Scroll to History Page
Scroll to Previous Versions Links List
Scroll to Full Text
Download This Bill in Microsoft Word format
Current Status Bill Number:View additional legislative information at the LPITS web site.3665 Type of Legislation:General Bill GB Introducing Body:House Introduced Date:20010306 Primary Sponsor:Cato All Sponsors:Cato Drafted Document Number:l:\council\bills\dka\4130mm01.doc Companion Bill Number:406 Residing Body:Senate Current Committee:Banking and Insurance Committee 02 SBI Date of Last Amendment:20010410 Subject:Captive reinsurance company, provisions for; Insurance, Businesses and Corporations, Workers' Compensation, premiums History Body Date Action Description Com Leg Involved ______ ________ ______________________________________ _______ ____________ Senate 20010412 Introduced, read first time, 02 SBI referred to Committee House 20010411 Read third time, sent to Senate House 20010410 Amended, read second time House 20010404 Committee report: Favorable with 26 HLCI amendment ------ 20010306 Companion Bill No. 406 House 20010306 Introduced, read first time, 26 HLCI referred to Committee Versions of This Bill Revised on April 4, 2001 - Word format Revised on April 10, 2001 - Word format
Indicates Matter Stricken
Indicates New Matter
AMENDED
April 10, 2001
H. 3665
S. Printed 4/10/01--H.
Read the first time March 6, 2001.
REVENUE IMPACT 1/
This bill would increase Insurance Tax revenues in the general fund by $15,000 in FY 2001-02.
Explanation
This bill, as amended, establishes regulations for captive reinsurance companies to write reinsurance for property and casualty coverage or reinsurance contracts to cover risks in any state. Such companies must incorporate as a stock insurer, be wholly owned by a qualifying reinsurance parent company, and maintain capitalization of not less than three hundred million dollars or ten percent of reserves. Pursuant to Section 38-90-145, a captive reinsurer shall pay annually, as of March first, a captive reinsurance tax of $5,000. No other license or premium taxes are required.
Based on an assessment by the Department of Insurance of the potential for this industry, the BEA expects no more than three companies to be licensed in the initial year. Multiplying $5,000 times three would yield $15,000. Therefore, this bill, as amended, would increase Insurance Tax revenues within the general fund by $15,000 in FY 2001-02.
Approved By:
William C. Gillespie
Board of Economic Advisors
1/ This statement meets the requirement of Section 2-7-71 for a state revenue impact, Section 2-7-76 for a local revenue impact, and Section 6-1-85(B) for an estimate of the shift in local property tax incidence.
TO AMEND TITLE 38, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO INSURANCE, BY ADDING SECTION 38-90-25 SO AS TO PROVIDE FOR A CAPTIVE REINSURANCE COMPANY TO BE LICENSED TO WRITE REINSURANCE CONTRACTS IN SOUTH CAROLINA; BY ADDING SECTION 38-90-45 SO AS TO PROVIDE FOR MINIMUM CAPITALIZATION OR RESERVES FOR LICENSING OF A CAPTIVE REINSURANCE COMPANY; BY ADDING SECTION 38-90-55 SO AS TO REQUIRE THE INCORPORATION OF A CAPTIVE REINSURANCE COMPANY AS A STOCK INSURER; BY ADDING SECTION 38-90-75 SO AS TO PROVIDE FOR A CAPTIVE REINSURANCE COMPANY TO DISCOUNT ITS LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES; BY ADDING SECTION 38-90-145 SO AS TO PROVIDE FOR AN ANNUAL CAPTIVE REINSURANCE TAX OF FIVE THOUSAND DOLLARS; BY ADDING SECTION 38-90-185 SO AS TO PROVIDE FOR IN-STATE MANAGEMENT OF THE ASSETS OF A CAPTIVE REINSURANCE COMPANY; TO AMEND SECTION 38-90-10, RELATING TO DEFINITIONS FOR PURPOSES OF REGULATION OF CAPTIVE INSURANCE COMPANIES, SO AS TO PROVIDE DEFINITIONS FOR "CAPTIVE REINSURANCE COMPANY" AND CERTAIN ACCOUNTING TERMS; TO AMEND SECTION 38-90-70, RELATING TO FINANCIAL REPORTING TO THE DIRECTOR OF THE SOUTH CAROLINA DEPARTMENT OF INSURANCE, SO AS TO REQUIRE AN ANNUAL REPORT FROM A CAPTIVE REINSURANCE COMPANY; TO