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[Introduced][Status][Bill Documents][Fiscal Note] [Bills Directory]

H.B. 55 Enrolled

             1     

CAPTIVE INSURANCE COMPANY

             2     
AMENDMENTS

             3     
2008 GENERAL SESSION

             4     
STATE OF UTAH

             5     
Chief Sponsor: James A. Dunnigan

             6     
Senate Sponsor: Kevin T. VanTassell

             7     
             8      LONG TITLE
             9      General Description:
             10          This bill modifies the Captive Insurance Companies Act and enacts the Special Purpose
             11      Financial Captive Insurance Company Act.
             12      Highlighted Provisions:
             13          This bill:
             14          .    addresses fee amounts that are nonlapsing;
             15          .    modifies and enacts definitions;
             16          .    makes changes related to a captive insurance company formed as a limited liability
             17      company;
             18          .    addresses applicable law;
             19          .    addresses the applicability of reorganization, receivership, and injunction statutes;
             20          .    addresses permissive areas of insurance;
             21          .    addresses sponsored captive insurance companies;
             22          .    addresses reporting to the commissioner;
             23          .    enacts the Special Purpose Financial Captive Insurance Company Act including:
             24              .    defining terms;
             25              .    outlining applicable law;
             26              .    imposing reporting requirements;
             27              .    imposing requirements related to books and records;
             28              .    providing for a transition to the new certificate of authority;
             29              .    establishing a process to issue a certificate of authority;


             30              .    addressing revocation, suspension, amendment, or modification of a certificate of
             31      authority;
             32              .    requiring commissioner approval of certain actions;
             33              .    addressing sponsored captives;
             34              .    addressing the formation, assets, investments, and securities of a special purpose
             35      financial captive insurance company;
             36              .    addressing reinsurance; and
             37              .    providing for enforcement and delinquency; and
             38          .    makes technical and conforming amendments.
             39      Monies Appropriated in this Bill:
             40          None
             41      Other Special Clauses:
             42          This bill has multiple effective dates.
             43      Utah Code Sections Affected:
             44      AMENDS:
             45          31A-3-304, as last amended by Laws of Utah 2006, Chapter 320
             46          31A-37-102, as last amended by Laws of Utah 2004, Chapter 312
             47          31A-37-103, as enacted by Laws of Utah 2003, Chapter 251
             48          31A-37-104, as last amended by Laws of Utah 2004, Chapter 312
             49          31A-37-106, as last amended by Laws of Utah 2004, Chapter 312
             50          31A-37-202, as last amended by Laws of Utah 2004, Chapter 312
             51          31A-37-402, as last amended by Laws of Utah 2004, Chapter 312
             52          31A-37-501, as last amended by Laws of Utah 2006, Chapter 177
             53          31A-37-502, as last amended by Laws of Utah 2007, Chapter 307
             54          31A-37-602, as enacted by Laws of Utah 2004, Chapter 312
             55          31A-37-603, as enacted by Laws of Utah 2004, Chapter 312
             56      ENACTS:
             57          31A-37a-101, Utah Code Annotated 1953


             58          31A-37a-102, Utah Code Annotated 1953
             59          31A-37a-103, Utah Code Annotated 1953
             60          31A-37a-104, Utah Code Annotated 1953
             61          31A-37a-105, Utah Code Annotated 1953
             62          31A-37a-201, Utah Code Annotated 1953
             63          31A-37a-202, Utah Code Annotated 1953
             64          31A-37a-203, Utah Code Annotated 1953
             65          31A-37a-204, Utah Code Annotated 1953
             66          31A-37a-205, Utah Code Annotated 1953
             67          31A-37a-301, Utah Code Annotated 1953
             68          31A-37a-302, Utah Code Annotated 1953
             69          31A-37a-303, Utah Code Annotated 1953
             70          31A-37a-304, Utah Code Annotated 1953
             71          31A-37a-401, Utah Code Annotated 1953
             72          31A-37a-402, Utah Code Annotated 1953
             73          31A-37a-501, Utah Code Annotated 1953
             74          31A-37a-502, Utah Code Annotated 1953
             75     
             76      Be it enacted by the Legislature of the state of Utah:
             77          Section 1. Section 31A-3-304 is amended to read:
             78           31A-3-304. Annual fees -- Other taxes or fees prohibited.
             79          (1) (a) A captive insurance company shall pay an annual fee imposed under this section
             80      to obtain or renew a certificate of authority.
             81          (b) The commissioner shall:
             82          (i) determine the annual fee pursuant to Sections 31A-3-103 and 63-38-3.2 ; and
             83          (ii) consider whether the annual fee is competitive with fees imposed by other states on
             84      captive insurance companies.
             85          (2) A captive insurance company that fails to pay the fee required by this section is


             86      subject to the relevant sanctions of this title.
             87          (3) (a) Except as provided in Subsection (3)(b) and notwithstanding Title 59, Chapter
             88      9, Taxation of Admitted Insurers, the fee provided for in this section constitutes the sole tax or
             89      fee under the laws of this state that may be otherwise levied or assessed on a captive insurance
             90      company, and no other occupation tax or other tax or fee may be levied or collected from a
             91      captive insurance company by the state or a county, city, or municipality within this state.
             92          (b) Notwithstanding Subsection (3)(a), a captive insurance company is subject to real
             93      and personal property taxes.
             94          (4) A captive insurance company shall pay the fee imposed by this section to the
             95      department by March 31 of each year.
             96          (5) (a) The funds received pursuant to Subsection (2) shall be deposited into the
             97      General Fund as a dedicated credit to be used by the department to:
             98          (i) administer and enforce Chapter 37, Captive Insurance Companies Act; and
             99          (ii) promote the captive insurance industry in Utah.
             100          (b) At the end of each fiscal year, funds received by the department in excess of
             101      [$250,000] $750,000 shall be treated as free revenue in the General Fund.
             102          Section 2. Section 31A-37-102 is amended to read:
             103           31A-37-102. Definitions.
             104          As used in this chapter:
             105          (1) "Affiliated company" means a [company] business entity that because of common
             106      ownership, control, operation, or management is in the same corporate system as:
             107          (a) a parent;
             108          (b) an industrial insured; or
             109          (c) a member organization.
             110          (2) "Alien captive insurance company" means an [insurance company] insurer:
             111          (a) formed to write insurance business for [its parents and affiliates] a parent or affiliate
             112      of the insurer; and
             113          (b) licensed pursuant to the laws of an alien jurisdiction that imposes statutory or


             114      regulatory standards:
             115          (i) on [companies] a business entity transacting the business of insurance in the alien
             116      jurisdiction; and
             117          (ii) in a form acceptable to the commissioner.
             118          (3) "Association" means a legal association of [individuals, corporations, partnerships,
             119      or associations] two or more persons that has been in continuous existence for at least one year
             120      if:
             121          (a) the association or its member organizations:
             122          (i) own, control, or hold with power to vote all of the outstanding voting securities of
             123      an association captive insurance company incorporated as a stock insurer; or
             124          (ii) have complete voting control over an association captive insurance company
             125      incorporated as a mutual insurer; [or]
             126          (b) the association's member organizations collectively constitute all of the subscribers
             127      of an association captive insurance company formed as a reciprocal insurer[.]; or
             128          (c) the association or its member organizations have complete voting control over an
             129      association captive insurance company formed as a limited liability company.
             130          (4) "Association captive insurance company" means a [company] business entity that
             131      insures risks of [the]:
             132          (a) a member [organizations] organization of the association; [and]
             133          (b) [affiliates of the] an affiliate of a member [organizations] organization of the
             134      association[.]; and
             135          (c) the association.
             136          (5) "Branch business" means [any] an insurance business transacted by a branch captive
             137      insurance company in this state.
             138          (6) "Branch captive insurance company" means an alien captive insurance company that
             139      has [obtained] a certificate of authority [by] from the commissioner to transact the business of
             140      insurance in this state through a business unit with a principal place of business in this state.
             141          (7) "Branch [operations"] operation" means [any] a business [operations] operation of a


             142      branch captive insurance company in this state.
             143          (8) "Captive insurance company" means any of the following formed or holding a
             144      certificate of authority under this chapter:
             145          (a) a branch captive insurance company;
             146          (b) a pure captive insurance company;
             147          (c) an association captive insurance company;
             148          (d) a sponsored captive insurance company;
             149          (e) an industrial insured captive insurance company;
             150          (f) a captive reinsurance company; [or]
             151          (g) a special purpose captive insurance company[.]; or
             152          (h) a special purpose financial captive insurance company.
             153          (9) "Captive reinsurance company" means a [reinsurance company] reinsurer that is:
             154          (a) formed or [licensed] has a certificate of authority pursuant to this chapter;
             155          (b) wholly owned by a qualifying [reinsurance] reinsurer parent company; and
             156          (c) a stock corporation.
             157          (10) "Common ownership and control" means that two or more captive insurance
             158      companies are owned or controlled by the same person or group of persons as follows:
             159          (a) in the case of a captive insurance company that is a stock [corporations]
             160      corporation, the direct or indirect ownership [by the same shareholder or shareholders] of 80%
             161      or more of the outstanding voting stock of [two or more corporations] the stock corporation;
             162      [and]
             163          (b) in the case of a captive insurance company that is a mutual [corporations]
             164      corporation, the direct or indirect ownership [by the same member or members] of 80% or more
             165      of the surplus and the voting power of [two or more corporations.] the mutual corporation;
             166          (c) in the case of a captive insurance company that is a limited liability company, the
             167      direct or indirect ownership by the same member or members of 80% or more of the
             168      membership interests in the limited liability company; or
             169          (d) in the case of a sponsored captive insurance company, a protected cell is a separate


