A bill for an act relating to captive insurance companies and life captive reinsurance companies, and including civil penalties.(Formerly SSB 3179 ; See SF 2499 .)

Senate

File

2446

-

Introduced

SENATE

FILE

2446

BY

COMMITTEE

ON

COMMERCE

(SUCCESSOR

TO

SSB

3179)

A

BILL

FOR

An

Act

relating

to

captive

insurance

companies

and

life

captive

1

reinsurance

companies,

and

including

civil

penalties.

2

BE

IT

ENACTED

BY

THE

GENERAL

ASSEMBLY

OF

THE

STATE

OF

IOWA:

3

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Section

1.

Section

432.1,

Code

2026,

is

amended

by

adding

1

the

following

new

subsection:

2

NEW

SUBSECTION

.

7.

a.

A

tax

return

filed

under

this

3

section

shall

not

be

subject

to

inspection

under

chapter

22.

4

It

shall

be

unlawful

for

any

present

or

former

officer

or

5

employee

of

the

state

to

willfully

or

recklessly

publish

any

6

tax

return

filed

under

this

section.

A

person

who

violates

7

this

paragraph

shall

be

guilty

of

a

serious

misdemeanor

and,

in

8

addition

to

any

other

penalty,

shall

be

dismissed

from

state

9

office

or

discharged

from

state

employment.

10

b.

This

section

shall

not

be

construed

to

prohibit

the

11

department

of

revenue

from

turning

over

information

and

tax

12

returns

in

the

department

of

revenue’s

possession

pursuant

13

to

this

subsection

to

duly

authorized

officers

of

the

United

14

States,

or

tax

officials

of

other

states,

pursuant

to

an

15

agreement

between

the

commissioner

of

insurance

and

any

of

the

16

following:

17

(1)

The

secretary

of

the

treasury

of

the

United

States,

or

18

the

secretary’s

delegate.

19

(2)

The

commissioner

of

insurance

of

another

state.

20

Sec.

2.

Section

432.1A,

Code

2026,

is

amended

by

adding

the

21

following

new

subsection:

22

NEW

SUBSECTION

.

9.

a.

A

tax

return

filed

under

this

23

section

shall

not

be

subject

to

inspection

under

chapter

22.

24

It

shall

be

unlawful

for

any

present

or

former

officer

or

25

employee

of

the

state

to

willfully

or

recklessly

publish

any

26

tax

return

filed

under

this

section.

A

person

who

violates

27

this

paragraph

shall

be

guilty

of

a

serious

misdemeanor

and,

in

28

addition

to

any

other

penalty,

shall

be

dismissed

from

state

29

office

or

discharged

from

state

employment.

30

b.

This

section

shall

not

be

construed

to

prohibit

the

31

department

of

revenue

from

turning

over

information

and

32

tax

returns

in

the

department’s

possession

pursuant

to

this

33

subsection

to

duly

authorized

officers

of

the

United

States,

or

34

tax

officials

of

other

states,

pursuant

to

an

agreement

between

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the

commissioner

of

insurance

and

any

of

the

following:

1

(1)

The

secretary

of

the

treasury

of

the

United

States,

or

2

the

secretary’s

delegate.

3

(2)

The

commissioner

of

insurance

of

another

state.

4

Sec.

3.

Section

490.905,

subsection

1,

Code

2026,

is

amended

5

to

read

as

follows:

6

1.

The

secretary

of

state,

upon

a

corporation

complying

with

7

this

section

and

upon

the

filing

of

articles

of

incorporation

8

and

upon

receipt

of

the

fees

as

provided

in

this

chapter

,

9

shall

issue

an

acknowledgment

of

receipt

of

document

as

10

of

the

date

of

the

filing

of

the

articles

of

incorporation

11

with

the

secretary

of

state.

The

acknowledgment

of

receipt

12

of

document

shall

state

on

its

face

that

it

is

issued

in

13

accordance

with

this

section

.

The

secretary

of

state

shall

14

then

notify

the

appropriate

officer

of

the

state

or

country

of

15

the

corporation’s

last

domicile

that

the

corporation

is

now

a

16

domestic

corporation

domiciled

in

this

state.

This

section

17

applies

to

life

insurance

companies,

and

to

insurance

companies

18

doing

business

under

chapter

515

,

and

to

captive

companies

19

doing

business

under

chapter

521J

.

20

Sec.

4.

Section

521J.1,

unnumbered

paragraph

1,

Code

2026,

21

is

amended

to

read

as

follows:

22

As

used

in

this

chapter

subchapter

,

unless

the

context

23

otherwise

requires:

24

Sec.

5.

Section

521J.1,

subsections

2,

6,

7,

8,

and

9,

Code

25

2026,

are

amended

to

read

as

follows:

26

2.

“Alien

captive

company”

means

a

captive

company

formed

27

under

the

laws

of

an

alien

jurisdiction

any

country

except

the

28

United

States

that

imposes

statutory

or

regulatory

standards

in

29

a

form

acceptable

to

the

commissioner

on

companies

transacting

30

the

business

of

insurance

in

such

jurisdiction.

31

6.

“Business

entity”

means

a

corporation,

a

limited

32

liability

company,

or

other

legal

entity

formed

by

an

33

organizational

document

legal

entity

permitted

under

Iowa

law

.

34

“Business

entity”

does

not

include

a

sole

proprietorship.

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7.

“Captive

company”

means

any

pure

captive

company,

1

protected

cell

captive

company,

special

purpose

captive

2

company,

or

industrial

insured

captive

company

formed

or

3

authorized

under

this

chapter

subchapter

.

“Captive

company”

4

does

not

include

a

life

captive

reinsurance

company

as

defined

5

under

section

521J.101.

6

8.

“Captive

reinsurance

company”

means

a

captive

insurance

7

company

in

this

state,

as

authorized

by

the

commissioner

by

8

rule

under

this

subchapter

,

that

reinsures

the

risk

ceded

by

9

any

other

insurer.

“Captive

reinsurance

company”

does

not

10

include

a

life

captive

reinsurance

company

as

defined

under

11

section

521J.101.

12

9.

“Captive

risk

retention

group”

means

a

captive

insurance

13

risk

retention

group

formed

under

this

chapter

subchapter

and

14

that

is

subject

to

chapter

515E

.

15

Sec.

6.

Section

521J.1,

Code

2026,

is

amended

by

adding

the

16

following

new

subsection:

17

NEW

SUBSECTION

.

13A.

“Foreign

captive

company”

means

a

18

captive

company

formed

and

licensed

under

the

laws

of

any

19

jurisdiction

within

the

United

States

except

this

state.

20

Sec.

7.

Section

521J.1,

subsection

22,

Code

2026,

is

amended

21

to

read

as

follows:

22

22.

“Protected

cell”

means

a

separate

account

established

23

by

a

protected

cell

captive

company

formed

or

authorized

under

24

this

chapter

subchapter

in

which

an

identified

pool

of

assets

25

and

liabilities

are

segregated

and

insulated,

as

provided

in

26

section

521J.17

,

from

the

remainder

of

the

protected

cell

27

captive

company’s

assets

and

liabilities

in

accordance

with

28

the

terms

of

one

or

more

participant

contracts

to

fund

the

29

liability

of

the

protected

cell

captive

company

with

respect

to

30

the

participants.

31

Sec.

8.

Section

521J.1,

subsection

24,

paragraph

b,

Code

32

2026,

is

amended

to

read

as

follows:

33

b.

The

company

is

formed

or

authorized

under

this

chapter

34

subchapter

.

35

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Sec.

9.

Section

521J.1,

subsection

31,

Code

2026,

is

amended

1

to

read

as

follows:

2

31.

“Special

purpose

captive

company”

means

a

captive

3

company

that

is

formed

or

authorized

under

this

chapter

4

subchapter

that

does

not

meet

the

definition

of

any

other

type

5

of

captive

company

as

defined

in

this

section

subchapter

,

6

or

that

is

formed

by,

on

behalf

of,

or

for

the

benefit

of

a

7

political

subdivision

of

this

state

.

“Special

purpose

captive

8

company”

may

include

a

reciprocal

insurer.

“Special

purpose

9

captive

company”

does

not

include

a

life

captive

reinsurance

10

company

as

defined

under

section

521J.101.

11

Sec.

10.

Section

521J.2,

subsection

1,

unnumbered

paragraph

12

1,

Code

2026,

is

amended

to

read

as

follows:

13

If

permitted

by

its

organizational

document,

a

captive

14

company

may

apply

to

the

commissioner

for

a

certificate

of

15

authority

to

provide

property

insurance,

casualty

insurance,

16

life

insurance,

disability

income

insurance,

surety

insurance,

17

marine

insurance,

health

insurance,

or

a

group

health

plan,

or

18

the

ability

to

accept

or

transfer

risk

by

means

of

a

parametric

19

contract,

with

the

following

exceptions:

20

Sec.

11.

Section

521J.2,

subsection

2,

Code

2026,

is

amended

21

by

adding

the

following

new

paragraph:

22

NEW

PARAGRAPH

.

e.

The

captive

company’s

organizational

23

documents,

and

any

subsequent

amendments,

have

been

filed

and

24

approved

by

the

commissioner

prior

to

being

filed

with

the

25

secretary

of

state.

26

Sec.

12.

Section

521J.2,

subsections

3,

4,

and

5,

Code

2026,

27

are

amended

to

read

as

follows:

28

3.

a.

Prior

to

receiving

a

certificate

of

authority,

a

29

captive

company

applicant

shall

do

all

of

the

following:

30

(1)

File

with

the

commissioner

all

of

the

following:

31

(a)

A

certified

copy

of

the

business

entity’s

32

organizational

document.

33

(b)

A

statement

under

oath

of

an

officer

of

the

business

34

entity

showing

the

business

entity’s

financial

condition.

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(c)

Any

other

statement

or

document

required

by

the

1

commissioner

as

established

by

rule

.

2

(2)

Submit

a

description

of

coverages,

deductibles,

3

coverage

limits,

rates,

and

any

additional

information

4

requested

by

the

commissioner

to

the

commissioner

for

approval.

5

(3)

Provide

a

statement

to

the

commissioner

that

describes

6

all

of

the

following:

7

(a)

The

character,

reputation,

and

financial

standing

of

8

the

organizers

of

the

business

entity.

9

(b)

The

character,

reputation,

financial

responsibility,

10

insurance

experience,

and

business

qualifications

of

all

11

officers,

directors,

and

managing

members

of

the

business

12

entity.

13

(4)

Provide

any

other

information

required

by

the

14

commissioner

as

established

by

rule

.

15

b.

If

there

is

a

subsequent

material

change

in

the

16

information

provided

to

the

commissioner

under

paragraph

17

“a”

,

the

captive

company

shall

submit

appropriate

supporting

18

documentation

to

the

commissioner

for

approval.

The

captive

19

company

shall

not

offer

any

additional

lines

of

insurance

until

20

on

or

after

the

date

on

which

the

commissioner

approves

the

21

supporting

documentation.

The

captive

company

shall

inform

the

22

commissioner

of

any

change

in

rates

within

thirty

calendar

days

23

of

the

captive

company’s

adoption

of

a

change

in

rate.

24

c.

In

addition

to

the

information

required

under

paragraphs

25

“a”

and

“b”

,

each

applicant

captive

company

shall

file

with

the

26

commissioner

evidence

of

all

of

the

following:

27

(1)

The

amount

and

liquidity

of

the

captive

company’s

assets

28

relative

to

the

risks

to

be

assumed

by

the

captive

company.

29

(2)

The

adequacy

of

the

expertise,

experience,

and

30

character

of

the

persons

who

will

manage

the

captive

company.

31

(3)

The

overall

soundness

of

the

captive

company’s

plan

of

32

operation.

33

(4)

The

adequacy

of

the

loss

prevention

program

of

the

34

captive

company’s

parent,

members,

or

industrial

insureds,

as

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applicable.

1

(5)

Any

other

factors

deemed

relevant

by

the

commissioner

to

2

ascertain

if

the

proposed

captive

company

will

be

able

to

meet

3

the

company’s

policy

obligations.

4

d.

In

addition

to

the

information

required

under

paragraph

5

“a”

,

each

applicant

that

is

a

protected

cell

captive

company

6

shall

file

with

the

commissioner

all

of

the

following:

7

(1)

A

business

plan

that

demonstrates,

at

a

level

of

detail

8

deemed

sufficient

by

the

commissioner,

how

the

applicant

will

9

account

for

the

loss

and

expense

experience

of

each

protected

10

cell,

and

how

the

applicant

will

report

the

loss

and

expense

11

experience

of

each

protected

cell

to

the

commissioner.

12

(2)

A

statement

that

acknowledges

that

all

financial

13

records

of

the

protected

cell

captive

company,

including

14

records

pertaining

to

any

protected

cells,

shall

be

made

15

available

upon

request

for

inspection

or

examination

by

the

16

commissioner

or

the

commissioner’s

designated

agent.

17

(3)

A

copy

of

each

participant

contract.

18

(4)

Evidence

that

expenses

will

be

allocated

to

each

19

protected

cell

in

a

fair

and

equitable

manner.

20

e.

In

addition

to

the

requirements

of

paragraph

“a”

,

a

21

captive

company

formed

as

a

reciprocal

insurer

shall

file

with

22

the

commissioner

a

certified

copy

of

the

power

of

attorney

of

23

the

reciprocal

insurer’s

attorney-in-fact,

a

certified

copy

of

24

the

reciprocal

insurer’s

subscribers’

agreement,

a

statement

25

under

oath

of

the

reciprocal

insurer’s

attorney-in-fact

that

26

shows

the

reciprocal

insurer’s

financial

condition,

and

any

27

other

statements

or

documents

required

by

the

commissioner

as

28

established

by

rule

.

29

f.

4.

All

documents

,

reports,

and

information

submitted

30

pursuant

to

this

subsection

subchapter

shall

be

confidential

31

and

shall

not

be

made

public

without

the

advance

written

32

consent

of

the

submitting

company,

with

the

following

33

exceptions:

34

(1)

a.