AMEND SECTION 38-90-220, RELATING TO SPONSORS OF CAPTIVE INSURANCE COMPANIES, SO AS TO REQUIRE STATE LICENSING OR AUTHORIZATION OR, IN THE ALTERNATIVE, A TRUST FUND SECURING LOSSES; TO AMEND SECTION 38-10-10, RELATING TO THE PURPOSES OF ESTABLISHING PROTECTED CELLS OF A DOMESTIC INSURER, SO AS TO INCLUDE A CAPTIVE INSURER; TO AMEND SECTION 38-10-20, RELATING TO DEFINITIONS FOR PURPOSES OF PROTECTED CELL INSURANCE COMPANIES, SO AS TO INCLUDE A CAPTIVE INSURER; TO AMEND SECTION 10-7-10, AS AMENDED, SECTION 10-7-30, AND SECTION 10-7-40, ALL RELATING TO INSURANCE ON PUBLIC BUILDINGS AND CONTENTS OWNED BY THE STATE, THE SEVERAL COUNTIES, AND SCHOOL DISTRICTS, SO AS TO PROVIDE FOR INSURANCE BY DOMESTIC CAPTIVE COMPANIES LICENSED BY THE DEPARTMENT; TO AMEND SECTION 42-7-75, AS AMENDED, RELATING TO PAYMENT OF WORKERS' COMPENSATION PREMIUMS BY STATE AGENCIES, SO AS TO PROVIDE FOR DETERMINATION OF THE PREMIUM AMOUNTS BY A DOMESTIC CAPTIVE COMPANY LICENSED BY THE DEPARTMENT.
Amend Title To Conform
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. The 1976 Code is amended by adding:
"Section 38-90-25. (A) A captive reinsurance company, if permitted by its articles of incorporation or charter, may apply to the director for a license to write reinsurance covering property and casualty insurance or reinsurance contracts. A captive reinsurance company authorized by the director may write reinsurance contracts covering risks in any state.
(B) To conduct business in this State, a captive reinsurance company shall:
(1) obtain from the director a license authorizing it to conduct business as a captive reinsurance company in this State;
(2) hold at least one board of directors' meeting each year in this State;
(3) maintain its principal place of business in this State; and
(4) appoint a registered agent to accept service of process and act otherwise on its behalf in this State.
(C) Before receiving a license, a captive reinsurance company shall file with the director:
(1) a certified copy of its charter and bylaws;
(2) a statement under oath of its president and secretary showing its financial condition; and
(3) other documents required by the director.
(D) In addition to the information required by subsection (C), the applicant captive reinsurance company shall file with the director evidence of:
(1) the amount and liquidity of its assets relative to the risks to be assumed;
(2) the adequacy of the expertise, experience, and character of the person who manages it;
(3) the overall soundness of its plan of operation; and
(4) other overall factors considered relevant by the director in ascertaining if the proposed captive reinsurance company is able to meet its policy obligations.
(E) Information submitted pursuant to this section is confidential and may not be made public by the director or an agent or employee of the director without the written consent of the company, except that:
(1) information may be discoverable by a party in a civil action or contested case to which the submitting captive reinsurance company is a party, upon a showing by the party seeking to discover the information that:
(a) the information sought is relevant to and necessary for the furtherance of the action or case;
(b) the information sought is unavailable from other nonconfidential sources;
(c) a subpoena issued by a judicial or administrative law officer of competent jurisdiction has been submitted to the director; and
(2) the director may disclose the information to the public officer having jurisdiction over the regulation of insurance in another state if:
(a) the public official agrees in writing to maintain the confidentiality of the information; and
(b) the laws of the state in which the public official serves require the information to be confidential.
(F) The provisions of subsection (E) do not apply to an industrial insured captive reinsurance company insuring the risks of an industrial insured group."