             170      captive insurance company owned and controlled by the protected cell's participant, only if:
             171          (i) the participant is the only participant with respect to the protected cell; and
             172          (ii) the participant is the sponsor or is affiliated with the sponsor of the sponsored
             173      captive insurance company through common ownership and control.
             174          (11) "Commissioner" means the Insurance Commissioner or the commissioner's
             175      designee.
             176          (12) "Consolidated debt to total capital ratio" means the ratio of Subsection (12)(a) to
             177      (b).
             178          (a) This Subsection (12)(a) is an amount equal to the sum of all debts and hybrid capital
             179      instruments including:
             180          (i) all borrowings from depository institutions;
             181          (ii) all senior debt;
             182          (iii) all subordinated debts;
             183          (iv) all trust preferred shares; and
             184          (v) all other hybrid capital instruments that are not included in the determination of
             185      consolidated GAAP net worth issued and outstanding.
             186          (b) This Subsection (12)(b) is an amount equal to the sum of:
             187          (i) total capital consisting of all debts and hybrid capital instruments as described in
             188      Subsection (12)(a); and
             189          (ii) shareholders' equity determined in accordance with generally accepted accounting
             190      principles for reporting to the United States Securities and Exchange Commission.
             191          (13) "Consolidated GAAP net worth" means the consolidated shareholders' equity
             192      determined in accordance with generally accepted accounting principles for reporting to the
             193      United States Securities and Exchange Commission.
             194          (14) "Controlled unaffiliated business" means a [company] business entity:
             195          (a) (i) in the case of a pure captive insurance company, that is not in the corporate
             196      system of a parent [and affiliates;] or the parent's affiliate; or
             197          (ii) in the case of an industrial insured captive insurance company, that is not in the


             198      corporate system of an industrial insured or an affiliated company of the industrial insured;
             199          (b) (i) in the case of a pure captive insurance company, that has [an existing] a
             200      contractual relationship with a parent or affiliate; [and] or
             201          (ii) in the case of an industrial insured captive insurance company, that has a contractual
             202      relationship with an industrial insured or an affiliated company of the industrial insured; and
             203          (c) whose risks are managed by [a pure captive insurance company] one of the
             204      following in accordance with [Section 31A-37-504 .] Subsection 31A-37-106 (1)(k):
             205          (i) a pure captive insurance company; or
             206          (ii) an industrial insured captive insurance company.
             207          (15) "Department" means the Insurance Department.
             208          (16) "Industrial insured" means an insured:
             209          (a) that produces insurance:
             210          (i) by the services of a full-time employee acting as a risk manager or insurance
             211      manager; or
             212          (ii) using the services of a regularly and continuously qualified insurance consultant;
             213          (b) whose aggregate annual premiums for insurance on all risks total at least $25,000;
             214      and
             215          (c) that has at least 25 full-time employees.
             216          (17) "Industrial insured captive insurance company" means a [company] business entity
             217      that:
             218          (a) insures risks of[: (a)] the industrial insureds that comprise the industrial insured
             219      group; and
             220          [(b) the affiliates of the industrial insured group.]
             221          (b) may insure the risks of:
             222          (i) an affiliated company of an industrial insured; or
             223          (ii) a controlled unaffiliated business of:
             224          (A) an industrial insured; or
             225          (B) an affiliated company of an industrial insured.


             226          (18) "Industrial insured group" means:
             227          (a) a group of industrial insureds that collectively:
             228          (i) own, control, or hold with power to vote all of the outstanding voting securities of
             229      an industrial insured captive insurance company incorporated as a stock insurer; or
             230          (ii) have complete voting control over an industrial insured captive insurance company
             231      incorporated as a mutual insurer; [or]
             232          (b) a group that is:
             233          (i) created under the Product Liability Risk Retention Act of 1981, 15 U.S.C. Section
             234      3901 et seq., as amended, as a corporation or other limited liability association; and
             235          (ii) taxable under this title as a:
             236          (A) stock corporation; or
             237          (B) mutual insurer[.]; or
             238          (c) a group that has complete voting control over an industrial captive insurance
             239      company formed as a limited liability company.
             240          (19) "Member organization" means [an individual, corporation, partnership, or
             241      association] a person that belongs to an association.
             242          (20) "Parent" means a [corporation, partnership, or individual] person that directly or
             243      indirectly owns, controls, or holds with power to vote more than 50% of:
             244          (a) the outstanding voting securities of a pure captive insurance company[.]; or
             245          (b) the pure captive insurance company, if the pure captive insurance company is
             246      formed as a limited liability company.
             247          (21) "Participant" means [any of the following] an entity that [are] is insured by a
             248      sponsored captive insurance company[,]:
             249          (a) if the losses of the participant are limited through a participant contract to the assets
             250      of a protected cell[:]; and
             251          [(a) an] (b)(i) the entity is permitted to be a participant under Section 31A-37-403 ;
             252      [and] or
             253          [(b) any] (ii) the entity is an affiliate of an entity permitted to be a participant under


             254      Section 31A-37-403 .
             255          (22) "Participant contract" means a contract by which a sponsored captive insurance
             256      company:
             257          (a) insures the risks of a participant; and
             258          (b) limits the losses of the participant to the assets of a protected cell.
             259          (23) "Protected cell" means a separate account established and maintained by a
             260      sponsored captive insurance company for one participant.
             261          (24) "Pure captive insurance company" means a [company] business entity that insures
             262      risks of [its parent and affiliates] a parent or affiliate of the business entity.
             263          (25) "Qualifying reinsurer parent company" means a reinsurer:
             264          (a) authorized to write reinsurance by this state; and
             265          (b) that has:
             266          (i) a consolidated GAAP net worth of not less than $500,000,000; and
             267          (ii) a consolidated debt to total capital ratio not greater than .50.
             268          (26) "Special purpose financial captive insurance company" is as defined in Section
             269      31A-37a-102 .
             270          [(26)] (27) "Sponsor" means an entity that:
             271          (a) meets the requirements of Section 31A-37-402 ; and
             272          (b) is approved by the commissioner to:
             273          (i) provide all or part of the capital and surplus required by applicable law; and
             274          (ii) organize and operate a sponsored captive insurance company.
             275          [(27)] (28) "Sponsored captive insurance company" means a captive insurance
             276      company:
             277          (a) in which the minimum capital and surplus required by applicable law is provided by
             278      one or more sponsors;
             279          (b) that is formed or holding a certificate of authority under this chapter;
             280          (c) that insures the risks of a separate [participants] participant through the contract;
             281      and


             282          (d) that segregates each participant's liability through one or more protected cells.
             283          [(28)] (29) "Treasury rates" means the United States Treasury strip asked yield as
             284      published in the Wall Street Journal as of a balance sheet date.
             285          Section 3. Section 31A-37-103 is amended to read:
             286           31A-37-103. Chapter exclusivity.
             287          (1) Except as provided in Subsection (2) or otherwise provided in this chapter, [no
             288      provisions] a provision of this title other than this chapter does not apply to a captive insurance
             289      company.
             290          (2) In addition to this chapter, and subject to Section 31A-37a-103 :
             291          (a) Chapter 37a, Special Purpose Financial Captive Insurance Company Act, applies to
             292      a special purpose financial captive insurance company; and
             293          (b) for purposes of a special purpose financial captive insurance company, a reference in
             294      this chapter to "this chapter" includes a reference to Chapter 37a.
             295          Section 4. Section 31A-37-104 is amended to read:
             296           31A-37-104. Applicability of reorganization, receivership, and injunction
             297      authority.
             298          (1) Except as provided in Chapter 37a, Special Purpose Financial Captive Insurance
             299      Company Act, and Subsection (2), [the provisions of this title pertaining to insurance
             300      reorganizations, receiverships, and injunctions apply] Chapter 27a, Insurer Receivership Act,
             301      applies to a captive insurance company formed or holding a certificate of authority under this
             302      chapter.
             303          (2) In the case of a sponsored captive insurance company:
             304          (a) the assets of [the] a protected cell may not be used to pay [any expenses or claims]
             305      an expense or claim other than [those] one attributable to the protected cell; and
             306          (b) the capital and surplus of the sponsored captive insurance company:
             307          (i) shall at all times be available to pay [any]:
             308          (A) [expenses] an expense of the sponsored captive insurance company; or
             309          (B) [claims] a claim against the sponsored captive insurance company; and


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


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


             366      captive insurance [companies] company as necessary to enable the commissioner to secure
             367      compliance with this chapter.
             368          Section 6. Section 31A-37-202 is amended to read:
             369           31A-37-202. Permissive areas of insurance.
             370          (1) (a) Except as provided in Subsection (1)(b), when permitted by its articles of
             371      incorporation or charter, a captive insurance company may apply to the commissioner for a
             372      certificate of authority to do all insurance authorized by this title except workers' compensation
             373      insurance.
             374          (b) Notwithstanding Subsection (1)(a):
             375          (i) a pure captive insurance company may not insure [any risks] a risk other than [those]
             376      a risk of [its]:
             377          (A) its parent [and affiliates] or affiliate;
             378          (B) a controlled unaffiliated business; or
             379          (C) a combination of Subsections (1)(b)(i)(A) and (B);
             380          (ii) an association captive insurance company may not insure [any risks] a risk other
             381      than [those] a risk of [the]:
             382          (A) an affiliate;
             383          [(A)] (B) a member [organizations] organization of its association; and
             384          [(B) affiliates of the member organizations]
             385          (C) an affiliate of a member organization of its association;
             386          (iii) an industrial insured captive insurance company may not insure [any risks] a risk
             387      other than [those] a risk of [the]:
             388          (A) an industrial [insureds] insured that [comprise] is part of the industrial insured
             389      group; [and]
             390          [(B) affiliates of the industrial insureds that comprise]
             391          (B) an affiliate of an industrial insured that is part of the industrial insured group; and
             392          (C) a controlled unaffiliated business of:
             393          (I) an industrial insured that is part of the industrial insured group; or


