COMMITTEE SUBSTITUTE
FOR
H. B. 2950
(By Delegates H. White and Hrutkay)
(Originating in the Committee on Finance)
[February 27, 2004]
A BILL to amend and reenact §33-31-1, §33-31-2, §33-31-4, §33-31-5,
§33-31-6, §33-31-7, §33-31-8, §33-31-9, §33-31-10, §33-31-11,
§33-31-13, §33-31-14 and §33-31-15 of the code of West
Virginia 1931, as amended; to amend said code by adding
thereto nine new sections, designated §33-31-17, §33-31-18,
§33-31-19, §33-31-20, §33-31-21, §33-31-22, §33-31-23, §33-31-
24 and §33-31-25; and to amend said code by adding thereto a
new article, designated §31-31A-1, §31-31A-2, §31-31A-3, §31-
31A-4, §31-31A-5, §31-31A-6, §31-31A-7, §31-31A-8 and §31-31A-
9 all relating to captive insurance companies; authorizing
establishment of and regulating branch captive insurance
companies and sponsored cell captives; and generally
modernizing the captive insurance law.
Be it enacted by the Legislature of West Virginia:
That §33-31-1, §33-31-2, §33-31-4, §33-31-5, §33-31-6,
§33-31-7, §33-31-8, §33-31-9, §33-31-10, §33-31-11, §33-31-13,
§33-31-14 and §33-31-15 of the code of West Virginia, 1931, as amended, be amended and reenacted; that said code be amended by
adding thereto nine new sections, designated §33-31-17, §33-31-18,
§33-31-19, §33-31-20, §33-31-21, §33-31-22, §33-31-23, §33-31-24
and §33-31-25; and that said code be amended by adding thereto a
new article, designated §31-31A-1, §31-31A-2, §31-31A-3, §31-31A-4,
§31-31A-5, §31-31A-6, §31-31A-7, §31-31A-8 and §31-31A-9, all to
read as follows:
ARTICLE 31. CAPTIVE INSURANCE.
§33-31-1. Definitions.
As used in this chapter, unless the context requires
otherwise:
(1) "Affiliated company" means any 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.
(2) "Alien captive insurance company" means any insurance
company formed to write insurance business for its parents and
affiliates and licensed pursuant to the laws of a country other
than the United States which imposes statutory or regulatory
standards in a form acceptable to the commissioner on companies
transacting the business of insurance in such jurisdiction.
(2) (3) "Association" means any legal association of
individuals, corporations,
partnerships or associations limited
liability companies, partnerships, associations, or other entities
that has been in continuous existence for at least one year, the
member organizations of which
collectively or which does itself, whether or not in conjunction with some or all of the member
organizations:
(A) 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
(B) Have complete voting control over an association captive
insurance company incorporated as a mutual insurer;
or
(C) Constitute all of the subscribers of an association
captive insurance company formed as a reciprocal insurer.
(3) (4) "Association captive insurance company" means any
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 any alien
captive insurance company licensed by the commissioner 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.
(4) (8) "Captive insurance company" means any pure captive
insurance company, association captive insurance company,
or
sponsored captive insurance company, industrial insured captive
insurance company
, or risk retention group formed or licensed under
the provisions of this chapter.
For purposes of this chapter, a
branch captive insurance company shall be a pure captive insurance company with respect to operations in this state, unless otherwise
permitted by the commissioner.
(5) (9) "Commissioner" means the insurance commissioner of
West Virginia.
(10) "Controlled unaffiliated business" means any 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 nineteen of this article.
(6) (11) "Industrial insured" means an insured:
(A) Who procures the insurance of any risk or risks by use of
the services of a full-time employee acting as an insurance manager
or buyer;
(B) Whose aggregate annual premiums for insurance on all
risks total at least twenty-five thousand dollars; and
(C) Who has at least twenty-five full-time employees.
(7) (12) "Industrial insured captive insurance company" means
any company that insures risks of the industrial insureds that
comprise the industrial insured group and their affiliated
companies.
(8) (13) "Industrial insured group" means any
group that
meets the following criteria:
Any group of industrial insureds that collectively:
(i) (A) 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) (B) Have complete voting control over an industrial
insured captive insurance company incorporated as a mutual insurer
;
or
(
C) Constitute all of the subscribers of an industrial
insured captive insurance company formed as a reciprocal insurer.
(9) (14) "Member organization" means any individual,
corporation,
limited liability company, partnership,
or association
or other entity that belongs to an association.
(15) "Mutual corporation" means a corporation organized
without stockholders and includes a nonprofit corporation with
members.
(10) (16) "Parent" means a corporation,
limited liability
company, partnership
, other entity, or individual that directly or
indirectly owns, controls or holds with power to vote more than
fifty percent of the outstanding voting
:
(A) Securities of a pure captive insurance company
organized
as a stock corporation; or
(B) Membership interests of a pure captive insurance company
organized as a nonprofit corporation.
(11) (17) "Pure captive insurance company" means any company
that insures risks of its parent and affiliated companies
or
controlled unaffiliated business.
(18) "Risk retention group" means a captive insurance company
organized under the laws of this state pursuant to the Liability Risk Retention Act of 1986, 15 U.S.C. § 3901 et seq., as amended,
as a stock or mutual corporation, a reciprocal or other limited
liability entity.
§33-31-2. Licensing; authority.
