H.B. 55

1

CAPTIVE INSURANCE COMPANY
2 AMENDMENTS
3 2008 GENERAL SESSION
4 STATE OF UTAH
5 Chief Sponsor: James A. Dunnigan
6 Senate Sponsor: ____________
7
8 LONG TITLE
9 Committee Note:
10 The Business and Labor Interim Committee recommended this bill.
11 General Description:
12 This bill modifies the Captive Insurance Companies Act and enacts the Special Purpose
13 Financial Captive Insurance Company Act.
14 Highlighted Provisions:
15 This bill:
16 . addresses fee amounts that are nonlapsing;
17 . modifies and enacts definitions;
18 . makes changes related to a captive insurance company formed as a limited liability
19 company;
20 . addresses applicable law;
21 . addresses the applicability of reorganization, receivership, and injunction statutes;
22 . addresses permissive areas of insurance;
23 . addresses sponsored captive insurance companies;
24 . addresses reporting to the commissioner;
25 . enacts the Special Purpose Financial Captive Insurance Company Act including:
26 . defining terms;
27 . outlining applicable law;

28 . imposing reporting requirements;
29 . imposing requirements related to books and records;
30 . providing for a transition to the new certificate of authority;
31 . establishing a process to issue a certificate of authority;
32 . addressing revocation, suspension, amendment, or modification of a certificate
33 of authority;
34 . requiring commissioner approval of certain actions;
35 . addressing sponsored captives;
36 . addressing the formation, assets, investments, and securities of a special purpose
37 financial captive insurance company;
38 . addressing reinsurance; and
39 . providing for enforcement and delinquency; and
40 . makes technical and conforming amendments.
41 Monies Appropriated in this Bill:
42 None
43 Other Special Clauses:
44 None
45 Utah Code Sections Affected:
46 AMENDS:
47 31A-3-304, as last amended by Laws of Utah 2006, Chapter 320
48 31A-37-102, as last amended by Laws of Utah 2004, Chapter 312
49 31A-37-103, as enacted by Laws of Utah 2003, Chapter 251
50 31A-37-104, as last amended by Laws of Utah 2004, Chapter 312
51 31A-37-106, as last amended by Laws of Utah 2004, Chapter 312
52 31A-37-202, as last amended by Laws of Utah 2004, Chapter 312
53 31A-37-402, as last amended by Laws of Utah 2004, Chapter 312
54 31A-37-501, as last amended by Laws of Utah 2006, Chapter 177
55 31A-37-502, as last amended by Laws of Utah 2007, Chapter 307
56 31A-37-602, as enacted by Laws of Utah 2004, Chapter 312
57 31A-37-603, as enacted by Laws of Utah 2004, Chapter 312
58 ENACTS:

59 31A-37a-101, Utah Code Annotated 1953
60 31A-37a-102, Utah Code Annotated 1953
61 31A-37a-103, Utah Code Annotated 1953
62 31A-37a-104, Utah Code Annotated 1953
63 31A-37a-105, Utah Code Annotated 1953
64 31A-37a-201, Utah Code Annotated 1953
65 31A-37a-202, Utah Code Annotated 1953
66 31A-37a-203, Utah Code Annotated 1953
67 31A-37a-204, Utah Code Annotated 1953
68 31A-37a-205, Utah Code Annotated 1953
69 31A-37a-301, Utah Code Annotated 1953
70 31A-37a-302, Utah Code Annotated 1953
71 31A-37a-303, Utah Code Annotated 1953
72 31A-37a-304, Utah Code Annotated 1953
73 31A-37a-401, Utah Code Annotated 1953
74 31A-37a-402, Utah Code Annotated 1953
75 31A-37a-501, Utah Code Annotated 1953
76 31A-37a-502, Utah Code Annotated 1953
77
78 Be it enacted by the Legislature of the state of Utah:
79 Section 1. Section 31A-3-304 is amended to read:
80 31A-3-304. Annual fees -- Other taxes or fees prohibited.
81 (1) (a) A captive insurance company shall pay an annual fee imposed under this section
82 to obtain or renew a certificate of authority.
83 (b) The commissioner shall:
84 (i) determine the annual fee pursuant to Sections 31A-3-103 and 63-38-3.2 ; and
85 (ii) consider whether the annual fee is competitive with fees imposed by other states on
86 captive insurance companies.
87 (2) A captive insurance company that fails to pay the fee required by this section is
88 subject to the relevant sanctions of this title.
89 (3) (a) Except as provided in Subsection (3)(b) and notwithstanding Title 59, Chapter