             394          (II) an affiliate of an industrial insured that is part of the industrial insured group;
             395          (iv) a special purpose captive insurance company may only insure [the] a risk of its
             396      parent;
             397          (v) a captive insurance company may not provide:
             398          (A) personal motor vehicle [or] insurance coverage;
             399          (B) homeowner's insurance coverage; or [any]
             400          (C) a component of [these coverages] a coverage described in this Subsection (1)(b)(v);
             401      and
             402          (vi) a captive insurance company may not accept or cede reinsurance except as
             403      provided in Section 31A-37-303 .
             404          (c) Notwithstanding Subsection (1)(b)(iv), for [risks] a risk approved by the
             405      commissioner a special purpose captive insurance company may provide:
             406          (i) insurance;
             407          (ii) reinsurance; or
             408          (iii) both insurance and reinsurance.
             409          (2) To conduct insurance business in this state a captive insurance company shall:
             410          (a) obtain from the commissioner a certificate of authority authorizing it to conduct
             411      insurance business in this state;
             412          (b) hold at least once each year in this state:
             413          (i) a board of directors meeting; or
             414          (ii) in the case of a reciprocal insurer, a subscriber's advisory committee meeting;
             415          (c) maintain in this state:
             416          (i) the principal place of business of the captive insurance company; or
             417          (ii) in the case of a branch captive insurance company, the principal place of business
             418      for the branch operations of the branch captive insurance company; and
             419          (d) except as provided in Subsection (3), appoint a resident registered agent to accept
             420      service of process and to otherwise act on behalf of the captive insurance company in this state.
             421          (3) Notwithstanding Subsection (2)(d), in the case of a captive insurance company


             422      formed as a corporation or a reciprocal insurer, [whenever] if the registered agent cannot with
             423      reasonable diligence be found at the registered office of the captive insurance company, the
             424      commissioner [shall be an] is the agent of the captive insurance company upon whom [any]
             425      process, notice, or demand may be served.
             426          (4) (a) Before receiving a certificate of authority, a captive insurance company:
             427          (i) formed as a corporation shall file with the commissioner:
             428          (A) a certified copy of:
             429          (I) articles of incorporation or the charter of the corporation; and
             430          (II) bylaws of the corporation;
             431          (B) a statement under oath of the president and secretary of the corporation showing
             432      the financial condition of the corporation; and
             433          (C) any other statement or document required by the commissioner under Section
             434      31A-37-106 ;
             435          (ii) formed as a reciprocal shall:
             436          (A) file with the commissioner:
             437          (I) a certified copy of the power of attorney of the attorney-in-fact of the reciprocal;
             438          (II) a certified copy of the subscribers' agreement of the reciprocal;
             439          (III) a statement under oath of the attorney-in-fact of the reciprocal showing the
             440      financial condition of the reciprocal; and
             441          (IV) any other statement or document required by the commissioner under Section
             442      31A-37-106 ; and
             443          (B) submit to the commissioner for approval a description of the:
             444          (I) coverages;
             445          (II) deductibles;
             446          (III) coverage limits;
             447          (IV) rates; and
             448          (V) any other information the commissioner requires under Section 31A-37-106 .
             449          (b) (i) If there is a subsequent material change in an item in the description required


             450      under Subsection (4)(a)(ii)(B) for a reciprocal captive insurance company, the reciprocal captive
             451      insurance company shall submit to the commissioner for approval an appropriate revision to the
             452      description required under Subsection (4)(a)(ii)(B).
             453          (ii) A reciprocal captive insurance company that is required to submit a revision under
             454      Subsection (4)(b)(i) may not offer any additional [kinds] types of insurance until the
             455      commissioner approves a revision of the description.
             456          (iii) A reciprocal captive insurance company shall inform the commissioner of [any] a
             457      material change in [rates] a rate within 30 days of the adoption of the change.
             458          (c) In addition to the information required by Subsection (4)(a), an applicant captive
             459      insurance company shall file with the commissioner evidence of:
             460          (i) the amount and liquidity of the assets of the applicant captive insurance company
             461      relative to the risks to be assumed by the applicant captive insurance company;
             462          (ii) the adequacy of the expertise, experience, and character of the person who will
             463      manage the applicant captive insurance company;
             464          (iii) the overall soundness of the plan of operation of the applicant captive insurance
             465      company;
             466          (iv) the adequacy of the loss prevention programs [of] for the following of the applicant
             467      captive insurance [company's] company:
             468          (A) a parent[,];
             469          (B) a member [organizations,] organization; or
             470          (C) an industrial [insureds, as applicable] insured; and
             471          (v) any other [factors] factor the commissioner:
             472          (A) adopts by rule under Section 31A-37-106 ; and
             473          (B) considers relevant in ascertaining whether the applicant captive insurance company
             474      will be able to meet the policy obligations of the applicant captive insurance company.
             475          (d) In addition to the information required by Subsections (4)(a), (b), and (c), an
             476      applicant sponsored captive insurance company shall file with the commissioner:
             477          (i) a business plan at the level of detail required by the commissioner under Section


             478      31A-37-106 demonstrating:
             479          (A) the manner in which the applicant sponsored captive insurance company will
             480      account for the losses and expenses of each protected cell; and
             481          (B) the manner in which the applicant sponsored captive insurance company will report
             482      to the commissioner the financial history, including losses and expenses, of each protected cell;
             483          (ii) a statement acknowledging that the applicant sponsored captive insurance company
             484      will make all financial records of the applicant sponsored captive insurance company, including
             485      records pertaining to [any] a protected cell, [shall be made] available for inspection or
             486      examination by the commissioner;
             487          (iii) [any] a contract or sample contract between the applicant sponsored captive
             488      insurance company and [any] a participant; and
             489          (iv) evidence that expenses will be allocated to each protected cell in an equitable
             490      manner.
             491          [(e)] (5) (a) Information submitted pursuant to [this] Subsection (4) [shall be] is
             492      classified as a protected record under Title 63, Chapter 2, Government Records Access and
             493      Management Act.
             494          [(f)] (b) Notwithstanding Title 63, Chapter 2, Government Records Access and
             495      Management Act, the commissioner may disclose information submitted pursuant to [this]
             496      Subsection (4) to a public official having jurisdiction over the regulation of insurance in another
             497      state if:
             498          (i) the public official receiving the information agrees in writing to maintain the
             499      confidentiality of the information; and
             500          (ii) the laws of the state in which the public official serves require the information to be
             501      confidential.
             502          [(g) Subsections (4)(e) and (4)(f) do]
             503          (c) This Subsection (5) does not apply to information provided by an industrial insured
             504      captive insurance company insuring the risks of an industrial insured group.
             505          [(5)] (6) (a) A captive insurance company shall pay to the department the following


             506      nonrefundable fees established by the department under Sections 31A-3-103 and 63-38-3.2 :
             507          (i) a fee for examining, investigating, and processing, by a department [employees]
             508      employee, of an application for a certificate of authority made by a captive insurance company;
             509          (ii) a fee for obtaining a certificate of authority for the year the captive insurance
             510      company is issued a certificate of authority by the department; and
             511          (iii) a certificate of authority renewal fee.
             512          (b) The commissioner may:
             513          (i) retain legal, financial, and examination services from outside the department to
             514      perform the services [under] described in:
             515          (A) Subsection [(5)(a)] (6)(a); and
             516          (B) Section 31A-37-502 ; and
             517          (ii) charge the reasonable cost of [those] services [against] described in Subsection
             518      (6)(b)(i) to the applicant captive insurance company.
             519          [(6)] (7) If the commissioner is satisfied that the documents and statements filed by the
             520      applicant captive insurance company comply with [the provisions of] this chapter, the
             521      commissioner may grant a certificate of authority authorizing the company to do insurance
             522      business in this state.
             523          [(7)] (8) A certificate of authority granted under this section expires annually and must
             524      be renewed by July 1 of each year.
             525          Section 7. Section 31A-37-402 is amended to read:
             526           31A-37-402. Sponsored captive insurance companies -- Certificate of authority
             527      mandatory.
             528          (1) A sponsor of a sponsored captive insurance company shall be:
             529          (a) an insurer authorized or approved under the laws of [any] a state;
             530          (b) a reinsurer authorized or approved under the laws of [any] a state;
             531          (c) a captive insurance company holding a certificate of authority under this chapter;
             532      [or]
             533          (d) an insurance holding company that:


             534          (i) controls an insurer licensed pursuant to the laws of [any] a state; and
             535          (ii) is subject to registration pursuant to the holding company system of laws of the
             536      state of domicile of the insurer described in Subsection (1)(d)(i)[.]; or
             537          (e) another person approved by the commissioner after finding that the approval of the
             538      person as a sponsor is not inconsistent with the purposes of this chapter.
             539          (2) (a) The business written by a sponsored captive insurance company with respect to
             540      [each] a protected cell shall be fronted by an [insurance company] insurer that is:
             541          (i) authorized or approved:
             542          (A) under the laws of [any] a state; or
             543          (B) under any jurisdiction if the insurance company is a wholly owned subsidiary of an
             544      insurance company licensed pursuant to the laws of [any] a state;
             545          (ii) reinsured by a reinsurer authorized or approved by this state; or
             546          (iii) subject to Subsection (2)(b), secured by a trust fund:
             547          (A) in the United States;
             548          (B) for the benefit of policyholders and claimants; and
             549          (C) funded by an irrevocable letter of credit or other asset acceptable to the
             550      commissioner.
             551          (b) (i) The amount of security provided by the trust fund described in Subsection
             552      (2)(a)(iii) may not be less than the reserves associated with the liabilities of the trust fund,
             553      including:
             554          (A) reserves for losses;
             555          (B) allocated loss adjustment expenses;
             556          (C) incurred but unreported losses; and
             557          (D) unearned premiums for business written through the participant's protected cell.
             558          (ii) The commissioner may require the sponsored captive insurance company to increase
             559      the funding of a trust established pursuant to this Subsection (2).
             560          (iii) If the form of security in the trust described in Subsection (2)(a)(iii) is a letter of
             561      credit, the letter of credit must be established, issued, or confirmed by a bank that is:


