COMMITTEE SUBSTITUTE
FOR
Senate
Bill No. 356
(By Senators Minard, Jenkins and Stollings)
____________
[Originating in the Committee on Banking and Insurance;
reported February 23, 2011.]
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A BILL to amend and reenact §33-31-1, §33-31-2, §33-31-6, §33-31-7,
§33-31-8, §33-31-10, §33-31-11, §33-31-15, §33-31-16 and §33-
31-20 of the Code of West Virginia, 1931, as amended; to amend
said code by adding thereto a new section, designated §33-31-
16a; and to amend and reenact §33-36-2 of said code, all
relating to captive insurance; subjecting any captive
insurance company organized as a risk retention group to
certain insurance code provisions; and correcting technical
errors.
Be it enacted by the Legislature of West Virginia:
That §33-31-1, §33-31-2, §33-31-6, §33-31-7, §33-31-8, §33-31-
10, §33-31-11, §33-31-15, §33-31-16, §33-31-20 and §33-36-2 of the
Code of West Virginia, 1931, as amended, be amended and reenacted;
and that said code be amended by adding thereto a new section,
designed §33-31-16a, all to read as follows:
ARTICLE 31. CAPTIVE INSURANCE.
§33-31-1. Definitions.
As used in this
chapter article, 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.
(3) "Association" means any legal association of individuals,
corporations, limited liability companies, partnerships,
associations or other entities that has been in continuous
existence for at least one year, the member organizations of which,
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;
(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.
(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.
(8) "Captive insurance company" means any pure captive
insurance company, association captive insurance company, sponsored
captive insurance company, industrial insured captive insurance
company or risk retention group formed or licensed under the
provisions of this
chapter article. For purposes of this
chapter
article, 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.
(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.
(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 $25,000; and
(C) Who has at least twenty-five full-time employees.
(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.
(13 )"Industrial insured group" means any group of industrial
insureds that collectively:
(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;
(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.
(14) "Member organization" means any individual, corporation,
limited liability company, partnership, 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.(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.
(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, charter or other organizational document,
may apply to the commissioner for a license to do any and all
insurance comprised in section ten, article one of this chapter
except as indicated in subdivision (4) subsection (a) of this
section:
Provided, That 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;
(5) No captive insurance company may provide personal motor
vehicle or homeowner's insurance coverage or any component thereof;
(6) No captive insurance company may accept or cede
reinsurance except as provided in section eleven 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 appoints a 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
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.
(2) Each applicant captive insurance company shall also file
with the commissioner evidence of the following:
(A) The amount and liquidity of its assets relative to the
risks to be assumed;
(B) The adequacy of the expertise, experience and character of
the person or persons who will manage it;
(C) The overall soundness of its plan of operation;
(D) The adequacy of the loss prevention programs of its
insureds; and
(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 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 $300.
(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 article, the commissioner may
grant a license authorizing it to do insurance business in this
state until
April 1 May 31, thereafter, which license may be
renewed.
§33-31-6. Formation of captive insurance companies in this state.
(a) A pure captive insurance company 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:
(1) Incorporated as a stock insurer with its capital divided
into shares and held by the stockholders;
(2) Incorporated as a mutual insurer without capital stock,
the governing body of which is elected by 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 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 the incorporators shall
petition the commissioner to issue a certificate setting forth 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:
(i) The character, reputation, financial standing and purposes
of the incorporators;
(ii) The character, reputation, financial responsibility,
insurance experience and business qualifications of the officers
and directors; and
(iii) Such other aspects as the commissioner shall deem
advisable.
(B) The articles of 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.
(e) The capital stock of a captive insurance company
incorporated as a stock insurer may be authorized with no par
value.
(f) In the case of a captive insurance company:
(1) Formed as a corporation, at least one of the members of
the board of directors 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.
(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 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 article. In the event of
conflict between the provisions of said general corporation law and
the provisions of this
chapter article, 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 article. In the event of conflict between the provisions of
chapter thirty-one-e of this code and the provisions of this
chapter article, 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 article 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 article. In the event of a conflict between the provisions
of article twenty-one of this chapter and the provisions of this
chapter article, the latter shall control. To the extent a
reciprocal insurer is made subject to other provisions of this
chapter article pursuant to article twenty-one of this chapter,
such provisions shall not be applicable to a reciprocal insurer
formed under this
chapter article unless such provisions are
expressly made applicable to captive insurance companies under this
chapter article.
(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 article.
(b) On or before March 1 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 four 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 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 March 1 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 five years, and whenever the commissioner
determines it to be prudent, the commissioner shall personally, or
by some competent person appointed by 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 article. 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.
§33-31-10. Legal investments.
(a) Association captive insurance companies and risk retention
groups shall comply with the investment requirements contained in
article eight of this chapter, as applicable.