90 9, Taxation of Admitted Insurers, the fee provided for in this section constitutes the sole tax or
91 fee under the laws of this state that may be otherwise levied or assessed on a captive insurance
92 company, and no other occupation tax or other tax or fee may be levied or collected from a
93 captive insurance company by the state or a county, city, or municipality within this state.
94 (b) Notwithstanding Subsection (3)(a), a captive insurance company is subject to real
95 and personal property taxes.
96 (4) A captive insurance company shall pay the fee imposed by this section to the
97 department by March 31 of each year.
98 (5) (a) The funds received pursuant to Subsection (2) shall be deposited into the
99 General Fund as a dedicated credit to be used by the department to:
100 (i) administer and enforce Chapter 37, Captive Insurance Companies Act; and
101 (ii) promote the captive insurance industry in Utah.
102 (b) At the end of each fiscal year, funds received by the department in excess of
103 [$250,000] $750,000 shall be treated as free revenue in the General Fund.
104 Section 2. Section 31A-37-102 is amended to read:
105 31A-37-102. Definitions.
106 As used in this chapter:
107 (1) "Affiliated company" means a [company] business entity that because of common
108 ownership, control, operation, or management is in the same corporate system as:
109 (a) a parent;
110 (b) an industrial insured; or
111 (c) a member organization.
112 (2) "Alien captive insurance company" means an [insurance company] insurer:
113 (a) formed to write insurance business for [its parents and affiliates] a parent or
114 affiliate of the insurer; and
115 (b) licensed pursuant to the laws of an alien jurisdiction that imposes statutory or
116 regulatory standards:
117 (i) on [companies] a business entity transacting the business of insurance in the alien
118 jurisdiction; and
119 (ii) in a form acceptable to the commissioner.
120 (3) "Association" means a legal association of [individuals, corporations, partnerships,

121 or associations] two or more persons that has been in continuous existence for at least one year
122 if:
123 (a) the association or its member organizations:
124 (i) own, control, or hold with power to vote all of the outstanding voting securities of
125 an association captive insurance company incorporated as a stock insurer; or
126 (ii) have complete voting control over an association captive insurance company
127 incorporated as a mutual insurer; [or]
128 (b) the association's member organizations collectively constitute all of the subscribers
129 of an association captive insurance company formed as a reciprocal insurer[.]; or
130 (c) the association or its member organizations have complete voting control over an
131 association captive insurance company formed as a limited liability company.
132 (4) "Association captive insurance company" means a [company] business entity that
133 insures risks of [the]:
134 (a) a member [organizations] organization of the association; [and]
135 (b) [affiliates of the] an affiliate of a member [organizations] organization of the
136 association[.]; and
137 (c) the association.
138 (5) "Branch business" means [any] an insurance business transacted by a branch
139 captive insurance company in this state.
140 (6) "Branch captive insurance company" means an alien captive insurance company
141 that has [obtained] a certificate of authority [by] from the commissioner to transact the business
142 of insurance in this state through a business unit with a principal place of business in this state.
143 (7) "Branch [operations"] operation" means [any] a business [operations] operation of a
144 branch captive insurance company in this state.
145 (8) "Captive insurance company" means any of the following formed or holding a
146 certificate of authority under this chapter:
147 (a) a branch captive insurance company;
148 (b) a pure captive insurance company;
149 (c) an association captive insurance company;
150 (d) a sponsored captive insurance company;
151 (e) an industrial insured captive insurance company;