SECTION 2. The 1976 Code is amended by adding:
"Section 38-90-45. (A) The director may not issue a license to a captive reinsurance company unless the company possesses and maintains capital or free surplus of not less than the greater of three hundred million dollars or ten percent of reserves. The surplus may be in form of cash or securities.
(B) The director may prescribe additional capital or surplus based upon the type, volume, and nature of the insurance business transacted.
(C) A captive reinsurance company may not pay a dividend out of, or other distribution with respect to, capital or surplus in excess of the limitations, without the prior approval of the director. Approval of an ongoing plan for the payment of dividends or other distributions must be conditioned upon the retention, at the time of each payment, of capital or surplus in excess of amounts specified by, or determined in accordance with formulas approved by, the director."
SECTION 3. The 1976 Code is amended by adding:
"Section 38-90-55. (A) A captive reinsurance company must be incorporated as a stock insurer with its capital divided into shares and held by its shareholders.
(B) A captive reinsurance company may not have fewer than three incorporators of whom at least two must be residents of this State.
(C) Before the articles of incorporation are transmitted to the Secretary of State, the incorporators shall petition the director to issue a certificate finding that the establishment and maintenance of the proposed corporation promotes the general good of this State. In arriving at this finding the director shall consider:
(1) the character, reputation, financial standing, and purposes of the incorporators;
(2) the character, reputation, financial responsibility, insurance experience, and business qualifications of the officers and directors; and
(3) other factors the director considers advisable.
(D) The capital stock of a captive reinsurance company must be issued at par value or greater.
(E) At least one of the members of the board of directors of a captive reinsurance company incorporated in this State must be a resident of this State."
SECTION 4. The 1976 Code is amended by adding:
"Section 38-90-75. (A) A captive reinsurance company may discount its loss and loss adjustment expense reserves at treasury rates applied to the applicable payments projected through the use of the expected payment pattern associated with the reserves.
(B) A captive reinsurance company shall file annually an actuarial opinion on loss and loss adjustment expense reserves provided by an independent actuary. The actuary may not be an employee of the captive company or its affiliates.
(C) The director may disallow the discounting of reserves if a captive reinsurance company violates a provision of this title."
SECTION 5. The 1976 Code is amended by adding:
"Section 38-90-145. (A) A captive reinsurance company shall pay to the department by March first of each year a captive reinsurance tax of five thousand dollars.
(B) The tax provided in this section is the only tax collectible pursuant to the laws of this State from a captive reinsurance company, and no tax on reinsurance premiums, other than occupation tax, nor any other taxes may be levied or collected from a captive reinsurance company by the State or a county, city, or municipality within this State, except ad valorem taxes on real and personal property used in the production of income.
(C) A captive reinsurance company failing to make returns or to pay all taxes required by this section, is subject to sanctions provided in this title."
SECTION 6. The 1976 Code is amended by adding:
"Section 38-90-185. At least thirty-five percent of the assets of a captive reinsurance company must be managed by an asset manager domiciled in this State."
SECTION 7. Section 38-90-10 of the 1976 Code, as added by Act 331 of 2000, is amended to read:
"Section 38-90-10. As used in this chapter, unless the context requires otherwise:
(1) 'Alien captive insurance company' means an insurance company formed to write insurance business for its parents and affiliates and licensed pursuant to the laws of an alien jurisdiction which imposes statutory or regulatory standards in a form acceptable to the director on companies transacting the business of insurance in such jurisdiction.
(2) 'Affiliated company' means a company in the same corporate system as a parent, an industrial insured, or a member organization by virtue of common ownership, control, operation, or management.
(3) 'Association' means a legal association of individuals, corporations, partnerships, or associations that has been in continuous existence for at least one year:
(a) the member organizations of which collectively, or which does itself;
( i) own, control, or hold with power to vote all of the outstanding voting securities of an association captive insurance company incorporated as a stock insurer; or
(ii) have complete voting control over an association captive insurance company incorporated as a mutual insurer; or
(b) the member organizations of which collectively constitute all of the subscribers of an association captive insurance company formed as a reciprocal insurer.
(4) 'Association captive insurance company' means a company that insures risks of the member organizations of the association and their affiliated companies.
(5) 'Branch business' means any insurance business transacted by a branch captive insurance company in this State.