             562          (A) chartered in this state;
             563          (B) a member of the federal reserve system; or
             564          (C) chartered by another state if that state-chartered bank is acceptable to the
             565      commissioner.
             566          (iv) A trust and trust instrument maintained pursuant to this Subsection (2) shall be in a
             567      form and upon terms approved by the commissioner.
             568          (3) A risk retention group may not be either a sponsor or a participant of a sponsored
             569      captive insurance company.
             570          Section 8. Section 31A-37-501 is amended to read:
             571           31A-37-501. Reports to commissioner.
             572          (1) A captive insurance company is not required to make [any] a report except those
             573      provided in this chapter.
             574          (2) (a) Before March 1 of each year, a captive insurance company shall submit to the
             575      commissioner a report of the financial condition of the captive insurance company, verified by
             576      oath of two of the executive officers of the captive insurance company.
             577          (b) Except as provided in Sections 31A-37-204 and 31A-37-205 , a captive insurance
             578      company shall report:
             579          (i) [unless the commissioner approves the use of statutory accounting principles,] using
             580      generally accepted accounting principles, except to the extent that the commissioner requires,
             581      approves, or accepts the use of a statutory accounting principle;
             582          (ii) using [any] a useful or necessary [modifications or adaptations to accounting
             583      principles] modification or adaptation to an accounting principle that is required, approved, or
             584      accepted by the commissioner for the type of insurance and [kinds of insurers] kind of insurer to
             585      be reported upon; and
             586          (iii) [any] supplemental or additional information required by the commissioner.
             587          (c) Except as otherwise provided:
             588          (i) an association captive insurance company and an industrial insured group shall file
             589      the report required by Section 31A-4-113 ; and


             590          (ii) [each] an industrial insured group shall comply with Section 31A-4-113.5 .
             591          (3) (a) A pure captive insurance company may make written application to file the
             592      required report on a fiscal year end that is consistent with the fiscal year of the parent company
             593      of the pure captive insurance company.
             594          (b) If the commissioner grants an alternative reporting date for a pure captive insurance
             595      company requested under Subsection (3)(a), the annual report is due 60 days after the fiscal
             596      year end.
             597          (4) (a) Sixty days after the fiscal year end, a branch captive insurance company shall file
             598      with the commissioner a copy of all reports and statements required to be filed under the laws of
             599      the jurisdiction in which the alien captive insurance company is formed, verified by oath by two
             600      of [its] the alien captive insurance company's executive officers.
             601          (b) If the commissioner is satisfied that the annual report filed by the alien captive
             602      insurance company in the jurisdiction in which the alien captive insurance company is formed
             603      provides adequate information concerning the financial condition of the alien captive insurance
             604      company, the commissioner may waive the requirement for completion of the annual statement
             605      required for a captive insurance company under this section with respect to business written in
             606      the alien jurisdiction.
             607          (c) A waiver by the commissioner under Subsection (4)(b) [shall be]:
             608          (i) shall be in writing; and
             609          (ii) is subject to public inspection.
             610          Section 9. Section 31A-37-502 is amended to read:
             611           31A-37-502. Examination.
             612          (1) (a) As provided in this section, the commissioner or a person appointed by the
             613      commissioner, shall examine each captive insurance company in each three-year period.
             614          (b) The three-year period described in Subsection (1)(a) shall be determined on the
             615      basis of three full annual accounting periods of operation.
             616          (c) The examination is to be made as of:
             617          (i) December 31 of the full three-year period; or


             618          (ii) the last day of the month of an annual accounting period authorized for a captive
             619      insurance company under this section.
             620          (d) In addition to an examination required under this Subsection (1), the commissioner,
             621      or a person appointed by the commissioner may examine a captive insurance company whenever
             622      the commissioner determines it to be prudent.
             623          (2) During an examination under this section the commissioner, or a person appointed
             624      by the commissioner, shall thoroughly inspect and examine the affairs of the captive insurance
             625      company to ascertain:
             626          (a) the financial condition of the captive insurance company;
             627          (b) the ability of the captive insurance company to fulfill the obligations of the captive
             628      insurance company; and
             629          (c) whether the captive insurance company has complied with this chapter.
             630          (3) The commissioner upon application may enlarge the three-year period described in
             631      Subsection (1) to five years, if a captive insurance company is subject to a comprehensive
             632      annual audit during that period:
             633          (a) of a scope satisfactory to the commissioner; and
             634          (b) performed by independent auditors approved by the commissioner.
             635          (4) A captive insurance company that is inspected and examined under this section shall
             636      pay, as provided in Subsection 31A-37-202 [(5)](6)(b), the expenses and charges of an
             637      inspection and examination.
             638          Section 10. Section 31A-37-602 is amended to read:
             639           31A-37-602. Requirements of a captive reinsurance company.
             640          (1) (a) If permitted by its articles of incorporation or charter, a captive reinsurance
             641      company may apply to the commissioner for a [license] certificate of authority to write
             642      reinsurance covering:
             643          (i) property and casualty insurance; or
             644          (ii) reinsurance contracts.
             645          (b) A captive reinsurance company authorized by the commissioner may write


             646      reinsurance contracts covering risks in any state.
             647          (2) To conduct business in this state, a captive reinsurance company shall:
             648          (a) obtain from the commissioner a [license] certificate of authority authorizing [it] the
             649      captive reinsurance company to conduct business as a captive reinsurance company in this state;
             650          (b) hold at least one board of directors' meeting each year in this state;
             651          (c) maintain its principal place of business in this state; and
             652          (d) appoint a registered agent to accept service of process and act otherwise on its
             653      behalf in this state.
             654          (3) Before receiving a [license] certificate of authority, a captive reinsurance company
             655      shall file with the commissioner:
             656          (a) a certified copy of [its] the captive reinsurance company's:
             657          (i) (A) articles of incorporation; or
             658          (B) charter; and
             659          (ii) bylaws;
             660          (b) a statement under oath of its president and secretary showing its financial condition;
             661      and
             662          (c) other documents required by the commissioner.
             663          (4) In addition to the information required by Subsection (3), the applicant captive
             664      reinsurance company shall file with the commissioner evidence of:
             665          (a) the amount and liquidity of the captive reinsurance company's assets relative to the
             666      risks to be assumed;
             667          (b) the adequacy of the expertise, experience, and character of the person who manages
             668      the captive reinsurance company;
             669          (c) the overall soundness of the captive reinsurance company's plan of operation; and
             670          (d) other overall factors considered relevant by the commissioner in ascertaining if the
             671      proposed captive reinsurance company is able to meet its policy obligations.
             672          (5) (a) Notwithstanding Title 63, Chapter 2, Government Records Access and
             673      Management Act, information submitted pursuant to this section is confidential and may not be


             674      made public by the commissioner or an agent or employee of the commissioner without the
             675      written consent of the company, except that:
             676          (i) information may be discoverable by a party in a civil action or contested case to
             677      which the submitting captive reinsurance company is a party, upon a showing by the party
             678      seeking to discover the information that:
             679          (A) the information sought is relevant to and necessary for the furtherance of the action
             680      or case;
             681          (B) the information sought is unavailable from other nonconfidential sources; and
             682          (C) a subpoena issued by a judicial or administrative law officer of competent
             683      jurisdiction has been submitted to the commissioner; and
             684          (ii) the commissioner may disclose the information to the public officer having
             685      jurisdiction over the regulation of insurance in another state if:
             686          (A) the public official agrees in writing to maintain the confidentiality of the
             687      information; and
             688          (B) the laws of the state in which the public official serves require the information to be
             689      confidential.
             690          (b) This Subsection (5) does not apply to an industrial insured captive reinsurance
             691      company insuring the risks of an industrial insured group.
             692          Section 11. Section 31A-37-603 is amended to read:
             693           31A-37-603. Minimum capitalization or reserves for a captive reinsurance
             694      company.
             695          (1) (a) The commissioner may not issue a [license] certificate of authority to a captive
             696      reinsurance company unless [the] a captive reinsurance company possesses and maintains capital
             697      or free surplus of not less than the greater of:
             698          (i) $300,000,000; or
             699          (ii) 10% of the reserves of the captive reinsurance company.
             700          (b) The surplus required by this Subsection (1) may be in the form of:
             701          (i) cash; or


             702          (ii) securities.
             703          (2) The commissioner may prescribe additional capital or surplus based upon the type,
             704      volume, and nature of the insurance business transacted.
             705          (3) (a) A captive reinsurance company may not pay a dividend out of, or other
             706      distribution with respect to capital or surplus without the prior approval of the commissioner.
             707          (b) Approval of an ongoing plan for the payment of dividends or other distributions
             708      shall be conditioned upon the retention at the time of each payment of capital or surplus in
             709      excess of amounts specified by, or determined in accordance with formulas approved by, the
             710      commissioner.
             711          Section 12. Section 31A-37a-101 is enacted to read:
             712     
CHAPTER 37a. SPECIAL PURPOSE FINANCIAL CAPTIVE INSURANCE

             713     
COMPANY ACT

             714     
Part 1. General Provisions

             715          31A-37a-101. Title.
             716          This chapter is known as the "Special Purpose Financial Captive Insurance Company
             717      Act."
             718          Section 13. Section 31A-37a-102 is enacted to read:
             719          31A-37a-102. Definitions.
             720          (1) For purposes of this chapter:
             721          (a) "Ceding insurer" means an insurer that:
             722          (i) is approved by the commissioner;
             723          (ii) is licensed or otherwise authorized to transact the business of insurance or
             724      reinsurance in the insurer's state or country of domicile; and
             725          (iii) cedes risk to a special purpose financial captive insurance company pursuant to a
             726      reinsurance contract.
             727          (b) Notwithstanding Section 31A-27a-102 , "insolvency" or "insolvent" for purposes of
             728      applying Chapter 27a, Insurer Receivership Act, to a special purpose financial captive insurance
             729      company, means that a special purpose financial captive insurance company:


             730          (i) is unable to pay an obligation when the obligation is due, unless the obligation is the
             731      subject of a bona fide dispute; or
             732          (ii) fails to meet the criteria and conditions for solvency of the special purpose financial
             733      captive insurance company established by the commissioner by rule or order.
             734          (c) (i) "Insurance securitization" means a transaction or a group of related transactions:
             735          (A) that may include a capital market offering;
             736          (B) that is effected through one or more related risk transfer instruments and facilitating
             737      administrative agreements;
             738          (C) where all or part of the result of the transaction or group of related transactions is
             739      used to fund the special purpose financial captive insurance company's obligations under a
             740      reinsurance contract with a ceding insurer;
             741          (D) by which:
             742          (I) proceeds are obtained by a special purpose financial captive insurance company,
             743      directly or indirectly, through the issuance of one or more securities by the special purpose
             744      financial captive insurance company or another person; or
             745          (II) a person provides one or more letters of credit or other assets for the benefit of the
             746      special purpose financial captive insurance company if the commissioner authorizes the special
             747      purpose financial captive insurance company to treat the letter of credit or asset as an admitted
             748      asset for purposes of the special purpose financial captive insurance company's annual report;
             749      and
             750          (E) if all or a part of the proceeds, a letter of credit, or asset described in this
             751      Subsection (1)(c) is used to fund the special purpose financial captive insurance company's
             752      obligations under a reinsurance contract with a ceding insurer.
             753          (ii) "Insurance securitization" does not include the issuance of a letter of credit for the
             754      benefit of the commissioner to satisfy all or part of the special purpose financial captive
             755      insurance company's capital and surplus requirements under Section 31A-37a-302 .
             756          (d) "Management" means:
             757          (i) a board of directors of a special purpose financial captive insurance company;


