H 3175 Session 109 (1991-1992)
H 3175 General Bill, By Harvin
A Bill to amend Title 38, Code of Laws of South Carolina, 1976, relating to
the licensing and regulation of captive insurance companies, by adding Chapter
91 so as to provide definitions of terms used in connection with captive
insurance companies; to provide restrictions on what insurance business may be
performed by a company and to provide the requirements for licensure and for
conducting insurance business in the State; to prohibit the use of a company
name that may be confused with an existing business name; to provide
unimpaired paid-in capital requirements; to provide fee surplus requirements;
to provide for requirements specific to the incorporation of a captive
insurance company; to require filing of annual reports; to provide for
inspections and examinations regarding its financial condition, ability to
fulfill its obligations, and compliance with this Chapter; to provide for
circumstances under which a license may be suspended or revoked; to provide
investment requirements; to authorize a company to provide reinsurance and to
provide reinsurance requirements; to provide that no company is required to
join a rating organization; to prohibit participation in or benefit from a
plan, pool, association, or guaranty or insolvency fund; to provide a rate of
taxation on insurance premiums and on assumed reinsurance premiums, to
establish a minimum tax to be paid, to establish penalties for failure to
comply, and to require ten percent of the premium tax revenues collected be
appropriated to the South Carolina Department of Insurance for regulating
captive insurance companies; to authorize the promulgation of regulations; to
prohibit the application of other Title 38 provisions to captive insurance
companies; to establish the Captive Insurance Regulatory and Supervision Fund
to provide financial means for administration of this Chapter; and to provide
that Title 38 insurance reorganization, receiverships, and injunctions apply
to captive insurance companies.
01/09/91 House Introduced and read first time HJ-7
01/09/91 House Referred to Committee on Labor, Commerce and
Industry HJ-8
02/20/91 House Committee report: Favorable with amendment Labor,
Commerce and Industry HJ-3
02/21/91 House Amended HJ-18
02/21/91 House Read second time HJ-25
02/26/91 House Read third time and sent to Senate HJ-21
02/27/91 Senate Introduced and read first time SJ-11
02/27/91 Senate Referred to Committee on Banking and Insurance SJ-1
AMENDED
February 21, 1991
H. 3175
Introduced by REP. Harvin
S. Printed 2/21/91--H.
Read the first time January 9, 1991.
A BILL
TO AMEND TITLE 38, CODE OF LAWS OF SOUTH CAROLINA,
1976, RELATING TO THE LICENSING AND REGULATION OF
CAPTIVE INSURANCE COMPANIES, BY ADDING CHAPTER 91
SO AS TO PROVIDE DEFINITIONS OF TERMS USED IN
CONNECTION WITH CAPTIVE INSURANCE COMPANIES; TO
PROVIDE RESTRICTIONS ON WHAT INSURANCE BUSINESS
MAY BE PERFORMED BY A COMPANY AND TO PROVIDE THE
REQUIREMENTS FOR LICENSURE AND FOR CONDUCTING
INSURANCE BUSINESS IN THE STATE; TO PROHIBIT THE USE
OF A COMPANY NAME THAT MAY BE CONFUSED WITH AN
EXISTING BUSINESS NAME; TO PROVIDE UNIMPAIRED PAID-IN CAPITAL REQUIREMENTS; TO PROVIDE FEE SURPLUS
REQUIREMENTS; TO PROVIDE FOR REQUIREMENTS SPECIFIC
TO THE INCORPORATION OF A CAPTIVE INSURANCE
COMPANY; TO REQUIRE FILING OF ANNUAL REPORTS; TO
PROVIDE FOR INSPECTIONS AND EXAMINATIONS
REGARDING ITS FINANCIAL CONDITION, ABILITY TO
FULFILL ITS OBLIGATIONS, AND COMPLIANCE WITH THIS
CHAPTER; TO PROVIDE FOR CIRCUMSTANCES UNDER WHICH
A LICENSE MAY BE SUSPENDED OR REVOKED; TO PROVIDE
INVESTMENT REQUIREMENTS; TO AUTHORIZE A COMPANY
TO PROVIDE REINSURANCE AND TO PROVIDE REINSURANCE
REQUIREMENTS; TO PROVIDE THAT NO COMPANY IS
REQUIRED TO JOIN A RATING ORGANIZATION; TO PROHIBIT
PARTICIPATION IN OR BENEFIT FROM A PLAN, POOL,
ASSOCIATION, OR GUARANTY OR INSOLVENCY FUND; TO
PROVIDE A RATE OF TAXATION ON INSURANCE PREMIUMS
AND ON ASSUMED REINSURANCE PREMIUMS, TO ESTABLISH
A MINIMUM TAX TO BE PAID, TO ESTABLISH PENALTIES FOR
FAILURE TO COMPLY, AND TO REQUIRE TEN PERCENT OF
THE PREMIUM TAX REVENUES COLLECTED BE
APPROPRIATED TO THE SOUTH CAROLINA DEPARTMENT OF
INSURANCE FOR REGULATING CAPTIVE INSURANCE
COMPANIES; TO AUTHORIZE THE PROMULGATION OF
REGULATIONS; TO PROHIBIT THE APPLICATION OF OTHER
TITLE 38 PROVISIONS TO CAPTIVE INSURANCE COMPANIES;
TO ESTABLISH THE CAPTIVE INSURANCE REGULATORY AND
SUPERVISION FUND TO PROVIDE FINANCIAL MEANS FOR
ADMINISTRATION OF THIS CHAPTER; AND TO PROVIDE THAT
TITLE 38 INSURANCE REORGANIZATION, RECEIVERSHIPS,
AND INJUNCTIONS APPLY TO CAPTIVE INSURANCE
COMPANIES.
