CHAPTER 256

96-S 2962

Approved Aug. 6, 1996.

AN ACT RELATING TO CAPTIVE INSURANCE COMPANIES

It is enacted by the General Assembly as follows:

SECTION 1. Chapter 43 of Title 27 of the General Laws entitled "Captive Insurance Companies" is hereby amended to read as follows:

27-43-1. Definitions. -- As used in this chapter, unless the context requires otherwise:

(1) "Affiliated company" means any corporation controlled by or an affiliate of a parent, an industrial insured, or a member organization by virtue of common ownership, control, operation, or management;

(2) "Association" means any association of individuals, corporations, partnerships, or associations that has a separate legal existence, the member organizations of which collectively:

(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 insurance company; or

(ii) Have complete voting control over an association captive insurance company incorporated as a mutual insurance company;

(3) "Association captive insurance company" means any company that insures risks of the member organizations of the association, and their affiliated companies;

(4) "Captive insurance company" means any subsidiary captive insurance company, association captive insurance company, or industrial insured captive insurance company formed or licensed under the provisions of this chapter;

(5) "Commissioner" means the insurance commissioner {ADD Director of the Department of Business Regulation ADD} ;

(6) "Industrial insured" means an insured:

(i) 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;

(ii) Whose aggregate annual premiums for insurance on all risks total at least $25,000; and

(iii) Who has at least twenty-five (25) full-time employees;

(7) "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) "Industrial insured group" means any group that meets either of the following criteria: (i) 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 insurance company, or (B) have complete voting control over an industrial insured captive insurance company incorporated as a mutual insurance company; or

(ii) Any group which is created under 15 U.S.C. section 3901 et seq., as a corporation or other limited liability association;

(9) "Member organization" means any individual, corporation, partnership or association that belongs to an association;

(10) "Parent" means a corporation, partnership, or individual that directly or indirectly owns, controls or holds, with power to vote, more that fifty percent (50%) of the outstanding voting securities of a subsidiary captive insurance company;

(11) "Personal lines of insurance" means personal motor vehicle, homeowner's insurance coverage, health insurance, life insurance, worker's compensation, residential fire insurance, or any component thereof; and

(12) "Subsidiary captive insurance company" means any company that insures risks of its parent and affiliated companies.

27-43-2. Incorporation of captive insurance companies in this state. -- (a) A subsidiary captive insurance company shall be incorporated as a stock insurance company 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) As a stock insurance company with its capital divided into shares and held by the stockholders; or

(2) As a mutual insurance company without capital stock, the governing body of which is elected by the member organizations of its association.

(c) A captive insurance company shall have not less than three incorporators of whom not less than two (2) shall be residents of this state.

(d) 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 finding that the establishment and maintenance of the proposed corporation will promote the general good of the state. In arriving at the finding, the commissioner shall consider:

(1) The character, reputation, financial responsibility, insurance experience, and business qualifications of the incorporators and the proposed officers and directors;

(2) The sources and availability of its capital; and

(3) Such other financial and business aspects as the commissioner shall deem advisable.

(e) The articles of association, 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.

(f) The capital stock of a captive insurance company, incorporated as a stock insurance company, shall be issued at not less than par value, and all capital insurance companies shall have the minimum capital provided in section 27-43-4.

(g) 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. (h) Every captive insurance company, incorporated hereunder, shall have the powers contained in this chapter, and shall be subject to the provisions of this chapter, chapter 1 of this title, and chapter 1.1 of title 7; provided that, insofar as the provisions of this chapter are inconsistent with the provisions of chapter 1 of this title or chapter 1.1 of title 7, the provisions of this chapter shall be controlling.

27-43-3. 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; provided, however, that:

(1) No subsidiary 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;

(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 lines of insurance or any component thereof; and

(5) No captive insurance company may accept {ADD or cede ADD} reinsurance{ADD , except as provided in R.I.G.L. 27-43-7 ADD} .

(b) No captive insurance company shall 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 holds at least one meeting each year in this state;

(3) It maintains its principal place of business in this state; and

(4)It appoints a resident registered agent to accept service of process and to otherwise act on its behalf in this state. Whenever the registered agent cannot, with reasonable diligence, be found at the registered office of the captive insurance company, the commissioner shall be an agent of the captive insurance company upon whom any process, notice, or demand may be served.