(a) Any captive insurance company, when permitted by its
articles of association,
or charter
or other organizational
document, may apply to the commissioner for a license to do any and
all insurance comprised in
chapter thirty-three of this code
section ten, article one of this chapter except as indicated in
subdivision (4), subsection (a) of this section:
Provided, That
said captive insurance company maintains its all captive insurance
companies, except pure captive insurance companies, shall maintain
their principal office and principal place of business in this
state:
Provided,
however, That:
(1) No pure captive insurance company may insure any risks
other than those of its parent and affiliated companies
or
controlled unaffiliated business;
(2) No association captive insurance company may insure any
risks other than those of the member organizations of its
association, and their affiliated companies;
(3) No industrial insured captive insurance company may
insure any risks other than those of the industrial insureds that
comprise the industrial insured group, and their affiliated
companies;
(4) No risk retention group may insure any risks other than
those of its members and owners;
(4) (5) No captive insurance company may provide personal
motor vehicle or homeowner's insurance coverage or any component
thereof;
and
(5) (6) No captive insurance company may accept or cede
reinsurance except as provided in section eleven
hereof of this
article;
(7) Any captive insurance company may provide excess workers'
compensation insurance to its parent and affiliated companies,
unless prohibited by the federal law or laws of the state having
jurisdiction over the transaction. Any captive insurance company,
unless prohibited by federal law, may reinsure workers'
compensation of a qualified self-insured plan of its parent and
affiliated companies; and
(8) Any captive insurance company which insures risks
described in subsections (a) and (b) of section ten, article one of
this chapter shall comply with all applicable state and federal
laws.
(b) No captive insurance company may do any insurance
business in this state unless:
(1) It first obtains from the commissioner a license
authorizing it to do insurance business in this state;
(2) Its board of directors
, or in the case of a reciprocal
insurer its subscribers' advisory committee, holds at least one
meeting each year in this state;
and
(3) It maintains its principal place of business in this
state; and
(4) (3) It appoints a
resident registered agent to accept
service of process and to otherwise act on its behalf in this
state
: Provided, That whenever such registered agent cannot with
reasonable diligence be found at the registered office of the
captive insurance company, the secretary of state shall be an agent
of such captive insurance company upon whom any process, notice, or
demand may be served.
(c)
(1) Before receiving a license, a captive insurance
company shall
:
(A) File with the commissioner a certified copy of its
charter and bylaws organizational documents, a statement under oath
of its president and secretary showing its financial condition, and
any other statements or documents required by the commissioner
; and
(B) Submit to the commissioner for approval a description of
the coverages, deductibles, coverage limits, and rates, together
with such additional information as the commissioner may reasonably
require. In the event of any subsequent material change in any item
in such description, the captive insurance company shall submit to
the commissioner for approval an appropriate revision and shall not
offer any additional kinds of insurance until a revision of such
description is approved by the commissioner. The captive insurance
company shall inform the commissioner of any material change in
rates within thirty days of the adoption of such change.
In addition to the information required above,
(2) Each applicant captive insurance company shall
also file
with the commissioner evidence of the following:
(1) (A) The amount and liquidity of its assets relative to
the risks to be assumed;
(2) (B) The adequacy of the expertise, experience, and
character of the person or persons who will manage it;
(3) (C) The overall soundness of its plan of operation;
(4) (D) The adequacy of the loss prevention programs of its
parent, member organizations, or industrial insureds
as applicable;
and
(5) (E) Such other factors deemed relevant by the
commissioner in ascertaining whether the proposed captive insurance
company will be able to meet its policy obligations.
(3) Information submitted pursuant to this subsection shall
be and remain confidential, and may not be made public by the
commissioner or an employee or agent of the commissioner without
the written consent of the company, except that:
(A) Such information may be discoverable by a party in a
civil action or contested case to which the captive insurance
company that submitted such information is a party, upon a showing
by the party seeking to discover such information that:
(i) The information sought is relevant to and necessary for
the furtherance of such action or case;
(ii) The information sought is unavailable from other
nonconfidential sources; and
(iii) A subpoena issued by a judicial or administrative
officer of competent jurisdiction has been submitted to the
commissioner: Provided, That the provisions of subdivision (3) of this subsection shall not apply to any risk retention group; and
(B) The commissioner may, in the commissioner's discretion,
disclose such information to a public officer having jurisdiction
over the regulation of insurance in another state, if:
(i) The public official shall agree in writing to maintain the
confidentiality of such information; and
(ii) The laws of the state in which such public official
serves require such information to be and to remain confidential.
(d) Each captive insurance company shall pay to the
commissioner a nonrefundable fee of two hundred dollars for
examining, investigating, and processing its application for
license,
and upon issuance of a license, an annual license fee of
three hundred dollars. In addition, it shall pay fees and charges
in accordance with article three of this chapter and the
commissioner is authorized to retain legal, financial and
examination services from outside the department, the reasonable
cost of which may be charged against the applicant. The provisions
of subsection (r), section nine, article two of this chapter shall
apply to examinations, investigations, and processing conducted
under the authority of this section. In addition, each captive
insurance company shall pay a license fee for the year of
registration and a renewal fee for each year thereafter of three
hundred dollars.
(e) If the commissioner is satisfied that the documents and
statements that such captive insurance company has filed comply
with the provisions of this chapter,
he the commissioner may grant a license authorizing it to do insurance business in this state
until April first, thereafter, which license may be renewed.
§33-31-4. Minimum capital and surplus; letter of credit.
No pure captive insurance company, association captive
insurance company incorporated as a stock insurer, or industrial
insured captive insurance company incorporated as a stock insurer
shall be issued a license unless it shall possess and thereafter
maintain unimpaired paid-in capital of:
(1) In the case of a pure captive insurance company, not less
than one hundred thousand dollars;
(2) In the case of an association captive insurance company
incorporated as a stock insurer, not less than three hundred twenty
thousand dollars; and
(3) In the case of an industrial insured captive insurance
company incorporated as a stock insurer, not less than one hundred
sixty thousand dollars.