152 (f) a captive reinsurance company; [or]
153 (g) a special purpose captive insurance company[.]; or
154 (h) a special purpose financial captive insurance company.
155 (9) "Captive reinsurance company" means a [reinsurance company] reinsurer that is:
156 (a) formed or [licensed] has a certificate of authority pursuant to this chapter;
157 (b) wholly owned by a qualifying [reinsurance] reinsurer parent company; and
158 (c) a stock corporation.
159 (10) "Common ownership and control" means that two or more captive insurance
160 companies are owned or controlled by the same person or group of persons as follows:
161 (a) in the case of a captive insurance company that is a stock [corporations]
162 corporation, the direct or indirect ownership [by the same shareholder or shareholders] of 80%
163 or more of the outstanding voting stock of [two or more corporations] the stock corporation;
164 [and]
165 (b) in the case of a captive insurance company that is a mutual [corporations]
166 corporation, the direct or indirect ownership [by the same member or members] of 80% or
167 more of the surplus and the voting power of [two or more corporations.] the mutual
168 corporation;
169 (c) in the case of a captive insurance company that is a limited liability company, the
170 direct or indirect ownership by the same member or members of 80% or more of the
171 membership interests in the limited liability company; or
172 (d) in the case of a sponsored captive insurance company, a protected cell is a separate
173 captive insurance company owned and controlled by the protected cell's participant, only if:
174 (i) the participant is the only participant with respect to the protected cell; and
175 (ii) the participant is the sponsor or is affiliated with the sponsor of the sponsored
176 captive insurance company through common ownership and control.
177 (11) "Commissioner" means the Insurance Commissioner or the commissioner's
178 designee.
179 (12) "Consolidated debt to total capital ratio" means the ratio of Subsection (12)(a) to
180 (b).
181 (a) This Subsection (12)(a) is an amount equal to the sum of all debts and hybrid
182 capital instruments including:

183 (i) all borrowings from depository institutions;
184 (ii) all senior debt;
185 (iii) all subordinated debts;
186 (iv) all trust preferred shares; and
187 (v) all other hybrid capital instruments that are not included in the determination of
188 consolidated GAAP net worth issued and outstanding.
189 (b) This Subsection (12)(b) is an amount equal to the sum of:
190 (i) total capital consisting of all debts and hybrid capital instruments as described in
191 Subsection (12)(a); and
192 (ii) shareholders' equity determined in accordance with generally accepted accounting
193 principles for reporting to the United States Securities and Exchange Commission.
194 (13) "Consolidated GAAP net worth" means the consolidated shareholders' equity
195 determined in accordance with generally accepted accounting principles for reporting to the
196 United States Securities and Exchange Commission.
197 (14) "Controlled unaffiliated business" means a [company] business entity:
198 (a) (i) in the case of a pure captive insurance company, that is not in the corporate
199 system of a parent [and affiliates;] or the parent's affiliate; or
200 (ii) in the case of an industrial insured captive insurance company, that is not in the
201 corporate system of an industrial insured or an affiliated company of the industrial insured;
202 (b) (i) in the case of a pure captive insurance company, that has [an existing] a
203 contractual relationship with a parent or affiliate; [and] or
204 (ii) in the case of an industrial insured captive insurance company, that has a
205 contractual relationship with an industrial insured or an affiliated company of the industrial
206 insured; and
207 (c) whose risks are managed by [a pure captive insurance company] one of the
208 following in accordance with [Section 31A-37-504 .] Subsection 31A-37-106 (1)(k):
209 (i) a pure captive insurance company; or
210 (ii) an industrial insured captive insurance company.
211 (15) "Department" means the Insurance Department.
212 (16) "Industrial insured" means an insured:
213 (a) that produces insurance:

214 (i) by the services of a full-time employee acting as a risk manager or insurance
215 manager; or
216 (ii) using the services of a regularly and continuously qualified insurance consultant;
217 (b) whose aggregate annual premiums for insurance on all risks total at least $25,000;
218 and
219 (c) that has at least 25 full-time employees.
220 (17) "Industrial insured captive insurance company" means a [company] business
221 entity that:
222 (a) insures risks of[: (a)] the industrial insureds that comprise the industrial insured
223 group; and
224 [(b) the affiliates of the industrial insured group.]
225 (b) may insure the risks of:
226 (i) an affiliated company of an industrial insured; or
227 (ii) a controlled unaffiliated business of:
228 (A) an industrial insured; or
229 (B) an affiliated company of an industrial insured.
230 (18) "Industrial insured group" means:
231 (a) a group of industrial insureds that collectively:
232 (i) own, control, or hold with power to vote all of the outstanding voting securities of
233 an industrial insured captive insurance company incorporated as a stock insurer; or
234 (ii) have complete voting control over an industrial insured captive insurance company
235 incorporated as a mutual insurer; [or]
236 (b) a group that is:
237 (i) created under the Product Liability Risk Retention Act of 1981, 15 U.S.C. Section
238 3901 et seq., as amended, as a corporation or other limited liability association; and
239 (ii) taxable under this title as a:
240 (A) stock corporation; or
241 (B) mutual insurer[.]; or
242 (c) a group that has complete voting control over an industrial captive insurance
243 company formed as a limited liability company.
244 (19) "Member organization" means [an individual, corporation, partnership, or

