1 HB31
2 207507-1
3 By Representatives Rich and Ellis
4 RFD: Insurance
5 First Read: 02-FEB-21
6 PFD: 10/29/2020
Page 0
1 207507-1:n:07/30/2020:JET*/cr LSA2020-1366
2
3
4
5
6
7
8 SYNOPSIS: Under existing law, captive insurance
9 companies are licensed and regulated by the Alabama
10 Department of Insurance.
11 This bill would revise certain definitions
12 relating to captive insurance companies, would
13 authorize insurance to be placed on risks in alien
14 jurisdictions under certain conditions, and would
15 revise certain security requirements for the
16 payment of liabilities attributable to branch
17 operations.
18 This bill would also revise certain
19 requirements relating to an Alabama Coastal Captive
20 Insurance Company, would provide for the issuance
21 of certificates of dormancy for captive insurance
22 companies that meet certain requirements, and would
23 require dormant captive insurance companies to take
24 certain action.
25
26 A BILL
27 TO BE ENTITLED
Page 1
1 AN ACT
2
3 Relating to captive insurance companies; to amend
4 Sections 27-31B-2, 27-31B-3, 27-31B-6, and 27-31C-3, Code of
5 Alabama 1975, to revise certain definitions; to authorize
6 insurance to be placed on risks in alien jurisdictions under
7 certain conditions; to revise certain security requirements
8 for the payment of liabilities attributable to branch
9 operations; to revise certain requirements relating to an
10 Alabama Coastal Captive Insurance Company; to provide for the
11 issuance of certificates of dormancy for captive insurance
12 companies that meet certain requirements; to require dormant
13 captive insurance companies to take certain action; to add
14 Section 27-31C-3.1 to the Code of Alabama 1975; and to repeal
15 Section 27-31C-4, Code of Alabama 1975, relating to Alabama
16 Coastal Captive Insurance Companies.
17 BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:
18 Section 1. Sections 27-31B-2, 27-31B-3, 27-31B-6,
19 and 27-31C-3, Code of Alabama 1975, are amended to read as
20 follows:
21 "27-31B-2.
22 "As used in this chapter, the following terms shall
23 have the following meanings, unless the context clearly
24 indicates otherwise:
25 "(1) AFFILIATED COMPANY. Any company in the same
26 corporate system as a parent, an industrial insured, or a
Page 2
1 member organization by virtue of common ownership, control,
2 operation, or management.
3 "(2) ALIEN CAPTIVE INSURANCE COMPANY. Any insurance
4 company formed to write insurance business for its parents and
5 affiliates and licensed pursuant to the laws of an alien
6 jurisdiction which imposes statutory or regulatory standards
7 in a form acceptable to the commissioner on companies
8 transacting the business of insurance in that jurisdiction.
9 "(3) ASSOCIATION. Any legal association of
10 individuals, corporations, limited liability companies,
11 partnerships, associations, or other entities whereby either
12 of the following exists:
13 "a. The member organizations of which, or the
14 association itself, whether or not in conjunction with some or
15 all of the member organizations, meet one of the following:
16 "1. Own, control, or hold with power to vote all of
17 the outstanding voting securities of an association captive
18 insurance company incorporated as a stock insurer.
19 "2. Have complete voting control over an association
20 captive insurance company incorporated as a mutual insurer.
21 "3. Have complete voting control over an association
22 captive insurance company formed as a limited liability
23 company.
24 "b. The member organizations of which collectively
25 constitute all of the subscribers of an association captive
26 insurance company formed as a reciprocal insurer.
Page 3
1 "(4) ASSOCIATION CAPTIVE INSURANCE COMPANY. Any
2 company that insures risks of the member organizations of the
3 association, and that also may insure the risks of affiliated
4 companies of the member organizations and the risks of the
5 association itself and their affiliated companies.
6 "(5) BRANCH BUSINESS. Any insurance business
7 transacted by a branch captive insurance company in this
8 state.
9 "(6) BRANCH CAPTIVE INSURANCE COMPANY. Any alien
10 captive insurance company licensed by the commissioner to
11 transact the business of insurance in this state through a
12 business unit with a principal place of business in this
13 state. A branch captive insurance company is a pure captive
14 insurance company with respect to operations in this state,
15 unless otherwise permitted by the commissioner. A branch
16 captive insurance company may pool insurance business done in
17 this state with business done in alien jurisdictions subject
18 to commissioner approval.
19 "(7) BRANCH OPERATIONS. Any business operations of a
20 branch captive insurance company in this state.
21 "(8) CAPTIVE INSURANCE COMPANY. Any pure captive
22 insurance company, association captive insurance company, risk
23 retention group, protected cell captive insurance company,
24 incorporated cell captive insurance company, or industrial
25 insured captive insurance company formed or licensed under
26 this chapter.
