissioner.
5. As a condition of authorization of a branch captive
company, the foreign captive company shall grant authority to
the commissioner for examination of the affairs of the foreign
captive company in the foreign captive company’s domiciliary
jurisdiction.
6. The applicable provisions of chapter 507 shall apply to
examinations conducted under this chapter.
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Sec. 11. NEW SECTION . 521J.9 Suspension or revocation.
1. A captive company’s certificate of authority to conduct
the business of insurance in this state may be suspended by the
commissioner for any of the following reasons:
a. Insolvency or impairment of capital or surplus.
b. Failure to meet and maintain the minimum capital and
surplus requirements under section 521J.4.
c. Refusal or failure to submit an annual report pursuant
to section 521J.7, or to submit any other report or statement
required by law or by lawful order of the commissioner.
d. Failure to comply with the captive company’s own charter,
bylaws, or other organizational document.
e. Failure to submit to an examination as required under
section 521J.8.
f. Use of methods that render the captive company’s
operation detrimental, or the company’s condition unsound, with
respect to the public or to the company’s policyholders.
g. Failure to pay tax on premiums as required under chapter
432.1A.
h. Failure to comply with applicable laws of this state.
2. a. If the commissioner finds upon examination, hearing,
or other review that a captive company has committed an
act specified in subsection 1, the commissioner may suspend
or revoke the company’s certificate of authority if the
commissioner deems it in the best interest of the public or of
the policyholders of the captive company.
b. If the commissioner does not revoke a captive company’s
certificate of authority during a suspension imposed by the
commissioner under paragraph “a” , the company’s certificate of
authority may be reinstated if the commissioner finds that the
cause of the suspension has been rectified.
Sec. 12. NEW SECTION . 521J.10 Excess workers’ compensation
insurance.
1. A captive company may provide excess workers’
compensation insurance to the captive company’s parent and
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affiliated companies unless the laws of the state that has
jurisdiction over the transaction prohibits the captive company
from providing excess workers’ compensation insurance.
2. A captive company may reinsure workers’ compensation of
a qualified self-insured plan of the captive company’s parent
and affiliated companies.
Sec. 13. NEW SECTION . 521J.11 Captive mergers.
1. A merger between captive stock insurers, or a merger
between captive mutual insurers, shall meet the requirements
of chapter 521 and section 521J.5, as applicable. The
commissioner may, at the commissioner’s discretion, provide
notice to the public of a proposed merger prior to approval or
disapproval of a merger.
2. An association captive company, or an industrial insured
group formed as a stock insurer or as a mutual insurer, may be
converted to or merged with a reciprocal insurer under this
section.
3. A plan for conversion or merger shall meet all of the
following requirements:
a. (1) The plan shall be fair and equitable to the
shareholders in the case of a stock insurer, or to the
policyholders in the case of a mutual insurer.
(2) The plan shall provide for the purchase of the shares
of any nonconsenting shareholder of a stock insurer, or of the
policyholder interests of any nonconsenting policyholder of a
mutual insurer.
b. A plan for conversion to a reciprocal insurer must be
approved by the commissioner. The commissioner shall not
approve a plan unless the plan meets all of the following
requirements:
(1) The plan provides for a hearing upon notice to the
insurer, directors, officers, and stockholders or policyholders
who have the right to appear at the hearing, unless the
commissioner waives or modifies the requirements for the
hearing.
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(2) (a) In the case of a stock insurer, the plan provides
for the conversion of the existing stockholder interests into
subscriber interests in the resulting reciprocal insurer
proportionate to the existing stockholder interests, and is
approved by a majority of the shareholders who are entitled to
vote and who are represented at a regular or special meeting at
which a quorum is present either in person or by proxy.
(b) In the case of a mutual insurer, the plan provides
for the conversion of the existing policyholder interests
into subscriber interests in the resulting reciprocal insurer
proportionate to the existing policyholder interests, and
is approved by a majority of the voting interests of the
policyholders who are represented at a regular or special
meeting at which a quorum is present either in person or by
proxy.
(3) The plan meets the applicable requirements of section
521J.5.
c. If the commissioner approves a plan of conversion, the
certificate of authority for the converting insurer shall be
amended to state that the converting insurer is a reciprocal
insurer. The conversion shall be effective and the corporate
existence of the converting entity shall cease to exist on the
date on which the amended certificate of authority is issued to
the attorney-in-fact for the reciprocal insurer. The resulting
reciprocal insurer shall file the articles of merger or the
articles of conversion with the secretary of state.