             758          (ii) a managing board of a special purpose financial captive insurance company; or
             759          (iii) one or more individuals with the overall responsibility for the management of the
             760      affairs of the special purpose financial captive insurance company, including:
             761          (A) an officer elected or appointed to act on behalf of the special purpose financial
             762      captive insurance company; or
             763          (B) an agent elected or appointed to act on behalf of the special purpose financial
             764      captive insurance company.
             765          (e) "Organizational document" means:
             766          (i) in the case of a special purpose financial captive insurance company formed as a
             767      stock corporation, the special purpose financial captive insurance company's:
             768          (A) articles of incorporation; and
             769          (B) bylaws; and
             770          (ii) in the case of a special purpose financial captive insurance company formed as a
             771      limited liability company, the special purpose financial captive insurance company's:
             772          (A) articles of organization; and
             773          (B) operating agreement.
             774          (f) "Reinsurance contract" means a contract between a special purpose financial captive
             775      insurance company and a ceding insurer pursuant to which the special purpose financial captive
             776      insurance company agrees to provide reinsurance to the ceding insurer for risks associated with
             777      the ceding insurer's insurance or reinsurance business.
             778          (g) "Security" means:
             779          (i) a security as defined in Section 31A-1-301 ; or
             780          (ii) one or more of the following that the commissioner designates, by rule or order, as
             781      a "security" for purposes of this chapter:
             782          (A) a debt obligation;
             783          (B) equity;
             784          (C) a surplus certificate;
             785          (D) a surplus note;


             786          (E) a funding agreement;
             787          (F) a derivative; or
             788          (G) another financial instrument.
             789          (h) "Special purpose financial captive insurance company" means a captive insurance
             790      company has a certificate of authority under this chapter from the commissioner to operate as a
             791      special purpose financial captive insurance company pursuant to this chapter.
             792          (i) "Special purpose financial captive insurance company security" means:
             793          (i) a security issued by a special purpose financial captive insurance company; or
             794          (ii) a security issued by a third party, the proceeds of which are obtained directly or
             795      indirectly by a special purpose financial captive insurance company.
             796          (j) "Surplus note" means an unsecured subordinated debt obligation that has one or
             797      more characteristics that are consistent with paragraph 3 of the National Association of
             798      Insurance Commissioners Statement of Statutory Accounting Principals No. 41, as amended
             799      from time to time and as modified or supplemented by rule or order of the commissioner.
             800          (2) The terms defined in Section 31A-37-102 shall have the same meaning for purposes
             801      of this chapter.
             802          Section 14. Section 31A-37a-103 is enacted to read:
             803          31A-37a-103. Applicable law.
             804          (1) (a) A special purpose financial captive insurance company is subject to:
             805          (i) this chapter; and
             806          (ii) Chapter 37, Captive Insurance Companies Act.
             807          (b) If there is a conflict between this chapter and Chapter 37, this chapter controls.
             808          (2) A special purpose financial captive insurance company is subject to a rule made
             809      under Section 31A-37-106 that is in effect on or after May 5, 2008.
             810          (3) The commissioner may, by order, exempt a special purpose financial captive
             811      insurance company from a provision of Chapter 37 or a rule made under Section 31A-37-106 if
             812      the commissioner determines that the application of the provision or rule is inappropriate on the
             813      basis of the special purpose financial captive insurance company's plan of operation.


             814          Section 15. Section 31A-37a-104 is enacted to read:
             815          31A-37a-104. Reporting -- Books and records.
             816          (1) For purposes of Section 31A-37-501 :
             817          (a) the commissioner shall, by rule or order, establish the form and content of the annual
             818      report to be filed by a special purpose financial captive insurance company; and
             819          (b) a special purpose financial captive insurance company shall report:
             820          (i) using statutory accounting principles, unless the commissioner requires, approves, or
             821      accepts the use of a generally accepted accounting principle; and
             822          (ii) with an appropriate or necessary modification or adaptation of the statutory or
             823      generally accepted accounting principle:
             824          (A) required, approved, or accepted by the commissioner; and
             825          (B) as supplemented by additional information required by the commissioner.
             826          (2) (a) A special purpose financial captive insurance company may make written
             827      application to file its annual report on a fiscal-year basis.
             828          (b) If an alternative reporting date is granted, the commissioner shall establish the due
             829      date and content of the filing required by the special purpose financial captive insurance
             830      company in addition to its annual report.
             831          (3) (a) Unless the commissioner approves a variance before the special purpose
             832      financial captive insurance company implements the variance, a special purpose financial captive
             833      insurance company shall maintain in the state the following of the special purpose financial
             834      captive insurance company:
             835          (i) a book;
             836          (ii) record;
             837          (iii) a document;
             838          (iv) an account;
             839          (v) a voucher; or
             840          (vi) an agreement.
             841          (b) A special purpose financial captive insurance company shall make an item listed in


             842      Subsection (3)(a) available for inspection by the commissioner at any time.
             843          (c) A special purpose financial captive insurance company shall keep an item listed in
             844      Subsection (3)(a) in a manner so that:
             845          (i) the special purpose financial captive insurance company's financial condition, affairs,
             846      and operations can be readily ascertained; and
             847          (ii) the commissioner may readily:
             848          (A) verify a financial statement of the special purpose financial captive insurance
             849      company; and
             850          (B) determine the special purpose financial captive insurance company's compliance
             851      with this chapter and Chapter 37, Captive Insurance Companies Act.
             852          (4) (a) Unless the commissioner approves a variance before the special purpose
             853      financial captive insurance company implements the variance, a special purpose financial captive
             854      insurance company shall preserve and keep an item listed in Subsection (3)(a) available in this
             855      state:
             856          (i) for the purpose of examination and inspection; and
             857          (ii) until the commissioner approves the destruction or other disposition.
             858          (b) If the commissioner approves the keeping of an item listed in Subsection (3)(a)
             859      outside this state, the special purpose financial captive insurance company shall maintain a
             860      complete copy of the original in the state.
             861          (c) An item listed in Subsection (3)(a) may be photographed, reproduced on film, or
             862      stored and reproduced electronically.
             863          Section 16. Section 31A-37a-105 is enacted to read:
             864          31A-37a-105. Transition.
             865          (1) (a) Except as otherwise determined by the commissioner, a captive insurance
             866      company that on May 5, 2008 has a certificate of authority from the commissioner pursuant to
             867      Chapter 37, Captive Insurance Companies Act, and engages in insurance securitization:
             868          (i) is subject to this chapter as a special purpose financial captive insurance company;
             869      and


             870          (ii) is considered to have a certificate of authority issued under this chapter.
             871          (b) The commissioner may require a captive insurance company described in Subsection
             872      (1)(a) to take an action that the commissioner determines is reasonably necessary to bring the
             873      captive insurance company into compliance with this chapter.
             874          (2) The commissioner may issue an order described in Section 31A-37a-201 with
             875      respect to a captive insurance company described in Subsection (1)(a) if the captive insurance
             876      company is not in compliance with this chapter.
             877          Section 17. Section 31A-37a-201 is enacted to read:
             878     
Part 2. Certificate of Authority and Operations

             879          31A-37a-201. Certificate of authority requirements.
             880          (1) A person may not reinsure the risks of a ceding insurer unless the person has a
             881      certificate of authority under this chapter as a special purpose financial captive insurance
             882      company.
             883          (2) To apply for a certificate of authority under this chapter as a special purpose
             884      financial captive insurance company, a special purpose financial captive insurance company shall
             885      submit an application for the certificate of authority that, in addition to complying with Chapter
             886      37, Captive Insurance Companies Act, complies with the following:
             887          (a) A special purpose financial captive insurance company shall submit to the
             888      commissioner a plan of operation that includes:
             889          (i) a complete description of:
             890          (A) a significant transaction including:
             891          (I) reinsurance;
             892          (II) a reinsurance security arrangement;
             893          (III) an insurance securitization; or
             894          (IV) a transaction or arrangement related to a transaction described in Subsections
             895      (2)(a)(i)(A)(I) through (III);
             896          (B) to the extent not included in Subsection (2)(a)(i)(A), a party other than the special
             897      purpose financial captive insurance company and the ceding insurer that is involved in the


             898      issuance of a special purpose financial captive insurance company security; and
             899          (C) a pledge, hypothecation, or grant of a security interest in:
             900          (I) an asset of the special purpose financial captive insurance company; or
             901          (II) stock or a limited liability company interest in the special purpose financial captive
             902      insurance company;
             903          (ii) the source and form of the special purpose financial captive insurance company's
             904      capital and surplus;
             905          (iii) the proposed investment policy of the special purpose financial captive insurance
             906      company;
             907          (iv) a description of an underwriting, reporting, and claims payment method by which
             908      losses covered by a reinsurance contract are reported, accounted for, and settled;
             909          (v) pro forma balance sheets and income statements illustrating one or more adverse
             910      case scenarios, as determined under criteria required by the commissioner, for the performance
             911      of the special purpose financial captive insurance company under a reinsurance contract; and
             912          (vi) the proposed rate and method for discounting reserves, if the special purpose
             913      financial captive insurance company is requesting authority to discount its reserves.
             914          (b) The special purpose financial captive insurance company shall submit an affidavit:
             915          (i) of the following of the special purpose financial captive insurance company:
             916          (A) president;
             917          (B) vice president;
             918          (C) treasurer; or
             919          (D) chief financial officer; and
             920          (ii) that includes the following statements, to the best of knowledge and belief of the
             921      person submitting the affidavit after reasonable inquiry:
             922          (A) the proposed organization and operation of the special purpose financial captive
             923      insurance company complies with this chapter and the applicable provisions of Chapter 37,
             924      Captive Insurance Companies Act;
             925          (B) the special purpose financial captive insurance company's investment policy reflects