The

documents

and

information

shall

be

discoverable

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by

a

party

in

a

civil

action

or

in

a

contested

case

to

which

1

the

captive

company

that

submitted

the

information

is

a

party

2

upon

a

showing

by

the

party

seeking

to

discover

the

information

3

that

the

information

sought

is

relevant

to,

and

necessary

for,

4

the

furtherance

of

the

action

or

case;

the

information

sought

5

is

unavailable

from

other

nonconfidential

sources;

and

that

a

6

subpoena

issued

by

a

judicial

or

an

administrative

officer

has

7

been

submitted

to

the

commissioner.

8

(2)

b.

The

commissioner

may,

in

the

commissioner’s

9

discretion,

disclose

the

documents

and

information

to

a

public

10

official

having

jurisdiction

over

the

regulation

of

insurance

11

in

another

state,

or

to

a

public

official

of

the

federal

12

government,

provided

that

the

public

official

agrees

in

writing

13

to

maintain

the

confidentiality

of

the

information,

and

that

14

the

laws

of

the

state

in

which

the

public

official

serves

15

require

that

the

information

remain

confidential.

16

4.

5.

a.

Each

captive

company,

each

individual

series

17

of

members

of

a

limited

liability

company,

and

each

protected

18

cell

shall

pay

a

nonrefundable

fee

to

the

commissioner

of

19

two

hundred

dollars

for

the

examination,

investigation,

and

20

processing

of

its

application

for

a

certificate

of

authority.

21

The

commissioner

shall

be

authorized

to

retain

legal,

22

financial,

and

examination

services

from

outside

experts

as

23

necessary

for

review

of

the

application,

the

reasonable

cost

of

24

which

may

be

charged

to

the

applicant.

25

b.

Each

captive

insurance

company,

each

individual

series

of

26

members

of

a

limited

liability

company,

and

each

protected

cell

27

shall

pay

an

initial

registration

fee,

and

an

annual

renewal

28

registration

fee

,

of

three

hundred

dollars.

29

5.

6.

If

the

commissioner

is

satisfied

with

the

documents

30

and

statements

that

an

applicant

captive

company

has

filed

in

31

compliance

with

this

chapter

subchapter

,

and

the

applicable

32

provisions

of

Title

XIII,

subtitle

1

,

the

commissioner

may

33

grant

a

certificate

of

authority

to

the

captive

company

that

34

permits

the

company

to

do

the

business

of

insurance

in

this

35

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state.

The

certificate

of

authority

must

be

renewed

annually

1

and

may

be

renewed

if

the

applicant

is

in

compliance

with

this

2

chapter

subchapter

.

3

Sec.

13.

Section

521J.4,

subsection

1,

paragraphs

d

and

e,

4

Code

2026,

are

amended

to

read

as

follows:

5

d.

Is

not

less

than

five

one

hundred

thousand

dollars

for

6

a

protected

cell

captive

company.

If,

however,

the

protected

7

cell

captive

company

does

not

assume

any

risks,

the

risks

8

insured

by

the

protected

cells

are

homogenous,

and

there

are

9

not

more

than

ten

cells,

the

commissioner

may

reduce

the

amount

10

to

an

amount

not

less

than

two

hundred

fifty

thousand

dollars.

11

e.

Is

not

less

than

the

applicable

amount

of

capital

and

12

surplus

required

in

paragraphs

“a”

through

“d”

,

as

determined

13

based

upon

the

organizational

form

of

the

alien

captive

14

company,

for

a

branch

captive

company.

The

minimum

capital

15

and

surplus

shall

be

jointly

held

by

the

commissioner

and

the

16

branch

captive

company

in

a

bank

of

the

federal

reserve

system

17

as

approved

by

the

commissioner

by

rule

.

18

Sec.

14.

Section

521J.4,

subsection

3,

Code

2026,

is

amended

19

to

read

as

follows:

20

3.

a.

The

capital

and

surplus

required

under

subsection

21

1

and

subsection

2

,

if

applicable,

shall

be

in

the

form

of

22

cash,

cash

equivalent,

marketable

securities

as

approved

by

23

the

commissioner,

or

an

irrevocable

letter

of

credit

on

a

form

24

as

prescribed

by

the

commissioner

by

rule

and

as

issued

by

25

a

bank

chartered

by

the

state

of

Iowa,

a

member

bank

of

the

26

federal

reserve

system,

or

a

bank

chartered

by

another

state

if

27

approved

by

the

commissioner.

28

b.

If

a

captive

company

elects

to

satisfy

any

portion

of

the

29

captive

company’s

minimum

capital

and

surplus

requirements

with

30

marketable

securities,

the

commissioner

may

require

the

captive

31

company

to

file

financial

statements

or

other

reports

on

a

more

32

frequent

basis

than

otherwise

required

under

this

subchapter.

33

The

increased

reporting

frequency

may

be

imposed

to

ensure

the

34

commissioner

can

adequately

monitor

the

liquidity,

valuation,

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and

market

risk

associated

with

the

marketable

securities.

1

Sec.

15.

Section

521J.5,

subsection

1,

Code

2026,

is

amended

2

to

read

as

follows:

3

1.

A

Subject

to

the

commissioner’s

approval,

a

captive

4

company

must

may

be

formed

or

organized

as

a

business

entity

5

as

provided

under

this

chapter

subchapter,

or

as

a

reciprocal

6

insurer

as

provided

under

chapter

520

.

7

Sec.

16.

Section

521J.5,

subsection

2,

paragraph

c,

Code

8

2026,

is

amended

to

read

as

follows:

9

c.

Organized

as

a

reciprocal

insurer

as

permitted

by

the

10

commissioner

by

rule

.

11

Sec.

17.

Section

521J.5,

subsection

5,

paragraph

c,

Code

12

2026,

is

amended

to

read

as

follows:

13

c.

A

reciprocal

insurer

shall

have

at

least

one

member

14

of

the

subscribers’

advisory

committee

who

is

a

resident

15

of

this

state.

A

captive

risk

retention

group

formed

as

a

16

reciprocal

insurer

shall

have

a

minimum

of

five

members

of

17

the

subscribers’

advisory

committee

who

are

residents

of

this

18

state.

19

Sec.

18.

Section

521J.5,

subsections

6

and

7,

Code

2026,

are

20

amended

to

read

as

follows:

21

6.

a.

A

captive

company

formed

as

a

corporation

or

another

22

business

entity

shall

have

the

privileges

of,

and

shall

be

23

subject

to,

state

laws

governing

corporations

or

other

business

24

entities,

and

the

applicable

provisions

of

this

chapter

25

subchapter

.

26

b.

In

the

event

of

a

conflict

between

a

state

law

governing

27

corporations

or

other

business

entities

and

this

chapter

28

subchapter

,

this

chapter

subchapter

shall

take

precedence.

29

7.

a.

A

subscribers’

agreement,

or

other

organizational

30

document

of

a

captive

company

formed

as

a

reciprocal

insurer,

31

shall

authorize

a

quorum

of

a

subscribers’

advisory

committee

32

to

consist

of

at

least

one-third

of

the

number

of

members

on

33

the

advisory

committee.

In

addition

to

this

subchapter,

a

34

captive

company

formed

as

a

reciprocal

insurer

shall

be

subject

35

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to

chapter

520,

unless

exempt

by

approval

of

the

commissioner

1

in

the

captive

company’s

plan

of

operations.

In

the

event

2

of

a

conflict

between

chapter

520

and

this

subchapter,

this

3

subchapter

shall

take

precedence.

4

b.

In

addition

to

this

chapter

subchapter

,

a

captive

risk

5

retention

group

shall

be

subject

to

chapter

515E

.

In

the

event

6

of

a

conflict

between

chapter

515E

and

this

chapter

subchapter

,

7

this

chapter

subchapter

shall

take

precedence.

8

Sec.

19.

Section

521J.5,

subsection

8,

Code

2026,

is

amended

9

by

striking

the

subsection.

10

Sec.

20.

Section

521J.5,

subsection

9,

paragraph

b,

Code

11

2026,

is

amended

to

read

as

follows:

12

b.

A

branch

captive

company

established

under

this

13

chapter

subchapter

to

write,

in

this

state,

only

insurance

or

14

reinsurance

of

the

employee

benefit

business

of

the

branch

15

captive

company’s

parent

and

affiliated

companies

shall

be

16

subject

to

the

federal

Employee

Retirement

Income

Security

Act

17

of

1974,

29

U.S.C.

§1001,

et

seq.

18

Sec.

21.

Section

521J.6,

subsection

2,

Code

2026,

is

amended

19

to

read

as

follows:

20

2.

The

commissioner’s

approval

of

an

ongoing

plan

for

21

the

payment

of

dividends

or

other

distributions

shall

be

22

conditioned

upon

retention,

at

the

time

of

each

payment,

of

23

capital

and

surplus

in

excess

of

the

amounts

specified

by,

24

or

determined

in

accordance

with,

a

formula

approved

by

the

25

commissioner

by

rule

.

26

Sec.

22.

Section

521J.7,

Code

2026,

is

amended

to

read

as

27

follows:

28

521J.7

Reports.

29

1.

A

Unless

otherwise

directed

by

the

commissioner

in

30

the

first

year

of

a

captive

company’s

licensure

under

this

31

subchapter,

the

captive

company

shall

be

required

to

file

an

32

annual

report

with

the

commissioner

that

meets

the

following

33

requirements:

34

a.

1.

Except

as

provided

in

paragraph

“b”

subsection

35

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2

,

on

or

before

April

1

of

each

year,

each

captive

company

1

and

each

captive

risk

retention

group

shall

submit

to

the

2

commissioner

a

report

on

the

company’s

financial

condition

as

3

of

December

31

of

the

preceding

year,

as

verified

by

oath

of

4

two

of

the

company’s

or

group’s

executive

officers.

The

report

5

shall

be

submitted

in

a

form

and

manner

as

prescribed

by

the

6

commissioner

by

rule.

7

b.

2.

A

captive

company,

other

than

a

captive

risk

8

retention

group,

may

apply

to

the

commissioner

to

file

the

9

report

required

under

paragraph

“a”

subsection

1

on

a

fiscal

10

year-end

basis.

If

the

commissioner

approves

reporting

on

a

11

fiscal

year-end

basis,

the

captive

company

shall

comply

with

12

all

of

the

following

requirements:

13

(1)

a.

Subject

to

subparagraph

(2)

paragraph

“b”

,

the

14

captive

company’s

report

shall

be

filed

no

later

than

ninety

15

calendar

days

after

the

close

of

the

company’s

fiscal

year.

16

(2)

b.

Prior

to

April

1,

the

captive

company

shall

file

a

17

report

covering

the

immediately

preceding

calendar

year

with

18

the

commissioner

to

provide

sufficient

information

to

support

19

the

captive

company’s

premium

tax

return

under

section

432.1A

.

20

c.

3.

Each

captive

company

shall

use

generally

accepted

21

accounting

principles

as

used

in

the

United

States

,

unless

22

the

commissioner

requires,

approves,

or

accepts

the

use

23

of

United

States

statutory

accounting

principles

or

any

24

other

comprehensive

accounting

principles

for

the

company’s

25

report.

The

commissioner

may

require,

approve,

or

accept

26

any

appropriate

or

necessary

modifications

of

United

States

27

statutory

accounting

principles

or

other

comprehensive

28

accounting

principles

based

on

the

type

of

insurance

and

kinds

29

of

insurers

that

are

included

in

a

captive

company’s

report.

30

The

report

may

include

letters

of

credit

that

are

established,

31

issued,

or

confirmed

by

any

of

the

following:

32

(1)

a.

A

bank

chartered

in

this

state.

33

(2)

b.

A

member

of

the

federal

reserve

system.

34

(3)

c.

A

bank

chartered

by

another

state,

if

approved

by

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the

commissioner.

1

d.

4.

An

actuarial

opinion

from

a

qualified

actuary

2

regarding

the

adequacy

of

the

company’s

required

reserves

to

3

make

full

provision

for

the

company’s

liabilities,

insured

or

4

reinsured,

shall

be

included

in

the

report.

The

qualified

5

actuary

shall

submit

a

memorandum

to

the

commissioner

that

6

details

the

qualified

actuary’s

support

for

the

actuarial

7

opinion.

The

commissioner

may

require

that

additional

8

information

be

submitted

to

supplement

the

actuarial

opinion.

9

e.

5.

All

captive

companies

shall

be

audited

annually

by

an

10

independent

certified

public

accountant

and

shall

annually

file

11

the

audited

financial

report

with

the

commissioner

on

or

before

12

June

1,

as

a

supplement

to

the

annual

report

required

under

13

section

521J.7,

subsection

1

this

section

.

14

f.

6.

A

captive

company

may

request

an

extension

to

file

15

a

report

required

by

this

section

.

A

written

request

for

an

16

extension

must

be

received

by

the

commissioner

not

less

than

17

ten

days

before

the

filing

due

date,

and

the

request

must

18

contain

sufficient

details

to

enable

the

commissioner

to

make

19

an

informed

decision

regarding

the

request.

The

commissioner

20

may

grant

a

thirty-day

extension

upon

a

determination

by

the

21

commissioner

that

a

captive

company

has

good

cause

for

the

22

extension.

23

g.

7.

A

captive

company

may

be

required

to

file

a

report

24

on

the

captive

company’s

financial

condition

on

a

semiannual,

25

quarterly,

monthly,

or

other

basis

as

determined

by

the

26

commissioner.

27

h.

8.

Captive

companies

shall

file

all

reports

required

28

under

this

section

in

the

form

and

manner

prescribed

by

the

29

commissioner

by

rule.

30

2.

All

reports

filed

pursuant

to

this

section

shall

be

31

considered

confidential

and

shall

not

be

a

public

record.

32

Sec.

23.

Section

521J.8,

subsection

1,

paragraph

a,

Code

33

2026,

is

amended

to

read

as

follows:

34

a.

Except

for

captive

risk

retention

groups

as

provided

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under

paragraph

“c”

,

the

commissioner

may

examine

each

captive

1

company’s

compliance

with

this

chapter

subchapter

,

and

may

2

examine

the

affairs,

transactions,

accounts,

records,

and

3

assets

of

each

captive

company

as

the

commissioner

deems

4

necessary.

5

Sec.

24.

Section

521J.8,

subsection

5,

Code

2026,

is

amended

6

to

read

as

follows:

7

5.

