Assigned to FIN                                                                                                                                                                                                                                           FOR COMMITTEE
ARIZONA STATE SENATE
Fifty-Sixth Legislature, First Regular Session
foreign captive insurers; definition
Allows a domestic captive insurer to merge with any other domestic, foreign or alien captive insurer. Allows a foreign captive insurer to establish a business unit in Arizona and be licensed as a branch captive insurer as prescribed.
Captive insurance is a form of self-insurance where the captive insurer is wholly owned by the insured. A captive insurer is any pure captive insurer, agency captive insurer, group captive insurer or protected cell captive insurer that is formed, licensed and domiciled in Arizona. A captive insurer may only insure commercial property and casualty, surety and life and disability risks. The Director of the Department of Insurance and Financial Institutions (DIFI) may not issue a captive insurance license unless the insurer possesses and maintains prescribed minimum capital and surplus. As of June 30, 2021, 142 active captive insurers were operating in Arizona. A captive insurer is exempt from insurance premium taxation, with outlined exceptions.
A  branch captive insurer  is an alien captive insurer that is licensed to transact insurance business through a business unit with a principal place of business in Arizona. The Director of DIFI (Director) may examine the business, transactions and affairs of each captive insurer to ascertain the captive insurer's financial conditions and ability to fulfill obligations and to ascertain whether the captive insurer is in compliance with the law. As a condition of licensure, an alien captive insurer must consent to the Director's examination of the insurer's home jurisdiction affairs.   Within 60 days after its fiscal year-end, a branch captive insurer must file with the Director a copy of all reports and statements that are required to be filed under the laws of the jurisdiction in which the alien captive insurer is formed and that are verified by two of the alien captive insurer's executive officer's oaths (A.R.S. Title 20, Chapter 4, Article 14; DIFI; NAIC).
The Captive Insurance Regulatory and Supervision Fund consists of monies from captive insurer license and renewal fees and is used to pay the costs of administering the Captive Insurance Program. Any unencumbered year   end balance exceeding $200,000 reverts to the state General Fund after the close of the fiscal year (A.R.S.   20-1098.18).
If allowing a foreign captive insurer to be licensed as a branch captive insurer in Arizona results in a change in the amount of licensure fees deposited in the Captive Insurance Regulatory and Supervision Fund that exceed the threshold over which monies revert to the state General Fund, there may be a change in revenues that annually revert to the state General Fund.
1.   Allows a domestic captive insurer to merge or consolidate with any other domestic, foreign or alien captive insurer, even if the domestic, foreign or alien captive insurer was formed as a limited liability company or a stock corporation.
2.   Allows a foreign captive insurer to establish a business unit in Arizona and become licensed as a branch captive insurer in Arizona.
3.   Requires a foreign captive insurer licensed as a branch captive insurer to consent to the Director's examination of the insurer's affairs in the home jurisdiction.
4.   Removes the specification that an alien captive insurer's consent to examination by the Director is a condition of licensure.
5.   Adds a foreign captive insurer to the entities that must file with the Director a copy of all prescribed reports and statements required by the laws of its home jurisdiction.
6.   Narrows the types of insurers for which the Director may act as a statutory agent on whom process may be served from a captive insurer formed as a corporation or reciprocal insurer to only a captive insurer formed as a reciprocal insurer.
7.   Defines foreign captive insurer as any captive insurer that is domiciled in and licensed under the laws of another state that imposes statutory or regulatory standards on captive insurance companies that are acceptable to the Director.
8.   Modifies the definition of branch captive insurer to include a foreign captive insurer that establishes a business unit with a principal place of business in Arizona and is licensed to transact insurance business through the business unit.
9.   Makes technical and conforming changes.
10.   Becomes effective on the general effective date.
COM                             1/17/23           DP         9-1-0-0
3rd Read                     2/21/23                                 31-29-0
Prepared by Senate Research
March 2, 2023