Such capital may be in the form of cash or an irrevocable
letter of credit issued by a bank chartered by the state of West
Virginia or a member bank of the federal reserve system and
approved by the commissioner.
(a) No captive insurance company shall be issued a license
unless it shall possess and thereafter maintain
free surplus
unimpaired paid-in capital of:
(1) In the case of a pure captive insurance company, not less
than
one hundred fifty thousand dollars one hundred thousand
dollars;
(2) In the case of an association captive insurance company,
incorporated as a stock insurer, not less than two hundred eighty
thousand dollars not less than three hundred fifty thousand dollars;
(3) In the case of an industrial insured captive insurance
company,
incorporated as a stock insurer not less than two hundred
forty thousand dollars not less than two hundred fifty thousand
dollars;
(4) In the case of an association captive insurance company
incorporated as a mutual insurer, not less than six hundred thousand
dollars.
(4) In the case of a risk retention group, not less than five
hundred thousand dollars; and
(5) In the case of
an industrial insured captive insurance
company incorporated as a mutual insurer not less than four hundred
thousand dollars a sponsored captive insurance company, not less
than two hundred fifty thousand dollars.
(b) No captive insurance company shall be issued a license
unless it possesses and thereafter maintains unimpaired paid-in
surplus of:
(1) In the case of a pure captive insurance company, not less
than one hundred fifty thousand dollars;
(2) In the case of an association captive insurance company,
not less than three hundred fifty thousand dollars;
(3) In the case of an industrial insured captive insurance
company, not less than two hundred fifty thousand dollars;
(4) In the case of a risk retention group, not less than five hundred thousand dollars; and
(5) In the case of a sponsored captive insurance company, not
less than two hundred fifty thousand dollars.
(c) The commissioner may prescribe additional capital and
surplus based upon the type, volume, and nature of insurance
business transacted.
(d) Such Capital and surplus may be in the form of cash or an
irrevocable letter of credit issued by a bank chartered by the state
of West Virginia or
a member bank of the federal reserve system and
approved by the commissioner.
§33-31-5. Dividends.
No captive insurance company may pay a dividend out of, or
other distribution with respect to, capital or surplus without the
prior approval of the commissioner. Approval of an ongoing plan for
the payment of dividends or other distributions shall 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 commissioner.
§33-31-6. Formation of captive insurance companies in this state.
(a) A pure captive insurance company
shall may be incorporated
as a stock insurer with its capital divided into shares and held by
the stockholders
, or as a nonprofit corporation with one or more
members.
(b) An association captive insurance company or an industrial
insured captive insurance company may be
incorporated:
(1)
Incorporated as a stock insurer with its capital divided into shares and held by the stockholders;
or
(2)
Incorporated as a mutual insurer without capital stock,
the governing body of which is elected by
the member organizations
of its association its insureds; or
(3) Organized as a reciprocal insurer in accordance with
article twenty-one of this chapter.
(c) A captive insurance company
incorporated or organized in
this state shall have
at least one incorporator who not less than
three incorporators or three organizers of whom not less than one
shall be a resident of this state.
(d)
In the case of a captive insurance company:
(1) (A) Formed as a corporation before the articles of
association are transmitted to the secretary of state, the
incorporators shall petition the commissioner to issue a certificate
setting forth
his or her the commissioner's finding that the
establishment and maintenance of the proposed corporation will
promote the general good of the state. In arriving at such
a finding
the commissioner shall consider:
(1) (i) The character, reputation, financial standing and
purpose purposes of the incorporators;
(2) (ii) The character, reputation, financial responsibility,
insurance experience and business qualifications of the officers and
directors; and
(3) (iii) Such other aspects as the commissioner
deems shall
deem advisable.
(e) (B) The articles of
association incorporation, such certificate, and the organization fee shall be transmitted to the
secretary of state, who shall thereupon record both the articles of
incorporation and the certificate.
(2) Formed as a reciprocal insurer, the organizers shall
petition the commissioner to issue a certificate setting forth the
commissioner's finding that the establishment and maintenance of the
proposed association will promote the general good of the state. In
arriving at such a finding the commissioner shall consider the items
set forth in subparagraphs (i), (ii) and (iii), paragraph (A),
subdivision (1) of this subsection.
(f) (e) The capital stock of a captive insurance company
incorporated as a stock insurer
shall be issued at not less than par
value may be authorized with no par value.
(f) In the case of a captive insurance company:
(g) (1) Formed as a corporation, at least one of the members
of the board of directors
of a captive insurance company
incorporated in this state shall be a resident of this state
; and
(2) Formed as a reciprocal insurer, at least one of the
members of the subscribers' advisory committee shall be a resident
of this state.
(h) (g) Other than captive insurance companies formed
as
nonprofit corporations under chapter thirty-one-e of this code,
captive insurance companies formed as corporations under the
provisions of this
chapter article shall have the privileges and be
subject to the provisions of the general corporation law as well as
the applicable provisions contained in this chapter.
Captive insurance companies are subject to the provisions of article
thirty-three, article thirty-four, article thirty-seven and article
thirty-nine of this chapter. In the event of conflict between the
provisions of said general corporation law and the provisions of
this chapter, the latter shall control.