             926      and takes into account:
             927          (I) the liquidity of assets; and
             928          (II) the reasonable preservation, administration, and management of those assets with
             929      respect to the risks associated with:
             930          (Aa) a reinsurance contract; and
             931          (Bb) an insurance securitization transaction; and
             932          (C) the following comply with this chapter:
             933          (I) a reinsurance contract; and
             934          (II) an arrangement for securing an obligation of the special purpose financial captive
             935      insurance company under the reinsurance contract, including an agreement or other
             936      documentation to implement the arrangement.
             937          (c) A special purpose financial captive insurance company shall submit to the
             938      commissioner:
             939          (i) a copy of an agreement or documentation described in Subsection (2)(b), unless
             940      otherwise approved by the commissioner; and
             941          (ii) a statement or document required by the commissioner to evaluate the special
             942      purpose financial captive insurance company's application for a certificate of authority.
             943          (d) (i) Subject to Subsection (2)(d)(ii), a special purpose financial captive insurance
             944      company shall submit with the application an opinion of a licensed attorney, in a form
             945      acceptable to the commissioner, that:
             946          (A) the offer and sale of a special purpose financial captive insurance company security
             947      complies with:
             948          (I) the registration requirements of federal securities laws; or
             949          (II) the exemptions from or exceptions to a requirement of the federal securities laws;
             950      and
             951          (B) the offer and sale of a security by the special purpose financial captive insurance
             952      company complies with:
             953          (I) the registration requirements of this state's securities laws; or


             954          (II) the exemptions from or exceptions to a requirement of this state's securities laws.
             955          (ii) A special purpose financial captive insurance company is not required to submit an
             956      opinion described in Subsection (2)(d)(i) with an application if the special purpose financial
             957      captive insurance company includes a specific statement in its plan of operation that the opinion
             958      described in Subsection (2)(d)(i) will be provided to the commissioner before the offer or sale of
             959      a special purpose financial captive insurance company security.
             960          (3) (a) The commissioner may issue a certificate of authority to a special purpose
             961      financial captive insurance company that complies with Subsection (2) authorizing the special
             962      purpose financial captive insurance company to transact reinsurance business as a special
             963      purpose financial captive insurance company in this state if the commissioner finds that:
             964          (i) the proposed plan of operation provides for a reasonable and expected successful
             965      operation;
             966          (ii) the terms of the reinsurance contract or related transaction comply with this chapter;
             967          (iii) the proposed plan of operation is not hazardous to a ceding insurer; and
             968          (iv) subject to Subsection (3)(b), the insurance regulator of the state of domicile of a
             969      ceding insurer has notified the commissioner in writing or otherwise provided assurance
             970      satisfactory to the commissioner that the regulator of the state has approved or has not
             971      disapproved the transaction.
             972          (b) Notwithstanding Subsection (3)(a)(iv), the commissioner may issue a certificate of
             973      authority to a special purpose financial captive insurance company if the insurance regulator of
             974      the state of domicile of a ceding insurer does not respond with respect to all or a part of the
             975      transaction.
             976          (c) (i) A certificate of authority issued under this section is valid through the June 30
             977      after the day on which the certificate of authority is issued.
             978          (ii) A special purpose financial captive insurance company may renew its certificate of
             979      authority annually by, before the certificate of authority expires:
             980          (A) submitting the affidavit required by Subsection (2); and
             981          (B) paying a renewal fee.


             982          (4) In conjunction with issuing a certificate of authority to a special purpose financial
             983      captive insurance company, the commissioner may issue an order that includes a provision,
             984      term, or condition regarding the organization, issuance of a certificate of authority, and
             985      operation of the special purpose financial captive insurance company that:
             986          (a) the commissioner considers appropriate; and
             987          (b) is not inconsistent with this chapter and Chapter 37, Captive Insurance Companies
             988      Act.
             989          Section 18. Section 31A-37a-202 is enacted to read:
             990          31A-37a-202. Revocation, suspension, amendment, or modification of a certificate
             991      of authority.
             992          Except as provided in Sections 31A-37a-501 and 31A-37a-502 , the commissioner may
             993      not revoke, suspend, amend, or modify a certificate of authority issued to a special purpose
             994      financial captive insurance company under this chapter or an order issued under Subsection
             995      31A-37a-201 (4) unless:
             996          (1) the special purpose financial captive insurance company consents to the revocation,
             997      suspension, amendment, or modification; or
             998          (2) the commissioner shows by clear and convincing evidence that the revocation,
             999      suspension, amendment, or modification is necessary to avoid irreparable harm to:
             1000          (a) a special purpose financial captive insurance company; or
             1001          (b) a ceding insurer.
             1002          Section 19. Section 31A-37a-203 is enacted to read:
             1003          31A-37a-203. Reporting related to transactions.
             1004          (1) A special purpose financial captive insurance company shall provide the
             1005      commissioner with a copy of a complete set of executed documentation of an insurance
             1006      securitization no later than 30 days after the day on which the insurance securitization
             1007      transaction closes.
             1008          (2) Section 31A-37-503 applies to:
             1009          (a) information submitted pursuant to Subsection (1);


             1010          (b) information submitted pursuant to Subsection 31A-37a-201 (2); or
             1011          (c) an order issued to a special purpose financial captive insurance company pursuant to
             1012      Subsection 31A-37a-201 (4).
             1013          Section 20. Section 31A-37a-204 is enacted to read:
             1014          31A-37a-204. Prior approval of a change in plan of operation and other
             1015      transactions.
             1016          (1) A special purpose financial captive insurance company may not change its plan of
             1017      operation without the prior approval of the commissioner.
             1018          (2) (a) Subject to Subsection (2)(b), a special purpose financial captive insurance
             1019      company may not engage in a transaction or series of transactions without the prior approval of
             1020      the commissioner if the transaction or series of transactions:
             1021          (i) is undertaken to dissolve the special purpose financial captive insurance company; or
             1022          (ii) results in the termination of all or a part of a special purpose financial captive
             1023      insurance company's business.
             1024          (b) A special purpose financial captive insurance company is not required to obtain the
             1025      prior approval of the commissioner for a transaction or series of transactions described in
             1026      Subsection (2)(a)(ii) if:
             1027          (i) the transaction or series of transactions is done in accordance with a document or
             1028      agreement described in the special purpose financial captive insurance company's plan of
             1029      operation; and
             1030          (ii) the special purpose financial captive insurance company notifies the commissioner
             1031      prior to the transaction or series of transactions.
             1032          (3) A special purpose financial captive insurance company shall notify the commissioner
             1033      before a change in the legal ownership of a security issued by the special purpose financial
             1034      captive insurance company.
             1035          Section 21. Section 31A-37a-205 is enacted to read:
             1036          31A-37a-205. Sponsored captives.
             1037          In addition to the other provisions of this chapter, this section applies to a sponsored


             1038      captive insurance company under Chapter 37, Captive Insurance Companies Act, that has a
             1039      certificate of authority as a special purpose financial captive insurance company pursuant to this
             1040      chapter.
             1041          (1) A sponsored captive insurance company may have a certificate of authority as a
             1042      special purpose financial captive insurance company under this chapter.
             1043          (2) (a) For purposes of a sponsored captive insurance company having a certificate of
             1044      authority as a special purpose financial captive insurance company, "general account" means the
             1045      assets and liabilities of the sponsored captive insurance company not attributable to a protected
             1046      cell.
             1047          (b) For purposes of applying Chapter 27a, Insurer Receivership Act, to a sponsored
             1048      captive insurance company having a certificate of authority as a special purpose financial captive
             1049      insurance company, the definition of "insolvency" and "insolvent" in Section 31A-37a-102 shall
             1050      be applied separately to:
             1051          (i) each protected cell; and
             1052          (ii) the special purpose financial captive insurance company's general account.
             1053          (3) (a) A participant in a sponsored captive insurance company having a certificate of
             1054      authority as a special purpose financial captive insurance company must be a ceding insurer,
             1055      unless approved by the commissioner before a person becomes a participant.
             1056          (b) A change in a participant in a sponsored captive insurance company having a
             1057      certificate of authority as a special purpose financial captive insurance company is subject to
             1058      prior approval by the commissioner.
             1059          (4) Notwithstanding Section 31A-37-401 , a special purpose financial captive insurance
             1060      company that is a sponsored captive insurance company may issue a security to a person not
             1061      described in Section 31A-37-401 if the issuance to that person is approved by the commissioner
             1062      before the issuance of the security.
             1063          (5) Notwithstanding Section 31A-37a-302 , a sponsored captive insurance company
             1064      having a certificate of authority as a special purpose financial captive insurance company shall:
             1065          (a) at the time of initial application for a certificate of authority as a special purpose


             1066      financial captive insurance company, possess unimpaired paid-in capital and surplus of not less
             1067      than $500,000; and
             1068          (b) maintain at least $500,000 of unimpaired paid-in capital and surplus of not less than
             1069      $500,000 during the time that it holds a certificate of authority under this chapter.
             1070          (6) (a) For purposes of a sponsored captive insurance company having a certificate of
             1071      authority as a special purpose financial captive insurance company, this Subsection (6) applies
             1072      to:
             1073          (i) a security issued by the special purpose financial captive insurance company with
             1074      respect to a protected cell; or
             1075          (ii) a contract or obligation of the special purpose financial captive insurance company
             1076      with respect to a protected cell.
             1077          (b) A sponsored captive insurance company having a certificate of authority as a special
             1078      purpose financial captive insurance company shall include with a security, contract, or
             1079      obligation described in Subsection (6)(a):
             1080          (i) the designation of the protected cell; and
             1081          (ii) a disclosure in a form and content satisfactory to the commissioner to the effect that
             1082      the holder of the security or a counterparty to the contract or obligation has no right or recourse
             1083      against the special purpose financial captive insurance company and its assets other than against
             1084      an asset properly attributable to the protected cell.
             1085          (c) Notwithstanding the requirements of this Subsection (6) and subject to other
             1086      statutes or rules including this chapter and Chapter 37, Captive Insurance Companies Act, a
             1087      creditor, ceding insurer, or another person may not use a failure to include a disclosure
             1088      described in Subsection (6)(b), in whole or part, as the sole basis to have recourse against:
             1089          (i) the general account of the special purpose financial captive insurance company; or
             1090          (ii) the assets of another protected cell of the special financial captive insurance
             1091      company.
             1092          (7) In addition to Section 31A-37-401 , a sponsored captive insurance company having
             1093      a certificate of authority as a special purpose financial captive insurance company is subject to