Page 4
1 "(9) CAPTIVE RISK RETENTION GROUP. A captive
2 insurance company organized and licensed as a captive insurer
3 under the laws of this state and operating pursuant to the
4 Liability Risk Retention Act of 1986, as amended, 15 U.S.C.
5 3901 et seq., as a stock or mutual corporation, a reciprocal,
6 or other limited liability entity. Risk retention groups
7 formed under this chapter are subject to all the same
8 provisions of this title applicable to a casualty insurer
9 organized and licensed under the laws of this state.
10 "(10) COMMISSIONER. The Alabama Commissioner of
11 Insurance or the commissioner's designee.
12 "(11) CONTROLLED UNAFFILIATED BUSINESS. Any company
13 that meets all of the following criteria:
14 "a. Is not in the corporate system of a parent and
15 affiliated companies in the case of a pure captive insurance
16 company, or is not in the corporate system of an industrial
17 insured and its affiliated companies in the case of an
18 industrial insured captive insurance company.
19 "b. Has an existing contractual relationship with a
20 parent or one of its affiliated companies in the case of a
21 pure captive insurance company or with an industrial insured
22 or one of its affiliated companies in the case of an
23 industrial insured captive insurance company.
24 "c. Whose risks are managed by a captive insurance
25 company or an industrial insured captive insurance company, as
26 applicable, in accordance with Section 27-31B-20.
Page 5
1 "(12) EXCESS WORKERS' COMPENSATION INSURANCE. In the
2 case of an employer or group of employers that has insured or
3 self-insured its workers' compensation risks in accordance
4 with applicable state or federal law, insurance in excess of a
5 specified per-incident or aggregate limit established by the
6 commissioner.
7 "(13) GENERAL ACCOUNT. All assets and liabilities of
8 a protected cell captive insurance company not attributable to
9 a protected cell.
10 "(14) INCORPORATED CELL. A protected cell of an
11 incorporated cell captive insurance company that is organized
12 as a corporation or other legal entity separate from the
13 incorporated cell captive insurance company.
14 "(15) INCORPORATED CELL CAPTIVE INSURANCE COMPANY. A
15 protected cell captive insurance company that is established
16 as a corporation or other legal entity separate from its
17 incorporated cells that are also organized as separate legal
18 entities.
19 "(16) INDUSTRIAL INSURED. As defined in subdivision
20 (2) of Section 27-10-20.
21 "(17) INDUSTRIAL INSURED CAPTIVE INSURANCE COMPANY.
22 Any company that insures risks of the industrial insureds that
23 comprise the industrial insured group, and that may insure the
24 risks of the affiliated companies of the industrial insureds
25 and the risks of the controlled unaffiliated business of an
26 industrial insured or its affiliated companies.
Page 6
1 "(18) INDUSTRIAL INSURED GROUP. Any group that meets
2 either of the following criteria:
3 "a. Any group of industrial insureds that
4 collectively meet any of the following criteria:
5 "1. Own, control, or hold with power to vote all of
6 the outstanding voting securities of an industrial insured
7 captive insurance company incorporated as a stock insurer.
8 "2. Have complete voting control over an industrial
9 insured captive insurance company incorporated as a mutual
10 insurer.
11 "3. Constitute all of the subscribers of an
12 industrial insured captive insurance company formed as a
13 reciprocal insurer.
14 "4. Have complete voting control over an industrial
15 insured captive insurance company formed as a limited
16 liability company.
17 "b. Any group which is created under the Product
18 Liability Risk Retention Act of 1981, 15 U.S. Code 3901 et
19 seq., as amended, as a corporation or other limited liability
20 association taxable as a stock insurance company or a mutual
21 insurer under the law of the State of Alabama.
22 "(19) MEMBER ORGANIZATION. Any individual,
23 corporation, limited liability company, partnership,
24 association, or other entity that belongs to an association.
25 "(20) MUNICIPAL MUTUAL CORPORATION. A corporation or
26 other legal entity organized without stockholders. The term
27 includes a nonprofit corporation with members.
Page 7
1 "(21) MUTUAL INSURER. An incorporated captive
2 insurer without capital stock and the governing body of which
3 is elected from policyholders at the mutual members' annual
4 meeting.
5 "(22) ORGANIZATIONAL DOCUMENTS. The documents that
6 must be submitted pursuant to state law in order to legally
7 form a business in this state, or to obtain a certificate of
8 authority to transact business in the state.
9 "(23) PARENT. An individual, corporation, limited
10 liability company, partnership, association, or other entity
11 that directly or indirectly owns, controls, or holds with
12 power to vote more than 50 percent of the outstanding of any
13 of the following:
14 "(1) Voting securities of a pure captive insurance
15 company organized as a stock corporation.
16 "(2) Membership interests of a pure captive
17 insurance company organized as a nonprofit corporation.
18 "(3) Membership interests of a pure captive
19 insurance company organized as a limited liability company.
