Senate Bill No. 476

(By Senators Minard, Jenkins, Minear and Sharpe)

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[Introduced February 7, 2003; referred to the Committee on Banking and Insurance; and then to the Committee on Finance.]

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A BILL to amend and reenact article thirty-one, chapter thirty-three of the code of West Virginia one thousand nine hundred thirty-one, as amended, relating to captive insurance companies; providing for sponsored cell captives; and generally modernizing the captive insurance law.

Be it enacted by the Legislature of West Virginia:
That article thirty-one, chapter thirty-three of the code of West Virginia, one thousand nine hundred thirty-one, as amended, be amended and reenacted 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 an alien jurisdiction 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 that has been in continuous existence for at least one year, the member organizations of which collectively and:
(A) The member organizations of which collectively, or which does itself,
(A)(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
(B)(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.
(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, sponsored captive insurance company or industrial insured captive insurance company 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:
(A) Any group of industrial insureds that collectively:
(i) Own, control or hold Owns, controls or holds 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 Has complete voting control over an industrial insured captive insurance company incorporated as a mutual insurer, or
(iii) Constitutes all of the subscribers of any industrial insured captive insurance company formed as a reciprocal insurer.
(B) Any group which is created under the Product Liability Risk Retention Act of 1986, 15 U.S.C. §3901 et seq., as amended, as a corporation or other limited liability association taxable as a stock insurance company or a mutual insurer under the law of the state of West Virginia.
(9)(14) "Member organization" means any individual, corporation, partnership or association that belongs to an association.
(10)(15) "Parent" means a corporation, partnership or individual that directly or indirectly owns, controls or holds with power to vote more than fifty percent of the outstanding voting securities of a pure captive insurance company.
(16) "Participant" means an entity as defined in section twenty-three of this article, 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 the participant's pro rata share of the assets of one or more protected cells identified in the participant contract.
(17) "Participant contract" means a contract by which a sponsored captive insurance company insures the risks of a participant and limits the losses of each participant to its pro rata share of the assets of one or more protected cells identified in the participant contract.
(18) "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 to such participants as set forth in such participant contracts.
(11)(19) "Pure captive insurance company" means any company that insures risks of its parent and affiliated companies, or controlled unaffiliated business.
(20) "Sponsor" means any entity that meets the requirement of section twenty-two 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.
(21) "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 of separate participants through 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.
§33-31-2. Licensing; authority.

(a) Any captive insurance company, when permitted by its articles of association or charter, 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 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;
(2) No association captive insurance company may insure any risks other than those of the member organizations of its association, and their affiliated companies; or controlled unaffiliated business;
(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 captive insurance company may provide personal motor vehicle or homeowner's insurance coverage or any component thereof; and
(5) No captive insurance company may accept or cede reinsurance except as provided in section eleven hereof;
(6) No branch captive insurance company may write any business in this state except insurance or reinsurance of the employee benefit business of its parent and affiliated companies which is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended; and
(7) No sponsored captive insurance company may insure any risks other than those of its participants.
(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 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;
(3) It maintains its principal place of business in this state, or in the case of a branch captive insurance company, maintains the principal place of business for its branch operations in this state; and
(4) It appoints a registered agent to accept service of process and to otherwise act on its behalf in this state. In case of a captive insurance company:
(A) Formed as a corporation, 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;
(B) Formed as a reciprocal insurer, 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) Before receiving a license, a captive insurance company:

(1) Formed as a corporation shall file with the commissioner a certified copy of its charter and bylaws, a statement under oath of its president and secretary showing its financial condition, and any other statements or documents required by the commissioner;
(2) Formed as a reciprocal insurer shall:

(i)(A) File with the commissioner a certified copy of the power of attorney of its attorney-in-fact, a certified copy of its subscribers' agreement, a statement under oath of its attorney-in-fact 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 any additional information as the commissioner may reasonably require. In the event of any subsequent material change in any item in the description, the reciprocal captive insurance company shall submit to the copy of its charter and bylaws, a statement under oath of its president and secretary showing its financial condition, and any other statements or documents required by the commissioner.
(3) In addition to the information required above, each applicant captive insurance company shall 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 Any other factors deemed considered relevant by the commissioner in ascertaining whether the proposed captive insurance company will be able to meet its policy obligations.
(4) In addition to the information required by subdivisions (1), (2) and (3) of this subsection, each applicant sponsored captive insurance company shall file with the commissioner the following:
(A) A business plan 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;
 (B) 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;
(C) All contracts or sample contracts between the sponsored captive insurance company and any participants; and
(D) Evidence that expenses shall be allocated to each protected cell in a fair and equitable manner.
(5) Information submitted pursuant to this subsection shall be and remain confidential, and may not be made public by the commissioner or any employee or agent of the commissioner without the written consent of the company, except that:
(A) The information may be discoverable by a party in a civil action or contested case to which the captive insurance company that submitted the information is a party, upon a showing by the party seeking to discover the 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 this subdivision (5) shall not apply to any industrial insured
captive insurance company insuring the risks of an industrial insured group as defined in subdivision (13), section one of this article; and
(B) The commissioner may, in his or her discretion, disclose such information to a public officer having jurisdiction over the regulation of insurance in another state, provided that: (i) The public official agrees in writing to maintain the confidentiality of the information; and (ii) the laws of the state in which the public official serves require the 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 the commissioner is authorized to retain legal, financial and examination services from outside the department, the reasonable costs of which may be charged against the applicant. The provisions of subsection (r) of section nine, article two of this chapter shall apply to examinations, investigations and processing conducted under authority of this section. Upon issuance of a license, an each captive insurance company shall pay to the commissioner a nonrefundable annual license fee of three hundred dollars. In addition, it shall pay fees and charges in accordance with article three of this chapter.
(e) If the commissioner is satisfied that the documents and statements that such the captive insurance company has filed comply with the provisions of this chapter, he or she may grant a license authorizing it to do insurance business in this state until April first midnight on the thirty-first day of May, thereafter, which license may thereafter be renewed.
§33-31-3. Names of companies.
No captive insurance company shall may adopt a name that is the same, deceptively similar, or likely to be confused with or mistaken for any other existing business name registered in the state of West Virginia.
§33-31-4. Minimum capital and surplus; letter of credit.
(a) No pure captive insurance company, association captive insurance company incorporated as a stock insurer sponsored captive insurance company or industrial insured captive insurance company incorporated as a stock insurer shall may be issued a license unless it shall possess possesses and thereafter maintain maintains unimpaired paid-in capital and surplus of:
(1) In the case of a pure captive insurance company, not less than one hundred thousand dollars capital and one hundred fifty thousand dollars surplus;
(2) In the case of an association captive insurance company, incorporated as a stock insurer not less than three hundred twenty thousand dollars capital and two hundred eighty thousand dollars surplus;
(3) In the case of an industrial insured captive insurance company, incorporated as a stock insurer not less than one hundred thousand dollars capital and two hundred forty thousand dollars surplus; or
(4) In the case of a sponsored captive insurance company, not less than five hundred thousand dollars capital and five hundred thousand dollars surplus.
(b) Notwithstanding the requirements of subsection (a) of this section, no captive insurance company organized as a reciprocal insurer under this chapter may be issued a license unless it possesses and thereafter maintains free surplus of one million dollars.
(c) The commissioner may prescribe additional capital and surplus requirements based upon the type, volume, and nature of insurance business transacted.
(d) Such Capital and surplus may must 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.
(e) 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 capital and surplus required hereunder 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; however, 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 and approved by the commissioner.
§33-31-5. Dividends.
No captive insurance company shall be issued a license unless it shall possess and thereafter maintain free 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 incorporated as a stock insurer, not less than two hundred eighty 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;
(4) In the case of an association captive insurance company incorporated as a mutual insurer, not less than six 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.
Such 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 member bank of the federal reserve system and approved by the commissioner.
(a) No captive insurance company may pay a dividend except out of the available surplus funds derived from realized net profits on its business.
(b) No captive insurance company may pay a dividend out of, or other distribution with respect to, capital or surplus, in excess of the limitations set forth in subsection (d), section five, article twenty-seven of this chapter, 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 or a sponsored captive insurance company shall be incorporated as a stock insurer with its capital divided into shares and held by the stockholders.