Sec. 14. NEW SECTION . 521J.12 Captive insurance regulatory
and supervision account.
1. A captive insurance regulatory and supervision account
is established in the state general fund under the control
of the division and moneys in the account shall be used to
provide the financial means for the division to administer
this chapter, and for the reimbursement of reasonable expenses
incurred by the division to promote captive insurance in this
state.
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2. All fees, assessments, fines, and administrative
penalties collected under this chapter shall be deposited in
the captive insurance regulatory and supervision account.
3. All payments from the captive insurance regulatory
and supervision account that are made for the maintenance of
staff and associated expenses, including necessary contractual
services, shall only be disbursed from the state treasury
upon a warrant issued by the commissioner, after receipt by
the commissioner of proper documentation regarding services
rendered and expenses incurred.
4. The balance in the captive insurance regulatory and
supervision account at the end of each fiscal year shall revert
to the general fund.
Sec. 15. NEW SECTION . 521J.13 Legal investments.
1. a. Industrial insured captive companies, association
captive companies, and captive risk retention groups shall
comply with investment requirements as established by the
commissioner by rule. The commissioner may approve the use of
alternative reliable methods of valuation and rating.
b. If a captive company’s admitted assets total less
than five million dollars, the commissioner may approve an
investment of up to twenty percent of the captive company’s
admitted assets in rated credit instruments in any one
investment that meets the requirements as established by the
commissioner by rule.
2. A pure captive company, or a protected cell captive
company, shall not be subject to any restrictions on allowable
investments, except that the commissioner may prohibit or limit
any investment that threatens the solvency or liquidity of the
pure captive company.
3. Any captive company may make loans to any of the captive
company’s affiliates with prior written approval of the
commissioner, and each loan must be evidenced by a note in a
form as approved by the commissioner by rule. Loans made from
minimum capital and surplus funds required by section 521J.4
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are prohibited.
Sec. 16. NEW SECTION . 521J.14 Reinsurance.
1. Subject to the prior approval of the commissioner, a
captive company may provide reinsurance on risks ceded by any
other insurer.
2. Any captive company may take credit for reserves on
risks, or portions of risks, ceded to reinsurers as provided
under chapter 521B.
Sec. 17. NEW SECTION . 521J.15 Rating organizations.
A captive company shall not be required to join a rating
organization.
Sec. 18. NEW SECTION . 521J.16 Compulsory organizations.
A captive company shall not join or contribute financially
to any plan, pool, association, or guaranty or insolvency fund
in this state; and a captive company, a captive company’s
insureds, a captive company’s parent, any company affiliated
with a captive company, and any member of an association shall
not receive any benefit from a plan, pool, association, or
guaranty or insolvency fund for claims arising out of the
operations of the captive company.
Sec. 19. NEW SECTION . 521J.17 Protected cell captive
companies.
1. One or more sponsors may form a protected cell captive
company.
2. A protected cell captive company formed or authorized
under this chapter shall be subject to all of the following
requirements:
a. (1) A protected cell captive company may establish one
or more protected cells subject to the prior written approval
of the commissioner of a plan of operation submitted by the
protected cell captive company for each protected cell. The
plan of operation shall include but is not limited to the
specific business objectives and investment guidelines of the
protected cell.
(2) Upon the commissioner’s approval of the protected cell
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captive company’s plan of operation, the company, in accordance
with the approved plan of operation, may attribute insurance
obligations with respect to its insurance business to the
protected cell.
(3) A protected cell captive company shall transfer
all assets attributable to a protected cell to one or more
separately established and separately identified protected cell
accounts bearing the name or designation of that protected
cell. Each protected cell shall have a distinct name or
designation that must include the words “protected cell”.
Protected cell assets shall be held in the protected cell
accounts for the purpose of satisfying the obligations of the
specific protected cell.
(4) Each protected cell must be incorporated. An
incorporated protected cell may be organized and operated
in any form of business organization as authorized by the
commissioner by rule. Each protected cell of a protected
cell captive company shall be treated as a captive insurance
company under this chapter, except that the limit on maximum
yearly aggregate taxes paid under section 432.1A, subsection 4,
shall not apply. Unless otherwise permitted by the articles of
incorporation or other organizational document of a protected
cell captive company, each protected cell of the protected cell
captive company must have the same directors, secretary, and
registered office as the protected cell captive company.
b. All attributions of assets and liabilities between a
protected cell and the protected cell captive company’s general
account shall be in accordance with the plan of operation and
the participant contracts as approved by the commissioner. No
other attribution of assets and liabilities shall be made by
a protected cell captive company between the protected cell
captive company’s general account and the company’s protected
cells. Any attribution of assets and liabilities between the
general account and a protected cell shall be in cash or in
readily marketable securities with established market values.
