ARIZONA STATE SENATE
Phoenix, Arizona
Appropriates $93,000 and one FTE in FY 2001-2002 and $275,000 and four FTE's in FY 2002-2003 to establish the captive insurers program in the Department of Insurance (DOI).
Captive insurance is a form of self-insurance. Captive insurance companies are established to serve specific needs within corporations. A typical captive is owned or controlled by a single parent or group of companies that are not primarily engaged in the business of insurance. Captives function as risk bearing entities that essentially perform the same role as traditional insurers. All or a significant portion of the risks written are “captive,” related in some way to the risks of the shareholders or third-party risks which the shareholders control. Risks insured by captives vary. Coverage may include such risks as property, liability or worker’s compensation and may be for primary or excess layers of risk. Typical coverage includes a primary policy, some type of excess coverage and a stop-loss policy. The captive insurer often assumes primary coverage, while excess and stop-loss coverage is normally purchased in the traditional market. There are approximately 3,200 captives worldwide. Estimates of premiums written or reinsured by these captives are around $60 billion. Although most jurisdictions available to captives are overseas, twenty-one states have adopted legislation in an attempt to bolster their economies. H.B. 2116 establishes a captive insurance program in the DOI for regulatory purposes.
H.B. 2116 exempts captive insurers, from the existing fee requirements and allows the Director to establish new fees through the rule-making process and establishes a number of regulatory conditions for the companies.
JLBC staff has provided an informal fiscal analysis of the bill indicating that they believe the bill does not require DOI to add staff. JLBC staff indicates a more formal analysis of the fiscal impact requires additional information from DOI that is not readily available.
1. Appropriates $93,000 and one FTE in FY 2001-2002 and $275,000 and four FTE's in FY 2002-2003 to establish the captive insurers program in the Department of Insurance (DOI).
2. Establishes a fee structure for captive insurers outlined with the requirement to pay certificate of authority issuance and renewal fees as prescribed by the Director.
3. Clarifies that the captive insurance fees are not counted toward the requirement that the Department recoup between 95 and 110 percent of its appropriated budget.
4. Prohibits a pure captive insurer from insuring risks other than those of its affiliates or a controlled unaffiliated business.
5. Excludes an association captive insurer from insuring risks other than those of the member organizations or its association and the organization’s affiliates.
6. Prohibits a captive insurer from engaging in the business of, or insurance of:
a) hospital and medical service corporations;
b) health care service organizations;
c) prepaid dental plan organizations;
d) prepaid legal insurance contracts;
e) title insurance business;
f) mortgage guaranty insurance;
g) workers’ compensation; and,
h) motor vehicle or homeowner’s insurance.
7. Requires that all captive insurers conducting business in this state:
a) be licensed in Arizona;
b) maintain their principle place of business in this state;
c) hold at least one board of directors meeting each year in Arizona;
d) appoint a resident statutory agent to accept service of process on its behalf in this state;
e) file with the Director evidence that the captive insurer will be able to meet its policy obligations;
f) submit a report of their financial condition to the Director no later than 90 days after the end of the captive insurer’s fiscal year;
g) hire a manager who is a resident of this state that shall maintain the records of the captive insurer’s business and that he or she notify the Director of any failure of the captive insurer to comply with this Article
8. Prescribes that any material change in the evidence of ability to meet policy obligations be provided to the Director within 30 days of the change.
9. Establishes that information submitted for the purpose of licensure is confidential.
10. Prohibits a captive insurer from adopting a name that is the same or similar to any existing business registered in Arizona.
11. Prescribes:
a) a pure captive insurer to maintain at least $250,000 in capital and surplus and that a pure captive insurer transacting reinsurance shall maintain half of this amount;
b) an association captive insurer to maintain at least $500,000 in capital and surplus and an association captive insurer transacting reinsurance shall maintain half of this amount.
12. Requires that capital and surplus requirements be in the form of a letter of credit that is held by the Director in trust for the protection of policyholders.
13. Requires pure captive insurers to be incorporated as a stock insurer.
14. Authorizes an associative captive to be incorporated as a stock insurer or a mutual insurer.
15. Authorizes the Director to examine captive insurers at his discretion.
16. Authorizes the Director to use independent contractor examiners to review the financial condition of captive insurers with expenses related to the examination paid by the captive insurer.
17. Authorizes the Director to suspend, revoke or refuse to renew a captive insurer’s license for any of the following:
a) insolvency;
b) failure to submit an annual report;
c) failure to comply with the captive insurer’s organizational documents; and,
d) use of any methods that render the captive insurer’s operation hazardous to the public or its policyholders.
18. Authorizes a captive insurer to provide reinsurance on risks ceded by another insurer.
19. Establishes that a captive insurer is not required to join a rating organization.
20. Prohibits a captive insurer from joining or contributing financially to any plan, pool, association or guaranty or insolvency fund in this state.
21. Permits the Director to adopt rules necessary to carry out this Article.
22. Makes technical and conforming changes.
23. Prescribes definitions.
24. Provides for a delayed effective date.
Amendments
Adopted by Committee
1. Removes domestic life, disability or domestic life and disability reinsurers from the new captive insurance program.
2. Clarifies that the captive insurance fees are not counted towards the requirement that the Department recoup between 95 and 110 percent of its appropriated budget.
3. Makes technical and conforming changes.
4. Provides for a delayed effective date.
Amendments Adopted
by Committee of the Whole
1. Appropriates $93,000 and one FTE in FY 2001-2002 and $275,000 and four FTE's in FY 2002-2003 to establish the captive insurers program in the Department of Insurance (DOI).
2. Makes technical and conforming changes.
Signed by Governor 5/4/01
Chapter 327
Prepared by Senate Staff
May 24, 2001