The

applicable

provisions

of

chapter

507

shall

apply

to

8

examinations

conducted

under

this

chapter

subchapter

.

9

Sec.

25.

Section

521J.9,

subsection

1,

paragraphs

h

and

i,

10

Code

2026,

are

amended

to

read

as

follows:

11

h.

Failure

to

submit

or

pay

any

fee

under

this

chapter

12

subchapter

.

13

i.

Failure

to

submit

to

or

pay

the

cost

of

any

examination

14

under

this

chapter

subchapter

.

15

Sec.

26.

Section

521J.11,

subsection

1,

Code

2026,

is

16

amended

to

read

as

follows:

17

1.

A

merger

between

captive

stock

insurers,

or

a

merger

18

between

captive

mutual

insurers,

shall

meet

the

requirements

19

of

chapter

521

and

section

521J.5

,

as

applicable.

The

20

commissioner

may,

at

the

commissioner’s

discretion,

provide

21

notice

to

the

public

of

a

proposed

merger

prior

to

the

22

commissioner’s

approval

or

disapproval

of

a

merger.

Except

23

as

provided

in

this

section,

applicable

provisions

of

chapter

24

508B

shall

apply

to

a

merger,

consolidation,

conversion,

25

mutualization,

or

voluntary

dissolution

by

a

captive

company.

26

Sec.

27.

Section

521J.13,

subsection

1,

Code

2026,

is

27

amended

to

read

as

follows:

28

1.

a.

Industrial

insured

captive

companies

and

captive

29

risk

retention

groups

shall

comply

with

investment

requirements

30

as

established

approved

by

the

commissioner

by

rule

.

The

31

commissioner

may

approve

the

use

of

alternative

reliable

32

methods

of

valuation

and

rating.

33

b.

If

a

captive

company’s

admitted

annual

report

filed

34

pursuant

to

section

521J.7

states

total

assets

total

of

less

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than

five

million

dollars,

the

commissioner

may

approve

an

1

investment

of

up

to

twenty

percent

of

the

captive

company’s

2

admitted

assets

in

rated

credit

instruments

in

any

one

3

investment

that

meets

the

requirements

established

by

the

4

commissioner

by

rule

.

For

purposes

of

this

subsection,

total

5

assets

shall

be

based

on

the

accounting

basis

approved

by

the

6

commissioner,

provided

that

all

assets

included

in

such

total

7

assets

must

be

reasonably

liquid,

realizable,

and

available

to

8

support

the

obligations

of

the

captive.

9

Sec.

28.

Section

521J.14,

subsection

3,

Code

2026,

is

10

amended

to

read

as

follows:

11

3.

Insurance

by

a

captive

company

of

any

workers’

12

compensation

qualified

self-insured

plan

of

the

captive

13

company’s

parent

and

affiliates

shall

be

deemed

to

be

14

reinsurance

under

this

chapter

subchapter

.

15

Sec.

29.

Section

521J.17,

subsection

2,

unnumbered

16

paragraph

1,

Code

2026,

is

amended

to

read

as

follows:

17

A

protected

cell

captive

company

formed

or

authorized

18

under

this

chapter

subchapter

shall

be

subject

to

all

of

the

19

following

requirements:

20

Sec.

30.

Section

521J.17,

subsection

2,

paragraph

a,

21

subparagraph

(4),

Code

2026,

is

amended

to

read

as

follows:

22

(4)

Each

protected

cell

shall

be

incorporated.

An

23

incorporated

protected

cell

may

be

organized

and

operated

24

in

any

form

of

business

organization

as

authorized

by

the

25

commissioner

by

rule

formed

as

a

business

entity,

provided

the

26

business

entity

is

separate

from

the

protected

cell

captive

27

company

of

which

the

business

entity

is

a

part

.

Each

protected

28

cell

of

a

protected

cell

captive

company

shall

be

treated

as

29

a

captive

insurance

company

under

this

chapter

subchapter

,

30

except

that

the

limit

on

maximum

yearly

aggregate

taxes

paid

31

under

section

432.1A,

subsection

4

,

shall

not

apply.

Unless

32

otherwise

permitted

by

the

organizational

document

of

a

33

protected

cell

captive

company,

each

protected

cell

of

the

34

protected

cell

captive

company

must

have

the

same

directors,

35

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secretary,

and

registered

office

as

the

protected

cell

captive

1

company.

2

Sec.

31.

Section

521J.17,

subsection

2,

paragraph

c,

Code

3

2026,

is

amended

to

read

as

follows:

4

c.

The

establishment

of

a

protected

cell

shall

create,

with

5

respect

to

the

protected

cell,

a

legal

person

business

entity

6

separate

from

the

protected

cell

captive

company.

Amounts

7

attributed

to

a

protected

cell

under

this

chapter

subchapter

,

8

including

assets

transferred

to

a

protected

cell

account,

shall

9

be

owned

by

the

protected

cell

and

the

protected

cell

captive

10

company

shall

not

be

a

trustee,

or

hold

itself

out

to

be

a

11

trustee,

with

respect

to

the

protected

cell

assets

of

that

12

protected

cell

account.

13

Sec.

32.

Section

521J.18,

Code

2026,

is

amended

to

read

as

14

follows:

15

521J.18

Sponsors

——

qualifications.

16

A

sponsor

of

a

protected

cell

captive

company

may

be

17

any

person

approved

by

the

commissioner,

based

on

the

18

commissioner’s

determination

that

the

approval

of

such

person

19

as

a

sponsor

is

consistent

with

the

purposes

of

this

chapter

20

subchapter

.

In

evaluating

the

qualifications

of

a

proposed

21

sponsor,

the

commissioner

shall

consider

the

type

and

structure

22

of

the

proposed

sponsor

entity,

the

sponsor’s

experience

in

23

financial

operations,

the

sponsor’s

financial

stability,

the

24

sponsor’s

business

reputation,

and

any

other

factors

deemed

25

relevant

by

the

commissioner.

A

risk

retention

group

shall

not

26

be

a

sponsor

of

a

protected

cell

captive

company.

27

Sec.

33.

Section

521J.22,

subsection

3,

paragraph

a,

28

subparagraph

(3),

Code

2026,

is

amended

to

read

as

follows:

29

(3)

The

dormant

captive

company

shall

pay

an

annual

one

30

thousand

dollar

dormancy

tax,

due

on

or

before

March

1,

if

31

for

any

portion

of

the

immediately

preceding

calendar

year

32

the

captive

company

held

a

certificate

of

dormancy.

Each

33

series

of

members

and

each

protected

cell

shall

be

considered

34

separate

for

purposes

of

paying

the

annual

dormancy

tax

under

35

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a

certificate

of

dormancy.

A

dormant

captive

company

is

not

1

otherwise

liable

for

any

annual

renewal

as

provided

in

section

2

521J.2,

subsection

4

subsection

5

,

paragraph

“b”

.

3

Sec.

34.

Section

521J.23,

Code

2026,

is

amended

to

read

as

4

follows:

5

521J.23

Workers’

compensation

——

compliance

with

state

and

6

federal

laws.

7

1.

This

chapter

subchapter

shall

not

be

construed

to

exempt

8

a

captive

company,

a

captive

company’s

parent,

or

a

captive

9

company’s

affiliated

companies

from

compliance

with

applicable

10

state

and

federal

laws

governing

workers’

compensation

11

insurance.

12

2.

This

chapter

subchapter

shall

not

be

construed

to

divest

13

the

division

of

workers’

compensation

of

any

jurisdiction,

as

14

authorized

by

law,

over

workers’

compensation

self-insurance

15

plans.

16

Sec.

35.

Section

521J.24,

subsection

1,

paragraph

b,

Code

17

2026,

is

amended

to

read

as

follows:

18

b.

All

books,

records,

documents,

accounts,

vouchers,

and

19

agreements

shall

be

kept

in

a

manner

that

the

commissioner

can

20

readily

ascertain

the

captive

company’s

financial

condition,

21

affairs,

and

operations;

can

readily

verify

the

captive

22

company’s

financial

statements;

and

can

confirm

the

captive

23

company’s

compliance

with

this

chapter

subchapter

.

24

Sec.

36.

Section

521J.26,

unnumbered

paragraph

1,

Code

25

2026,

is

amended

to

read

as

follows:

26

The

commissioner

shall

may

adopt

rules

pursuant

to

chapter

27

17A

to

implement

and

administer

this

chapter

subchapter

.

28

Sec.

37.

NEW

SECTION

.

521J.27

Redomestication

——

premium

29

tax

credits.

30

1.

For

taxes

due

pursuant

to

section

432.1A,

a

foreign

or

31

alien

captive

company

organized

under

this

subchapter

that

32

redomesticates

into

the

state

shall

only

be

liable

for

taxes

on

33

premiums

paid

to

the

captive

company

after

redomestication.

34

2.

A

foreign

or

alien

captive

company

that

redomesticates

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under

this

subchapter

shall

report

to

the

commissioner

all

1

premium

taxes

due

under

section

432.1A,

but

in

either

the

2

captive

company’s

first

or

second

year

of

operation

after

3

redomesticating

into

the

state

may

elect

to

forgo

payment

of

4

the

premium

taxes.

A

foreign

or

alien

captive

company

that

5

makes

such

election

that

subsequently

surrenders

the

foreign

or

6

alien

captive

company’s

license

or

redomesticates

to

another

7

jurisdiction

within

five

years

from

the

date

of

redomestication

8

into

the

state

shall

immediately

pay

to

the

commissioner

a

tax

9

in

an

amount

equal

to

the

foregone

premium

tax

plus

ten

percent

10

per

annum

from

the

date

the

foregone

premium

tax

would

have

11

originally

been

due.

12

3.

This

section

shall

not

apply

to

tax

years

beginning

on

or

13

after

January

1,

2030.

14

Sec.

38.

NEW

SECTION

.

521J.101

Definitions.

15

As

used

in

this

subchapter,

unless

the

context

otherwise

16

requires:

17

1.

“Affiliated

company”

means

the

same

as

defined

in

section

18

521J.1.

19

2.

“Business

entity”

means

the

same

as

defined

in

section

20

521J.1.

21

3.

“Ceding

insurer”

means

an

affiliated

company

of

a

life

22

captive

reinsurance

company

that

cedes

risk

to

the

life

captive

23

reinsurance

company

pursuant

to

a

reinsurance

contract.

24

4.

“Commissioner”

means

the

commissioner

of

insurance.

25

5.

“Dormant

life

captive

reinsurance

company”

means

a

life

26

captive

reinsurance

company

that

has

ceased

transacting

the

27

business

of

insurance,

including

but

not

limited

to

ceasing

28

issuance

of

insurance

policies,

and

does

not

have

any

remaining

29

liabilities

associated

with

the

life

captive

reinsurance

30

company’s

insurance

business

transactions

or

insurance

policies

31

prior

to

the

filing

of

an

application

for

a

certificate

of

32

dormancy.

33

6.

a.

“Insurance

securitization”

or

“securitization”

means

34

a

transaction

or

a

group

of

related

transactions,

including

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but

not

limited

to

capital

market

offerings,

that

are

effected

1

through

related

risk

transfer

instruments

and

facilitation

2

of

administrative

agreements,

in

which

any

of

the

following

3

proceeds

from

the

transaction

or

group

of

related

transactions

4

are

used

to

fund

a

life

captive

reinsurance

company’s

5

obligations

under

a

reinsurance

contract

with

a

ceding

insurer:

6

(1)

Proceeds

obtained

by

a

life

captive

reinsurance

7

company,

directly

or

indirectly,

through

the

issuance

of

8

securities

by

the

life

captive

reinsurance

company

or

any

other

9

person.

10

(2)

Proceeds

provided

through

one

or

more

letter

of

credit

11

or

other

assets

for

the

benefit

of

the

life

captive

reinsurance

12

company,

and

which

the

commissioner

authorizes

the

life

captive

13

reinsurance

company

to

treat

as

admitted

assets

for

purposes

of

14

the

life

captive

reinsurance

company’s

annual

statement.

15

b.

“Insurance

securitization”

or

“securitization”

does

not

16

include

the

issuance

of

a

letter

of

credit

to

satisfy

all

or

17

part

of

the

life

captive

reinsurance

company’s

capital

and

18

surplus

requirements

under

this

subchapter.

19

7.

“Letter

of

credit”

means

a

clean,

irrevocable,

20

unconditional

letter

of

credit,

issued

or

confirmed

by

a

21

qualified

United

States

financial

institution,

as

defined

in

22

section

521B.104,

subsection

1.

23

8.

“Life

captive

reinsurance

company”

means

a

captive

24

insurance

company

in

this

state

that

is

authorized

under

and

25

meets

the

requirements

of

this

subchapter,

and

that

reinsures

26

the

risk

ceded

by

a

life

insurance

company.

27

9.

“NAIC”

means

the

national

association

of

insurance

28

commissioners.

29

10.

“Organizational

document”

means

the

same

as

defined

in

30

section

521J.1.

31

11.

“Organizing

company”

means

a

life

insurance

company

or

32

an

affiliated

company

that

organizes

a

life

captive

reinsurance

33

company.

34

12.

“Parent”

means

a

person

that

owns

an

organizing

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company,

either

directly

or

indirectly

through

one

or

more

1

intermediaries.

2

13.

“Person”

means

an

individual,

corporation,

limited

3

liability

company,

business

trust,

estate,

trust,

partnership

4

or

association,

joint

stock

company,

unincorporated

5

organization,

or

any

other

legal

entity,

or

combination

of

the

6

foregoing

acting

in

concert.

“Person”

does

not

include

a

joint

7

venture

partnership

exclusively

engaged

in

owning,

managing,

8

leasing,

or

developing

real

or

tangible

personal

property.

9

14.

“Qualified

actuary”

means

the

same

as

defined

in

section

10

521J.1.

11

15.

“Risk”

means

a

risk

associated

with

life

insurance

12

policies

and

contracts

written

by

a

ceding

life

insurance

13

company

or

assumed

by

a

ceding

life

insurance

company

from

14

an

affiliated

company,

which

were

written

by

the

affiliated

15

company

and

for

which

the

ceding

life

insurance

company

holds

16

direct

statutory

reserves

as

required

by

section

508.36.