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c. The establishment of a protected cell shall create, with
respect to that protected cell, a legal person separate from
the protected cell captive company. Amounts attributed to a
protected cell under this chapter, including assets transferred
to a protected cell account, shall be owned by the protected
cell and the protected cell captive company shall not be a
trustee, or hold itself out to be a trustee, with respect
to the protected cell assets of that protected cell account.
A protected cell captive company may allow for a security
interest to attach to protected cell assets or to a protected
cell account if the security interest is in favor of a creditor
of the protected cell and is otherwise allowed under applicable
law.
d. A protected cell captive company may contract with or
arrange for an investment adviser, commodity trading adviser,
or other third party to manage the protected cell assets of
a protected cell if all remuneration, expenses, and other
compensation of the third party are paid from the protected
cell assets of that protected cell, and not from the protected
cell assets of other protected cells or the assets of the
protected cell captive company’s general account.
e. (1) A protected cell captive company shall establish
the administrative and accounting procedures necessary to
properly identify each protected cell of the protected cell
captive company, and the protected cell assets and protected
cell liabilities attributable to each protected cell. The
directors of a protected cell captive company shall do all of
the following:
(a) Maintain the assets and liabilities of protected cells
separately, and separately identifiable, from the assets and
liabilities of the protected cell captive company’s general
account.
(b) Maintain protected cell assets and protected cell
liabilities attributable to one protected cell separate,
and separately identifiable, from protected cell assets and
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protected cell liabilities attributable to another protected
cell.
(2) If a protected cell captive company fails to comply with
subparagraph (1), the remedy of tracing shall be applicable to
protected cell assets commingled with protected cell assets of
other protected cells, or commingled with the assets of the
protected cell captive company’s general account. The remedy
of tracing shall not be the exclusive remedy.
f. When establishing a protected cell, a protected cell
captive company shall attribute assets with a value at least
equal to the reserves attributed to that protected cell to the
protected cell.
3. Each protected cell shall be accounted for separately
on the books and records of the protected cell captive company
to reflect the financial condition and result of operations of
the protected cell, including but not limited to the net income
or loss, dividends or other distributions to participants, and
any other factor provided in the participant contract or as
required by the commissioner by rule.
4. The assets of a protected cell shall not be chargeable
with liabilities arising from any other insurance business of
the protected cell captive company.
5. A sale, exchange, or other transfer of assets shall
not be made by a protected cell captive company among any
of the company’s protected cells without the consent of the
participants of each affected protected cell.
6. A sale, exchange, transfer of assets, dividend, or
distribution shall not be made from a protected cell to a
sponsor or to a participant without the commissioner’s prior
written approval, which shall not be given if the sale,
exchange, transfer, dividend, or distribution will result in
the insolvency or impairment of the protected cell.
7. A protected cell captive company shall annually file
with the commissioner any financial reports required by the
commissioner as established by rule, and shall include, without
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limitation, accounting statements detailing the finances of
each protected cell.
8. A protected cell captive company shall notify the
commissioner in writing within twenty business days from the
date that a protected cell has become impaired or insolvent, or
is otherwise unable to meet its claim or expense obligations.
9. A participant contract shall not take effect without the
commissioner’s prior written approval.
10. An addition of any new protected cell, or the withdrawal
of any participant of an existing protected cell, shall
constitute a change in the business plan of the protected cell
captive company and the change shall not become effective
without the prior written approval of the commissioner.
11. With respect to each protected cell, business written
by a protected cell captive company shall be fronted by an
insurance company authorized under the laws of any state, or as
approved by the commissioner.
12. If a protected cell captive company’s business is
reinsured, with respect to each protected cell, the protected
cell captive company shall comply with at least one of the
following requirements:
a. The business shall be reinsured by a reinsurer authorized
or approved by the commissioner.
b. The business shall be secured by a trust fund that is
located in the United States for the benefit of policyholders
and claimants, and which is funded by an irrevocable letter of
credit or other asset that is acceptable to the commissioner,
and that is subject to all of the following:
(1) The amount of security provided by the trust fund shall
not be less than the reserves associated with the liabilities
that are not fronted or reinsured, including but not limited
to reserves for losses that are allocated for loss adjustment
expenses, incurred but not reported losses, and unearned
premiums for business written through the participant’s
protected cell.