(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; 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 not less than three incorporators who or two organizers of whom not less than one shall
be a resident of this state.
(d) In the case of a captive insurance company:
(d)(1) Before Formed as a corporation before the articles of association incorporation are transmitted to the secretary of state, the incorporators shall petition the commissioner to issue a certificate setting forth his or her finding that the establishment and maintenance of the proposed corporation will promote the general good of the state. In arriving at such finding the commissioner shall consider:
(1)(A) The character, reputation, financial standing and purpose of the incorporators;
(2)(B) The character, reputation, financial responsibility, insurance experience and business qualifications of the officers and directors; and
(3)(C) Such Any other aspects as the commissioner deems considers advisable.
The articles of association incorporation, such the 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:
(A) The character, reputation, financial standing and purposes of the organizers;
(B) The character, reputation, financial responsibility, insurance experience, and business qualifications of the attorney-in-fact; and
(C) Any other aspects as the commissioner considers advisable.
(3) Licensed as a branch captive insurance company, 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.
(f)(e) The capital stock of a captive insurance company incorporated as a stock insurer shall be issued at not less than may be authorized with no par value.
(f) In the case of a captive insurance company:
(g)(1) At 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.
(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) Captive insurance companies formed as corporations under the provisions of this chapter 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 twenty-seven, article thirty-four, thirty-four-a, 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.
§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 its president and secretary. Each association captive insurance company shall file its report in the form required by section fourteen, article three four of this chapter. The commissioner shall by rule propose the form in which pure captive insurance companies and industrial insured captive insurance companies shall report.
§33-31-8. Examinations and investigations.
(a) At least once in three years, and whenever the commissioner determines it to be prudent, he or she shall personally, or by some competent person appointed by him or her, 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 or her 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 or her. 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) The provisions of section nine, article two of this chapter shall apply to examinations conducted under this section.
(c) 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 any 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 chapter. The commissioner may, in his or her 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.
(d)(1) The provisions of this section shall apply to all business written by a captive insurance company; Provided, That the examination for a branch captive insurance company shall be of branch business and branch operations only, as long as the branch captive insurance company provides annually 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.
(2) As a condition of licensure, the alien captive insurance company must grant authority to the commissioner for examination of the affairs of the alien captive insurance company in the jurisdiction in which alien captive insurance company is formed.
§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 subsection (a) of this section, he or she may suspend or revoke such license if he or she deems it in the best interest of the public and the policyholders of such captive insurance company, notwithstanding any other provision of this title chapter.
§33-31-10. Legal investments.
(a) An association captive insurance company, sponsored captive insurance company and an industrial insured captive insurance company insuring the risks of an industrial insured group defined in subdivision (13), section one of this article shall comply with the investment requirements of the commissioner set forth in article eight of this chapter; however compliance with such investment requirements shall be waived for sponsored captive insurance companies to the extent that credit for risks ceded to reinsurers is allowed pursuant to section eleven of this article or to the extent otherwise considered reasonable and appropriate by the commissioner. Section eleven, article seven of this chapter shall apply to association captives, sponsored captive insurance companies and industrial insured captive insurance companies insuring the risks of industrial insured groups defined in subdivision (13), section one of this article except to the extent it is inconsistent with approved accounting standards in use by the association captive insurance company, sponsored captive insurance company or industrial insured captive insurance company insuring the risks of an industrial insured group. 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 be insuring the risks of an industrial insured group as defined in subdivision (13), section one of this article shall be subject to any restrictions on allowable investments whatever including those set forth in article eight of this chapter. The commissioner may, however, prohibit or limit any investment that threatens the solvency or liquidity of any such company.
(c) Only a pure captive insurance company may make loans to its parent company or affiliates. No loans to a parent company or any affiliate will be permitted without prior written approval of the commissioner and must be evidenced by a note in a form 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 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.
(a) Any captive insurance company may 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 reserves on 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 reserves on 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 sections fifteen-a and fifteen-b, article four of this chapter, a captive insurance company may take credit for reserves on 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 his 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.
§33-31-12. Rating organizations; memberships.
No captive insurance company may be required to join a rating organization.
§33-31-13. Exemption from compulsory associations.