             1094      the following with respect to a protected cell:
             1095          (a) (i) A sponsored captive insurance company having a certificate of authority as a
             1096      special purpose financial captive insurance company shall establish a protected cell only for the
             1097      purpose of insuring or reinsuring risks of one or more reinsurance contracts with a ceding
             1098      insurer with the intent of facilitating an insurance securitization.
             1099          (ii) Subject to Subsection (7)(a)(iii), a sponsored captive insurance company having a
             1100      certificate of authority as a special purpose financial captive insurance company shall establish a
             1101      separate protected cell with respect to a ceding insurer described in Subsection (7)(a)(i).
             1102          (iii) A sponsored captive insurance company having a certificate of authority as a
             1103      special purpose financial captive insurance company shall establish a separate protected cell with
             1104      respect to each reinsurance contract that is funded in whole or in part by a separate insurance
             1105      securitization transaction.
             1106          (b) A sponsored captive insurance company having a certificate of authority as a special
             1107      purpose financial captive insurance company may not sale, exchange, or transfer an asset by,
             1108      between, or among any of its protected cells without the prior approval of the commissioner.
             1109          (8) (a) A sponsored captive insurance company having a certificate of authority as a
             1110      special purpose financial captive insurance company shall attribute an asset or liability to a
             1111      protected cell and to the general account in accordance with the plan of operation approved by
             1112      the commissioner.
             1113          (b) Except as provided by Subsection (8)(a), a sponsored captive insurance company
             1114      having a certificate of authority as a special purpose financial captive insurance company may
             1115      not attribute an asset or liability between:
             1116          (i) its general account and a protected cell; or
             1117          (ii) its protected cells.
             1118          (c) A sponsored captive insurance company having a certificate of authority as a special
             1119      purpose financial captive insurance company shall attribute:
             1120          (i) an insurance obligation, asset, or liability relating to a reinsurance contract entered
             1121      into with respect to a protected cell; and


             1122          (ii) an insurance securitization transaction related to the obligation, asset, or liability
             1123      described in Subsection (8)(c)(i), including a security issued by the special purpose financial
             1124      captive insurance company as part of the insurance securitization, to the protected cell.
             1125          (d) The following shall reflect an insurance obligation, asset, or liability relating to a
             1126      reinsurance contract and the insurance securitization transaction that are attributed to a
             1127      protected cell:
             1128          (i) a right, benefit, obligation, or a liability of a security attributable to a protected cell
             1129      described in Subsection (8)(c);
             1130          (ii) the performance under a reinsurance contract and the related insurance
             1131      securitization transaction; and
             1132          (iii) a tax benefit, loss, refund, or credit allocated pursuant to a tax allocation agreement
             1133      to which the special purpose financial captive insurance company is a party, including a payment
             1134      made by or due to be made to the special purpose financial captive insurance company pursuant
             1135      to the terms of the tax allocation agreement.
             1136          (9) In addition to Section 31A-37a-502 :
             1137          (a) Chapter 27a, Insurer Receivership Act, applies to each protected cell of a sponsored
             1138      captive insurance company having a certificate of authority as a special purpose financial captive
             1139      insurance company.
             1140          (b) A proceeding or action taken by the commissioner pursuant to Chapter 27a, Insurer
             1141      Receivership Act, with respect to a protected cell of a sponsored captive insurance company
             1142      having a certificate of authority as a special purpose financial captive insurance company may
             1143      not be the sole basis for a proceeding pursuant to Chapter 27a, Insurer Receivership Act, with
             1144      respect to:
             1145          (i) another protected cell of the special purpose financial captive insurance company; or
             1146          (ii) the special purpose financial captive insurance company's general account.
             1147          (c) (i) Except as provided in Subsection (9)(c)(ii), the receiver of a special purpose
             1148      financial captive insurance company shall ensure that the assets attributable to one protected cell
             1149      are not applied to the liabilities attributable to:


             1150          (A) another protected cell; or
             1151          (B) the special purpose financial captive insurance company's general account.
             1152          (ii) Notwithstanding Subsection (9)(c)(i), if an asset or liability is attributable to more
             1153      than one protected cell, the receiver shall deal with the asset or liability in accordance with the
             1154      terms of a relevant governing instrument or contract.
             1155          (d) The insolvency of a protected cell of a sponsored captive insurance company having
             1156      a certificate of authority as a special purpose financial captive insurance company may not be
             1157      the sole basis for the commissioner to prohibit:
             1158          (i) a payment by the special purpose financial captive insurance company made pursuant
             1159      to a special purpose financial captive insurance company security or reinsurance contract with
             1160      respect to another protected cell; or
             1161          (ii) an action required to make a payment described in Subsection (9)(d)(i).
             1162          Section 22. Section 31A-37a-301 is enacted to read:
             1163     
Part 3. Formation and Assets

             1164          31A-37a-301. Formation.
             1165          (1) A special purpose financial captive insurance company may be:
             1166          (a) incorporated as a stock insurer with its capital divided into shares and held by its
             1167      stockholders; or
             1168          (b) organized as a manager-managed limited liability company.
             1169          (2) A special purpose financial captive insurance company's organizational documents
             1170      shall limit the special purpose financial captive insurance company's authority to transact the
             1171      business of insurance or reinsurance to those activities that the special purpose financial captive
             1172      insurance company conducts to accomplish its purposes as expressed in this chapter.
             1173          Section 23. Section 31A-37a-302 is enacted to read:
             1174          31A-37a-302. Minimum capital and surplus.
             1175          (1) The commissioner may not issue a special purpose financial captive insurance
             1176      company a certificate of authority under this chapter unless it possesses unimpaired paid-in
             1177      capital and surplus of not less than $250,000 on the day on which the certificate of authority is


             1178      issued.
             1179          (2) A special purpose financial captive insurance company shall maintain unimpaired
             1180      paid-in capital and surplus of not less than $250,000 at all times when having a certificate of
             1181      authority under this chapter.
             1182          Section 24. Section 31A-37a-303 is enacted to read:
             1183          31A-37a-303. Disposition of assets -- Investments.
             1184          (1) A special purpose financial captive insurance company or a person on its behalf shall
             1185      preserve and administer an asset of the special purpose financial captive insurance company to
             1186      satisfy the liabilities and obligations of the special purpose financial captive insurance company
             1187      incident to:
             1188          (a) the reinsurance contract;
             1189          (b) an insurance securitization; and
             1190          (c) an agreement related to Subsection (1)(a) or (b).
             1191          (2) In a special purpose financial captive insurance company insurance securitization, a
             1192      security offering memorandum or other document issued to a prospective investor regarding the
             1193      offer and sale of a surplus note or other security shall include a disclosure that all or part of the
             1194      proceeds of the insurance securitization will be used to fund the special purpose financial
             1195      captive insurance company's obligations to the ceding insurer.
             1196          (3) A special purpose financial captive insurance company is not subject to a restriction
             1197      on investments other than the following:
             1198          (a) A special purpose financial captive insurance company may not make a loan to a
             1199      person other than:
             1200          (i) as permitted under its plan of operation; or
             1201          (ii) as otherwise approved in advance of the loan by the commissioner.
             1202          (b) The commissioner may prohibit or limit an investment that threatens the solvency or
             1203      liquidity of a special purpose financial captive insurance company unless the investment is
             1204      otherwise approved in:
             1205          (i) the special purpose financial captive insurance company's plan of operation; or


             1206          (ii) an order issued to the special purpose financial captive insurance company pursuant
             1207      to Section 31A-37a-201 .
             1208          Section 25. Section 31A-37a-304 is enacted to read:
             1209          31A-37a-304. Securities.
             1210          (1) (a) A special purpose financial captive insurance company may:
             1211          (i) subject to the prior approval of the commissioner, account for the proceeds of a
             1212      surplus note issued by the special purpose financial captive insurance company as surplus; and
             1213          (ii) except as provided in Subsection (1)(b), submit for prior approval of the
             1214      commissioner a periodic written request for authorization to make a payment of interest on or a
             1215      repayment of principal of a surplus note or other debt obligation issued by the special purpose
             1216      financial captive insurance company.
             1217          (b) (i) The commissioner may not approve a payment described in Subsection (1)(a)(i)
             1218      if the commissioner determines that the payment would jeopardize the ability of the special
             1219      purpose financial captive insurance company or another person to fulfill its respective
             1220      obligations pursuant to a special purpose financial captive insurance company insurance
             1221      securitization agreement, reinsurance contract, or a related transaction.
             1222          (ii) In lieu of approval of a periodic written request for authorization to make a payment
             1223      of interest on or repayment of principal of a surplus note or other debt obligation issued by the
             1224      special purpose financial captive insurance company, the commissioner may approve a formula
             1225      or plan for payment of interest, principal, or both with respect to the surplus note or debt
             1226      obligation.
             1227          (iii) A special purpose financial captive insurance company shall include a formula or
             1228      plan approved under Subsection (1)(b)(ii) in the special purpose financial captive insurance
             1229      company's plan of operation.
             1230          (2) In addition to Section 31A-37-302 , a special purpose financial captive insurance
             1231      company may not declare or pay a dividend or distribution if the dividend or distribution
             1232      jeopardizes the ability of the special purpose financial captive insurance company or another
             1233      person to fulfill the special purpose financial captive insurance company's or other person's