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(2) The commissioner may require the protected cell captive
company to increase the funding of any trust.
(3) If the form of security in the trust is a letter of
credit, the letter of credit shall be established, issued, or
confirmed by a bank chartered in this state, a member of the
federal reserve system, or a bank chartered by another state if
the bank is approved by the commissioner.
(4) The commissioner shall approve the form and terms of the
trust and trust instrument.
Sec. 20. NEW SECTION . 521J.18 Sponsors —— qualifications.
A sponsor of a protected cell captive company must
be an insurer authorized under the laws of any state, a
reinsurer authorized under the laws of any state, a captive
insurance company formed or authorized under this chapter, an
insurance producer licensed in this state and approved by the
commissioner, or any other person approved by the commissioner.
Sec. 21. NEW SECTION . 521J.19 Delinquency.
If delinquency proceedings are initiated against a protected
cell captive company, the assets of a protected cell shall
not be used to pay any expenses other than those attributable
to the protected cell, and the capital and surplus of the
protected cell captive company shall be available at all times
to pay expenses of, or claims against, the protected cell
captive company.
Sec. 22. NEW SECTION . 521J.20 Participants.
Individuals, business entities, and sponsors may be a
participant in a protected cell captive company. A participant
shall not be required to be a shareholder of a protected cell
captive company or of the protected cell captive company’s
affiliate.
Sec. 23. NEW SECTION . 521J.21 Investments —— combined
assets.
The assets of two or more protected cells may be combined
for the purpose of investment by a protected cell captive
company, and combining the protected cells’ assets shall not
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be construed as defeating the segregation of the assets for
accounting or any other purpose.
Sec. 24. NEW SECTION . 521J.22 Dormant captive companies.
1. As used in this section, “dormant captive company” means
a captive company, other than a captive risk retention group,
that meets all of the following:
a. The captive company has ceased transacting the business
of insurance, including the issuance of insurance policies.
b. The captive company does not have any remaining
liabilities associated with its insurance business transactions
or insurance policies issued prior to the captive company’s
filing of an application for a certificate of dormancy under
subsection 2.
2. Any captive company that is domiciled in this state and
that complies with this section may apply to the commissioner
for a certificate of dormancy. A certificate of dormancy shall
be subject to expiration on or after five calendar years from
the date that the certificate is issued, and the commissioner
shall not renew a certificate of dormancy.
3. a. A captive company that has been issued a certificate
of dormancy shall comply with all of the following:
(1) The dormant captive company shall possess and maintain
unimpaired, paid-in capital and surplus of not less than
twenty-five thousand dollars.
(2) Within ninety calendar days of the dormant captive
company’s fiscal year end, the company shall annually submit to
the commissioner a report on the company’s financial condition,
verified by oath of two of the company’s executive officers, in
the form and manner as established by the commissioner by rule.
(3) The dormant captive company shall pay a one thousand
dollar dormancy tax, due annually on or before March 1, if
for any portion of the immediately preceding calendar year
the captive company held a certificate of dormancy. Each
series of members and each protected cell shall be considered
separate for purposes of paying the annual dormancy tax under
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a certificate of dormancy. A dormant captive company is not
otherwise liable for any annual renewal as provided in section
521J.2, subsection 4, paragraph “b” , subparagraph (2).
b. A dormant captive insurance company that has been issued
a certificate of dormancy shall not be subject to or liable
for the payment of tax under section 432.1A, or be subject to
examination under section 521J.8, from the date the certificate
is issued through the date the certificate expires.
4. Prior to a dormant captive company issuing an
insurance policy, the dormant captive company shall apply
to the commissioner for approval to surrender the company’s
certificate of dormancy and to resume conducting the business
of insurance.
5. A dormant captive company’s certificate of dormancy
shall be revoked if the company violates this section.
Sec. 25. NEW SECTION . 521J.23 Workers’ compensation ——
compliance with state and federal laws.
This chapter shall not be construed to exempt a captive
company, a captive company’s parent, or a captive company’s
affiliated companies from compliance with applicable state and
federal laws governing workers’ compensation insurance.
Sec. 26. NEW SECTION . 521J.24 Rules.
The commissioner shall adopt rules pursuant to chapter 17A
to implement and administer the provisions of this chapter.
Sec. 27. FUTURE REPEAL. Chapter 521G, Code 2023, is
repealed effective January 1, 2025.
Sec. 28. APPLICABILITY. The following applies January 1,
2025, to protected cell captive companies formed, authorized,
or continued on or after that date:
The section of this Act enacting section 521J.17.
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