(c)(1) Before receiving a license, a captive insurance company 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) In addition to the information required by subsection (c)(1),each applicant captive insurance company shall file with the commissioner evidence of the following:

(i) The amount and liquidity of its assets relative to the risks to be assumed;

(ii) The adequacy of the expertise, experience, and character of the person or persons who will manage it;

(iii) The overall soundness of its plan of operation;

(iv) The adequacy of the loss prevention programs of its parent, member organizations, or industrial insureds as applicable; and

(v) Such other factors deemed relevant by the commissioner in ascertaining whether the proposed captive insurance company will be able to meet its policy obligations.

(d) {ADD The commissioner is authorized to retain legal, financial and examination services from outside the department, the reasonable cost of which may be charged to the applicant. ADD} Each captive insurance company shall pay to the commissioner a nonrefundable fee of one thousand dollars ($1,000) for examining, investigating, and processing its application for license. In addition, it shall pay a license fee for the first year of registration and an annual fee for each year thereafter of five hundred dollars ($500).

(e) If the commissioner is satisfied that the documents and statements that the captive insurance company has filed comply with the provisions of this chapter, the commissioner may grant a license authorizing it to do insurance business in this state in accordance with the provisions of this title.

27-43-4. Minimum capital. -- {ADD (a) ADD} No subsidiary captive insurance company, association captive insurance company, incorporated as a stock insurance company, or industrial insured captive insurance company, incorporated as a stock insurance company, shall be issued a license unless it shall possess and thereafter maintain unimpaired paid in capital of:

(1) In the case of a subsidiary captive insurance company, not less than one hundred thousand dollars ($100,000);

(2) In the case of an association captive insurance company, incorporated as a stock insurance company, not less than four hundred thousand dollars ($400,000); and

(3) In the case of an industrial insured captive insurance company, incorporated as a stock insurance company, not less than two hundred thousand dollars ($200,000).

{ADD Such capital may be in the form of cash or an irrevocable letter of credit issued by a bank chartered by the State of Rhode Island or a member bank of the Federal Reserve System and approved by the Commissioner.

(b) The commissioner may prescribe additional capital based upon the type, volume, and nature of insurance business transacted, which capital may be in the form of a irrevocable letter of credit issued by the bank chartered by the State of Rhode Island, or a member bank of the Federal Reserve System.

(c) No captive insurance company may pay a dividend out of, or other distribution with respect to, capital or surplus, in excess of the limitations wet forth in R.I.G.L. 27-43-12, 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 the capital or surplus in excess of amounts specified by, or determined in accordance with formulas approved by, the commissioner. ADD}

27-43-5. Minimum surplus. -- {ADD (a) ADD} 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 subsidiary captive insurance company, not less than one hundred fifty thousand dollars ($150,000);

(2) In the case of an association captive insurance company, incorporated as a stock insurance company, not less than three hundred fifty thousand dollars ($350,000);

(3) In the case of an industrial insured captive insurance company, incorporated as a stock insurance company, not less than three hundred thousand dollars ($300,000);

(4) In the case of an association captive insurance company, incorporated as a mutual insurance company, not less than seven hundred fifty thousand dollars ($750,000); and

(5) In the case of an industrial insured captive insurance company, incorporated as a mutual insurance company, not less than five hundred thousand dollars ($500,000).

{ADD Such surplus may be in the form of cash or an irrevocable letter of credit issued by a bank chartered by the State of Rhode Island or a member bank of the Federal Reserve System and approved by the Commissioner.

(b) The commissioner may prescribe additional surplus based upon the type, volume, and nature of insurance business transacted, which surplus may be in the form of a irrevocable letter of credit issued by the bank chartered by the State of Rhode Island, or a member bank of the Federal Reserve System.

(c) No captive insurance company may pay a dividend out of, or other distribution with respect to, surplus, in excess of the limitations wet forth in R.I.G.L. 27-43-12, 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 the capital or surplus in excess of amounts specified by, or determined in accordance with formulas approved by, the commissioner. ADD}

27-43-6. Reports -- Statements -- Examinations, and Investigations. -- (a) Captive insurance companies shall annually file a statement of condition as provided in section 27-12-1; provided, however, that the commissioner may, by regulation, modify the required filing and content of the statements of captive insurance companies. Captive insurance companies are also subject to the further provisions of chapter 12 of this title.

(b) The commissioner, either personally or by a committee appointed by him or her, consisting of one or more persons not directors or officers of any captive insurance company doing business in this state, may, at any time, examine into the affairs of any captive insurance company incorporated by or doing business in this state. The officers of the company shall exhibit its books to the commissioner or committee, and otherwise facilitate the examination, and the commissioner or the committee may examine, under oath, the officers of the company in relation to its affairs, and the commissioner shall, if he or she deems it advisable, publish the result of the investigation in one or more newspapers published in the state. The total cost of the examinations shall be borne by the companies so examined and shall be one hundred fifty percent (150%) of the total salaries paid to the examining personnel of the insurance division engaged in the examinations, less any salary reimbursements, and shall be paid to the commissioner to and for the use of the insurance division. The assessment shall be in addition to any taxes and fees otherwise payable to the state.