             1234      respective obligations pursuant to a special purpose financial captive insurance company
             1235      insurance securitization agreement, a reinsurance contract, or a related transaction.
             1236          (3) (a) A special purpose financial captive insurance company security is not subject to
             1237      regulation as an insurance or reinsurance contract.
             1238          (b) An investor in a special purpose financial captive insurance company security or a
             1239      holder of a special purpose financial captive insurance company security may not be considered
             1240      to be transacting the business of insurance in this state solely by reason of having an interest in
             1241      the security.
             1242          (c) The following people involved in an insurance securitization by a special purpose
             1243      financial captive insurance company may not be considered to be an insurance producer or
             1244      broker, or to be conducting business as an insurer, reinsurer, insurance agency, brokerage,
             1245      intermediary, advisory, or consulting business solely by virtue of the person's underwriting
             1246      activities in connection with the insurance securitization:
             1247          (i) an underwriter's placement;
             1248          (ii) a selling agent; or
             1249          (iii) a partner, commissioner, officer, member, manager, employee, agent,
             1250      representative, or advisor of a person listed in Subsection (3)(c)(i) or (ii).
             1251          Section 26. Section 31A-37a-401 is enacted to read:
             1252     
Part 4. Reinsurance

             1253          31A-37a-401. Purchase of reinsurance.
             1254          Subject to the prior approval of the commissioner, a special purpose financial captive
             1255      insurance company may purchase reinsurance to cede the risks assumed under a reinsurance
             1256      contract.
             1257          Section 27. Section 31A-37a-402 is enacted to read:
             1258          31A-37a-402. Permitted reinsurance.
             1259          (1) (a) A special purpose financial captive insurance company may reinsure only the
             1260      risks of a ceding insurer, pursuant to a reinsurance contract.
             1261          (b) A special purpose financial captive insurance company may not issue a contract of


             1262      insurance or a contract for assumption of risk or indemnification of loss other than a reinsurance
             1263      contract described in Subsection (1)(a).
             1264          (2) Unless otherwise approved in advance by the commissioner, a special purpose
             1265      financial captive insurance company may not assume or retain exposure to insurance or
             1266      reinsurance losses for its own account that are not funded by:
             1267          (a) proceeds from a special purpose financial captive insurance company insurance
             1268      securitization;
             1269          (b) a letter of credit; or
             1270          (c) an asset described in Subsection 31A-37a-102 (1)(c);
             1271          (d) a premium or another amount payable by the ceding insurer to the special purpose
             1272      financial captive insurance company pursuant to the reinsurance contract; and
             1273          (e) a return on investment of an item described in Subsections (2)(a) through (d).
             1274          (3) (a) A reinsurance contract shall contain a provision reasonably required or approved
             1275      by the commissioner.
             1276          (b) A requirement described in Subsection (3)(a) shall take into account the laws
             1277      applicable to the ceding insurer regarding the ceding insurer taking credit for the reinsurance
             1278      provided under the reinsurance contract.
             1279          (4) Subject to the prior approval of the commissioner, a special purpose financial
             1280      captive insurance company may cede risks assumed through a reinsurance contract to one or
             1281      more reinsurers through the purchase of reinsurance.
             1282          (5) (a) This Subsection (5) applies to a contract or commercial activity that:
             1283          (i) relates to or is incidental to a reinsurance contract; and
             1284          (ii) is necessary to fulfill the purposes of:
             1285          (A) a reinsurance contract;
             1286          (B) insurance securitization; and
             1287          (C) this chapter.
             1288          (b) A special purpose financial captive insurance company may engage in a contract or
             1289      commercial activity described in Subsection (5)(a) if the contract or commercial activity is:


             1290          (i) in the special purpose financial captive insurance company's plan of operation; or
             1291          (ii) approved in advance by the commissioner.
             1292          (c) A contract or commercial activity described in Subsection (5)(a) includes:
             1293          (i) entering into a reinsurance contract;
             1294          (ii) issuing a special purpose financial captive insurance company security;
             1295          (iii) complying with a term of a contract or security described in Subsection (5)(c)(i) or
             1296      (ii);
             1297          (iv) entering into:
             1298          (A) a trust;
             1299          (B) a guaranteed investment contract;
             1300          (C) a swap;
             1301          (D) a derivative transaction;
             1302          (E) a tax transaction;
             1303          (F) an administration transaction;
             1304          (G) a reimbursement transaction; or
             1305          (H) a fiscal agent transaction;
             1306          (v) complying with a trust indenture, reinsurance, or retrocession; and
             1307          (vi) another agreement necessary or incidental to effect an insurance securitization in
             1308      compliance with:
             1309          (A) the special purpose financial captive insurance company's plan of operation; and
             1310          (B) this chapter.
             1311          (6) Unless otherwise approved in advance by the commissioner, a reinsurance contract
             1312      may not contain a provision for payment by the special purpose financial captive insurance
             1313      company in discharge of its obligations under the reinsurance contract to a person other than the
             1314      ceding insurer or any receiver of the ceding insurer.
             1315          (7) A special purpose financial captive insurance company shall notify the commissioner
             1316      immediately of an action by a ceding insurer or another person to foreclose on or otherwise take
             1317      possession of collateral provided by the special purpose financial captive insurance company to


             1318      secure an obligation of the special purpose financial captive insurance company.
             1319          Section 28. Section 31A-37a-501 is enacted to read:
             1320     
Part 5. Enforcement and Delinquency

             1321          31A-37a-501. Suspension and revocation.
             1322          (1) (a) The commissioner shall notify a special purpose financial captive insurance
             1323      company not less than 30 days before suspending or revoking the special purpose financial
             1324      captive insurance company's certificate of authority pursuant to Section 31A-37-505 .
             1325          (b) In the notice required by Subsection (1)(a) the commissioner shall state the basis for
             1326      the suspension or revocation.
             1327          (c) The commissioner shall give a special purpose financial captive insurance company
             1328      described in this Subsection (1) an opportunity for a hearing pursuant to Title 63, Chapter 46b,
             1329      Administrative Procedures Act.
             1330          (2) Notwithstanding Subsection (1) and Title 63, Chapter 46b, Administrative
             1331      Procedures Act, the commissioner is not required to provide prior notice or a hearing if the
             1332      grounds for suspension or revocation of a special purpose financial captive insurance company's
             1333      certificate of authority pursuant to Section 31A-37-505 relate primarily to:
             1334          (a) the financial condition or soundness of the special purpose financial captive
             1335      insurance company; or
             1336          (b) a deficiency in the assets of the special purpose financial captive insurance company.
             1337          Section 29. Section 31A-37a-502 is enacted to read:
             1338          31A-37a-502. Delinquency.
             1339          (1) Except as otherwise provided in this section, Chapter 27a, Insurer Receivership Act,
             1340      applies to a special purpose financial captive insurance company.
             1341          (2) Upon an order of supervision, rehabilitation, or liquidation of a special purpose
             1342      financial captive insurance company, the receiver shall manage the assets and liabilities of the
             1343      special purpose financial captive insurance company pursuant to this chapter.
             1344          (3) An amount recoverable by the receiver of a special purpose financial captive
             1345      insurance company under a reinsurance contract may not be reduced or diminished as a result of


             1346      the entry of an order of conservation, rehabilitation, or liquidation with respect to a ceding
             1347      insurer, notwithstanding a contract or other documentation governing the special purpose
             1348      financial captive insurance company insurance securitization.
             1349          (4) The following applies notwithstanding Chapter 27a, Insurer Receivership Act, or
             1350      another law of this state:
             1351          (a) An application, petition, a temporary restraining order, or injunction issued pursuant
             1352      to Chapter 27a, Insurer Receivership Act, with respect to a ceding insurer does not prohibit the
             1353      transaction of business by a special purpose financial captive insurance company, including:
             1354          (i) a payment by a special purpose financial captive insurance company made with
             1355      respect to a special purpose financial captive insurance company security; or
             1356          (ii) an action or proceeding against a special purpose financial captive insurance
             1357      company or its assets.
             1358          (b) (i) Subject to Subsection (4)(b)(ii), the commencement of a summary proceeding
             1359      with respect to a special purpose financial captive insurance company and an order issued by the
             1360      court in the summary proceeding may not prohibit:
             1361          (A) a payment by a special purpose financial captive insurance company; or
             1362          (B) the special purpose financial captive insurance company from taking an action
             1363      required to make a payment described in this Subsection (4)(b)(i).
             1364          (ii) Subsection (4)(b)(i) applies only if the payment is made:
             1365          (A) pursuant to a special purpose financial captive insurance company security or
             1366      reinsurance contract; and
             1367          (B) consistent with the special purpose financial captive insurance company's plan of
             1368      operation and any order issued to the special purpose financial captive insurance company
             1369      pursuant to Section 31A-37a-201 .
             1370          (c) A receiver of a ceding insurer may not void a nonfraudulent transfer by a ceding
             1371      insurer to a special purpose financial captive insurance company of money or other property
             1372      made pursuant to a reinsurance contract.
             1373          (d) A receiver of a special purpose financial captive insurance company may not void a


             1374      nonfraudulent transfer by the special purpose financial captive insurance company of money or
             1375      other property:
             1376          (i) (A) made to a ceding insurer pursuant to a reinsurance contract; or
             1377          (B) made to or for the benefit of a holder of a special purpose financial captive
             1378      insurance company security with respect to the special purpose financial captive insurance
             1379      company security; and
             1380          (ii) made consistent with the special purpose financial captive insurance company's plan
             1381      of operation and an order issued to the special purpose financial captive insurance company
             1382      pursuant to Section 31A-37a-201 .
             1383          (5) (a) Except to fulfill an obligation under a reinsurance contract and notwithstanding
             1384      another provision of this chapter, Chapter 37, Captive Insurance Companies Act, or other laws
             1385      of this state, the assets of a special purpose financial captive insurance company may not be
             1386      consolidated with or included in the estate of a ceding insurer in a delinquency proceeding
             1387      against the ceding insurer pursuant to this chapter for any purpose including a distribution to a
             1388      creditor of the ceding insurer.
             1389          (b) This Subsection (5) applies to assets that include an asset held in trust:
             1390          (i) on a funds-withheld basis; or
             1391          (ii) under another arrangement to secure the special purpose financial captive insurance
             1392      company's obligations under a reinsurance contract.
             1393          Section 30. Effective date.
             1394          This bill takes effect on May 5, 2008, except that the amendments to Section 31A-3-304
             1395      in this bill takes effect on July 1, 2010.


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