(6) 'Branch captive insurance company' means an alien captive insurance company licensed by the director to transact the business of insurance in this State through a business unit with a principal place of business in this State.
(7) 'Branch operations' means any business operations of a branch captive insurance company in this State.
(8) 'Captive insurance company' means a pure captive insurance company, association captive insurance company, captive reinsurance company, sponsored captive insurance company, or industrial insured captive insurance company formed or licensed under this chapter. For purposes of this chapter, a branch captive insurance company must be a pure captive insurance company with respect to operations in this State, unless otherwise permitted by the director.
(9) 'Captive reinsurance company' means a reinsurance company that is formed or licensed pursuant to this chapter and is wholly owned by a qualifying reinsurance parent company. A captive reinsurance company is a stock corporation.
(10) 'Consolidated debt to total capital ratio' means the ratio of the sum of (a) all debts and hybrid capital instruments including, but not limited to, all borrowings from banks, all senior debt, all subordinated debts, all trust preferred shares, and all other hybrid capital instruments that are not included in the determination of consolidated GAAP new worth issued and outstanding to (b) total capital, consisting of all debts and hybrid capital instruments as described in subitem (a) plus shareholders' equity determined in accordance with GAAP for reporting to the United States Securities and Exchange Commission.
(11) 'Consolidated GAAP net worth' means the consolidated shareholders' equity determined in accordance with GAAP for reporting to the United States Securities and Exchange Commission.
(12) 'Controlled unaffiliated business' means a company:
(a) that is not in the corporate system of a parent and affiliated companies;
(b) that has an existing contractual relationship with a parent or affiliated company; and
(c) whose risks are managed by a pure captive insurance company in accordance with Section 38-90-190.
(10)(13) 'Director' means the Director of the South Carolina Department of Insurance or the director's designee.
(11)(14) 'Department' means the South Carolina Department of Insurance.
(15) 'GAAP' means generally accepted accounting principles.
(12)(16) 'Industrial insured' means an insured as defined in Section 38-25-150(8).
(13)(17) 'Industrial insured captive insurance company' means a company that insures risks of the industrial insureds that comprise the industrial insured group and their affiliated companies.
(14)(18) 'Industrial insured group' means a group that meets either of the following criteria:
(a) a group of industrial insureds that collectively:
(i) own, control, or hold with power to vote all of the outstanding voting securities of an industrial insured captive insurance company incorporated as a stock insurer; or
(ii) have complete voting control over an industrial insured captive insurance company incorporated as a mutual insurer; or
(b) a group which is created under the Product Liability Risk Retention Act of 1981, 15 U.S.C. Section 3901 et seq., as amended, as a corporation or other limited liability association taxable as a stock insurance company or a mutual insurer under this title.
(15)(19) 'Member organization' means a individual, corporation, partnership, or association that belongs to an association.
(16)(20) 'Parent' means a corporation, partnership, or individual that directly or indirectly owns, controls, or holds with power to vote more than fifty per cent of the outstanding voting securities of a pure captive insurance company.
(17)(21) 'Participant' means an entity as defined in Section 38-90-230, and any affiliates of that entity, that are insured by a sponsored captive insurance company, where the losses of the participant are limited through a participant contract to the assets of a protected cell.
(18)(22) 'Participant contract' means a contract by which a sponsored captive insurance company insures the risks of a participant and limits the losses of the participant to the assets of a protected cell.
(19)(23) 'Protected cell' means a separate account established and maintained by a sponsored captive insurance company for one participant.
(20)(24) 'Pure captive insurance company' means a company that insures risks of its parent and affiliated companies.
(25) 'Qualifying reinsurer parent company' means a reinsurer authorized to write reinsurance by this State and that has a consolidated GAAP net worth of not less than five hundred million dollars and consolidated debt to total capital ratio not greater than 0.50.
(21)(26) 'Sponsor' means an entity that meets the requirements of Section 38-90-220 and is approved by the director to provide all or part of the capital and surplus required by applicable law and to organize and operate a sponsored captive insurance company.
(22)(27) 'Sponsored captive insurance company' means a captive insurance company:
(a) in which the minimum capital and surplus required by applicable law is provided by one or more sponsors;
(b) that is formed or licensed under this chapter;
(c) that insures the risks of separate participants through the contract; and
(d) that segregates each participant's liability through one or more protected cells.