Section Subsection
(b), section ten and 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 article, 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 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 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) Any captive insurance company may provide reinsurance,
comprised in section fifteen-a, article four of this chapter, on
risks ceded by any other insurer:
Provided, That if the reinsurer
is licensed as a risk retention group, then the ceding risk
retention group or its members must qualify for membership with the
reinsurer.
(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 article, 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.
§33-31-15. Rules.
The commissioner may establish and from time to time amend
such rules relating to captive insurance companies as are necessary
to enable the commissioner to carry out the provisions of this
chapter article.
§33-31-16. Laws applicable.
No provisions of this
code chapter, other than those contained
in this
chapter article or contained in specific references
contained in this
chapter article, may apply to captive insurance
companies.
§33-31-16a. Same - Risk Retention Groups.
In addition to the applicable provisions of this article, any
captive insurance company organized as a risk retention group is
subject to the provisions of section nine, article two (examination
of insurers, agents, brokers and solicitors; access to books,
records, etc.); section fourteen, article four (financial statement
filings; annual and quarterly statements; required format; foreign
insurers; agents of the commissioner); section fifteen-a, article
four (credit for reinsurance; definitions; requirements; trust
accounts; reductions from liability; security; effective date);
article seven (assets and liabilities); article ten (rehabilitation
and liquidation); article twenty-seven (insurance holding company
systems); article thirty-three (annual audited financial report);
article thirty-four (administrative supervision); article
thirty-four-a (standards and commissioner's authority for companies deemed to be in hazardous financial condition); article thirty-five
(criminal sanctions for failure to report impairment); article
thirty-six (Business Transacted with Producer Controlled
Property/Casualty Insurer Act); article thirty-seven (managing
general agents); article thirty-eight (Reinsurance Intermediary
Act); and article forty-one (Insurance Fraud Prevention Act) of
this chapter and any rules promulgated thereunder in accordance
with article three, chapter twenty-nine-a of this code.
§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 U. S. C. § 1001, et seq., as
amended. In addition to the general provisions of this chapter
article, the provisions of sections twenty-one through twenty-five,
inclusive, 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.
ARTICLE 36. BUSINESS TRANSACTED WITH PRODUCER-CONTROLLED
PROPERTY/CASUALTY INSURER ACT.
§33-36-2. Definitions.
As used in this article:
(a) "Accredited state" means a state in which the insurance
department or regulatory agency has qualified as meeting the
minimum financial regulatory standards promulgated and established
from time to time by the national association of insurance
commissioners.
(b) "Control" or "controlled" means the possession, direct or
indirect, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership
of voting securities, by contract other than a commercial contract
for goods or nonmanagement services, or otherwise, unless the power
is the result of an official position with or corporate office held
by the person. Control shall be presumed to exist if any person,
directly or indirectly, owns, controls, holds with the power to
vote, or holds proxies representing ten percent or more of the
voting securities of any other person or controls or appoints a
majority of the board of directors, voting members or similar
governing body of any other person. This presumption may be
rebutted by a showing made in the manner provided by subsection
(l), section four, article twenty-seven of this chapter that
control does not exist in fact. The commissioner may determine,
after furnishing all persons in interest notice and opportunity to
be heard and making specific findings of fact to support the
determination, that control exists in fact, notwithstanding the
absence of a presumption to that effect.
(c) "Controlled insurer" means a licensed insurer which is controlled, directly or indirectly, by a producer.
(d) "Controlling producer" means a producer who, directly or
indirectly, controls an insurer.
(e) "Licensed insurer" or "insurer" means any person, firm,
association or corporation duly licensed to transact a property or
casualty insurance business, or both property and casualty
insurance, in this state: Provided, That the following are not
licensed insurers for the purposes of this article:
(1) All risk retention groups as defined in article thirty-two
of this chapter;
(2)(1) All residual market pools and joint underwriting
authorities or associations; and
(3)(2) All captive insurance companies as defined in article
thirty-one of this chapter: Provided, That a captive insurance
company organized as a risk retention group shall be considered a
licensed insurer for the purposes of this article.
(f) "Producer" means an insurance broker or brokers or any
other person, firm, association or corporation, when, for any
compensation, commission or other thing of value, the person, firm,
association or corporation acts or aids in any manner in
soliciting, negotiating or procuring the making of any insurance
contract on behalf of an insured other than the person, firm,
association or corporation: Provided, That the designation of any
individual or entity as a producer does not expand upon or provide
for activities beyond those permitted by article twelve of this
chapter.
(NOTE: The purpose of this bill is to make a captive
insurance company that is organized as a risk retention group
subject to certain insurance code provisions and to generally
correct technical errors found in article thirty-one of chapter
thirty-three.
Strike-throughs indicate language that would be stricken from
the present law, and underscoring indicates new language that would
be added.
§33-31-16a is new; therefore, strike-throughs and underscoring
have been omitted.)