South Carolina General Assembly
117th Session, 2007-2008

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Bill 499

Indicates Matter Stricken
Indicates New Matter


(Text matches printed bills. Document has been reformatted to meet World Wide Web specifications.)

AMENDED

March 27, 2007

S. 499

Introduced by Senators Rankin, Elliott, Thomas, McConnell, Cleary, Grooms, Verdin, Campsen and Ford

S. Printed 3/27/07--S.

Read the first time February 28, 2007.

            

A BILL

TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING ARTICLE 5 TO CHAPTER 90, TITLE 38 SO AS TO ENACT THE "SOUTH CAROLINA COASTAL CAPTIVE INSURANCE ACT OF 2007", TO PROVIDE FOR THE MANNER IN WHICH A SOUTH CAROLINA COASTAL CAPTIVE INSURANCE COMPANY MAY BE FORMED, LICENSED, AND REGULATED, TO DEFINE AND TO LIMIT THE TYPES OF RISK A SOUTH CAROLINA COASTAL CAPTIVE INSURANCE COMPANY MAY UNDERWRITE, TO ESTABLISH MINIMUM CAPITALIZATION REQUIREMENTS FOR SOUTH CAROLINA COASTAL CAPTIVE INSURANCE COMPANIES, AND TO PERMIT THE DIRECTOR OF THE DEPARTMENT OF INSURANCE TO SET ADDITIONAL DISCRETIONARY CAPITALIZATION REQUIREMENTS NECESSARY TO PROTECT THE PUBLIC, AND TO PROVIDE FOR CERTAIN REQUIRED DISCLOSURES TO CONSUMERS IN ALL APPLICATIONS FOR INSURANCE AND POLICIES.

Amend Title To Conform

Whereas, the General Assembly recognizes the need of citizens within the seacoast area of South Carolina to have access to affordable property insurance coverage against wind and storm surge hazards; and

Whereas, it is believed that new and flexible solutions are necessary to address the risk and loss factors unique to the seacoast area of this State that adversely affect the affordability and availability of property insurance in that area; and

Whereas, the General Assembly wishes to foster such solutions by permitting, under certain reasonable conditions and flexible regulation and supervision designed to protect the taxpayers and insurance consumers of this State, an innovative and experimental alternative risk transfer mechanism to be called a South Carolina coastal captive insurance company, to be licensed to transact business in this State to underwrite certain specifically-targeted risks; and

Whereas, the General Assembly intends that the coverage provided by a coastal captive insurance company is not a substitute for insurance available in the voluntary, residual, or surplus lines markets, but is supplemental to it by addressing the specific needs of consumers in areas affected by adverse market factors; and

Whereas, the General Assembly will not allow South Carolina coastal captive companies to be organized and capitalized except in the private sector, and will not require or allow those companies to participate in, contribute to, or receive a benefit from a State guaranty or insolvency fund, or compulsory organization.

Be it enacted by the General Assembly of the State of South Carolina:

SECTION    1.    Title 38, Chapter 90 of the 1976 Code is amended by adding:

"Article 5

South Carolina Coastal Captive Insurance Companies

Section 38-90-810.    This article may be cited as the 'South Carolina Coastal Captive Insurance Company Act'.

Section 38-90-820.    For purposes of this article:

(1)    'Peril' means the cause of an insured loss.

(2)    'South Carolina coastal captive insurance company' means a captive insurance company, as it is defined by Section 38-90-10(8), that is specifically formed to provide wind and storm surge property insurance coverage.

(3)    'Storm surge' means a temporary rise in sea-level accompanying a hurricane or other intense storm that is associated with the hurricane's or storm's low barometric pressure and winds, and that is usually measured as the difference between the observed sea-level height and the normal sea-level height, such as the level that would have occurred in the absence of the storm, taking into account the predicted tide.

(4)    'Wind' means windstorms, cyclones, hurricanes, tornadoes, high winds, and hail, and similar perils not normally among those covered under most property insurance policies but obtainable through the purchase of wind, wind and hail, storm or windstorm coverage, or both.

Section 38-90-830.    (A)    A South Carolina coastal captive insurance company, if permitted by its articles of incorporation or organization, operating agreement, or charter, may apply to the director for a license to write primary and excess wind and storm surge insurance covering property, and may not write insurance covering any other perils.

(B)    A South Carolina coastal captive insurance company that qualified as an association captive under the provisions of Section 38-90-10(3) is exempt from the requirement that the association be in existence for one year so long as the association is in good standing as an entity upon becoming an owner of a South Carolina coastal captive insurance company.

(C)    A South Carolina coastal captive insurance company is exempt from the provisions of Section 38-90-20(A)(5) that prohibit a captive insurance company from providing personal homeowner's insurance coverage so long as the coverage is limited to the perils described in Section 38-90-820(3) and (4).