No captive insurance company, including a captive insurance company organized as a reciprocal insurer under article twenty of this chapter 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, or in the case of a captive insurance company organized as a reciprocal insurer, or any subscriber 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 captive insurance company shall pay to the commissioner on or before, in the month of February first day of March of each year, a tax at the rate of five tenths of one two 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 during the year ending the thirty-first day of December thirty-first next preceding, after deducting from the gross amount of premiums, subject to the tax, the amount received as reinsurance premiums on business in the state and the amount 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 of article three of this chapter and the examination assessment fee levied by section nine of article two of this chapter.
(b) 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 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.
§33-31-15. Rules.
The commissioner may establish rules and from time to time amend such rules relating to captive insurance companies as are necessary to enable him or her to carry out the provisions of this chapter.
§33-31-16. Laws applicable.
No provisions of this code, other than those contained in this chapter or contained in specific references contained in this chapter, may apply to captive insurance companies.
§33-31-17. Delinquency.
(a) Except as otherwise provided in this section, 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 chapter.
(b) In the case of a sponsored captive insurance company:
(1) The assets of a protected cell may not be used to pay any expenses or claims other than those attributable to the 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.
§33-31-18. Rules for controlled unaffiliated business.
The commissioner shall 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; however, until such time as rules under this section are adopted, the commissioner may by temporary order grant authority to a pure captive insurance company to insure such risks.
§33-31-19. Conversion to or merger with reciprocal insurer.
(a) An association captive insurance company or industrial insured group formed as a stock or mutual corporation may be converted to or merged with and into a reciprocal insurer in accordance with a plan therefor and the provisions of this section.
(b) Any plan for such conversion or merger shall:
(1) Be fair and equitable to the shareholders, in the case of a stock insurer, or the policyholders, in the case of a mutual insurer; and
(2) Provide for the purchase of the shares of any nonconsenting shareholder of a stock insurer or the policyholder interest of any nonconsenting policyholder of a mutual insurer in substantially the same manner and subject to the same rights and conditions as are accorded a dissenting shareholder, in the case of a stock insurer, or a dissenting policyholder, in the case of a mutual insurer.
(c) In the case of a conversion authorized under subsection (a) of this section:
(1) The conversion shall be accomplished under any reasonable plan and procedure as may be approved by the commissioner, however 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 has been given to the insurer, its directors, officers and stockholders, in the case of a stock insurer, or policyholders, in the case of a mutual insurer, all of whom shall have the right to appear at the hearing, except that the commissioner may waive or modify the requirements for the hearing: Provided, That if a notice of hearing is required, but no hearing is requested, the commissioner may cancel the hearing;
(C) Provides for the conversion of existing stockholder or policyholder interests into subscriber interests in the resulting reciprocal insurer, proportionate to stockholder or policyholder interests in the stock or mutual insurer; 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; or
(ii) In the case of a mutual insurer, by at least two-thirds 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 the 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), 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 the 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 the 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 considered the president or secretary of the 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 indorse his or her 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, however, there may 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; however 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. Sponsored captive insurance companies.
(a) One or more sponsors may form a sponsored captive insurance company under this chapter.
(b) A sponsored captive insurance company formed or licensed under the provisions of this chapter 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;
(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 the protected cell, net income or loss, dividends or other distributions to participants, and any 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 may 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 any financial reports that 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 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 funded by an irrevocable letter of credit or other asset that is acceptable to the commissioner. The amount of security provided by a trust fund 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 trust as established under this subdivision. 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 such state chartered bank is acceptable to the commissioner. A trust and trust instrument maintained pursuant to this subdivision shall be established in a form and upon such terms approved by the commissioner.
§33-31-21. Qualification of sponsors.
A sponsor of a sponsored captive insurance company must 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 chapter. A risk retention group shall not be either a sponsor or a participant of a sponsored captive insurance company.
§33-31-22. Participants in sponsored captive insurance companies.
(a) Associations, corporations, limited liability companies, partnerships, trusts and other business entities may be a participant in any sponsored captive insurance company formed or licensed under this chapter.
(b) A sponsor may be a participant in a sponsored captive insurance company.
(c) A participant need not be a shareholder of the sponsored captive insurance company or any affiliate thereof.
(d) A participant may insure only its own risks through a sponsored captive insurance company.



NOTE: The purpose of this bill is to rewrite article thirty-one, chapter thirty-three of the code, to provide for sponsored cell captives and otherwise modernize our captive insurance law to remain competitive with states which presently contract such business.

Strike-through indicates language that would be stricken from the present law, and underscoring indicates new language that would be added.

§§33-31-17 through 22 are new; therefore, strike-throughs and underscoring have been omitted.