17

16.

“Risk-based

capital

instructions”

means

instructions

18

included

in

a

risk-based

capital

report

as

adopted

and

amended

19

by

the

NAIC.

20

17.

“Security”

means

the

same

as

defined

in

section

502.102.

21

“Security”

also

includes

any

form

of

debt

obligation,

surplus

22

note,

derivative,

or

other

financial

instrument

that

the

23

commissioner

designates

as

a

“security”

for

purposes

of

this

24

subchapter.

25

18.

“Surplus

note”

means

an

unsecured

subordinate

debt

26

obligation

possessing

characteristics

consistent

with

the

NAIC

27

statutory

accounting

principles

pursuant

to

the

most

recently

28

published

NAIC

accounting

practices

and

procedures

manual.

29

Sec.

39.

NEW

SECTION

.

521J.102

Certificate

of

authority.

30

1.

A

life

captive

reinsurance

company

issued

a

certificate

31

of

authority

shall

only

reinsure

the

risks

of

a

ceding

insurer

32

and

shall

not

otherwise

engage

in

the

business

of

insurance.

A

33

life

captive

reinsurance

company

may

purchase

retrocession

to

34

cede

the

risks

assumed

under

a

reinsurance

contract,

subject

to

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prior

approval

of

the

commissioner.

1

2.

A

life

captive

reinsurance

company

shall

not

write

any

2

insurance

business

unless

the

life

captive

reinsurance

company

3

complies

with

all

of

the

following:

4

a.

The

life

captive

reinsurance

company

obtains

a

5

certificate

of

authority

from

the

commissioner.

6

b.

The

life

captive

reinsurance

company

maintains

its

7

principal

place

of

business

in

the

state.

8

c.

The

life

captive

reinsurance

company’s

board

of

directors

9

holds

at

least

one

annual

meeting

in

the

state.

10

d.

At

least

one

member

of

the

board

of

directors

of

the

life

11

captive

reinsurance

company

is

a

resident

of

the

state.

12

e.

The

life

captive

reinsurance

company

designates

a

13

registered

agent

to

accept

service

of

process,

files

the

name

14

and

contact

information

and

any

subsequent

changes

regarding

15

the

registered

agent

with

the

commissioner,

and

agrees

that

if

16

the

registered

agent

cannot

be

found

with

reasonable

diligence,

17

the

commissioner

may

act

as

an

agent

of

the

life

captive

18

reinsurance

company

with

respect

to

any

action

or

proceeding,

19

and

the

commissioner

may

be

served

pursuant

to

section

505.30.

20

f.

The

life

captive

reinsurance

company

has

filed

a

copy

21

of

the

life

captive

reinsurance

company’s

articles

and

bylaws,

22

including

any

subsequent

amendment

to

the

articles

or

bylaws,

23

with

the

commissioner

and

with

the

secretary

of

state,

and

the

24

articles

and

bylaws

have

been

approved

by

the

commissioner

and

25

the

secretary

of

state.

26

3.

a.

Prior

to

receiving

a

certificate

of

authority,

a

life

27

captive

reinsurance

company

shall

do

all

of

the

following:

28

(1)

File

with

the

commissioner

all

of

the

following:

29

(a)

A

copy

of

the

life

captive

reinsurance

company’s

plan

30

of

operation.

31

(b)

An

affidavit

from

the

life

captive

reinsurance

32

company’s

president,

vice

president,

treasurer,

or

chief

33

financial

officer

that

includes

all

of

the

following:

34

(i)

A

statement

that

the

proposed

organization

and

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operation

of

the

life

captive

reinsurance

company

complies

with

1

this

section.

2

(ii)

The

life

captive

reinsurance

company’s

investment

3

policy

reflects

and

accounts

for

the

liquidity

of

assets

and

4

the

reasonable

preservation,

administration,

and

management

5

of

assets

with

respect

to

the

risks

associated

with

the

6

reinsurance

contract

between

the

life

captive

reinsurance

7

company

and

the

parent

or

ceding

insurer.

8

(c)

A

statement

under

oath

by

an

officer

of

the

life

9

captive

reinsurance

company

that

attests

to

the

life

captive

10

reinsurance

company’s

financial

condition.

11

(d)

Documentation

that

provides

evidence

of

the

amount

12

and

liquidity

of

the

life

captive

reinsurance

company’s

13

assets

relative

to

the

risks

to

be

assumed

by

the

life

captive

14

reinsurance

company.

15

(e)

Documentation

that

provides

evidence

related

to

the

16

overall

soundness

of

the

life

captive

reinsurance

company’s

17

plan

of

operation.

18

(f)

A

certification

from

an

actuarial

officer

of

a

ceding

19

insurer

that

complies

with

section

521J.104.

20

(g)

A

description

of

coverages,

deductibles,

coverage

21

limits,

rates,

and

any

additional

information

requested

by

the

22

commissioner.

23

(h)

A

copy

of

each

reinsurance

contract

and

each

arrangement

24

that

secures

the

life

captive

reinsurance

company’s

obligations

25

under

the

reinsurance

contract

between

the

life

captive

26

reinsurance

company

and

the

parent

or

ceding

insurer,

including

27

but

not

limited

to

any

agreements

or

other

documentation

to

28

implement

such

reinsurance

contract

or

arrangement.

29

(i)

A

legal

opinion,

in

a

form

and

manner

approved

by

30

the

commissioner,

that

the

offer

and

sale

of

life

captive

31

reinsurance

company

securities

comply

with

all

applicable

32

registration

requirements

or

applicable

exemptions

or

33

exceptions

to

such

requirements

under

state

and

federal

34

securities

laws.

The

legal

opinion

shall

not

be

required

35

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as

part

of

the

life

captive

reinsurance

company’s

initial

1

application

for

a

certificate

of

authority

if

the

life

captive

2

reinsurance

company

includes

a

statement

in

the

company’s

3

plan

of

operation

that

the

legal

opinion

will

be

submitted

4

to

the

commissioner

prior

to

the

offer

or

sale

of

a

captive

5

reinsurance

security.

6

(j)

An

opinion

of

a

qualified

actuary,

approved

by

the

7

commissioner,

confirming

that

the

methodology

and

assumptions

8

to

set

and

discount

reserves

sufficiently

provide

for

the

risk

9

assumed

by

the

life

captive

reinsurance

company,

including

10

significant

stress

tests

on

key

assumptions.

11

(k)

A

biographical

affidavit

for

each

officer

and

each

12

director

of

the

life

captive

reinsurance

company

prepared

on

13

the

most

recent

template

for

biographical

affidavits

prescribed

14

by

the

NAIC.

15

(2)

Provide

the

commissioner

with

any

other

statement

or

16

document

requested

by

the

commissioner

to

evaluate

the

life

17

captive

reinsurance

company’s

application

for

a

certificate

of

18

authority.

19

(3)

Pay

a

nonrefundable

fee

of

two

thousand

five

hundred

20

dollars

to

the

commissioner

for

the

examination,

investigation,

21

and

processing

of

the

life

captive

reinsurance

company’s

22

application

for

a

certificate

of

authority.

23

b.

The

commissioner

shall

be

authorized

to

retain

legal,

24

financial,

and

examination

services

from

outside

experts

as

25

necessary

for

review

of

the

application,

the

reasonable

cost

of

26

which

may

be

charged

to

the

applicant.

27

c.

If

there

is

a

subsequent

material

change

in

the

28

information

provided

to

the

commissioner

under

paragraph

29

“a”

,

the

life

captive

reinsurance

company

shall

inform

the

30

commissioner

within

thirty

calendar

days

of

the

date

of

the

31

material

change

and

shall

submit

appropriate

documentation

as

32

requested

by

the

commissioner

for

approval.

The

life

captive

33

reinsurance

company

shall

not

write

any

insurance

business

34

until

on

or

after

the

date

on

which

the

commissioner

approves

35

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the

supporting

documentation.

1

4.

All

documents

and

information

submitted

pursuant

to

this

2

subchapter

shall

be

confidential

and

shall

not

be

made

public

3

without

the

advance

written

consent

of

the

submitting

life

4

captive

reinsurance

company,

with

the

following

exceptions:

5

a.

The

documents

and

information

shall

be

discoverable

by

6

a

party

in

a

civil

action

or

in

a

contested

case

to

which

the

7

life

captive

reinsurance

company

that

submitted

the

information

8

is

a

party

upon

a

showing

by

the

party

seeking

to

discover

9

the

information

that

the

information

sought

is

relevant

to,

10

and

necessary

for,

the

furtherance

of

the

action

or

case;

the

11

information

sought

is

unavailable

from

other

nonconfidential

12

sources;

and

that

a

subpoena

issued

by

a

judicial

or

an

13

administrative

officer

has

been

submitted

to

the

commissioner.

14

b.

The

commissioner

may,

in

the

commissioner’s

discretion,

15

disclose

the

documents

and

information

to

a

public

official

16

having

jurisdiction

over

the

regulation

of

insurance

in

another

17

state,

or

to

a

public

official

of

the

federal

government,

18

provided

that

the

public

official

agrees

in

writing

to

maintain

19

the

confidentiality

of

the

information,

and

that

the

laws

of

20

the

state

in

which

the

public

official

serves

require

that

the

21

information

remain

confidential.

22

5.

a.

If

an

application

filed

by

a

life

captive

reinsurance

23

company

is

complete,

the

commissioner

may

issue

to

the

life

24

captive

reinsurance

company

a

certificate

of

authority

upon

a

25

finding

of

all

of

the

following:

26

(1)

The

life

captive

reinsurance

company’s

proposed

plan

of

27

operation

provides

for

a

viable

operation

and

is

not

hazardous

28

to

any

ceding

insurer.

29

(2)

The

terms

of

any

reinsurance

contract

and

related

30

transactions

of

the

life

captive

reinsurance

company

comply

31

with

this

subchapter

and

the

insurance

laws

and

rules

of

this

32

state.

33

b.

In

conjunction

with

the

issuance

of

the

certificate

34

of

authority

to

a

life

captive

reinsurance

company,

the

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commissioner

may

issue

an

order

regarding

any

terms

and

1

conditions

relating

to

the

organization,

licensing,

and

2

operation

of

the

life

captive

reinsurance

company

that

the

3

commissioner

deems

appropriate

and

that

are

not

inconsistent

4

with

this

subchapter.

5

6.

A

certificate

of

authority

shall

be

valid

for

a

period

6

of

one

year

beginning

on

the

date

of

initial

issuance

and

7

the

certificate

must

be

renewed

annually.

A

certificate

of

8

authority

may

be

renewed

if

the

applicant

is

in

compliance

with

9

the

requirements

of

this

subchapter

and

has

paid

an

annual

10

renewal

registration

fee

at

the

time

of

renewal

in

the

amount

11

of

two

thousand

five

hundred

dollars.

12

Sec.

40.

NEW

SECTION

.

521J.103

Life

captive

reinsurance

13

companies

——

names.

14

A

life

captive

reinsurance

company

shall

not

adopt

a

name

15

that

is

the

same,

deceptively

similar,

or

likely

to

be

confused

16

with

or

mistaken

for

any

other

existing

business

name

already

17

registered

in

this

state.

18

Sec.

41.

NEW

SECTION

.

521J.104

Actuarial

officer

——

19

certification.

20

On

the

date

a

life

captive

reinsurance

company

files

an

21

application

for

a

certificate

of

authority

under

section

22

521J.102,

and

by

March

15

of

each

succeeding

year

that

a

life

23

captive

reinsurance

company

is

in

operation

and

is

ceded

new

24

business

from

a

ceding

insurer,

a

qualified

actuary

of

each

25

ceding

insurer

shall

file

with

the

commissioner

a

certification

26

that

the

ceding

insurer’s

transactions

with

the

life

captive

27

reinsurance

company

are

not

used

to

gain

an

unfair

advantage

28

if

pricing

of

policies

and

contracts

reinsured

by

the

life

29

captive

reinsurance

company

reflect,

at

the

time

the

policies

30

and

contracts

were

issued,

a

reasonable

long-term

estimate

of

31

the

cost

to

the

ceding

insurer

of

an

alternative

third-party

32

transaction

and

utilize

current

pricing

assumptions.

The

33

ceding

insurer

shall

have

an

ongoing

responsibility

to

maintain

34

documentation

detailing

the

process

by

which

the

qualified

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actuary

arrived

at

the

conclusions

in

the

certification

in

1

preparation

for

an

examination

conducted

pursuant

to

section

2

521J.110.

3

Sec.

42.

NEW

SECTION

.

521J.105

Minimum

capital

and

surplus

4

requirements.

5

1.

The

commissioner

shall

not

issue

a

certificate

of

6

authority

to

a

life

captive

reinsurance

company

unless

the

life

7

captive

reinsurance

company

possesses

and

maintains

unimpaired

8

paid-in

capital

and

surplus

that

is

not

less

than

five

million

9

dollars.

The

commissioner

may

require

additional

capital

10

and

surplus

based

upon

the

type,

volume,

and

nature

of

the

11

reinsurance

business

transacted

by

the

life

captive

reinsurance

12

company.

Minimum

capital

and

surplus

shall

be

in

the

form

of

13

cash

or

other

securities

that

are

investment-grade

at

the

time

14

of

acquisition

and

are

acceptable

to

the

commissioner.

15

2.

Except

as

otherwise

provided

in

this

section,

chapter

16

521E

shall

apply

to

a

life

captive

reinsurance

company.

17

Sec.

43.

NEW

SECTION

.

521J.106

Plan

of

operation.

18

A

life

captive

reinsurance

company

must

have

a

plan

of

19

operation

approved

by

the

life

captive

reinsurance

company’s

20

board

of

directors,

and,

prior

to

assuming

risks

under

a

21

reinsurance

contract,

shall

submit

the

plan

of

operation

to

the

22

commissioner

for

approval.

The

commissioner

may

approve

the

23

plan

of

operation

upon

finding

that

the

plan

of

operation

meets

24

the

requirements

of

this

section,

and

may

require

amendments

to

25

the

plan

of

operation

as

necessary

to

satisfy

the

requirements

26

of

this

section.