20 "(24) PARTICIPANT. An entity as defined in Section
21 27-31B-24, and any affiliates thereof, that are insured by a
22 protected cell captive insurance company, where the losses of
23 the participant are limited through a participant contract.
24 "(25) PARTICIPANT CONTRACT. A contract by which a
25 protected cell captive insurance company insures the risks of
26 a participant and limits the losses of each participant to its
Page 8
1 pro rata share of the assets of one or more protected cells
2 identified in the participant contract.
3 "(26) PROTECTED CELL. A separate account established
4 by a protected cell captive insurance company formed or
5 licensed under this chapter, in which an identified pool of
6 assets and liabilities is segregated and insulated by means of
7 this chapter from the remainder of the protected cell captive
8 insurance company's assets and liabilities in accordance with
9 the terms of one or more participant contracts to fund the
10 liability of the protected cell captive insurance company,
11 with respect to the participants as set forth in the
12 participant contracts.
13 "(27) PROTECTED CELL ASSETS. All assets, contract
14 rights, and general intangibles identified with and
15 attributable to a specific protected cell of a protected cell
16 captive insurance company.
17 "(28) PROTECTED CELL CAPTIVE INSURANCE COMPANY. Any
18 captive insurance company meeting all of the following:
19 "a. The minimum capital and surplus required by this
20 chapter are provided by one or more sponsors.
21 "b. The company is formed and licensed under this
22 chapter.
23 "c. The company insures the risks of separate
24 participants through participant contracts.
25 "d. The company funds its liability to each
26 participant through one or more protected cells and segregates
27 the assets of each protected cell from the assets of other
Page 9
1 protected cells and from the assets of the protected cell
2 captive insurance company's general account.
3 "(29) PROTECTED CELL LIABILITIES. All liabilities
4 and other obligations identified with and attributed to a
5 specific protected cell of a protected cell captive insurance
6 company.
7 "(30) PURE CAPTIVE INSURANCE COMPANY. Any company
8 that insures risks of its parent and affiliated companies or
9 controlled unaffiliated business or businesses.
10 "(31) SPONSOR. Any person or entity that is approved
11 by the commissioner to organize and operate a protected cell
12 captive insurance company.
13 "(32) SURPLUS NOTE. An unsecured subordinated debt
14 obligation deemed to be a surplus certificate under terms
15 acceptable to the commissioner.
16 "27-31B-3.
17 "(a) Any captive insurance company, when permitted
18 by its articles of association, charter, or other
19 organizational document, may apply to the commissioner for a
20 license to do any and all insurance defined in Sections
21 27-5-2, 27-5-4, and 27-5-5, in subdivisions (1), (2), (4),
22 (5), (6), (7), (8), (9), (10), (11), (12), (13), and (14) of
23 subsection (a) of Section 27-5-6, in Sections 27-5-7, 27-5-8,
24 27-5-9, and 27-5-10, and to grant annuity contracts as defined
25 in Section 27-5-3, subject, however, to all of the following:
Page 10
1 "(1) No pure captive insurance company may insure
2 any risks other than those of its parent and affiliated
3 companies or controlled unaffiliated business.
4 "(2) No association captive insurance company may
5 insure any risks other than those of the member organizations
6 of its association, and their affiliated companies.
7 "(3) No industrial insured captive insurance company
8 may insure any risks other than those of the industrial
9 insureds that comprise the industrial insured group, and their
10 affiliated companies.
11 "(4) No risk retention group may insure any risks
12 other than those of its members and owners.
13 "(5) No captive insurance company may provide
14 personal motor vehicle coverage or any component thereof.
15 Homeowner's insurance coverage may be written by an Alabama
16 Coastal Captive Insurance Company as defined in Chapter 31C,
17 but only in the gulf front, beach, and seacoast areas as
18 designated by the Insurance Services Office, Inc.
19 "(6) No captive insurance company may accept or cede
20 reinsurance except as provided in Section 27-31B-13.
21 "(7) Any captive insurance company may provide
22 excess workers' compensation insurance to its parent and
23 affiliated companies and member organizations unless
24 prohibited by the laws of the state having jurisdiction over
25 the transaction. Any captive insurance company may reinsure
26 workers' compensation of a qualified self-insured plan of its
27 parent and affiliated companies.
Page 11
1 "(8) Any captive insurance company which insures
2 risks described in Sections 27-5-2 and 27-5-4 shall comply
3 with all applicable state and federal laws.
4 "(9) No branch captive insurance company may write
5 any business in this state except insurance or reinsurance of
6 the employee benefit business of its parent and affiliated
7 companies which is subject to the Employee Retirement Income
8 Security Act of 1974, as amended.
9 "(9) Insurance may be placed on risks in alien and
10 foreign jurisdictions if the underlying business in the
11 jurisdiction is legal in the jurisdiction, subject to
12 commissioner approval.
13 "(10) No protected cell captive insurance company
14 may insure any risks other than those of its participants.
15 "(b) To conduct insurance business in th