(D)(1)    A South Carolina coastal captive insurance company formed as a sponsored captive insurance company:

(a)    is exempt from the provisions of Section 38-90-220 that require that the business written by a sponsored captive insurance company, with respect to each protected cell, must be fronted by an insurance company license pursuant to the laws of:

(i)    a state; or

(ii)    a jurisdiction if the insurance company is a wholly owned subsidiary of an insurance company licensed pursuant to the laws of any state;

(b)    may create a protected cell as a legal person separate from the protected cell company and may organize a protected cell under any incorporation or organization option available under Section 38-90-60, unless the director finds such option is not feasible pursuant to Section 38-90-860(B);

(c)    may have as its sponsor an association formed to address coastal property and insurance issues.

(2)    A South Carolina coastal captive insurance company may issue directly its own policies to insureds.

(E)    To conduct business in this State, a South Carolina coastal captive insurance company shall:

(1)    obtain from the director a license authorizing it to conduct business as a South Carolina coastal captive insurance company in this State;

(2)    hold at least one meeting of its governing body each year in this State;

(3)    maintain its principal place of business in this State;

(4)    appoint a registered agent to accept service of process and act otherwise on its behalf in this State; and

(5)    name the director as the agent for the South Carolina coastal captive insurance company upon whom process, notice, or demand may be served if a registered agent, with reasonable diligence, is not located and served.

(F)    Before receiving a license, a South Carolina coastal captive insurance company shall file with the director:

(1)    a certified copy of its organizational documents;

(2)    a statement under oath of its president and secretary or other persons considered appropriate by the director showing its financial condition; and

(3)    other documents required by the director.

(G)    In addition to the information required by subsection (C), the applicant South Carolina coastal captive insurance company shall file with the director evidence of:

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

(2)    the adequacy of the expertise, experience, and character of the person who manages it;

(3)    the overall soundness of its plan of operation;

(4)    the adequacy of loss prevention programs;

(5)    other overall factors considered relevant by the director in ascertaining if the proposed South Carolina coastal captive insurance company is able to meet its policy obligations; and

(6)    any information required by Section 38-90-20 specifically applicable to the form of the South Carolina coastal captive insurance company, and fees prescribed by that section.

(H)    Information submitted pursuant to this section is confidential as provided in Section 38-90-35, except that information is discoverable by a party in a civil action or contested case to which the South Carolina coastal captive insurance company that submitted the information is a party, upon a finding by the court that:

(1)    the captive insurance company is a necessary party to the action and not joined only for the purposes of evading the confidentiality provisions of this chapter;

(2)    the information sought is relevant, material to, and necessary for the prosecution or defense of the claim asserted in litigation; and

(3)    the information sought is not available through another source.

Section 38-90-840.    (A)(1)    The director may not issue a license to a South Carolina coastal captive insurance company unless the company possesses and maintains unimpaired paid-in capital of not less than one million dollars; however, in the case of a South Carolina coastal captive insurance company formed as a sponsored captive insurance company that does not assume any risk, where the risks insured by the protected cells are homogeneous, the director may reduce this amount to an amount not less than five hundred thousand dollars.

(2)(a)    Except for a South Carolina coastal captive insurance company formed as a sponsored captive insurance company that does not assume any risk, the capital must be in the form of cash, cash equivalent, or an irrevocable letter of credit issued by a bank chartered by this State or a member bank of the Federal Reserve System with a branch office in this State or as approved by the director.

(b)    For a South Carolina coastal captive insurance company formed as a sponsored captive insurance company that does not assume any risk, the capital also may be in the form of other high quality securities as approved by the director.

(B)    For purposes of subsection (A), the director may issue a license expressly conditioned upon the South Carolina coastal captive insurance company providing to the director satisfactory evidence of possession of the minimum required unimpaired paid-in capital. Until this evidence is provided, the captive insurance company may not issue a policy, assume any liability, or otherwise provide coverage. The director summarily may revoke the conditional license without legal recourse by the company if satisfactory evidence of the required capital is not provided within a maximum period of time, not to exceed one year, to be established by the director at the time the conditional license is issued.

(C)    The director may prescribe additional capital, net assets based upon the type, volume, and nature of insurance business transacted. Contributions in connection with these prescribed additional net assets or capital must be in the form of:

(1)    cash;

(2)    cash equivalent;

(3)    an irrevocable letter of credit issued by a bank chartered by this State or a member bank of the Federal Reserve System with a branch office in this State or as approved by the director.

(D)    Section 38-90-100(C) does not apply and loans to its parent company and affiliates are prohibited.

(E)(1)    A South Carolina coastal captive insurance company may not pay a dividend out of, or other distribution with respect to, capital or surplus, in excess of the limitations set forth in Section 38-21-250 through Section 38-21-270, without the prior approval of the director. Approval of an ongoing plan for the payment of dividends or other distributions must be conditioned upon the retention, at the time of each payment, of capital or surplus in excess of amounts specified by, or determined in accordance with formulas approved by, the director.

(2)    A captive insurance company incorporated as a nonprofit corporation may not make any distributions without the prior approval of the director.