(h) Captive insurance companies formed as nonprofit
corporations under the provisions of this article shall have the
privileges and be subject to the provisions of chapter thirty-one-e
of this code as well as the applicable provisions contained in this
chapter. In the event of conflict between the provisions of chapter
thirty-one-e of this code and the provisions of this chapter, the
latter shall control.
(i) The provisions of sections twenty-five, twenty-seven and
twenty-eight, article five of this chapter and section three,
article twenty-seven of this chapter, pertaining to mergers,
consolidations, conversions, mutualizations, redomestications, and
mutual holding companies, shall apply in determining the procedures
to be followed by captive insurance companies in carrying out any of
the transactions described therein, except that:
(1) The commissioner may waive or modify the requirements for
public notice and hearing in accordance with rules which the
commissioner may adopt addressing categories of transactions. If a
notice of public hearing is required, but no one requests a hearing,
then the commissioner may cancel the hearing; and
(2) An alien insurer may be a party to a merger authorized
under this subsection: Provided, That the requirements for a merger between a captive insurance company and a foreign insurer under
section twenty-five, article five of this chapter shall apply to a
merger between a captive insurance company and an alien insurer
under this subsection. Such alien insurer shall be treated as a
foreign insurer under section twenty-five, article five of this
chapter and such other jurisdictions shall be the equivalent of a
state for purposes of section twenty-five, article five of this
chapter.
(j) Captive insurance companies formed as reciprocal insurers
under the provisions of this chapter shall have the privileges and
be subject to the provisions of article twenty-one of this chapter
in addition to the applicable provisions of this chapter. In the
event of a conflict between the provisions of article twenty-one of
this chapter and the provisions of this chapter, the latter shall
control. To the extent a reciprocal insurer is made subject to
other provisions of this chapter pursuant to article twenty-one of
this chapter, such provisions shall not be applicable to a
reciprocal insurer formed under this chapter unless such provisions
are expressly made applicable to captive insurance companies under
this chapter.
(k) The articles of incorporation or bylaws of a captive
insurance company formed as a corporation may authorize a quorum of
its board of directors to consist of no fewer than one-third of the
fixed or prescribed number of directors determined under section
eight hundred twenty-four, article eight, chapter thirty-one-e of
this code.
(l) The subscribers' agreement or other organizing document of
a captive insurance company formed as a reciprocal insurer may
authorize a quorum of its subscribers' advisory committee to consist
of no fewer than one-third of the number of its members.
§33-31-7. Reports and statements.
(a) Captive insurance companies shall not be required to make
any annual report except as provided in this chapter.
(b) On or before
the first day of March
first of each year,
each captive insurance company shall submit to the commissioner a
report of its financial condition, verified by oath of two of its
executive officers. Each
captive insurance company shall report
using generally accepted accounting principles, unless the
commissioner approves the use of statutory accounting principles,
with any appropriate or necessary modifications or adaptations
thereof required or approved or accepted by the commissioner for the
type of insurance and kinds of insurers to be reported upon, and as
supplemented by additional information required by the commissioner.
Except as otherwise provided, each association captive insurance
company
and each risk retention group shall file its report in the
form required by section fourteen, article three of this chapter
,
and each risk retention group shall comply with the requirements set
forth in article thirty-two of this chapter. The commissioner shall
by rule propose the
form forms in which pure captive insurance
companies and industrial insured captive insurance companies shall
report.
(c) Any pure captive insurance company or an industrial insured captive insurance company may make written application for
filing the required report on a fiscal year-end. If an alternative
reporting date is granted:
(
1) The annual report is due sixty days after the fiscal
year-end; and
(2) In order to provide sufficient detail to support the
premium tax return, the pure captive insurance company or industrial
insured captive insurance company shall file on or before the first
day of March of each year for each calendar year-end, pages one,
two, three, and five of the "captive annual statement; pure or
industrial insured," verified by oath of two of its executive
officers.
§33-31-8. Examinations and investigations.
(a) At least once in
three five years, and whenever the
commissioner determines it to be prudent,
he the commissioner shall
personally, or by some competent person appointed by
him the
commissioner, visit each captive insurance company and thoroughly
inspect and examine its affairs to ascertain its financial
condition, its ability to fulfill its obligations and whether it has
complied with the provisions of this chapter.
The commissioner upon
application, in his discretion, may extend the aforesaid three-year
period to five years, provided said captive insurance company is
subject to a comprehensive annual audit during such period of a
scope satisfactory to the commissioner by independent auditors
approved by him. The captive insurance company shall be subject to
the provisions of section nine, article two of this chapter in regard to the expense and conduct of the examination.
(b) All examination reports, preliminary examination reports
or results, working papers, recorded information, documents and
copies thereof produced by, obtained by or disclosed to the
commissioner or any other person in the course of an examination
made under this section are confidential and are not subject to
subpoena and may not be made public by the commissioner or an
employee or agent of the commissioner without the written consent of
the company, except to the extent provided in this subsection.
Nothing in this subsection shall prevent the commissioner from using
such information in furtherance of the commissioner's regulatory
authority under this title. The commissioner may, in the
commissioner's discretion, grant access to such information to
public officers having jurisdiction over the regulation of insurance
in any other state or country, or to law-enforcement officers of
this state or any other state or agency of the federal government at
any time, so long as such officers receiving the information agree
in writing to hold it in a manner consistent with this section.
§33-31-9. Grounds and procedures for suspension or revocation of
license.