Any

change

in

the

life

captive

reinsurance

27

company’s

plan

of

operation

shall

require

prior

approval

of

28

the

commissioner.

The

plan

of

operation

must

include,

at

a

29

minimum,

all

of

the

following:

30

1.

A

complete

description

of

all

reinsurance

transactions,

31

reinsurance

security

arrangements,

securitizations,

and

any

32

other

material

transactions

or

arrangements

in

which

the

life

33

captive

reinsurance

company

engages.

34

2.

The

source

and

form

of

the

life

captive

reinsurance

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company’s

capital

and

surplus

minimums

as

required

under

1

521J.105.

2

3.

The

life

captive

reinsurance

company’s

policy

on

3

investments.

4

4.

Pro

forma

balance

sheets

and

income

statements

5

illustrating

one

or

more

adverse

case

scenarios,

as

determined

6

under

criteria

established

by

the

commissioner,

for

the

7

performance

of

the

life

captive

reinsurance

company

under

all

8

reinsurance

contracts.

9

5.

Risk-based

capital

requirements,

that,

at

a

minimum,

10

require

the

life

captive

reinsurance

company

to

maintain

11

risk-based

capital

equal

to

the

product

of

two

and

one-half

and

12

the

number

determined

under

the

life

risk-based

capital

formula

13

in

accordance

with

the

risk-based

capital

instructions.

14

6.

The

life

captive

reinsurance

company’s

procedures

for

15

notice

and

reporting

of

material

transactions.

16

7.

The

life

captive

reinsurance

company’s

policies

for

17

payments

of

dividends

and

other

distributions

to

the

organizing

18

company.

19

8.

Copies

of

all

contracts

between

the

life

captive

20

reinsurance

company

and

affiliated

companies.

21

Sec.

44.

NEW

SECTION

.

521J.107

Life

captive

reinsurance

22

companies

——

formation.

23

1.

A

life

insurance

company

or

an

affiliated

company

may

24

organize

a

life

captive

reinsurance

company

pursuant

to

this

25

subchapter.

A

life

captive

reinsurance

company

must

be

formed

26

as

a

corporation

and

may

only

reinsure

risks

of

the

organizing

27

company,

and

may

access

alternative

forms

of

financing.

28

2.

An

organizing

company

shall

maintain

a

minimum

of

ten

29

percent

voting

interest

and

ten

percent

equity

ownership

in

the

30

life

captive

reinsurance

company

unless

otherwise

approved

by

31

the

commissioner.

32

3.

A

life

captive

reinsurance

company’s

organizational

33

documents

must

limit

the

life

captive

reinsurance

company’s

34

authority

to

transact

the

business

of

reinsurance

to

only

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reinsure

the

risks

of

a

ceding

insurer.

1

4.

An

organizing

company

may

invest

funds

from

its

surplus

2

in

a

life

captive

reinsurance

company

organized

pursuant

to

3

this

subchapter.

4

5.

An

organizing

company’s

officers

and

directors

may

serve

5

as

officers

and

directors

of

a

life

captive

reinsurance

company

6

organized

pursuant

to

subsection

1.

7

6.

A

life

captive

reinsurance

company

organized

under

this

8

subchapter

shall

be

deemed

to

be

licensed

to

transact

the

9

business

of

reinsurance

for

the

purposes

of

section

521B.102,

10

subsection

1,

but

shall

only

reinsure

risks

of

the

organizing

11

company

and

affiliated

companies.

12

7.

A

life

captive

reinsurance

company

may,

upon

approval

of

13

the

commissioner,

purchase

reinsurance

to

cede

the

reinsurance

14

risks

assumed

by

the

life

captive

reinsurance

company.

15

8.

Admitted

assets

of

a

life

captive

reinsurance

company

16

shall

include

assets

approved

by

the

commissioner

which

shall

17

be

deemed

to

be,

and

reported

as,

admitted

assets

of

the

life

18

captive

reinsurance

company.

19

Sec.

45.

NEW

SECTION

.

521J.108

Dividends

and

distributions.

20

1.

A

life

captive

reinsurance

company

shall

not

pay

a

21

dividend

out

of,

or

other

distribution

with

respect

to,

the

22

minimum

capital

or

surplus

required

under

section

521J.105

23

without

the

prior

written

approval

of

the

commissioner.

24

2.

The

commissioner’s

approval

of

an

ongoing

plan

for

25

the

payment

of

dividends

or

other

distributions

shall

be

26

conditioned

upon

retention,

at

the

time

of

each

payment,

of

27

capital

and

surplus

in

excess

of

the

amounts

specified

by,

28

or

determined

in

accordance

with,

a

formula

approved

by

the

29

commissioner.

30

Sec.

46.

NEW

SECTION

.

521J.109

Reports

and

notifications.

31

1.

A

life

captive

reinsurance

company

shall

provide

the

32

commissioner

with

a

copy

of

documentation

of

an

insurance

33

securitization

no

later

than

forty-five

calendar

days

before

34

the

closing

on

the

transaction

for

the

securitization.

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2.

In

the

event

of

a

material

change

in

the

financial

1

condition

or

management

of

a

life

captive

reinsurance

company,

2

the

company

shall

notify

the

commissioner

in

writing

within

two

3

business

days

of

the

material

change.

4

3.

A

life

captive

reinsurance

company

shall

notify

the

5

commissioner

within

five

business

days

of

becoming

aware

of

a

6

material

event

affecting

the

life

captive

reinsurance

company’s

7

parent,

organizing

company,

or

controlling

entity

that

has

not

8

previously

been

disclosed

to

the

commissioner.

9

4.

If

a

life

captive

reinsurance

company’s

parent,

10

organizing

company,

or

controlling

entity

is

subject

to

group

11

supervision

in

another

jurisdiction,

the

commissioner

may

12

request

participation

in

supervisory

colleges

or

coordination

13

calls

with

the

lead

regulator

of

that

jurisdiction.

The

life

14

captive

reinsurance

company

shall

facilitate

the

commissioner’s

15

participation

to

the

extent

permitted

by

law.

16

5.

A

life

captive

reinsurance

company

shall

immediately

17

notify

the

commissioner

of

an

action

by

a

ceding

insurer

or

any

18

other

person

to

foreclose

on,

or

otherwise

take

possession

of,

19

collateral

provided

by

the

life

captive

reinsurance

company

to

20

secure

an

obligation

of

the

life

captive

reinsurance

company.

21

6.

A

life

captive

reinsurance

company

shall

not

be

required

22

to

file

any

report,

notice,

or

other

document

with

the

NAIC

23

unless

required

by

the

commissioner.

24

7.

At

the

commissioner’s

request,

a

life

captive

25

reinsurance

company

shall

provide

to

the

commissioner

a

copy

26

of

any

financial

or

risk-related

filings

submitted

by

the

27

company’s

parent,

affiliate,

organizing

company,

or

controlling

28

entity

to

the

life

captive

reinsurance

company’s

domiciliary

29

insurance

regulator.

Upon

request

by

the

commissioner,

such

30

filings

shall

be

provided

to

the

commissioner

within

ten

31

business

days

of

the

submission

to

the

organizing

company’s

32

domestic

regulator.

33

8.

A

life

captive

reinsurance

company

shall

file

with

the

34

commissioner

all

of

the

following:

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a.

On

or

before

March

1

of

each

year,

for

the

immediately

1

preceding

calendar

year,

all

of

the

following:

2

(1)

A

report

of

the

company’s

risk-based

capital

level

as

3

of

the

end

of

the

immediately

preceding

calendar

year

that

4

contains

the

information

required

by

the

risk-based

capital

5

instructions.

6

(2)

A

supplemental

compensation

exhibit

that

discloses

the

7

total

annual

compensation

of

the

company’s

officers,

directors,

8

and

key

employees.

The

supplemental

exhibit

must

follow

the

9

format

and

instructions

adopted

by

the

NAIC

for

life

insurance

10

company

filings.

11

b.

(1)

On

or

before

March

1

of

each

year,

for

the

12

immediately

preceding

calendar

year,

an

actuarial

opinion

from

13

the

company’s

actuary

on

reserves

for

all

risks

assumed

by

the

14

life

captive

reinsurance

company

pursuant

to

the

company’s

15

reinsurance

contracts

and

may

discount

the

life

captive

16

reinsurance

company’s

reserves

in

accordance

with

the

actuarial

17

opinion

subject

to

approval

by

the

commissioner.

The

company’s

18

actuary

shall

submit

a

memorandum

to

the

commissioner

that

19

details

the

actuary’s

support

for

the

actuarial

opinion.

The

20

commissioner

may

require

additional

information

to

be

submitted

21

to

supplement

the

actuarial

opinion.

22

(2)

Biennially

on

April

1,

for

the

immediately

preceding

23

calendar

year,

an

opinion

by

an

independent

qualified

actuary

24

concerning

the

methods

and

assumptions

used

to

set

reserves.

25

The

independent

qualified

actuary

must

be

deemed

acceptable

by

26

the

commissioner

prior

to

filing

the

opinion.

27

c.

Completed

quarterly

and

annual

financial

statement

blanks

28

as

are

required

by

the

NAIC

for

traditional

life

insurance

29

companies,

including

any

supplements

or

interrogatories

30

required

by

the

NAIC,

in

accordance

with

the

NAIC

statutory

31

accounting

principles.

The

commissioner

may

require,

approve,

32

or

accept

any

appropriate

or

necessary

modifications

of

the

33

NAIC

statutory

accounting

principles

based

on

the

type

of

34

insurance

and

kind

of

insurers

included

in

the

life

captive

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reinsurance

company’s

report.

The

quarterly

filings

shall

be

1

filed

with

the

commissioner

on

or

before

May

15

for

the

first

2

quarter,

August

15

for

the

second

quarter,

and

November

15

for

3

the

third

quarter

for

the

current

calendar

year.

The

annual

4

statement

shall

be

filed

with

the

commissioner

on

or

before

5

March

1

of

each

year

for

the

immediately

preceding

calendar

6

year.

7

d.

On

or

before

April

1

of

each

year,

all

of

the

following:

8

(1)

For

the

immediately

preceding

calendar

year,

a

written

9

management’s

discussion

and

analysis

of

the

company’s

financial

10

condition

and

results

of

operations.

11

(2)

For

the

immediately

preceding

tax

year,

a

report

12

providing

sufficient

information

to

support

the

company’s

13

premium

tax

return

submitted

pursuant

to

section

432.1A.

14

e.

On

or

before

June

1

of

each

year,

for

the

immediately

15

preceding

calendar

year,

a

report

of

the

company’s

financial

16

condition

audited

by

an

independent

certified

public

17

accountant.

The

report

shall

be

presented

in

accordance

with

18

the

NAIC

statutory

accounting

principles.

19

f.

On

or

before

August

1

of

each

year,

a

management

20

report

on

internal

control

over

financial

reporting

with

the

21

commissioner

that

describes

the

life

captive

reinsurance

22

company’s

internal

control

structure

over

financial

reporting

23

and

identifies

any

material

weaknesses

as

of

the

end

of

the

24

preceding

calendar

year.

25

9.

Not

less

than

ten

business

days

prior

to

a

filing

due

26

date,

a

life

captive

reinsurance

company

may

submit

a

written

27

request

for

an

extension

to

file

a

report

required

under

28

subsection

8.

The

request

must

contain

sufficient

details

to

29

enable

the

commissioner

to

make

an

informed

decision

about

30

the

request.

The

commissioner

may

grant

an

extension

upon

a

31

determination

that

the

life

captive

reinsurance

company

has

32

good

cause

for

the

extension.

33

Sec.

47.

NEW

SECTION

.

521J.110

Examinations.

34

1.

a.

The

commissioner

may

examine

each

life

captive

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reinsurance

company’s

compliance

with

this

subchapter,

and

1

may

examine

the

affairs,

transactions,

accounts,

records,

2

and

assets

of

each

life

captive

reinsurance

company

as

the

3

commissioner

deems

necessary,

but

not

less

frequently

than

4

every

five

calendar

years.

5

b.

The

commissioner

shall,

upon

the

completion

of

an

6

examination

under

paragraph

“a”

,

or

at

such

regular

intervals

7

prior

to

completion

of

an

examination

as

the

commissioner

8

determines,

prepare

an

account

of

the

costs

incurred

in

9

performing

and

preparing

the

report

of

the

examination

which

10

shall

be

charged

to

and

paid

by

the

life

captive

reinsurance

11

company

examined.

If

the

life

captive

reinsurance

company

12

fails

or

refuses

to

pay

the

charges,

the

charges

may

be

13

recovered

in

an

action

brought

in

the

name

of

the

state.

14

2.

This

section

shall

apply

to

all

business

written

by

a

15

life

captive

reinsurance

company.

16

3.

The

applicable

provisions

of

chapter

507

shall

apply

to

17

examinations

conducted

under

this

subchapter.

18

Sec.

48.

NEW

SECTION

.

521J.111

Suspension

or

revocation.

19

1.

A

life

captive

reinsurance

company’s

certificate

of

20

authority

to

conduct

the

business

of

insurance

in

this

state

21

may

be

suspended

or

revoked

by

the

commissioner

for

any

of

the

22

following

reasons:

23

a.

Insolvency

or

impairment

of

capital

or

surplus.

24

b.

Failure

to

meet

and

maintain

the

minimum

capital

and

25

surplus

requirements

under

section

521J.105.

26

c.

Refusal

or

failure

to

submit

an

annual

report

pursuant

to

27

section

521J.109,

or

to

submit

a

report

or

statement

required

28

by

law

or

by

lawful

order

of

the

commissioner.

29

d.

Failure

to

comply

with

the

life

captive

reinsurance

30

company’s

own

charter,

bylaws,

or

other

organizational

31

document.

32

e.

Failure

to

submit

to

an

examination

under

section

33

521J.110.

34

f.

Use

of

methods

that

render

the

life

captive

reinsurance

35

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company’s

operation

detrimental,

or

the

company’s

condition

1

unsound,

with

respect

to

the

company’s

policyholders

or

to

the

2

public.

3

g.

Failure

to

pay

tax

on

premiums

as

required

under

section

4

432.1A.

5

h.

Failure

to

submit

any

fee

required

under

this

subchapter.

6

i.

