Current Status Introducing Body:House Bill Number:3175 Primary Sponsor:Harvin Committee Number:02 Type of Legislation:GB Subject:Captive insurance companies Residing Body:Senate Computer Document Number:BR1/1048.AC Introduced Date:Jan 09, 1991 Date of Last Amendment:Feb 21, 1991 Last History Body:Senate Last History Date:Feb 27, 1991 Last History Type:Introduced, read first time, referred to Committee Scope of Legislation:Statewide All Sponsors:Harvin Type of Legislation:General Bill
Bill Body Date Action Description CMN
---- ------ ------------ ------------------------------ ---
3175 Senate Feb 27, 1991 Introduced, read first time, 02
referred to Committee
3175 House Feb 26, 1991 Read third time, sent to
Senate
3175 House Feb 21, 1991 Amended, read second time
3175 House Feb 20, 1991 Committee Report: Favorable 26
with amendment
3175 House Jan 09, 1991 Introduced and read first 26
time, referred to Committee
View additional legislative information at the LPITS web site.
AMENDED
February 21, 1991
H. 3175
S. Printed 2/21/91--H.
Read the first time January 9, 1991.
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:
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.