(a) The license of a captive insurance company
to do any
insurance business in this state may be suspended or revoked by the
commissioner for any of the following reasons:
(1) Insolvency or impairment of capital or surplus;
(2) Failure to meet the requirements of section four
or five
of this article;
(3) Refusal or failure to submit an annual report, as required
by section seven of this article, or any other report or statement
required by law or by lawful order of the commissioner;
(4) Failure to comply with the provisions of its own charter,
or bylaws
or other organizational document;
(5) Failure to submit to examination or any legal obligation
relative thereto, as required by section eight of this article;
(6) Refusal or failure to pay the cost of examination as
required by section eight of this article;
(7) Use of methods that, although not otherwise specifically
prohibited by law, nevertheless render its operation detrimental or
its condition unsound with respect to the public or to its
policyholders; or
(8) Failure otherwise to comply with the laws of this state.
(b) If the commissioner finds, upon examination, hearing, or
other evidence, that any captive insurance company has
committed any
of the acts specified in violated any provision of subsection (a)
of
this section,
he the commissioner may suspend or revoke such
company's license if
he the commissioner deems it in the best
interest of the public and the policyholders of such captive
insurance company, notwithstanding any other provision of this
title.
§33-31-10. Legal investments.
(a)
An Association captive insurance
company companies and
risk retention groups shall comply with the investment requirements
of the commissioner contained in article eight of this chapter, as applicable. Section eleven, article seven of this chapter shall
apply to association captive insurance companies and risk retention
groups except to the extent it is inconsistent with approved
accounting standards in use by the company. Notwithstanding any
other provision of this chapter, the commissioner may approve the
use of alternative reliable methods of valuation and rating.
(b) No pure captive insurance company or industrial insured
captive insurance company
may shall be subject to any restrictions
on allowable investments whatever,
including those limitations
contained in article eight of this chapter: Provided, That the
commissioner may
, however, prohibit or limit any investment that
threatens the solvency or liquidity of any such company.
(c) No pure captive insurance company may make a loan to or an
investment in its parent company or affiliates without prior written
approval of the commissioner, and any such loan or investment must
be evidenced by documentation approved by the commissioner. Loans of
minimum capital and surplus funds required by section four of this
article are prohibited.
§33-31-11. Reinsurance.
(a) A Any captive insurance company may
procure reinsurance or
issue policies of reinsurance to other licensed insurers transacting
like kinds of insurance, pursuant to the provisions of section
fifteen, article four of this chapter provide reinsurance, comprised
in section fifteen-a, article four of this chapter, on risks ceded
by any other insurer.
(b) Any captive insurance company may take credit for the reinsurance of risks or portions of risks ceded to reinsurers
complying with the provisions of sections fifteen-a and fifteen-b,
article four of this chapter. Prior approval of the commissioner
shall be required for ceding or taking credit for the reinsurance of
risks or portions of risks ceded to reinsurers not complying with
sections fifteen-a and fifteen-b, article four of this chapter,
except for business written by an alien captive insurance company
outside of the United States.
(c) In addition to reinsurers authorized under the provisions
of section fifteen, article four of this chapter, a captive
insurance company may take credit for the reinsurance of risks or
portions of risks ceded to a pool, exchange or association acting as
a reinsurer which has been authorized by the commissioner. The
commissioner may require any other documents, financial information
or other evidence that such a pool, exchange or association will be
able to provide adequate security for its financial obligations. The
commissioner may deny authorization or impose any limitations on the
activities of a reinsurance pool, exchange or association that, in
the commissioner's judgment, are necessary and proper to provide
adequate security for the ceding captive insurance company and for
the protection and consequent benefit of the public at large.
(d) For all purposes of this chapter, insurance by a captive
insurance company of any workers' compensation qualified
self-insured plan of its parent and affiliates shall be deemed to be
reinsurance.
§33-31-13. Exemption from compulsory associations.
No captive insurance company may be permitted to join or
contribute financially to any plan, pool, association, or guaranty
or insolvency fund in this state, nor
may any captive insurance
company, or
its insured, or its parent or any affiliated company, or
any member organization of its association any insured or affiliate
thereof, receive any benefit from any such plan, pool, association,
or guaranty or insolvency fund for claims arising out of the
operations of such captive insurance company.
§33-31-14. Tax on premiums collected.
(a) Each
pure captive insurance company
which maintains its
principal office and principal place of business in this state shall
pay to the commissioner, in the month of February of each year, a
tax at the rate of five tenths of one percent on the gross amount of
all premiums collected or contracted for on policies or contracts of
insurance
covering property or risks in this state and on risks and
property situated elsewhere upon which no premium tax is otherwise
paid written by the pure captive insurance company during the year
ending December thirty-first, next preceding, after deducting from
the
gross amount of direct premiums, subject to the tax, the
amount
received as reinsurance premiums on business in the state and the
amount amounts paid to policyholders as return premiums which shall
include dividends on unabsorbed premiums or premium deposits
returned or credited to policyholders
; Provided, That no tax shall
be due or payable as to considerations received for annuity
contracts.
(b) Except as otherwise provided in subsection (a) of this section, each captive insurance company shall pay to the
commissioner in the month of February of each year, a tax at the
rate of two percent on the gross amount of all premiums collected on
or contracted for on policies or contracts of insurance written by
the captive insurance company during the year ending December
thirty-first, next preceding, after deducting from the direct
premiums, subject to the tax, the amounts paid to policyholders as
return premiums which shall include dividends on unabsorbed premiums
or premium deposits returned or credited to policyholders. Each
captive insurance company shall also be subject to the additional
premium taxes levied by sections fourteen-a and fourteen-d, article
three of this chapter and the surcharge levied by section
thirty-three, article three of this chapter.