Failure

to

pay

the

cost

of

an

examination

under

section

7

521J.110.

8

j.

Failure

to

comply

with

the

laws

of

this

state.

9

2.

a.

If

the

commissioner

finds

upon

examination,

hearing,

10

or

other

review

that

a

life

captive

reinsurance

company

has

11

committed

an

act

specified

in

subsection

1,

the

commissioner

12

may

suspend

or

revoke

the

life

captive

reinsurance

company’s

13

certificate

of

authority.

14

b.

If

the

commissioner

does

not

revoke

a

life

captive

15

reinsurance

company’s

certificate

of

authority

during

a

16

suspension

imposed

under

paragraph

“a”

,

the

life

captive

17

reinsurance

company’s

certificate

of

authority

may

be

18

reinstated

if

the

commissioner

finds

that

the

cause

of

the

19

suspension

has

been

rectified.

20

Sec.

49.

NEW

SECTION

.

521J.112

Mergers.

21

1.

A

merger

between

life

captive

reinsurance

companies

must

22

meet

the

requirements

of

chapter

521

and

section

521J.107,

23

as

applicable.

The

commissioner

may,

at

the

commissioner’s

24

discretion,

provide

notice

to

the

public

of

a

proposed

merger

25

prior

to

the

commissioner’s

approval

or

disapproval

of

the

26

merger.

27

2.

A

plan

for

a

merger

must

be

fair

and

equitable

to

28

the

shareholders

of

the

life

captive

reinsurance

companies

29

and

shall

provide

for

the

purchase

of

the

shares

of

any

30

nonconsenting

shareholder

of

a

life

captive

reinsurance

31

company.

32

Sec.

50.

NEW

SECTION

.

521J.113

Investments.

33

1.

A

life

captive

reinsurance

company’s

investment

program

34

shall

take

into

account

the

safety

of

the

company’s

assets,

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investment

yield

and

return,

stability

in

the

value

of

the

1

investment,

and

liquidity

necessary

to

meet

the

company’s

2

expected

business

needs

and

investment

diversification.

3

The

assets

of

a

life

captive

reinsurance

company

shall

be

4

preserved

and

administered

by

or

on

behalf

of

the

life

captive

5

reinsurance

company

to

satisfy

the

liabilities

and

obligations

6

of

the

life

captive

reinsurance

company

incident

to

the

7

reinsurance

contract

between

the

life

captive

reinsurance

8

company

and

the

parent

or

ceding

insurer,

any

insurance

9

securitizations,

and

other

related

agreements.

For

the

10

purposes

of

this

section,

assets

do

not

include

letters

of

11

credit

and

guaranties

of

a

parent.

12

2.

At

the

discretion

of

the

commissioner,

a

life

captive

13

reinsurance

company

shall

either

comply

with

section

511.8

14

or

invest

the

life

captive

reinsurance

company’s

assets

in

15

cash

and

securities

that

are

investment-grade

at

the

time

of

16

acquisition,

provided

that

a

life

captive

reinsurance

company

17

may

invest

up

to

ten

percent

of

the

life

captive

reinsurance

18

company’s

assets

in

securities

or

other

investments

that

are

19

not

investment-grade

at

the

time

of

acquisition,

not

to

include

20

any

of

the

following:

21

a.

Securities

rated

5

or

higher

by

the

NAIC

securities

22

valuation

office

at

the

time

of

acquisition.

23

b.

Asset-based

or

mortgage-backed

securities

rated

3

or

24

higher

by

the

NAIC

securities

valuation

office

at

the

time

of

25

acquisition.

26

c.

Convertible

bonds.

27

d.

Preferred

or

common

stock.

28

e.

Private

equity

or

hedge

funds.

29

3.

a.

A

life

captive

reinsurance

company

securitization

30

shall

include

a

disclosure

that

all

or

part

of

the

proceeds

31

of

such

insurance

securitization

will

be

used

to

fund

the

32

life

captive

reinsurance

company’s

obligations

to

the

ceding

33

insurer.

34

b.

For

purposes

of

this

subsection,

“life

captive

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reinsurance

company

securitization”

means

the

security-offering

1

memorandum

or

other

document

issued

to

prospective

investors

2

regarding

the

offer

and

sale

of

a

surplus

note

or

other

3

security.

4

4.

A

life

captive

reinsurance

company’s

admitted

assets

5

must

include

proceeds

from

a

securitization,

premium

and

6

other

amounts

payable

by

a

ceding

insurer

to

the

life

captive

7

reinsurance

company,

letters

of

credit,

guaranties

of

a

parent,

8

and

any

other

assets

approved

by

the

commissioner,

which

9

shall

be

deemed

to

be,

and

reported

as,

admitted

assets

of

10

the

life

captive

reinsurance

company.

The

commissioner

may

11

reduce

the

amount

of

admitted

assets

previously

approved

by

12

the

commissioner,

other

than

assets

already

covered

by

the

13

most

recent

NAIC

accounting

practices

and

procedures

manual

14

of

the

NAIC,

if

the

commissioner

determines

that

the

value

of

15

those

assets

has

decreased.

A

minimum

of

thirty

calendar

days

16

prior

to

reducing

the

amount

of

admitted

assets

previously

17

approved,

the

commissioner

shall

notify

the

life

captive

18

reinsurance

company

of

the

reduction

and

provide

the

life

19

captive

reinsurance

company

an

opportunity

to

remedy

the

issues

20

identified

by

the

commissioner.

21

5.

A

life

captive

reinsurance

company

shall

not

make

a

loan

22

to

or

an

investment

in

any

person,

other

than

as

permitted

23

in

the

life

captive

reinsurance

company’s

plan

of

operation,

24

without

prior

written

approval

of

the

commissioner,

and

any

25

such

loan

or

investment

must

be

evidenced

by

documentation

26

approved

by

the

commissioner.

A

life

captive

reinsurance

27

company

shall

not

loan

minimum

capital

and

surplus

funds.

28

6.

An

organizing

company

shall

report

to

the

commissioner

29

the

company’s

ownership

in

the

life

captive

reinsurance

company

30

and

value

the

ownership

equal

to

the

audited

statutory

surplus

31

of

the

life

captive

reinsurance

company.

32

Sec.

51.

NEW

SECTION

.

521J.114

Permitted

reinsurance.

33

1.

A

life

captive

reinsurance

company

may

reinsure,

34

pursuant

to

a

reinsurance

contract,

only

the

risks

of

a

ceding

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insurer.

1

2.

Unless

otherwise

approved

in

advance

by

the

2

commissioner,

a

life

captive

reinsurance

company

shall

not

3

assume

or

retain

exposure

to

reinsurance

losses

for

the

life

4

captive

reinsurance

company’s

own

account

that

are

not

funded

5

by

any

of

the

following:

6

a.

Proceeds

from

a

securitization.

7

b.

Premium

and

other

amounts

payable

by

a

ceding

insurer

to

8

the

life

captive

reinsurance

company

pursuant

to

a

reinsurance

9

contract.

10

c.

Letters

of

credit.

11

d.

Guaranties

of

a

parent.

12

e.

A

return

on

investment

of

proceeds

from

either

a

13

securitization

or

a

premium,

and

other

amounts

payable

by

the

14

ceding

insurer

to

the

life

captive

reinsurance

company

pursuant

15

to

the

reinsurance

contract.

16

3.

A

life

captive

reinsurance

company

may

cede

risks

assumed

17

through

a

reinsurance

contract

to

one

or

more

reinsurers

18

through

the

purchase

of

retrocession,

subject

to

prior

approval

19

of

the

commissioner.

20

4.

A

life

captive

reinsurance

company

may

enter

into

21

contracts

and

conduct

other

commercial

activities

related

22

or

incidental

to

and

necessary

to

fulfill

the

purposes

of

23

a

reinsurance

contract,

an

insurance

securitization,

and

24

this

subchapter.

Such

contracts

and

commercial

activities

25

must

be

included

in

the

life

captive

reinsurance

company’s

26

plan

of

operation

or

otherwise

be

approved

in

advance

by

the

27

commissioner,

and

may

include

but

are

not

limited

to

any

of

the

28

following:

29

a.

Entering

into

reinsurance

contracts

or

issuing

life

30

captive

reinsurance

company

securities,

and

complying

with

the

31

terms

of

the

contracts

and

securities.

32

b.

Entering

into

guaranty

trust,

guaranteed

investment

33

contract,

swap,

or

other

derivative,

tax,

administration,

34

services

reimbursement,

or

fiscal

agent

transactions.

35

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c.

Complying

with

trust

indenture,

reinsurance,

or

1

retrocession.

2

5.

A

reinsurance

contract

shall

not

contain

a

provision

for

3

payment

by

the

life

captive

reinsurance

company

in

discharge

of

4

the

life

captive

reinsurance

company’s

obligations

to

a

person

5

other

than

the

ceding

insurer

or

a

receiver

of

the

ceding

6

insurer,

except

upon

prior

approval

of

the

commissioner.

7

Sec.

52.

NEW

SECTION

.

521J.115

Rating

organizations.

8

A

life

captive

reinsurance

company

shall

not

be

required

to

9

join

a

rating

organization.

10

Sec.

53.

NEW

SECTION

.

521J.116

Compulsory

organizations.

11

A

life

captive

reinsurance

company

shall

not

join

or

12

contribute

financially

to

a

plan,

pool,

association,

or

13

guaranty

or

insolvency

fund

in

this

state.

14

Sec.

54.

NEW

SECTION

.

521J.117

Dormant

life

captive

15

reinsurance

companies.

16

1.

A

life

captive

reinsurance

company

that

is

domiciled

17

in

this

state

and

complies

with

this

section

may

apply

to

the

18

commissioner

for

a

certificate

of

dormancy.

A

certificate

19

of

dormancy

shall

be

valid

for

five

years

from

the

date

of

20

issuance

and

may

not

be

renewed.

21

2.

a.

A

life

captive

reinsurance

company

that

has

been

22

issued

a

certificate

of

dormancy

shall

comply

with

all

of

the

23

following:

24

(1)

The

dormant

life

captive

reinsurance

company

shall

25

possess

and

maintain

unimpaired,

paid-in

capital

and

surplus

of

26

not

less

than

twenty-five

thousand

dollars.

27

(2)

A

dormant

life

captive

reinsurance

company

shall

28

annually

submit

to

the

commissioner,

within

ninety

calendar

29

days

of

the

end

of

the

dormant

life

captive

reinsurance

30

company’s

fiscal

year,

a

report

on

the

dormant

life

captive

31

reinsurance

company’s

financial

condition,

verified

under

32

oath

by

two

of

the

dormant

life

captive

reinsurance

company’s

33

executive

officers,

in

the

form

and

manner

established

by

the

34

commissioner

by

rule.

35

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(3)

If,

for

any

portion

of

the

immediately

preceding

1

calendar

year,

the

life

captive

reinsurance

company

held

a

2

certificate

of

dormancy,

the

dormant

life

captive

reinsurance

3

company

shall

pay

an

annual

one

thousand

dollar

dormancy

tax,

4

due

on

or

before

March

1.

5

b.

From

the

date

a

certificate

of

dormancy

is

issued

through

6

the

date

the

certificate

expires,

a

dormant

life

captive

7

reinsurance

company

that

has

been

issued

the

certificate

shall

8

not

be

subject

to

section

432.1A.

9

3.

At

the

discretion

of

the

commissioner,

a

dormant

life

10

captive

reinsurance

company

may

be

subject

to

an

annual

11

examination.

12

4.

Prior

to

a

dormant

life

captive

reinsurance

company

13

issuing

an

insurance

policy,

the

company

must

apply

to

14

the

commissioner

for

approval

to

surrender

the

company’s

15

certificate

of

dormancy

and

to

resume

conducting

the

business

16

of

insurance.

17

5.

The

commissioner

shall

revoke

a

dormant

life

captive

18

reinsurance

company’s

certificate

of

dormancy

if

the

company

19

violates

this

section.

20

Sec.

55.

NEW

SECTION

.

521J.118

Books

and

records.

21

1.

a.

Unless

otherwise

approved

by

the

commissioner,

a

22

life

captive

reinsurance

company

shall

maintain

the

company’s

23

original

books,

records,

documents,

accounts,

vouchers,

24

and

agreements

in

this

state

and

make

them

available

for

25

examination

and

inspection

by

the

commissioner

as

requested

by

26

the

commissioner.

The

life

captive

reinsurance

company

may

27

store

and

reproduce

the

books,

records,

documents,

accounts,

28

vouchers,

and

agreements

electronically.

29

b.

All

books,

records,

documents,

accounts,

vouchers,

and

30

agreements

shall

be

kept

in

a

manner

that

the

commissioner

31

can

readily

ascertain

the

life

captive

reinsurance

company’s

32

financial

condition,

affairs,

and

operations;

can

readily

33

verify

the

life

captive

reinsurance

company’s

financial

34

statements;

and

can

confirm

the

life

captive

reinsurance

35

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company’s

compliance

with

this

subchapter.

1

2.

Unless

otherwise

approved

by

the

commissioner,

all

2

books,

records,

documents,

accounts,

vouchers,

and

agreements

3

maintained

by

a

life

captive

reinsurance

company

under

4

subsection

1

shall

remain

available

in

the

state

until

the

5

commissioner

approves

destruction

or

other

disposition

of

the

6

books,

records,

documents,

accounts,

vouchers,

and

agreements.

7

Sec.

56.

NEW

SECTION

.

521J.119

Material

transactions.

8

1.

A

life

captive

reinsurance

company

shall

not

take

any

9

of

the

following

actions

unless

the

company

provides

the

10

commissioner

at

least

thirty

calendar

days’

prior

written

11

notice

and

the

commissioner

expressly

approves

the

action:

12

a.

Dissolve

the

life

captive

reinsurance

company.

13

b.

Sell,

exchange,

lease,

mortgage,

assign,

pledge,

or

14

otherwise

transfer

or

grant

a

security

interest

in

over

thirty

15

percent

of

the

assets

of

the

life

captive

reinsurance

company.

16

c.

Incur

material

indebtedness.

17

d.

Make

a

material

loan

or

other

material

extension

of

18

credit.

19

e.