(F)    An irrevocable letter of credit, which is issued by a financial institution other than a bank chartered by this State or a member bank of the Federal Reserve System, shall meet the same standards as an irrevocable letter of credit which has been issued by either entity.

Section 38-90-850.    (A)(1)    The director may not issue a license to a South Carolina coastal captive insurance company unless the company possesses and maintains free surplus of not less than one million dollars; however, in the case of a South Carolina coastal captive insurance company formed as a sponsored captive insurance company that does not assume any risk, where the risks insured by the protected cells are homogeneous, the director may reduce this amount to an amount not less than five hundred thousand dollars.

(2)(a)    Except for South Carolina coastal captive insurance company formed as a sponsored captive insurance company that does not assume any risk, the surplus must be in the form of cash, cash equivalent, or an irrevocable letter of credit issued by a bank chartered by this State or a member bank of the Federal Reserve System with a branch office in this State and approved by the director.

(b)    For a South Carolina coastal captive insurance company formed as a sponsored captive insurance company that does not assume any risk, the surplus also may be in the form of other high quality securities as approved by the director.

(B)    For purposes of subsection (A), the director may issue a license expressly conditioned upon the captive insurance company providing to the director satisfactory evidence of possession of the minimum required free surplus. Until this evidence is provided, the captive insurance company may not issue a policy, assume any liability, or otherwise provide coverage. The director summarily may revoke the conditional license without legal recourse by the company if satisfactory evidence of the required capital is not provided within a maximum period of time, not to exceed one year, to be established by the director at the time the conditional license is issued.

(C)    The director may prescribe additional surplus based upon the type, volume, and nature of insurance business transacted. This additional surplus must be in the form of:

(1)    cash;

(2)    cash equivalent;

(3)    an irrevocable letter of credit issued by a bank chartered by this State, or a member bank of the Federal Reserve System with a branch in this State or as approved by the director.

(D)    Section 38-90-100(C) does not apply and loans to its parent company and affiliates are prohibited.

(E)(1)    A captive insurance company may not pay a dividend out of, or other distribution with respect to, capital or surplus in excess of the limitations provided in Sections 38-21-250 through 38-21-270, without the prior approval of the director. Approval of an ongoing plan for the payment of dividends or other distribution must be conditioned upon the retention, at the time of each payment, of capital or surplus in excess of amounts specified by, or determined in accordance with formulas approved by, the director.

(2)    A captive insurance company incorporated as a nonprofit corporation may not make any distributions without the prior approval of the director.

(F)    An irrevocable letter of credit, which is issued by a financial institution other than a bank chartered by this State or a member bank of the Federal Reserve System, shall meet the same standards as an irrevocable letter of credit which has been issued by either entity.

Section 38-90-860.    (A)    The requirements of Section 38-90-60 apply to a South Carolina coastal captive insurance company.

(B)    The director has the discretion to restrict the form of a South Carolina coastal captive insurance company to one or more of the types of defined captives listed in Section 38-90-10(8), and has the discretion to accept or deny an application based on a finding that one or more of the incorporation or organization options available under Section 38-90-60 are not feasible for a South Carolina coastal captive insurance company.

Section 38-90-870.    The director, by rule, regulation, or order, may exempt a South Carolina coastal captive insurance company, on a case by case basis, from provisions of this chapter that are determined to be inappropriate given the nature of the risks to be insured and the intent of this article.

Section 38-90-880.    (A)    A South Carolina coastal captive insurance company shall include the following notice on each application form for insurance, as well as the declaration page of each policy, in no less than fourteen-point bold type:

'NOTICE

This policy is issued by a South Carolina coastal captive insurance company, which is not subject to all of the insurance laws and regulations of the State of South Carolina. State insurance insolvency guaranty funds are not available for a South Carolina coastal captive insurance company.'

(B)    A South Carolina coastal captive insurance company shall include the following acknowledgment on each application form for insurance, as well as in each policy, in no less than fourteen-point bold type and directly above the applicant or insured's signature:

'I have read the Notice contained in this application (or policy) and understand that State of South Carolina insurance insolvency guaranty funds are not available for a South Carolina coastal captive insurance company'.

Section 38-90-890.    The director may not issue a license to a South Carolina coastal captive insurance company unless the director finds that the:

(1)    coastal captive insurance company is capitalized adequately or properly reinsured, or both, after giving due consideration to the business plan, feasibility study, and proformas, including the level of risk to be retained by the coastal captive insurance company;

(2)    proposed business plan of the coastal captive insurance company provides for a reasonable and expected successful operation and is not hazardous to any policyholder;

(3)    proposed business plan, including any contracts or agreements to which the coastal captive insurance company is a party, and the intended operation of the coastal captive insurance company comply with this article and with any other applicable provisions of this title; and

(4)    proposed business plan and intended operation of the coastal captive insurance company satisfy the purpose of this article."

SECTION    2.    This act takes effect upon approval by the Governor.

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