(b) (c) The tax provided for in this section shall constitute
all taxes collectible under the laws of this state from any captive
insurance company, and no other
premium occupation tax or other
taxes shall be levied or collected from any captive insurance
company by the state or any county, city, or municipality within
this state, except ad valorem taxes.
(d) The tax provided for in this section shall be calculated
on an annual basis, notwithstanding policies or contracts of
insurance or contracts of reinsurance issued on a multiyear basis.
In the case of multiyear policies or contracts, the premium shall be
prorated for purposes of determining the tax under this section.
§33-31-15. Rules and regulations.
The commissioner may establish
rules and from time to time amend such rules relating to captive insurance companies as are
necessary to enable
him the commissioner to carry out the provisions
of this chapter.
§33-31-17. Delinquency.
Except as otherwise provided in this article, the terms and
conditions set forth in article ten of this chapter, pertaining to
insurance reorganizations, receiverships and injunctions, shall
apply in full to captive insurance companies formed or licensed
under this article.
§33-31-18. Rules for controlled unaffiliated business.
The commissioner may adopt rules establishing standards to
ensure that a parent or affiliated company is able to exercise
control of the risk management function of any controlled
unaffiliated business to be insured by the pure captive insurance
company. Until such time as rules under this section are adopted,
the commissioner may approve the coverage of such risks by a pure
captive insurance company.
§33-31-19. Conversion to or merger with reciprocal insurer.
(a) An association captive insurance company, risk retention
group, or industrial insured captive insurance company formed as a
stock or mutual corporation may be converted to or merged with and
into a reciprocal insurer in accordance with a plan therefore and
the provisions of this section.
(b) Any plan for such conversion or merger shall provide a
fair and equitable plan for purchasing, retiring, or otherwise extinguishing the interests of the stockholders and policyholders of
a stock insurer, and the members and policyholders of a mutual
insurer, including a fair and equitable provision for the rights and
remedies of dissenting stockholders, members, or policyholders.
(c) In the case of a conversion authorized under subsection
(a) of this section:
(1) Such conversion shall be accomplished under such
reasonable plan and procedure as approved by the commissioner. The
commissioner may not approve any plan of conversion unless the plan:
(A) Satisfies the provisions of subsection (b) of this
section;
(B) Provides for a hearing, of which notice is given or to be
given to the captive insurance company, its directors, officers, and
policyholders, and, in the case of a stock insurer, its
stockholders, and in the case of a mutual insurer, its members, all
of which persons shall be entitled to attend and appear at such
hearing. If notice of a hearing is given and no director, officer,
policyholder, member, or stockholder requests a hearing, the
commissioner may cancel such hearing;
(C) Provides a fair and equitable plan for the conversion of
stockholder, member, or policyholder interests into subscriber
interests in the resulting reciprocal insurer, substantially
proportionate to the corresponding interests in the stock or mutual
insurer:
Provided, That this requirement shall not preclude the
resulting reciprocal insurer from applying underwriting criteria
that could affect ongoing ownership interests; and
(D) Is approved:
(i) In the case of a stock insurer, by a majority of the
shares entitled to vote represented in person or by proxy at a duly
called regular or special meeting at which a quorum is present; and
(ii) In the case of a mutual insurer, by a majority of the
voting interests of policyholders represented in person or by proxy
at a duly called regular or special meeting thereof at which a
quorum is present;
(2) The commissioner shall approve such plan of conversion if
the commissioner finds that the conversion will promote the general
good of the state in conformity with those standards set forth in
subdivision (2), subsection (d) of section six of this article;
(3) If the commissioner approves the plan, the commissioner
shall amend the converting insurer's certificate of authority to
reflect conversion to a reciprocal insurer and issue such amended
certificate of authority to the company's attorney-in-fact;
(4) Upon the issuance of an amended certificate of authority
of a reciprocal insurer by the commissioner, the conversion shall be
effective; and
(5) Upon the effectiveness of such conversion the corporate
existence of the converting insurer shall cease and the resulting
reciprocal insurer shall notify the secretary of state of such
conversion.
(d) A merger authorized under subsection (a) of this section
shall be accomplished substantially in accordance with the
procedures set forth in sections twenty-five and twenty-eight, article five of this chapter, except that, solely for purposes of
such merger:
(1) The plan of merger shall satisfy the provisions of
subsection (b) of this section;
(2) The subscribers' advisory committee of a reciprocal
insurer shall be equivalent to the board of directors of a stock or
mutual insurance company;
(3) The subscribers of a reciprocal insurer shall be the
equivalent of the policyholders of a mutual insurance company;
(4) If a subscribers' advisory committee does not have a
president or secretary, the officers of such committee having
substantially equivalent duties shall be deemed the president or
secretary of such committee;
(5) The commissioner shall approve the articles of merger if
the commissioner finds that the merger will promote the general good
of the state in conformity with those standards set forth in
subdivision (2), subsection (d), section six of this article. If
the commissioner approves the articles of merger, the commissioner
shall endorse the commissioner's approval thereon and the surviving
insurer shall present the same to the secretary of state at the
secretary of state's office;
(6) Notwithstanding section four of this article, the
commissioner may permit the formation, without surplus, of a captive
insurance company organized as a reciprocal insurer, into which an
existing captive insurance company may be merged for the purpose of
facilitating a transaction under this section:
Provided, That there shall be no more than one authorized insurance company surviving
such merger; and
(7) An alien insurer may be a party to a merger authorized
under subsection (a) of this section:
Provided, That the
requirements for a merger between a domestic and a foreign insurer
under section twenty-five, article five of this chapter shall apply
to a merger between a domestic and an alien insurer under this
subsection. Such alien insurer shall be treated as a foreign
insurer under section twenty-five, article five of this chapter and
such other jurisdictions shall be the equivalent of a state for
purposes of section twenty-five, article five of this chapter.