245 association] a person that belongs to an association.
246 (20) "Parent" means a [corporation, partnership, or individual] person that directly or
247 indirectly owns, controls, or holds with power to vote more than 50% of:
248 (a) the outstanding voting securities of a pure captive insurance company[.]; or
249 (b) the pure captive insurance company, if the pure captive insurance company is
250 formed as a limited liability company.
251 (21) "Participant" means [any of the following] an entity that [are] is insured by a
252 sponsored captive insurance company[,]:
253 (a) if the losses of the participant are limited through a participant contract to the assets
254 of a protected cell[:]; and
255 [(a) an] (b)(i) the entity is permitted to be a participant under Section 31A-37-403 ;
256 [and] or
257 [(b) any] (ii) the entity is an affiliate of an entity permitted to be a participant under
258 Section 31A-37-403 .
259 (22) "Participant contract" means a contract by which a sponsored captive insurance
260 company:
261 (a) insures the risks of a participant; and
262 (b) limits the losses of the participant to the assets of a protected cell.
263 (23) "Protected cell" means a separate account established and maintained by a
264 sponsored captive insurance company for one participant.
265 (24) "Pure captive insurance company" means a [company] business entity that insures
266 risks of [its parent and affiliates] a parent or affiliate of the business entity.
267 (25) "Qualifying reinsurer parent company" means a reinsurer:
268 (a) authorized to write reinsurance by this state; and
269 (b) that has:
270 (i) a consolidated GAAP net worth of not less than $500,000,000; and
271 (ii) a consolidated debt to total capital ratio not greater than .50.
272 (26) "Special purpose financial captive insurance company" is as defined in Section
273 31A-37a-102 .
274 [(26)] (27) "Sponsor" means an entity that:
275 (a) meets the requirements of Section 31A-37-402 ; and

276 (b) is approved by the commissioner to:
277 (i) provide all or part of the capital and surplus required by applicable law; and
278 (ii) organize and operate a sponsored captive insurance company.
279 [(27)] (28) "Sponsored captive insurance company" means a captive insurance
280 company:
281 (a) in which the minimum capital and surplus required by applicable law is provided by
282 one or more sponsors;
283 (b) that is formed or holding a certificate of authority under this chapter;
284 (c) that insures the risks of a separate [participants] participant through the contract;
285 and
286 (d) that segregates each participant's liability through one or more protected cells.
287 [(28)] (29) "Treasury rates" means the United States Treasury strip asked yield as
288 published in the Wall Street Journal as of a balance sheet date.
289 Section 3. Section 31A-37-103 is amended to read:
290 31A-37-103. Chapter exclusivity.
291 (1) Except as provided in Subsection (2) or otherwise provided in this chapter, [no
292 provisions] a provision of this title other than this chapter does not apply to a captive insurance
293 company.
294 (2) In addition to this chapter, and subject to Section 31A-37a-103 :
295 (a) Chapter 37a, Special Purpose Financial Captive Insurance Company Act, applies to
296 a special purpose financial captive insurance company; and
297 (b) for purposes of a special purpose financial captive insurance company, a reference
298 in this chapter to "this chapter" includes a reference to Chapter 37a.
299 Section 4. Section 31A-37-104 is amended to read:
300 31A-37-104. Applicability of reorganization, receivership, and injunction
301 authority.
302 (1) Except as provided in Chapter 37a, Special Purpose Financial Captive Insurance
303 Company Act, and Subsection (2), [the provisions of this title pertaining to insurance
304 reorganizations, receiverships, and injunctions apply] Chapter 27a, Insurer Receivership Act,
305 applies to a captive insurance company formed or holding a certificate of authority under this
306 chapter.