(c) Whenever it shall appear to the commissioner, from the statements, or from an examination of the affairs of any captive insurance company, that the company is insolvent, or is in an unsound financial condition, or that its business policies are unsound or improper, or that its condition or management is such as to render its further transaction of business hazardous to the public or its policyholders, or that the amount of its funds, net cash or contingent assets is deficient, or that its capital is impaired, or that it is conducting its business fraudulently or refuses or neglects to comply with the laws of the state relating to captive insurance companies, it shall be the duty of the commissioner, after notice and hearing, to revoke the license issued to the company and the licenses issued to all of its insurance producers, or he or she may revoke the licenses or suspend them for a period not exceeding the unexpired terms hereof.

27-43-7. Reinsurance. -- Any captive insurance company may reinsure its risks. {ADD (a) Any captive insurance company meeting the requirements of R.I.G.L. 27-1.1-1 may provide reinsurance on risks ceded by any other reinsurer.

(b) Any captive insurance company may reinsure its risks and take credit for reserves on risk or on portions of risk ceded to reinsurers as provided in section 1.1-1 through 1.1-8 of this title.

(c) For the purposes of this chapter, the 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. ADD}

27-43-8. Exemption from chapter 34 of this title. -- No captive insurance company shall be required to join or contribute financially to any plan, pool, association, or guaranty or insolvency fund in this state, including but not limited to, the fund established by chapter 34 of this title, nor shall any captive insurance company, or its insured, or its parent or any affiliated company, or any member organization of its association, receive any benefit from the plan, pool, association, or guaranty or insolvency funds for claims arising out of the operations of the captive insurance company.

27-43-9. Tax on premiums collected. -- Each captive insurance company shall pay to the division of taxation, on or before the first day of March of each year, a tax at the rate 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 during the year ending December 31 next preceding, after deducting from the gross amount of premiums subject to the tax the amount paid to policyholders as return premiums which shall include dividends on unabsorbed premiums or premium deposits returned or credited to policyholders.

27-43-10. Rules and regulations. -- 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.

27-43-11. Laws applicable. -- No provisions of this title, other than those contained in this chapter or contained in specific references contained in this chapter, shall apply to captive insurance companies. Insofar as the provisions of this chapter are inconsistent with the provisions of any other law, general, special, or local, the provisions of this chapter shall be controlling.

27-43-12. Limitations on dividends. -- {ADD An extraordinary dividend or distribution is defined as cash or other property, whose fair market value together with other dividends or distributions made within the preceding twelve months exceeds the lesser of (1) 10% of the captive insurance company's surplus as of the preceding December 31st; or (2) net income, not including realized capital gains for the twelve months ending the preceding December 31st, excluding pro rata distribution of any class of the captive insurance company's own securities.

Captive insurance company may carry forward the net income from the preceding two years (calculated as above for each year) less any dividends paid in the two preceding years in determining whether the dividend or distribution is extraordinary. ADD}

27-43-13. Captive insurance regulatory and supervision fund. -- {ADD (a) There is hereby created a fund to be known as the Captive Insurance Regulatory and Supervision Fund for the purpose of providing the financial means for the commissioner to administrate this chapter and for reasonable expenses incurred in promoting the captive insurance industry in Rhode Island. An appropriation of ten (10%) percent of the premiums taxed under R.I.G.L. 27-43-9, and all fees and assessments received by the department pursuant to the administration of this chapter with regards to the captive insurance industry shall be credited to this fund. Of this amount, not more than two (2%) percent of the premium tax under R.I.G.L. 27-43-9 may be transferred to the Rhode Island Economic Development Corporation, with approval of the Director of Administration,, for promotional expenses.

All payments from the Captive Insurance Regulatory and Supervision Fund for the maintenance of staff and associated expenses including contractual services as necessary, shall be disbursed from the state treasury only upon written request issued by the commissioner, after receipt of proper documentation regarding services rendered and expenses incurred.

(b) At the end of each fiscal year, that portion of the balance in the Captive Insurance Regulatory and Supervision Fund which exceeds $100,000, shall be transferred to the General Fund.

(c) The Commissioner may anticipate receipts for the Captive Insurance Reguatory and Supervision Fund and issue a written request for payments based thereon. ADD}



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