§33-31-20. Branch captive insurance company formation.
(a) A branch captive may be established in this state in
accordance with the provisions of this article to write in this
state only insurance or reinsurance of the employee benefit business
of its parent and affiliated companies which is subject to the
provisions of the federal Employee Retirement Income Security Act of
1974 and set forth in 29 USC 1001, et seq., as amended. In addition
to the general provisions of this chapter, the provisions of
sections twenty-one through twenty-five of this article shall apply
to branch captive insurance companies.
(b) No branch captive insurance company shall do any insurance
business in this state unless it maintains the principal place of
business for its branch operations in this state.
§33-31-21. Security required.
In the case of a branch captive insurance company, as security for the payment of liabilities attributable to the branch
operations, the commissioner shall require that a trust fund, funded
by an irrevocable letter of credit or other acceptable asset, be
established and maintained in the United States for the benefit of
United States policyholders and United States ceding insurers under
insurance policies issued or reinsurance contracts issued or assumed
by the branch captive insurance company through its branch
operations. The amount of such security may be no less than the
amount set forth in subdivision (1), subsection (a), section four of
this article and the reserves on such insurance policies or such
reinsurance contracts, including reserves for losses, allocated loss
adjustment expenses, incurred but not reported losses, and unearned
premiums with regard to business written through the branch
operations:
Provided, That the commissioner may permit a branch
captive insurance company that is required to post security for loss
reserves on branch business by its reinsurer to reduce the funds in
the trust account required by this section by the same amount so
long as the security remains posted with the reinsurer. If the form
of security selected is a letter of credit, the letter of credit
must be established by, or issued or confirmed by, a bank chartered
in this state or a member bank of the Federal Reserve System.
§33-31-22. Certificate of general good.
In the case of a captive insurance company licensed as a branch
captive, the alien captive insurance company shall petition the
commissioner to issue a certificate setting forth the commissioner's
finding that, after considering the character, reputation, financial responsibility, insurance experience, and business qualifications of
the officers and directors of the alien captive insurance company,
the licensing and maintenance of the branch operations will promote
the general good of the state. The alien captive insurance company
may register to do business in this state after the commissioner's
certificate is issued.
§33-31-23. Reports.
Prior to the first day of March of each year, or with the
approval of the commissioner within sixty days after its fiscal
year-end, a branch captive insurance company shall file with the
commissioner a copy of all reports and statements required to be
filed under the laws of the jurisdiction in which the alien captive
insurance company is formed, verified under oath by its president
and secretary. If the commissioner is satisfied that the annual
report filed by the alien captive insurance company in its
domiciliary jurisdiction provides adequate information concerning
the financial condition of the alien captive insurance company, the
commissioner may waive the requirement for completion of the captive
annual statement for business written in the alien jurisdiction.
§33-31-24. Examination.
(a) The examination of a branch captive insurance company
pursuant to section eight of this article shall be of branch
business and branch operations only, so long as the branch captive
insurance company annually provides to the commissioner a
certificate of compliance, or its equivalent, issued by or filed
with the licensing authority of the jurisdiction in which the branch captive insurance company is formed, and demonstrates to the
commissioner's satisfaction that it is operating in sound financial
condition in accordance with all applicable laws and regulations of
such jurisdiction.
(b) As a condition of licensure, the alien captive insurance
company shall grant authority to the commissioner for examination of
the affairs of the alien captive insurance company in the
jurisdiction in which the alien captive insurance company is formed.
§33-31-25. Taxation.
In the case of a branch captive insurance company, the tax
provided for in section fourteen of this article shall apply only to
the branch business of such company.
ARTICLE 31A. SPONSORED CAPTIVE INSURANCE COMPANY FORMATION.
§33-31A-1. Applicability of article.
In addition to the provisions of article thirty-one of this
chapter, the provisions of this article shall apply to all sponsored
captive insurance companies.
§33-31A-2. Definitions.
As used in this article, unless the context requires otherwise:
(1) "Participant" means associations, corporations, limited
liability companies, partnerships, trusts, and other business
entities and any affiliates thereof, that are insured by a sponsored
captive insurance company, where the losses of the participant are
limited through a participant contract to such participant's pro
rata share of the assets of one or more protected cells identified in such participant contract.
(2) "Participant contract" means a contract by which a
sponsored captive insurance company insures the risks of a
participant and limits the losses of each such participant to its
pro rata share of the assets of one or more protected cells
identified in such participant contract.
(3) "Protected cell" means a separate account established by
a sponsored captive insurance company formed or licensed under the
provisions of this chapter, in which assets are maintained for one
or more participants in accordance with the terms of one or more
participant contracts to fund the liability of the sponsored captive
insurance company assumed on behalf of such participants as set
forth in such participant contracts.
(4) "Sponsor" means any entity that meets the requirements of
section six of this article and is approved by the commissioner to
provide all or part of the capital and surplus required by
applicable law and to organize and operate a sponsored captive
insurance company.
(5) "Sponsored captive insurance company" means any 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 the provisions of this
chapter;
(C) That insures the risks only of its participants through
separate participant contracts; and
(D) That funds its liability to each participant through one
or more protected cells and segregates the assets of each protected
cell from the assets of other protected cells and from the assets of
the sponsored captive insurance company's general account.