307 (2) In the case of a sponsored captive insurance company:
308 (a) the assets of [the] a protected cell may not be used to pay [any expenses or claims]
309 an expense or claim other than [those] one attributable to the protected cell; and
310 (b) the capital and surplus of the sponsored captive insurance company:
311 (i) shall at all times be available to pay [any]:
312 (A) [expenses] an expense of the sponsored captive insurance company; or
313 (B) [claims] a claim against the sponsored captive insurance company; and
314 (ii) may not be used to pay [expenses or claims] an expense or claim attributable to a
315 protected cell.
316 Section 5. Section 31A-37-106 is amended to read:
317 31A-37-106. Authority to make rules -- Authority to issue orders.
318 (1) In accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act, the
319 commissioner may adopt rules to:
320 (a) determine circumstances under which a branch captive insurance company is not
321 required to be a pure captive insurance company;
322 (b) [determine any] require a statement, document, or information that a captive
323 insurance company must provide to the commissioner to obtain a certificate of authority;
324 (c) determine [any factors] a factor a captive insurance company shall provide evidence
325 of under Subsection 31A-37-202 (4)(c);
326 (d) prescribe one or more capital requirements for a captive insurance company in
327 addition to those required under Section 31A-37-204 based on the type, volume, and nature of
328 insurance business transacted by the captive insurance company;
329 (e) establish:
330 (i) the amount of capital or surplus required to be retained under Subsection
331 31A-37-205 (4) at the payment of a dividend or other distribution by a captive insurance
332 company; or
333 (ii) a formula to determine the amount described in Subsection 31A-37-205 (4);
334 (f) waive or modify [the requirements] a requirement for public notice and hearing for
335 [any of] the following by a captive insurance company:
336 (i) merger;
337 (ii) consolidation;

338 (iii) conversion;
339 (iv) mutualization; or
340 (v) redomestication;
341 (g) approve the use of [alternative] one or more reliable methods of valuation and
342 rating for:
343 (i) an association captive insurance company;
344 (ii) a sponsored captive insurance company; or
345 (iii) an industrial insured group;
346 (h) prohibit or limit an investment that threatens the solvency or liquidity of:
347 (i) a pure captive insurance company; or
348 (ii) an industrial insured captive insurance company;
349 (i) determine the financial reports a sponsored captive insurance company shall
350 annually file with the commissioner;
351 (j) [determine] prescribe the required forms and reports under Section 31A-37-501 ; and
352 (k) establish one or more standards to ensure that [a parent or affiliate of a pure captive
353 insurance company]:
354 (i) one of the following is able to exercise control of the risk management function of
355 [any] a controlled unaffiliated business to be insured by [the] a pure captive insurance
356 company[.]:
357 (A) a parent; or
358 (B) an affiliated company of a parent; or
359 (ii) one of the following is able to exercise control of the risk management function of
360 a controlled unaffiliated business to be insured by an industrial insured captive insurance
361 company:
362 (A) an industrial insured; or
363 (B) an affiliated company of the industrial insured.
364 (2) Notwithstanding Subsection (1)(k), until the commissioner adopts the rules
365 authorized under Subsection (1)(k), the commissioner may by temporary order grant authority
366 to insure risks to:
367 (a) a pure captive insurance company [to insure risks.]; or
368 (b) an industrial insured captive insurance company.

369 (3) The commissioner may issue prohibitory, mandatory, and other orders relating to a
370 captive insurance [companies] company as necessary to enable the commissioner to secure
371 compliance with this chapter.
372 Section 6. Section 31A-37-202 is amended to read:
373 31A-37-202. Permissive areas of insurance.
374 (1) (a) Except as provided in Subsection (1)(b), when permitted by its articles of
375 incorporation or charter, a captive insurance company may apply to the commissioner for a
376 certificate of authority to do all insurance authorized by this title except workers' compensation
377 insurance.
378 (b) Notwithstanding Subsection (1)(a):
379 (i) a pure captive insurance company may not insure [any risks] a risk other than
380 [those] a risk of [its]:
381 (A) its parent [and affiliates] or affiliate;
382 (B) a controlled unaffiliated