85R11296 SCL-D     By: Hughes S.B. No. 915       A BILL TO BE ENTITLED   AN ACT   relating to captive insurance companies.          BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:          SECTION 1.  Section 964.001(a), Insurance Code, is amended   by adding Subdivision (1-a) to read as follows:                (1-a)  "Captive exchange" means a reciprocal or   interinsurance exchange formed under this chapter.  The term   includes the attorney in fact as defined by Section 942.001 through   which a reciprocal or interinsurance contract as defined by that   section is exchanged.          SECTION 2.  Section 964.051(b), Insurance Code, is amended   to read as follows:          (b)  A captive insurance company may not issue:                (1)  life insurance, except to insure employee benefits   that are subject to the Employee Retirement Income Security Act of   1974 (29 U.S.C. Section 1001 et seq.);                (2)  annuities;                (3)  accident and health insurance for the company's   parent and affiliates, except to insure employee benefits that are   subject to the Employee Retirement Income Security Act of 1974 (29   U.S.C. Section 1001 et seq.);                (4)  title insurance;                (5)  mortgage guaranty insurance;                (6)  financial guaranty insurance;                (7)  residential property insurance;                (8)  personal automobile insurance; or                (9)  workers' compensation insurance.          SECTION 3.  Section 964.052, Insurance Code, is amended by   adding Subsection (f) to read as follows:          (f)  A captive insurance company may cede risks to or take   credit for reserves on risks ceded to a nonaffiliated reinsurer if   the reinsurer:                (1)  holds a certificate of authority to transact   insurance or reinsurance in a jurisdiction that is:                      (A)  on the list of qualified jurisdictions of the   National Association of Insurance Commissioners; and                      (B)  acceptable to the commissioner;                (2)  maintains minimum capital and surplus, or the   equivalent, of $250 million as of the end of the preceding year; and                (3)  maintains a financial strength rating of B+ or its   equivalent from a national or international rating agency that:                      (A)  has registered with the Securities and   Exchange Commission;                      (B)  is designated as a nationally recognized   statistical rating organization;                      (C)  is on the list of Credit Rating Providers by   the Securities Valuation Office of the National Association of   Insurance Commissioners; and                      (D)  is acceptable to the commissioner.          SECTION 4.  Sections 964.053(b), (d), and (e), Insurance   Code, are amended to read as follows:          (b)  A captive insurance company may be formed and operated   as a captive exchange in accordance with Subchapter C or in any form   of business organization authorized under the Business   Organizations Code except a risk retention group or general   partnership.  A captive exchange [insurance company] may only be   formed as a nonprofit corporation if it is controlled by a nonprofit   corporation.          (d)  The board of directors or governing body of a captive   insurance company formed in this state must have at least three   members, and at least one of the members must be a resident of this   state. If the captive insurance company is a captive exchange, the   principal office of the attorney in fact must be in this state.          (e)  The certificate of formation, [or] bylaws, or governing   document of a captive insurance company must authorize a quorum of   the board of directors or governing body to consist of not fewer   than one-third of the fixed number of directors or members of the   governing body.          SECTION 5.  Section 964.055(a), Insurance Code, is amended   to read as follows:          (a)  An entity may not engage in business as a captive   insurance company domiciled in this state unless it holds a   certificate of authority issued by the department to act as a   captive insurance company.  A captive insurance company, when   permitted by its certificate of formation or governing document,   may apply for a certificate of authority under this chapter.          SECTION 6.  Section 964.056(c), Insurance Code, is amended   to read as follows:          (c)  The capital and surplus required by Subsection (a) must   be in the form of:                (1)  United States currency;                (2)  an irrevocable letter of credit, in a form   approved by the commissioner and not secured by a guarantee from an   affiliate, naming the commissioner as beneficiary for the security   of the captive insurance company's policyholders and issued by a   bank approved by the commissioner;                (3)  bonds of this state or a county or municipality of   this state; or                (4)  bonds or other evidences of indebtedness of the   United States, the principal and interest of which are guaranteed   by the United States.          SECTION 7.  Section 964.057(a), Insurance Code, is amended   to read as follows:          (a)  To obtain a certificate of authority for a captive   insurance company, the incorporators or organizers must pay to the   commissioner an application fee and file with the commissioner an   application for the certificate of authority, which must include:                (1)  a financial statement certified by two principal   officers;                (2)  a plan of operation and projections, which must   include an actuarial report prepared by a qualified independent   actuary;                (3)  the captive insurance company's certificate of   formation or other documentation demonstrating the captive   insurance company's valid formation;                (4)  an affidavit by the incorporators, organizers, or   officers of the captive insurance company stating that:                      (A)  the capital and surplus are the bona fide   property of the company; and                      (B)  the certificate of formation or other   documentation demonstrating the captive insurance company's valid   formation is true and correct; and                (5)  if the application provides for the issuance of   shares of stock or other type of equity instrument without par   value, a certificate authenticated by the incorporators or officers   stating:                      (A)  the number of shares or other type of equity   instrument without par value that are subscribed; and                      (B)  the actual consideration received by the   captive insurance company for those shares or other type of equity   instrument.          SECTION 8.  Sections 964.059(a) and (d), Insurance Code, are   amended to read as follows:          (a)  The commissioner shall determine whether:                (1)  the capital structure of the applicant meets the   requirements of this chapter;                (2)  the officers or members [directors] of the   applicant's governing body [applicant] have sufficient insurance   experience, ability, standing, and good record to make success of   the captive insurance company probable;                (3)  the applicant is acting in good faith; and                (4)  the applicant otherwise satisfies the   requirements of this chapter.          (d)  If the commissioner does not deny the application under   Subsection (c), the commissioner shall approve the application and:                (1)  issue to the applicant a certificate of authority   to engage in business as provided for in the applicant's   certificate of formation or other governing document;                (2)  certify and file the approved document with the   department; and                (3)  issue a certified copy of the certificate of   authority to the applicant's incorporators or officers.          SECTION 9.  Section 964.060, Insurance Code, is amended by   adding Subsection (d) to read as follows:          (d)  A captive insurance company is exempt from the   requirement to file an actuarial report with the company's annual   report if the company:                (1)  has less than $1 million of total direct written   premium or reinsurance assumed; or                (2)  has been in operation for less than six months as   of the end of the previous calendar year.          SECTION 10.  Section 964.062, Insurance Code, is amended to   read as follows:          Sec. 964.062.  AMENDMENTS TO CERTIFICATE OF FORMATION OR   GOVERNING DOCUMENT.  A captive insurance company may not amend its   certificate of formation or other governing document unless the   amendment has been filed with and approved by the commissioner.          SECTION 11.  The heading to Section 964.063, Insurance Code,   is amended to read as follows:          Sec. 964.063.  DIVIDENDS AND DISTRIBUTIONS.          SECTION 12.  Section 964.063(a), Insurance Code, is amended   to read as follows:          (a)  A captive insurance company shall notify the   commissioner in writing when issuing policyholder dividends or   distributions to policyholders.          SECTION 13.  Section 964.065, Insurance Code, is amended to   read as follows:          Sec. 964.065.  SUSPENSION OR REVOCATION OF CERTIFICATE OF   AUTHORITY.  The commissioner, after notice and an opportunity for   hearing, may revoke or suspend the certificate of authority of a   captive insurance company for:                (1)  insolvency or impairment of required capital or   surplus to policyholders;                (2)  failure to submit an annual report, as required by   Section 964.060;                (3)  failure to comply with the provisions of its own   charter, [or] bylaws, rules, or other governing document;                (4)  failure to submit to examination, as required by   Chapter 401;                (5)  failure to pay the cost of examination, as   required by Chapter 401;                (6)  failure to pay any tax or fee required by this   code;                (7)  removal of its principal office or books and   records from this state without prior approval of the commissioner;                (8)  use of practices that render its operation   detrimental to the public or its condition unsound; or                (9)  failure to otherwise comply with the laws of this   state.          SECTION 14.  Subchapter B, Chapter 964, Insurance Code, is   amended by adding Section 964.073 to read as follows:          Sec. 964.073.  ADJUSTER LICENSE NOT REQUIRED.   Notwithstanding Section 4101.051, a person who acts as an adjuster,   as defined by Section 4101.001, solely on behalf of a captive   insurance company in adjusting a claim of an affiliate or   controlled unaffiliated business insured by the company is not   required to hold a license under Chapter 4101.          SECTION 15.  Chapter 964, Insurance Code, is amended by   adding Subchapter C to read as follows:   SUBCHAPTER C. CAPTIVE EXCHANGES          Sec. 964.101.  DEFINITIONS. In this subchapter, a term   defined by Section 942.001 has the meaning assigned by that   section.          Sec. 964.102.  APPLICABILITY OF OTHER LAW. (a)  A captive   exchange is subject to:                (1)  this chapter; and                (2)  Sections 942.051, 942.053, and 942.054.          (b)  To the extent of a conflict, this chapter controls over   other law applicable to a captive exchange under this section.          Sec. 964.103.  STATUS OF CAPTIVE EXCHANGES. A captive   exchange is formed as an exchange as provided by this subchapter   and, except as provided by this subchapter, shall operate as a   captive insurance company as provided by this chapter.          Sec. 964.104.  ATTORNEY IN FACT REQUIREMENTS. The attorney   in fact of a captive exchange must:                (1)  be:                      (A)  a corporation organized in this state in   accordance with Section 942.051; or                      (B)  a limited liability company organized in this   state;                (2)  on the date of the captive exchange's formation,   have an existing affiliation with all subscribers of the captive   exchange regardless of any affiliation relationship created by the   captive exchange;                (3)  have its principal office in this state; and                (4)  have at least three members in the governing body   of the attorney in fact and at least one of those members must be a   resident of this state.          Sec. 964.105.  ATTORNEY IN FACT POWERS AND DUTIES. (a) The   attorney in fact of a captive exchange shall:                (1)  supervise the finances of the captive exchange;                (2)  supervise the captive exchange's operations to   ensure the captive exchange's conformity with the captive   exchange's subscriber declaration and power of attorney; and                (3)  obtain, as necessary, an audit of the account and   records of the attorney in fact at the expense of the captive   exchange.          (b)  The attorney in fact of a captive exchange has any   additional powers and duties conferred by the captive exchange's   subscriber declaration and power of attorney.          Sec. 964.106.  RELATIONSHIP REQUIREMENTS. (a) On the date   of the captive exchange's formation, each subscriber of a captive   exchange must have an existing affiliation with each other   subscriber regardless of any affiliation relationship created by   the captive exchange.          (b)  On the date of the captive exchange's formation, a   controlled unaffiliated business of the captive exchange must have   an existing contractual relationship with an affiliate that   qualifies as a subscriber.          Sec. 964.107.  SUBSCRIBER DECLARATION. A captive exchange   shall file with the department a subscriber declaration that   includes:                (1)  the information described by Section 942.053;                (2)  the amount of the captive exchange's initial   surplus; and                (3)  a provision to authorize a quorum of the governing   body of the captive exchange's attorney in fact to consist of not   fewer than one-third of the fixed number of members of the governing   body.          SECTION 16.  This Act takes effect September 1, 2017.