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INTRODUCED
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HOUSE COMMITTEE
SUBSTITUTE
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No
equivalent provision.
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ARTICLE 1. REGULATION OF
CAPTIVE INSURANCE COMPANIES
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SECTION 1. Section
964.001(a), Insurance Code, is amended by adding Subdivision (1-a) to read
as follows:
No
equivalent provision.
(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.
No
equivalent provision.
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SECTION 1.01. Section
964.001(a), Insurance Code, is amended by adding Subdivisions (1-a), (1-b),
and (8) and amending Subdivision (2) to read as follows:
(1-a) "Attorney in
fact" means a firm or corporation that, under a power of attorney or
other appropriate authorization of the attorney in fact, acts for
subscribers of a captive exchange by issuing reciprocal or interinsurance
contracts.
(1-b) "Captive
exchange" means a reciprocal or interinsurance exchange formed under
this chapter. The term includes the attorney in fact through which a
reciprocal or interinsurance contract, as defined by Section 942.001, is
exchanged.
(2) "Captive insurance
company" means a company that holds a certificate of authority under
this chapter to insure the operational risks of the company's affiliates or
risks of a controlled unaffiliated business. The term includes a captive exchange.
(8)
"Subscriber" means an affiliated company or controlled
unaffiliated business that enters into a reciprocal contract of insurance
with an attorney in fact as a subscriber of a captive exchange.
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SECTION 2. Section
964.051(b), Insurance Code, is amended
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SECTION 1.02. Same as
introduced version.
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SECTION 3. Section 964.052,
Insurance Code, is amended
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SECTION 1.03. Same as
introduced version.
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SECTION 4. Sections
964.053(b), (d), and (e), Insurance Code, are amended to read as follows:
No
equivalent provision.
(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.
No
equivalent provision.
(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.
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SECTION 1.04. Sections
964.053(a), (c), (d), and (e), Insurance Code, are amended to read as
follows:
(a) A captive insurance
company, other than a captive exchange, or an attorney in fact must
be formed for the purpose of engaging in the business of insurance under
this chapter by filing an appropriate application with the secretary of
state.
No
equivalent provision.
(c) The certificate of
formation of a captive insurance company, other than a captive exchange,
or an attorney in fact must comply with the applicable requirements of the Business
Organizations Code. The [must include:
[(1) the] name of the
company or attorney in fact in the certificate of formation may include
the words "insurance," "company," or similar words
indicating that the purpose of the company or attorney in fact is to
operate as an insurance company or attorney in fact under this chapter
[, which may not be the same as, deceptively similar to, or likely to be
confused with or mistaken for any other existing business name registered
in this state;
[(2) the location of the
company's principal business office;
[(3) the type of
insurance business in which the company proposes to engage;
[(4) the number of
directors or members of the governing body of the company;
[(5) the number of
authorized shares and the par value of the company's capital stock for a
captive insurance company formed as a corporation;
[(6) the amount of the
company's initial capital and surplus; and
[(7) any other
information required by the commissioner as necessary to explain the
company's objectives, management, and control].
(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.
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SECTION 5. Section
964.055(a), Insurance Code, is amended
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SECTION 1.05. Same as
introduced version.
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SECTION 6. Section 964.056(c),
Insurance Code, is amended to read as follows:
No
equivalent provision.
No
equivalent provision.
(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.
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SECTION 1.06. Section 964.056,
Insurance Code, is amended to read as follows:
Sec. 964.056. CAPITAL AND
SURPLUS OR EQUIVALENT REQUIREMENTS.
(a) The department may not
issue a certificate of authority to a captive insurance company unless the
company possesses and maintains unencumbered capital and surplus, or the
equivalent, in an amount determined by the commissioner after
considering:
(1) the amount of premium
written by the captive insurance company;
(2) the characteristics of
the assets held by the captive insurance company;
(3) the terms of reinsurance
arrangements entered into by the captive insurance company;
(4) the type of business
covered in policies issued by the captive insurance company;
(5) the underwriting
practices and procedures of the captive insurance company; and
(6) any other criteria that
has an impact on the operations of the captive insurance company determined
to be significant by the commissioner.
(b) The amount of capital
and surplus, or the equivalent, determined by the commissioner under
Subsection (a) may not be less than $250,000.
(c) The capital and surplus, or the equivalent, 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.
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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.
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SECTION 1.07. Section
964.057(a), Insurance Code, is amended to read as follows:
(a) After forming [To obtain a certificate of authority for]
a captive insurance company, other
than a captive exchange, or an attorney in fact, the incorporators or organizers must
pay to the commissioner an application fee and file with the commissioner
an application for a [the] certificate of authority for a captive insurance company, 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 valid formation of the captive insurance company, other than a captive exchange, or the attorney
in fact;
(4) an affidavit by the
incorporators, organizers, or officers of the captive insurance company
stating that:
(A) the capital and surplus, or the equivalent, are the bona
fide property of the company; and
(B) the certificate of
formation or other documentation demonstrating the captive insurance
company's or attorney in fact'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.