Amend Title To Conform
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Title 38 of the 1976 Code is amended by adding:
"CHAPTER 91
CAPTIVE INSURANCE COMPANIES
Section 38-91-10. As used in this chapter, unless the context
requires otherwise:
(1) `Affiliated company' means a company in the same corporate
system as a parent by virtue of common ownership, control, operation,
or management.
(2) `Captive insurance company' means a company formed or
licensed under the provisions of this chapter that insures risks of its
parent and affiliated companies.
(3) `Commissioner' means the commissioner of the South
Carolina Department of Insurance.
(4) `Department' means the South Carolina Department of
Insurance.
(5) `Parent' means a corporation, partnership, or individual that
directly or indirectly owns, controls, or holds with power to vote more
than fifty percent of the outstanding voting securities of a captive
insurance company.
Section 38-91-20. (A) A captive insurance company, when
permitted by its articles of incorporation or its charter, may apply to the
commissioner for a license to do any and all insurance business
authorized in this title. However:
(1) No captive insurance company may insure a risk other than
those of its parent and affiliated companies.
(2) No captive insurance company may provide personal
motor vehicle, homeowner's, workers' compensation, life, or accident
and health insurance coverage or a component of them.
(3) No captive insurance company may accept or cede
reinsurance except as provided in Section 38-91-110.
(B) No captive insurance company may do any insurance business
in this State unless:
(1) it first obtains from the commissioner a license authorizing
it to do insurance business in this State;
(2) its board of directors holds at least one meeting each year
in this State;
(3) it maintains its principal place of business in this State;
(4) it appoints a resident registered agent to accept service of
process and to otherwise act on its behalf in this State. If with
reasonable diligence, the registered agent cannot be found at the
registered office of the captive insurance company, the Secretary of
State is deemed an agent of the captive insurance company to receive
service of process.
(C)(1) Before receiving a license, a captive insurance company
shall file with the commissioner a certified copy of its charter and
bylaws, a statement under oath of its president and secretary showing its
financial condition, and any other statements or documents required by
the commissioner.
(2) In addition to the information required by subsection
(C)(1) of this section, each applicant captive insurance company shall
file with the commissioner evidence of:
(a) the amount and liquidity of its assets relative to the risks
to be assumed;
(b) the adequacy of the expertise, experience, and character
of the person who will manage it;
(c) the overall soundness of its plan of operation;
(d) the adequacy of the loss prevention programs of its
parent and affiliated companies, as applicable;
(e) other factors required by the commissioner to ascertain
whether the proposed captive insurance company will be able to meet its
policy obligations.
(D) Each captive insurance company shall pay to the department
a nonrefundable fee of two hundred dollars for examining, investigating,
and processing its application for license, and the commissioner is
authorized to retain legal, financial, and examination services from
outside the department, the reasonable cost of which may be charged
against the applicant. In addition, it shall pay a license fee of three
hundred dollars for the initial licensing period and thereafter the license
renewal fee for each succeeding year is three hundred dollars.
(E) If the documents and statements that the captive insurance
company has filed comply with the provisions of this chapter, the
commissioner may grant a license authorizing it to do insurance business
in this State until March first; thereafter, the license may be renewed
annually.
Section 38-91-30. No captive insurance company may adopt a
name that is the same, deceptively similar to, likely to be confused with,
or mistaken for an existing business name registered in this State.
Section 38-91-40. (A) No captive insurance company may be
issued a license unless it possesses and thereafter maintains unimpaired
paid-in capital of not less than one hundred thousand dollars.
(B) The capital may be in the form of cash or other instruments
allowed pursuant to this title.