§33-31A-3. Formation of sponsored captive insurance companies.
One or more sponsors may form a sponsored captive insurance
company under the provisions of this article. A sponsored captive
insurance company shall be incorporated as a stock insurer with its
capital divided into shares and held by the stockholders.
§33-31A-4. Supplemental application materials
.
In addition to the information required by subdivisions (1) and
(2), subsection (c), section two of article thirty-one of this
chapter, each applicant-sponsored captive insurance company shall
file with the commissioner the following:
(1) Materials demonstrating how the applicant will account for
the loss and expense experience of each protected cell at a level of
detail found to be sufficient by the commissioner, and how it will
report such experience to the commissioner;
(2) A statement acknowledging that all financial records of
the sponsored captive insurance company, including records
pertaining to any protected cells, shall be made available for
inspection or examination by the commissioner or the commissioner's
designated agent;
(3) All contracts or sample contracts between the sponsored
captive insurance company and any participants; and
(4) Evidence that expenses shall be allocated to each protected cell in a fair and equitable manner.
§33-31A-5. Protected cells.
A sponsored captive insurance company formed or licensed under
the provisions of this article may establish and maintain one or
more protected cells to insure risks of one or more participants,
subject to the following conditions:
(1) The shareholders of a sponsored captive insurance company
shall be limited to its participants and sponsors:
Provided, That a
sponsored captive insurance company may issue nonvoting securities
to other persons on terms approved by the commissioner;
(2) Each protected cell shall be accounted for separately on
the books and records of the sponsored captive insurance company to
reflect the financial condition and results of operations of such
protected cell, net income or loss, dividends or other distributions
to participants, and such other factors as may be provided in the
participant contract or required by the commissioner;
(3) The assets of a protected cell shall not be chargeable
with liabilities arising out of any other insurance business the
sponsored captive insurance company may conduct;
(4) No sale, exchange or other transfer of assets may be made
by such sponsored captive insurance company between or among any of
its protected cells without the consent of such protected cells;
(5) No sale, exchange, transfer of assets, dividend or
distribution may be made from a protected cell to a sponsor or
participant without the commissioner's approval and in no event
shall such approval be given if the sale, exchange, transfer, dividend or distribution would result in insolvency or impairment
with respect to a protected cell;
(6) Each sponsored captive insurance company shall annually
file with the commissioner such financial reports as the
commissioner shall require, which shall include, without limitation,
accounting statements detailing the financial experience of each
protected cell;
(7) Each sponsored captive insurance company shall notify the
commissioner in writing within ten business days of any protected
cell that is insolvent or otherwise unable to meet its claim or
expense obligations;
(8) No participant contract shall take effect without the
commissioner's prior written approval, and the addition of each new
protected cell and withdrawal of any participant or termination of
any existing protected cell shall constitute a change in the
business plan requiring the commissioner's prior written approval;
and
(9) The business written by a sponsored captive, with respect
to each cell, shall be:
(A) Fronted by an insurance company licensed under the laws of
any state;
(B) Reinsured by a reinsurer authorized or approved by the
state of West Virginia; or
(C) Secured by a trust fund in the United States for the
benefit of policyholders and claimants or funded by an irrevocable
letter of credit or other arrangement that is acceptable to the commissioner. The amount of security provided shall be no less than
the reserves associated with those liabilities which are neither
fronted nor reinsured, including reserves for losses, allocated loss
adjustment expenses, incurred but not reported losses and unearned
premiums for business written through the participant's protected
cell. The commissioner may require the sponsored captive to
increase the funding of any security arrangement established under
this subdivision. If the form of security 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 such state chartered
bank is acceptable to the commissioner. A trust maintained pursuant
to this paragraph shall be established in a form and upon such terms
approved by the commissioner.
§33-31A-6. Qualification of sponsors.
A sponsor of a sponsored captive insurance company shall be an
insurer licensed under the laws of any state, a reinsurer authorized
or approved under the laws of any state, or a captive insurance
company formed or licensed under this article. A risk retention
group shall not be either a sponsor or a participant of a sponsored
captive insurance company.
§33-31A-7. Authorized participants.
Associations, corporations, limited liability companies,
partnerships, trusts, and other business entities may be
participants in any sponsored captive insurance company formed or
licensed under this chapter. A sponsor may be a participant in a sponsored captive insurance company. A participant need not be a
shareholder of the sponsored captive insurance company or any
affiliate thereof. A participant shall insure only its own risks
through a sponsored captive insurance company.
§33-31A-7. Investments.
Notwithstanding the provisions of section five of this article,
the assets of two or more protected cells may be combined for
purposes of investment, and such combination shall not be construed
as defeating the segregation of such assets for accounting or other
purposes. Sponsored captive insurance companies shall comply with
the investment requirements contained in article eight of this
chapter, as applicable: Provided, That compliance with such
investment requirements shall be waived for sponsored captive
insurance companies to the extent that credit for reinsurance ceded
to reinsurers is allowed pursuant to section eleven, article
thirty-one of this article or to the extent otherwise deemed
reasonable and appropriate by the commissioner. Notwithstanding any
other provision of this chapter, the commissioner may approve the
use of alternative reliable methods of valuation and rating.
§33-31A-8. Delinquency.
In the case of a delinquency of a sponsored captive insurance
company, the provisions of section seventeen, article thirty-one of
this chapter shall apply, provided:
(1) The assets of a protected cell may not be used to pay any
expenses or claims other than those attributable to such protected
cell; and
(2) Its capital and surplus shall at all times be available to
pay any expenses of or claims against the sponsored captive
insurance company.
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