Make

a

material

payment

out

of

capital

and

surplus

other

20

than

dividends

or

distributions

paid

in

accordance

with

this

21

subchapter.

22

f.

Conduct

a

merger

or

consolidation

to

which

the

life

23

captive

reinsurance

company

is

a

constituent

party.

24

g.

Transfer

to

or

redomesticate

in

a

different

jurisdiction.

25

h.

Terminate

all

or

a

part

of

the

life

captive

reinsurance

26

company’s

business.

27

2.

A

life

captive

reinsurance

company

shall

submit

to

the

28

commissioner

periodic

written

requests

for

authorization

prior

29

to

making

payments

of

interest

on,

and

repayments

of

principal

30

of,

surplus

notes

and

other

debt

obligations

issued

by

a

life

31

captive

reinsurance

company.

The

commissioner

shall

not

32

approve

a

payment

or

repayment

if

the

commissioner

determines

33

that

the

payment

or

repayment

would

jeopardize

the

ability

of

34

the

life

captive

reinsurance

company

or

any

other

person

to

35

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fulfill

the

company’s

or

person’s

obligations.

1

Sec.

57.

NEW

SECTION

.

521J.120

Securities.

2

A

life

captive

reinsurance

company

security

shall

not

3

be

subject

to

regulation

as

an

insurance

or

reinsurance

4

contract.

An

investor

in,

or

holder

of,

the

security

shall

5

not

be

considered

to

transact

in

the

business

of

insurance

6

in

the

state

solely

based

on

such

interest

in

the

security.

7

An

underwriter’s

placement

agents,

selling

agents,

partners,

8

commissioners,

officers,

members,

managers,

employees,

9

agents,

representatives,

and

advisors

involved

in

an

insurance

10

securitization

by

a

life

captive

reinsurance

company

shall

11

not

be

considered

insurance

producers

or

brokers,

or

to

be

12

conducting

business

as

an

insurance

company,

as

a

reinsurance

13

company,

or

as

an

insurance

agency,

brokerage,

intermediary,

14

advisory,

or

consulting

business,

solely

based

on

underwriting

15

activities

in

connection

with

securitization.

16

Sec.

58.

NEW

SECTION

.

521J.121

Rules.

17

The

commissioner

may

adopt

rules

pursuant

to

chapter

17A

to

18

implement

and

administer

this

subchapter.

19

Sec.

59.

CODE

EDITOR

DIRECTIVE.

The

Code

editor

is

20

directed

to

designate

sections

521J.1

through

521J.27,

as

21

enacted

and

amended

by

this

Act,

as

subchapter

I

of

chapter

22

521J

entitled

“Captive

Insurance

Companies”,

and

to

designate

23

sections

521J.101

through

521J.121,

as

enacted

by

this

Act,

24

as

subchapter

II

of

chapter

521J

entitled

“Life

Captive

25

Reinsurance

Companies”.

26

EXPLANATION

27

The

inclusion

of

this

explanation

does

not

constitute

agreement

with

28

the

explanation’s

substance

by

the

members

of

the

general

assembly.

29

This

bill

relates

to

captive

insurance

companies

(captive

30

companies)

and

life

captive

reinsurance

companies

(LCRCs).

31

Under

the

bill,

a

tax

return

on

gross

premiums

filed

by

an

32

insurance

company

or

a

captive

company

shall

not

be

subject

33

to

inspection

under

Code

chapter

22,

and

it

shall

be

unlawful

34

for

any

present

or

former

officer

or

employee

of

the

state

to

35

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willfully

or

recklessly

publish

such

tax

return.

A

person

who

1

violates

the

bill

shall

be

guilty

of

a

serious

misdemeanor

and,

2

in

addition

to

any

other

penalty,

shall

be

dismissed

from

state

3

office

or

discharged

from

state

employment.

The

bill

does

not

4

prohibit

the

department

of

revenue

(DOR)

from

turning

over

5

information

and

tax

returns

in

the

DOR’s

possession

to

duly

6

authorized

officers

of

the

United

States,

or

tax

officials

of

7

other

states,

pursuant

to

an

agreement

between

the

commissioner

8

of

insurance

(commissioner)

and

either

the

secretary

of

the

9

treasury

of

the

United

States

or

the

secretary’s

delegate,

or

10

the

commissioner

of

another

state.

11

Under

current

law,

Code

section

409.905

(foreign

insurance

12

companies

becoming

domestic)

applies

to

life

insurance

13

companies,

and

to

insurance

companies

doing

business

under

Code

14

chapter

515.

Under

the

bill,

Code

section

409.905

also

applies

15

to

captive

companies.

16

The

bill

amends

the

definitions

of

“alien

captive

company”,

17

“business

entity”,

“captive

company”,

“captive

reinsurance

18

company”,

“captive

risk

retention

group”,

and

“special

purpose

19

captive

company”

under

Code

chapter

521J

(captive

companies).

20

The

term

“foreign

captive

company”

is

defined

in

the

bill.

21

Under

current

law,

if

permitted

by

its

organizational

22

document,

a

captive

company

may

apply

to

the

commissioner

for

23

a

certificate

of

authority

to

provide

property

insurance,

24

casualty

insurance,

life

insurance,

disability

income

25

insurance,

surety

insurance,

marine

insurance,

health

26

insurance,

or

a

group

health

plan.

Under

the

bill,

a

captive

27

company

may

also

apply

for

a

certificate

of

authority

to

28

have

the

ability

to

accept

or

transfer

risks

by

means

of

a

29

parametric

contract.

30

A

captive

company

shall

not

write

any

insurance

business

31

unless

the

captive

company’s

organizational

documents,

and

any

32

subsequent

amendments,

have

been

filed

and

approved

by

the

33

commissioner

prior

to

being

filed

with

the

secretary

of

state.

34

Prior

to

receiving

a

certificate

of

authority,

current

35

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law

requires

a

captive

company

to

file

with

the

commissioner

1

a

certified

copy

of

the

business

entity’s

organizational

2

document.

The

bill

eliminates

the

requirement

that

the

copy

3

be

certified.

4

The

bill

eliminates

the

requirements

under

current

law

5

of

Code

sections

521J.2(3)(a)(1)(c),

521J.2(3)(a)(4),

6

521J.2(3)(e),

521J.4(1)(e),

521J.4(3),

521J.5(2)(c),

521J.6(2),

7

521J.13(1),

and

521J.13(1)(b)

that

requirements

of

the

8

commissioner

be

established

by

rule.

9

Under

current

law,

all

documents

and

information

submitted

10

by

a

captive

company

prior

to

receiving

a

certificate

of

11

authority

shall

be

confidential

and

shall

not

be

made

public

12

without

the

advance

written

consent

of

the

submitting

company.

13

The

bill

includes

reports

as

confidential

information.

14

Current

law

requires

that

each

captive

company,

individual

15

series

of

members

of

a

limited

liability

company,

and

protected

16

cell

pay

an

initial

registration

fee,

and

an

annual

renewal

17

registration

fee,

of

$300.

The

bill

requires

each

captive

18

company,

individual

series

of

members

of

a

limited

liability

19

company,

and

protected

cell

pay

an

annual

renewal

registration

20

fee

of

$300.

21

Under

current

law,

the

commissioner

shall

not

issue

a

22

certificate

of

authority

to

a

captive

company

unless

the

23

captive

company

possesses

and

maintains

unimpaired

paid-in

24

capital

and

surplus

of

no

less

than

$500,000

for

a

protected

25

cell

captive

company.

If,

however,

the

protected

cell

captive

26

company

does

not

assume

any

risks,

the

risks

insured

by

the

27

protected

cells

are

homogenous,

and

there

are

not

more

than

10

28

cells,

the

commissioner

may

reduce

the

amount

to

an

amount

not

29

less

than

$250.

Under

the

bill,

the

commissioner

shall

not

30

issue

a

certificate

of

authority

to

a

captive

company

unless

31

the

captive

company

possesses

and

maintains

unimpaired

paid-in

32

capital

and

surplus

of

no

less

than

$100,000

for

a

protected

33

cell

captive

company.

34

Under

current

law,

the

minimum

capital

and

surplus

35

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requirements

for

a

captive

company

shall

be

in

the

form

of

1

cash,

cash

equivalent,

or

an

irrevocable

letter

of

credit.

2

Under

the

bill,

the

minimum

capital

and

surplus

requirements

3

may

also

be

in

the

form

of

marketable

securities

approved

by

4

the

commissioner.

If

the

captive

company

elects

to

satisfy

5

the

minimum

requirements

with

marketable

securities,

the

6

commissioner

may

require

the

captive

company

to

file

financial

7

statements

or

other

reports

on

a

more

frequent

basis

than

8

otherwise

required.

The

increased

reporting

frequency

may

9

be

imposed

to

ensure

the

commissioner

can

adequately

monitor

10

the

liquidity,

valuation,

and

market

risk

associated

with

the

11

marketable

securities.

12

Current

law

requires

a

captive

company

be

formed

or

13

organized

as

a

business

entity

under

Code

chapter

521J.

Under

14

the

bill,

subject

to

the

commissioner’s

approval,

a

captive

15

company

may

also

be

formed

as

a

reciprocal

insurer

under

Code

16

chapter

520.

17

The

bill

eliminates

the

requirement

under

current

law

that

18

a

captive

risk

retention

group

formed

as

a

reciprocal

insurer

19

have

a

minimum

of

five

members

of

the

subscribers’

advisory

20

committee

who

are

residents

of

this

state.

Under

the

bill,

21

a

captive

company

formed

as

a

reciprocal

insurer

shall

be

22

subject

to

Code

chapter

520

(reciprocal

or

interinsurance

23

contracts),

unless

exempt

by

approval

of

the

commissioner

in

24

the

captive

company’s

plan

of

operation.

The

bill

eliminates

25

the

requirement

under

current

law

that

applicable

provisions

26

of

Code

chapter

508B

(conversion

from

mutual

company

to

27

stock

company)

apply

to

a

merger,

consolidation,

conversion,

28

mutualization,

or

voluntary

dissolution

by

a

captive

company.

29

Under

current

law,

a

captive

company

shall

file

an

annual

30

report

with

the

commissioner

that

meets

the

requirements

of

31

current

law.

Under

the

bill,

a

captive

company

does

not

have

32

to

file

the

annual

report

if

directed

by

the

commissioner

in

33

the

first

year

of

a

captive

company’s

licensure.

34

The

bill

eliminates

the

requirement

under

current

law

that

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all

reports

filed

pursuant

to

Code

section

521J.7

(reports)

be

1

considered

confidential

and

not

a

public

record.

2

Under

the

bill,

applicable

provisions

of

Code

chapter

508B

3

apply

to

a

merger,

consolidation,

conversion,

mutualization,

4

or

voluntary

dissolution

by

a

captive

company

unless

provided

5

otherwise.

6

Under

current

law,

if

a

captive

company’s

admitted

assets

7

total

less

than

$5

million,

the

commissioner

may

approve

8

an

investment

of

up

to

20

percent

of

the

captive

company’s

9

admitted

assets

in

rated

credit

instruments

in

any

investment.

10

Instead

of

admitted

assets,

the

bill

relies

on

the

total

assets

11

disclosed

in

a

captive

company’s

annual

report.

Total

assets

12

under

the

bill

shall

be

based

on

the

accounting

basis

approved

13

by

the

commissioner,

provided

that

all

assets

included

must

be

14

reasonably

liquid,

realizable,

and

available

to

support

the

15

obligations

of

the

captive

company.

16

Current

law

requires

that

each

protected

cell

captive

17

company

formed

or

authorized

by

Code

chapter

521J

be

18

incorporated,

and

an

incorporated

protected

cell

may

be

19

organized

and

operated

in

any

form

of

business

organization

as

20

authorized

by

the

commissioner

by

rule.

The

bill

requires

that

21

each

protected

cell

captive

company

be

formed

as

a

business

22

entity,

provided

the

business

entity

is

separate

from

the

23

protected

cell

captive

company

of

which

the

business

entity

is

24

a

part.

25

Under

current

law,

the

commissioner

shall

adopt

rules

to

26

implement

and

administer

Code

chapter

521J.

Under

the

bill,

27

the

commissioner

may

adopt

rules.

28

For

taxes

due

pursuant

to

Code

section

432.1A

(tax

on

29

premiums

——

captive

companies),

a

foreign

or

alien

captive

30

company

that

redomesticates

into

the

state

shall

only

be

31

liable

for

taxes

on

premiums

paid

to

the

captive

company

after

32

redomestication

and

shall

report

to

the

commissioner

all

33

premium

taxes

due.

In

either

the

captive

company’s

first

or

34

second

year

of

operation

after

redomesticating

into

the

state,

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the

company

may

elect

to

forego

payment

of

the

premium

taxes.

1

If

the

company

that

makes

such

election

subsequently

surrenders

2

the

company’s

license

or

redomesticates

to

another

jurisdiction

3

within

five

years,

the

company

shall

immediately

pay

to

the

4

commissioner

a

tax

in

an

amount

equal

to

the

foregone

premium

5

tax

plus

10

percent

per

annum

from

the

date

the

foregone

6

premium

tax

would

have

been

originally

due.

7

The

bill

makes

conforming

changes

to

Code

sections

8

521J.1(u1),

521J.1(22),

521J.1(24)(b),

521J.5(6),

521J.5(7)(b),

9

521J.5(9)(b),

521J.8(1)(a),

521J.8(5),

521J.9(1)(h)

and

(i),

10

521J.14(3),

521J.17(2),

521J.17(2)(a)(4),

521J.17(2)(c),

11

521J.18,

521J.22(3)(a)(3),

521J.23,

521J.24(1)(b),

and

521J.26.

12

An

LCRC

issued

a

certificate

of

authority

shall

only

13

reinsure

the

risks

of

a

ceding

insurer,

shall

not

otherwise

14

engage

in

the

business

of

insurance,

and

may

purchase

15

retrocession

to

cede

the

risks

assumed

under

a

reinsurance

16

contract.

An

LCRC

shall

not

write

any

insurance

business

17

unless

the

LCRC

complies

with

the

requirements

of

the

bill.