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No
equivalent provision.
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SECTION 1.08. Section
964.058(a), Insurance Code, is amended to read as follows:
(a) After the application
and application fee for a certificate of authority under Section 964.057
are filed with the department and the applicant has complied with all legal
requirements, the commissioner shall conduct an examination of the
applicant to determine whether:
(1) the minimum capital and
surplus, or the equivalent, requirements of Section 964.056 are
satisfied;
(2) the capital and surplus,
or the equivalent, are the bona fide property of the applicant; and
(3) the applicant has fully
complied with applicable insurance laws.
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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.
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SECTION 1.09. Sections
964.059(a) and (d), Insurance Code, are amended to read as follows:
(a) The commissioner shall
determine whether:
(1) the capital and surplus, or the equivalent,
[structure] of the applicant meet [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.
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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.
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SECTION 1.10. Section
964.060, Insurance Code, is amended by adding Subsection (d) to read as
follows:
(d) The commissioner may waive the requirement for
a captive insurance company to file an actuarial report with the company's
annual report if the commissioner
determines that the company:
(1) has less than $1
million of net 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.
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No
equivalent provision.
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SECTION 1.11. Section
964.061(b), Insurance Code, is amended to read as follows:
(b) A captive insurance
company may make loans to its affiliates with the prior approval of the
commissioner. Each loan must be evidenced by a note approved by the
commissioner. A captive insurance company may not make a loan of the
minimum capital and surplus funds, or the equivalent, required by
this chapter.
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SECTION 10. Section 964.062,
Insurance Code, is amended
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SECTION 1.12. Same as introduced
version.
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SECTION 11. The heading to
Section 964.063, Insurance Code, is amended
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SECTION 1.13. Same as
introduced version.
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SECTION 12. Section
964.063(a), Insurance Code, is amended
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SECTION 1.14. Same as
introduced version.
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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.
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SECTION 1.15. 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, or
the equivalent, 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.
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No
equivalent provision.
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SECTION 1.16. Section
964.070, Insurance Code, is amended by amending Subsection (a) and adding
Subsection (d) to read as follows:
(a) Any information filed with
the commissioner by an applicant or captive insurance company under
this chapter is confidential and privileged for all purposes, including for
purposes of Chapter 552, Government Code, a response to a subpoena, or
evidence in a civil action. Except as provided by Subsections (b) and (c),
the information may not be disclosed without the prior written consent of
the applicant or captive insurance company to which the information
pertains.
(d) The secretary of
state may index in the public record any document filed with the secretary
by an applicant or captive insurance company.
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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.
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SECTION 1.17. Subchapter B,
Chapter 964, Insurance Code, is amended by adding Section 964.073 to read
as follows:
Sec. 964.073. ADJUSTER
LICENSE NOT REQUIRED; EXCEPTION.
(a) Except as provided by Subsection (b), a captive insurance
company is not required to use a person licensed as an adjuster under
Chapter 4101 to adjust losses.
(b) A captive insurance company shall use a person licensed as
an adjuster under Chapter 4101 to adjust a claim that a person that is not
an affiliated company or an insured controlled unaffiliated business makes
against an affiliated company insured by the captive insurance company.
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No
equivalent provision.
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ARTICLE 2. CAPTIVE EXCHANGES
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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.
Sec. 964.103. STATUS OF
CAPTIVE EXCHANGES.
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.
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.
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SECTION 2.01. Chapter 964,
Insurance Code, is amended by adding Subchapter C to read as follows:
SUBCHAPTER C. CAPTIVE
EXCHANGES
Sec. 964.101.
APPLICABILITY OF OTHER LAW.
Sec. 964.102. STATUS OF
CAPTIVE EXCHANGES.
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; or
(B) a limited liability
company organized in this state;
(2) on the date of the
captive exchange's formation, have and
maintain a power of attorney with all subscribers of 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.
Sec. 964.103. SUBSCRIBER
REQUIREMENTS. On and after the
date of the captive exchange's formation, each subscriber of the captive
exchange must:
(1) have an existing
affiliation with each other subscriber; or
(2) satisfy the definition of a controlled
unaffiliated business regardless of any affiliation relationship created by
the captive exchange.
Sec. 964.106. SUBSCRIBER
DECLARATION.
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No
equivalent provision.
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ARTICLE 3. TRANSITION AND
EFFECTIVE DATE
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No
equivalent provision.
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SECTION 3.01. The change in
law made by this Act to Section 964.070, Insurance Code, applies only to
information filed with the secretary of state on or after September 1,
2017. Information filed with the secretary of state before September 1,
2017, is governed by the law applicable to the information immediately
before the effective date of this Act, and that law is continued in effect
for that purpose.
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SECTION 16. This Act takes
effect September 1, 2017.
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SECTION 3.02. This Act takes effect immediately if it
receives a vote of two-thirds of all the members elected to each house, as
provided by Section 39, Article III, Texas Constitution. If this Act does
not receive the vote necessary for immediate effect, this Act takes
effect September 1, 2017.
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