Section 38-91-50. (A) No captive insurance company may be
issued a license unless it possesses and thereafter maintains free surplus
of not less than one hundred fifty thousand dollars.
(B) The surplus may be in the form of cash or other instruments
allowed pursuant to this title.
Section 38-91-60. (A) A captive insurance company must be
incorporated as a stock insurer with its capital divided into shares and
held by the stockholders.
(B) A captive insurance company may not have less than three
incorporators of whom not less than two must be residents of this State.
(C) Before the articles of incorporation are transmitted to the
Secretary of State, the incorporators must petition the commissioner to
issue a certificate setting forth his finding that the establishment and
maintenance of the proposed corporation will promote the general good
of the State. In arriving at this finding, the commission must consider:
(1) the character, reputation, financial standing, and purposes
of the incorporators;
(2) the character, reputation, financial responsibility, insurance
experience, and business qualifications of the officers and directors;
(3) other aspects the commissioner considers advisable.
(D) The articles of incorporation and the certificate must be
transmitted to and recorded by the Secretary of State.
(E) At least one of the members of the board of directors of a
captive insurance company incorporated in this State must be a resident
of the State.
(F) Captive insurance companies formed under the provisions of
this chapter have the privileges and are subject to the provisions of the
general corporation law of this State as well as the applicable provisions
contained in this chapter. In the event of conflict between the provisions
of the general corporation law and the provisions of this chapter, the
latter controls. The provisions in this title, pertaining to mergers,
conversions, and mutualizations, apply in determining the procedures to
be followed by captive insurance companies in carrying out the
transactions described therein, except the commissioner may waive or
modify the requirements for public notice and hearing in accordance
with rules which the commissioner may adopt addressing categories of
transactions. If a notice of public hearing is required, and no one
requests a hearing, then the commissioner may cancel the hearing.
Section 38-91-70. Every captive insurance company is required to
file an annual report with the commissioner pursuant to Section 38-13-80 and quarterly reports if required by the commissioner.
Section 38-91-80. At least once in three years, and whenever it is
prudent, the commissioner, or a competent person appointed by him,
must visit personally each captive insurance company and thoroughly
inspect and examine its affairs to ascertain its financial condition, its
ability to fulfill its obligations, and whether it has complied with the
provisions of this chapter. Upon application the commissioner, in his
discretion, may enlarge this three-year period to five years if the captive
insurance company is subject to a comprehensive annual audit during
this period, which is of a scope satisfactory to the commissioner and
conducted by independent auditors approved by the commissioner. The
expenses and charges of the examination must be paid to the department
by the company or companies examined.
Section 38-91-90. (A) The license of a captive insurance
company to do insurance business in this State may be suspended or
revoked by the commissioner for any one or more of the following:
(1) insolvency or impairment of capital or surplus;
(2) failure to meet the requirements of Section 38-91-40 or 38-91-50;
(3) refusal or failure to submit an annual report, as required by
Section 38-91-70, or any other report or statement required by law or by
order of the commissioner;
(4) failure to comply with the provisions of its own charter or
bylaws;
(5) failure to submit to examination or a legal obligation
relative to the examination as required by Section 38-91-80;
(6) refusal or failure to pay the cost of examination required
by Section 38-91-80;
(7) use of methods that, although not otherwise specifically
prohibited by law, render its operation detrimental to or its condition
unsound for the public or its policyholders;
(8) failure otherwise to comply with laws of this State.
(B) If upon examination, hearing, or other evidence the
commissioner finds that a captive insurance company has committed any
of the acts specified in subsection (A) of this section, he may suspend or
revoke the license if he considers it in the best interest of the public and
the policyholders of the captive insurance company.
Section 38-91-100. No captive insurance company is subject to the
restrictions on allowable investments contained in this title; however, the
commissioner may prohibit or limit an investment that threatens the
solvency or liquidity of the captive insurance company.
Section 38-91-110. (A) A captive insurance company may
provide reinsurance, as authorized in this title on risks ceded by another
insurer.
(B) A captive insurance company may take credit for reserves on
risks or portions of risks ceded to reinsurers complying with the
provisions in this title. Prior approval of the commissioner is required
for ceding or taking credit for reserves on risks or portions of risks to
reinsurers not complying with this title.
(C) In addition to reinsurers authorized under the provisions of
this title a captive insurance company may take credit for reserves on
risks or portions of risks ceded to a pool, exchange, or association acting
as a reinsurer which has been authorized by the commissioner. The
commissioner may require other documents, financial information, or
other evidence that the pool, exchange, or association will be able to
provide adequate security for its financial obligations. The
commissioner may deny authorization or impose limitations on the
activities of the reinsurance pool, exchange, or association that, in the
judgment of the commissioner, is necessary and proper to provide
adequate security for the ceding captive insurance company and for the
protection and consequent benefit of the public at large.