18

All

documents

and

information

submitted

by

an

LCRC

for

purposes

19

of

an

application

for

a

certificate

of

authority

shall

be

20

confidential

and

shall

not

be

made

public

without

the

advance

21

written

consent

of

the

submitting

LCRC,

unless

an

exception

22

detailed

in

the

bill

applies.

If

the

LCRC’s

application

is

23

complete,

the

commissioner

may

issue

a

certificate

of

authority

24

to

the

LCRC

upon

a

finding

that

the

LCRC’s

proposed

plan

of

25

operation

provides

for

a

viable

operation,

is

not

hazardous

to

26

a

ceding

insurer,

and

the

terms

of

any

reinsurance

contract

and

27

related

transactions

of

the

LCRC

comply

with

the

requirements

28

of

the

bill

and

all

applicable

insurance

laws

and

rules

of

the

29

state.

In

conjunction

with

the

issuance

of

the

certificate

of

30

authority,

the

commissioner

may

issue

an

order

regarding

any

31

terms

and

conditions

regarding

the

organization,

licensing,

and

32

operation

of

the

LCRC

that

the

commissioner

deems

appropriate.

33

“Ceding

insurer”

and

“life

captive

reinsurance

company”

are

34

defined

by

the

bill.

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An

LCRC

shall

not

adopt

a

name

that

is

the

same,

deceptively

1

similar,

or

likely

to

be

confused

with

or

mistaken

for

any

2

other

existing

business

name

already

registered

in

the

state.

3

On

the

date

an

LCRC

files

an

application

for

a

certificate

4

of

authority,

and

by

March

15

of

each

succeeding

year

that

an

5

LCRC

is

in

operation

and

is

ceded

new

business,

a

qualified

6

actuary

shall

file

with

the

commissioner

a

certification

that

7

the

ceding

insurer’s

transactions

with

the

LCRC

are

not

used

to

8

gain

an

unfair

advantage

if

pricing

of

policies

and

contracts

9

reinsured

by

the

LCRC

reflect,

at

the

time

the

policies

and

10

contracts

were

issued,

a

reasonable

long-term

estimate

of

11

the

cost

to

the

ceding

insurer

of

an

alternative

third-party

12

transaction

and

utilize

current

pricing

assumptions.

The

13

ceding

insurer

shall

maintain

documentation

detailing

14

the

process

by

which

the

qualified

actuary

arrived

at

the

15

conclusions

in

preparation

for

an

examination.

16

The

commissioner

shall

not

issue

a

certificate

of

authority

17

unless

an

LCRC

possesses

and

maintains

unimpaired

paid-in

18

capital

and

surplus

that

is

not

less

than

$5

million,

and

the

19

commissioner

may

require

additional

capital

and

surplus

based

20

upon

the

reinsurance

business

transacted

by

the

LCRC.

Minimum

21

capital

and

surplus

shall

be

in

the

form

of

cash

or

other

22

securities

that

are

investment-grade

at

the

time

of

acquisition

23

and

are

acceptable

to

the

commissioner.

Except

as

otherwise

24

provided,

Code

chapter

521E

(risk-based

capital

requirements

25

for

insurers)

shall

apply

to

an

LCRC.

26

An

LCRC

must

have

a

plan

of

operation

approved

by

its

27

board

of

directors,

and,

prior

to

assuming

risks

under

a

28

reinsurance

contract,

shall

submit

the

plan

of

operation

to

29

the

commissioner

for

approval.

The

commissioner

may

approve

30

the

plan

of

operation

upon

finding

that

the

plan

meets

the

31

requirements

of

the

bill,

and

may

require

amendments

to

the

32

plan

as

necessary.

Any

change

in

the

LCRC’s

plan

of

operation

33

shall

require

prior

approval

of

the

commissioner.

The

plan

of

34

operation

must

include

all

of

the

information

detailed

in

the

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bill.

1

An

LCRC

or

an

affiliated

company

may

organize

an

LCRC

2

pursuant

to

the

bill,

and

an

LCRC

must

be

formed

as

a

3

corporation,

may

only

reinsure

risks

of

the

organizing

company,

4

and

may

access

alternative

forms

of

financing.

An

organizing

5

company

shall

maintain

a

minimum

of

10

percent

voting

interest

6

and

10

percent

equity

ownership

in

the

LCRC

unless

otherwise

7

approved

by

the

commissioner.

An

LCRC’s

organizational

8

documents

shall

limit

the

company’s

authority

to

transact

the

9

business

of

reinsurance

to

only

reinsure

the

risks

of

a

ceding

10

insurer.

An

organizing

company

may

invest

funds

from

its

11

surplus

in

an

LCRC,

and

the

organizing

company’s

officers

and

12

directors

may

serve

as

officers

and

directors

of

an

LCRC.

An

13

LCRC

shall

be

deemed

to

be

licensed

to

transact

the

business

of

14

reinsurance.

An

LCRC

may,

upon

approval

of

the

commissioner,

15

purchase

reinsurance.

Admitted

assets

of

an

LCRC

include

16

assets

approved

by

the

commissioner

which

shall

be

deemed

to

17

be,

and

reported

as,

admitted

assets

of

the

LCRC.

18

An

LCRC

shall

not

pay

a

dividend

out

of,

or

other

19

distribution

with

respect

to,

the

minimum

capital

or

surplus

20

without

the

prior

written

approval

of

the

commissioner.

The

21

commissioner’s

approval

of

an

ongoing

plan

for

the

payment

22

of

dividends

or

other

distributions

shall

be

conditioned

23

upon

retention,

at

the

time

of

each

payment,

of

capital

and

24

surplus

in

excess

of

the

amounts

specified

by,

or

determined

in

25

accordance

with,

a

formula

approved

by

the

commissioner.

26

The

bill

details

the

reports

and

notifications

by

an

LCRC

27

required

to

be

filed

with

the

commissioner.

28

The

commissioner

may

examine

each

LCRC’s

compliance

with

29

the

bill,

and

may

examine

the

affairs,

transactions,

accounts,

30

records,

and

assets

of

each

LCRC

as

necessary,

but

not

less

31

frequently

than

every

five

years.

Upon

the

completion

of

an

32

examination,

or

at

regular

intervals,

the

commissioner

shall

33

prepare

an

account

of

the

costs

incurred

in

performing

and

34

preparing

the

report

of

the

examination

which

shall

be

charged

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to

and

paid

by

the

LCRC

examined.

If

the

LCRC

fails

or

refuses

1

to

pay,

the

charges

may

be

recovered

in

an

action

brought

in

2

the

name

of

the

state.

Examination

requirements

shall

apply

to

3

all

business

written

by

an

LCRC,

and

applicable

provisions

of

4

Code

chapter

507

(examination

of

insurance

companies)

apply

to

5

such

examinations.

6

An

LCRC’s

certificate

of

authority

may

be

suspended

or

7

revoked

by

the

commissioner

for

any

of

the

reasons

described

8

in

the

bill.

If

the

commissioner

does

not

revoke

an

LCRC’s

9

certificate

of

authority

during

a

suspension,

the

LCRC’s

10

certificate

of

authority

may

be

reinstated

if

the

commissioner

11

finds

that

the

cause

of

the

suspension

has

been

rectified.

12

A

merger

between

LCRCs

must

meet

the

requirements

of

Code

13

chapter

521

(consolidation,

merger,

and

reinsurance)

and

Code

14

section

521J.107,

as

applicable.

The

commissioner

may

provide

15

notice

to

the

public

of

a

proposed

merger

prior

to

approving

or

16

disapproving

of

a

merger.

A

plan

for

a

merger

shall

be

fair

and

17

equitable

to

the

shareholders

and

provide

for

the

purchase

of

18

the

shares

of

any

nonconsenting

shareholder.

19

An

LCRC’s

investment

program

shall

account

for

the

safety

of

20

the

company’s

assets,

investment

yield

and

return,

stability

21

in

the

value

of

the

investment,

and

liquidity

necessary

to

22

meet

the

company’s

expected

business

needs

and

investment

23

diversification.

The

assets

of

an

LCRC

shall

be

preserved

24

and

administered

to

satisfy

the

liabilities

and

obligations

25

of

the

LCRC

incident

to

the

reinsurance

contract,

any

26

insurance

securitizations,

and

other

related

agreements.

At

27

the

discretion

of

the

commissioner,

an

LCRC

shall

either

28

comply

with

Code

section

511.8

or

invest

its

assets

in

cash

29

and

securities

that

are

investment-grade

at

the

time

of

30

acquisition,

provided

that

an

LCRC

may

invest

up

to

10

percent

31

of

its

assets

in

securities

or

other

investments

that

are

not

32

investment-grade

except

for

any

of

the

assets

detailed

in

33

the

bill.

An

LCRC

securitization

shall

include

a

disclosure

34

that

all

or

part

of

the

proceeds

of

the

securitization

will

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be

used

to

fund

the

LCRC’s

obligations

to

the

ceding

insurer.

1

The

commissioner

may

reduce

the

amount

of

admitted

assets

2

previously

approved

if

it

is

determined

that

the

value

of

those

3

assets

has

decreased.

A

minimum

of

30

days

prior

to

reducing

4

the

amount

of

admitted

assets,

the

commissioner

shall

notify

5

the

LCRC

and

provide

an

opportunity

to

remedy

the

issues.

An

6

LCRC

shall

not

make

a

loan

to

or

an

investment

in

any

person,

7

other

than

as

permitted

in

the

plan

of

operation,

without

8

prior

written

approval

of

the

commissioner

and

evidenced

by

9

documentation

approved

by

the

commissioner.

An

LCRC

shall

not

10

loan

minimum

capital

and

surplus

funds.

An

organizing

company

11

shall

report

its

ownership

in

the

LCRC

and

value

the

ownership

12

equal

to

the

audited

statutory

surplus.

13

An

LCRC

shall

not

assume

or

retain

exposure

to

reinsurance

14

losses

for

the

LCRC’s

own

account

that

are

funded

as

detailed

15

in

the

bill.

An

LCRC

may

cede

risks

assumed

through

a

16

reinsurance

contract

to

reinsurers

through

the

purchase

of

17

retrocession,

subject

to

prior

approval

of

the

commissioner.

18

An

LCRC

may

enter

into

contracts

and

conduct

other

19

commercial

activities

related

or

incidental

to

and

necessary

to

20

fulfill

the

purposes

of

a

reinsurance

contract,

an

insurance

21

securitization,

and

the

bill.

Such

contracts

and

commercial

22

activities

must

be

included

in

the

LCRC’s

plan

of

operation

23

or

otherwise

be

approved

in

advance

by

the

commissioner

and

24

may

include

the

contracts

and

activities

detailed

in

the

bill.

25

Unless

approved

by

the

commissioner,

a

reinsurance

contract

26

shall

not

contain

a

provision

for

payment

by

the

LCRC

in

27

discharge

of

its

obligations

to

a

person

other

than

the

ceding

28

insurer

or

a

receiver

of

the

ceding

insurer.

29

An

LCRC

shall

not

be

required

to

join

a

rating

organization

30

and

shall

not

join

or

contribute

financially

to

any

plan,

pool,

31

association,

or

guaranty

or

insolvency

fund

in

this

state.

32

An

LCRC

domiciled

in

the

state

may

apply

to

the

commissioner

33

for

a

certificate

of

dormancy,

which

shall

be

valid

for

five

34

years

and

may

not

be

renewed.

An

LCRC

issued

a

certificate

of

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dormancy

shall

comply

with

the

requirements

of

the

bill

and

1

shall

not

be

subject

to

Code

section

432.1A.

At

the

discretion

2

of

the

commissioner,

a

dormant

LCRC

may

be

subject

to

an

3

annual

examination.

A

dormant

LCRC

must

apply

for

approval

4

to

surrender

a

certificate

of

dormancy

and

resume

conducting

5

business

prior

to

issuing

an

insurance

policy.

6

Unless

otherwise

approved,

an

LCRC

shall

maintain

the

7

original

books,

records,

documents,

accounts,

vouchers,

and

8

agreements

in

this

state,

make

them

available

for

examination

9

and

inspection

by

the

commissioner

upon

request,

and

keep

them

10

in

the

state

until

the

commissioner

approves

destruction

or

11

other

disposition

of

the

books,

records,

documents,

accounts,

12

vouchers,

and

agreements.

The

LCRC

may

store

and

reproduce

the

13

books,

records,

documents,

accounts,

vouchers,

and

agreements

14

electronically

but

shall

also

be

kept

in

a

manner

that

the

15

commissioner

can

readily

ascertain

the

LCRC’s

financial

16

condition,

affairs,

and

operations;

can

readily

verify

the

17

LCRC’s

financial

statements;

and

can

confirm

the

LCRC’s

18

compliance

with

the

bill.

19

An

LCRC

shall

not

take

any

of

the

actions

detailed

in

the

20

bill

unless

the

company

provides

the

commissioner

at

least

21

30

days

prior

written

notice

and

the

commissioner

expressly

22

approves

the

action.

An

LCRC

shall

submit

to

the

commissioner

23

requests

for

authorization

prior

to

making

payments

of

interest

24

on,

and

repayments

of

principal

of,

surplus

notes

and

other

25

debt

obligations

issued

by

an

LCRC.

The

commissioner

shall

26

not

approve

the

payment

or

repayment

if

it

would

jeopardize

27

the

ability

of

the

LCRC

or

another

person

to

fulfill

their

28

obligations.

29

An

LCRC

security

shall

not

be

subject

to

regulation

as

30

an

insurance

or

reinsurance

contract.

An

investor

in,

or

31

holder

of,

the

security

shall

not

be

considered

to

transact

32

in

the

business

of

insurance

solely

based

on

such

interest.

33

An

underwriter’s

placement

agents,

selling

agents,

partners,

34

commissioners,

officers,

members,

managers,

employees,

35

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agents,

representatives,

and

advisors

involved

in

an

insurance

1

securitization

shall

not

be

considered

to

be

insurance

2

producers

or

brokers

or

to

be

conducting

business

as

an

3

insurance

company,

a

reinsurance

company,

or

an

insurance

4

agency,

brokerage,

intermediary,

advisory,

or

consulting

5

business,

solely

by

virtue

of

their

underwriting

activities

in

6

connection

with

a

securitization.

7

The

commissioner

may

adopt

rules

to

implement

and

administer

8

the

bill.

9

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