(28) 'Treasury rates' means the United States treasury strips asked yield as published in the Wall Street Journal as of a balance sheet date."
SECTION 8. Section 38-90-70(B) of the 1976 Code, as added by Act 331 of 2000, is amended to read:
"(B) Before March 1 first of each year, a captive insurance company or a captive reinsurance company shall submit to the director a report of its financial condition, verified by oath of two of its executive officers. Except as provided in Sections 38-90-40 and 38-90-50, a captive insurance company or a captive reinsurance company shall report using generally accepted accounting principles, unless the director approves the use of statutory accounting principles, with any useful or necessary modifications or adaptations required or approved or accepted by the director for the type of insurance and kinds of insurers to be reported upon, and as supplemented by additional information required by the director. Except as otherwise provided, an association captive insurance company and an industrial insured group shall file its report in the form required by Section 38-13-80, and each industrial insured group shall comply with the requirements set forth in Section 38-13-85. The director by regulation shall prescribe the forms in which pure captive insurance companies and industrial insured captive insurance companies shall report."
SECTION 9. Section 38-90-220 of the 1976 Code, as added by Act 331 of 2000, is amended to read:
"Section 38-90-220. A sponsor of a sponsored captive insurance company must be an insurer licensed under pursuant to the laws of any a state, a reinsurer authorized or approved under pursuant to the laws of any a state, or a captive insurance company formed or licensed under pursuant to this chapter. A risk retention group may not be either a sponsor or a participant of a sponsored captive insurance company. The business written by a sponsored captive insurance company with respect to each protected cell must be fronted by an insurance company licensed under the laws of any state. A risk retention group may not be either a sponsor or a participant of a sponsored captive insurance company.:
(1) fronted by an insurance company licensed pursuant to the laws of a state;
(2) reinsured by a reinsurer authorized or approved by this State; or
(3) secured by a trust fund in the United States for the benefit of policyholders and claimants funded by an irrevocable letter of credit or other asset acceptable to the director. The amount of security provided by the trust fund may not be less than the reserves associated with those liabilities, including reserves for losses, allocated loss adjustment expenses, incurred but unreported losses, and unearned premiums for business written through the participant's protected cell. The director may require the sponsored captive to increase the funding of a trust established pursuant to this item. If the form of security in the trust is a letter of credit, the letter of credit must be established, issued, or confirmed by a bank chartered in this State, a member of the federal reserve system, or a bank chartered by another state if that state-chartered bank is acceptable to the director. A trust and trust instrument maintained pursuant to this item must be in a form and upon terms approved by the director."
SECTION 10. Section 38-10-10 of the 1976 Code, as added by Act 238 of 2000, is amended to read:
"Section 38-10-10. This chapter is adopted to provide a basis for the creation of protected cells by a domestic insurer or captive insurer as defined in Chapter 90 as one means of accessing alternative sources of capital and achieving the benefits of insurance securitization. Investors in fully funded insurance securitization transactions provide funds that are available to pay the insurer's insurance obligations or to repay the investors, or both. The creation of protected cells is intended to be a means to achieve more efficiencies in conducting insurance securitizations."
SECTION 11. Section 38-10-20(10) of the 1976 Code, as added by Act 238 of 2000, is amended to read:
"(10) "Protected cell company" means a domestic insurer or captive insurer that has one or more protected cells."
SECTION 12. Section 38-9-200(B) of the 1976 Code, as last amended by Act 422 of 1998, is further amended to read:
"(B) Credit shall must be allowed when the reinsurance is ceded to an assuming insurer which is licensed to transact insurance or reinsurance in this State, or approved as a reinsurer by the director or designee provided by Section 38-5-60, or licensed as a captive reinsurance company pursuant to Chapter 90 of this title. It is not the intent of this provision to allow an insurer domiciled outside this State to take credit for reinsurance in its financial statements based on the domestic license, authorization, accreditation, or 'substantially similar' status of the captive reinsurance company."
SECTION 13. This act takes effect upon approval by the Governor.
This web page was last updated on Tuesday, December 8, 2009 at 11:29 A.M.