Section 38-91-120. No captive insurance company is required to join
a rating organization.
Section 38-91-130. No captive insurance company is permitted to
join or contribute financially to a plan, pool, association, or guaranty or
insolvency fund in this State and no captive insurance company, or its
insured, or its parent or an affiliated company may receive a benefit from
a plan, pool, association, or guaranty or insolvency funds for claims
arising out of the operations of the captive insurance company.
Section 38-91-140. (A) Each captive insurance company shall
pay to the South Carolina Department of Insurance on or before March
first of each year, a tax at the rate of seven-tenths of one percent on the
first twenty million dollars and five-tenths of one percent on the next
twenty million dollars and three-tenths of one percent on the next twenty
million dollars and one-tenth of one percent on each dollar thereafter on
the direct premiums collected or contracted for on policies or contracts
of insurance written by the captive insurance company during the year
ending December thirty-first next preceding, after deducting from the
direct premiums subject to the tax the amounts paid to policyholders as
return premiums which include dividends on unabsorbed premiums or
premium deposits returned or credited to policyholders.
(B) Each captive insurance company shall pay to the South
Carolina Department of Insurance on or before March first of each year
a tax at the rate of two and one-half tenths of one percent on the first
twenty million dollars of assumed reinsurance premium, and two-tenths
of one percent on the next twenty million dollars and one and one-half
tenths of one percent on the next twenty million dollars and one-tenth of
one percent of each dollar thereafter. No reinsurance tax applies to
premiums for risks or portions of risks which are subject to taxation on
a direct basis pursuant to subsection (A). No reinsurance premium tax
is payable in connection with the receipt of assets in exchange for the
assumption of loss reserves and other liabilities of another insurer under
common ownership and control if the transaction is part of a plan to
discontinue the operations of the other insurer, and if the intent of the
parties to the transaction is to renew or maintain the business with the
captive insurance company.
(C) If the aggregate taxes to be paid by a captive insurance
company calculated under subsections (A) and (B) amount to less than
five thousand dollars in a year, the captive insurance company shall pay
a tax of five thousand dollars for that year.
(D) A captive insurance company is subject to the relevant
sanctions in Title 12 if it fails to make returns or pay all taxes assessed
by this section within the time required.
(E) Two or more captive insurance companies under common
ownership and control must be taxed as though they were a single
captive insurance company.
(F) For the purposes of this section, common ownership and
control means:
(1) in the case of stock corporations, the direct or indirect
ownership of eighty percent or more of the outstanding voting stock of
two or more corporations by the same shareholder;
(2) in the case of mutual corporations, the direct or indirect
ownership of eighty percent or more of the surplus and the voting power
of two or more corporations by the same member.
(G) The tax provided for in this section constitutes all taxes
collectible under the laws of this State from a captive insurance
company, and no other occupation tax or other taxes may be levied or
collected from a captive insurance company by the State or a county,
city, or municipality within this State, except ad valorem taxes on real
and personal property used in the production of income.
(H) Annually ten percent of the premium tax revenues collected
pursuant to this section must be appropriated to the department for the
regulation of captive insurance companies under this chapter.
Section 38-91-150. The department may promulgate regulations
relating to captive insurance companies as necessary to carry out the
provisions of this chapter.
Section 38-91-160. No provisions of this title, other than those
contained in this chapter or contained in references contained in this
chapter, apply to captive insurance companies.
Section 38-91-170. (A) A fund is created known as the Captive
Insurance Regulatory and Supervision Fund to provide the financial
means for the department to administer this chapter and for reasonable
expenses incurred in promoting the captive insurance industry in South
Carolina. The appropriation of ten percent of the premiums tax under
Section 38-91-140, and all fees and assessments received by the
department pursuant to the administration of this chapter must be
credited to this fund. All payments from the Captive Insurance
Regulatory and Supervision Fund for personnel, and associated
expenses, including contractual services as necessary, must be disbursed
from the state treasury only upon warrants issued by the Comptroller
General, after receipt of proper documentation regarding services
rendered and expenses incurred.
(B) At the end of each fiscal year that portion of the balance in the
Captive Insurance Regulatory and Supervision Fund which exceeds one
hundred thousand dollars must be transferred to the state general fund.
(C) The Comptroller General may anticipate receipts to the
Captive Insurance Regulatory and Supervision Fund and issue warrants
based on these anticipated receipts.
Section 38-91-180. The terms and conditions set forth in this title,
pertaining to insurance reorganization, receiverships, and injunctions
apply in full to captive insurance companies formed under this
chapter."
SECTION 2. This act takes effect upon approval by the Governor.
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