Senate File 424 - Introduced
SENATE FILE 424
BY BOUSSELOT
A BILL FOR
1 An Act relating to captive insurance companies, and including
2 applicability provisions.
3 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
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1 Section 1. NEW SECTION. 432.1A Tax on premiums —— captive
2 insurance companies.
3 1. a. Each captive company under chapter 521J shall pay
4 on or before March 1 of each year a tax on the direct premiums
5 collected or contracted for on policies or contracts of
6 insurance written by the captive company during the immediately
7 preceding calendar year, after deducting from the direct
8 premiums the amounts paid to policyholders as return premiums,
9 including dividends on unabsorbed premiums or premium deposits
10 returned or credited to policyholders.
11 b. The tax due under paragraph “a” on direct premiums
12 collected or contracted for by a captive company shall be
13 calculated as follows:
14 (1) Four-tenths percent on the first twenty million dollars
15 of direct premiums.
16 (2) Three-tenths percent on each dollar of direct premiums
17 after the first twenty million dollars collected under
18 subparagraph (1).
19 2. a. Each captive company under chapter 521J shall pay
20 on or before March 1 of each year a tax on assumed reinsurance
21 premiums. A reinsurance tax shall not apply to premiums for
22 risks or portions of risks that are subject to taxation on a
23 direct basis pursuant to subsection 1.
24 b. A reinsurance premium tax shall not be payable by a
25 captive company in connection with the receipt by the captive
26 company of assets in exchange for the assumption of loss
27 reserves and other liabilities of another insurer under common
28 ownership and control if the transaction is part of a plan
29 to discontinue the operations of the other insurer, and if
30 the intent of the parties to the transaction is to renew or
31 maintain the other insurer’s business with the captive company.
32 c. The amount of reinsurance tax due from a captive company
33 under paragraph “a” shall be calculated as follows:
34 (1) Two hundred twenty-five ten-thousandths percent on the
35 first twenty million dollars of assumed reinsurance premiums.
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1 (2) Fifteen-hundredths percent on the twenty million
2 dollars of assumed reinsurance premiums collected after the
3 first twenty million dollars of assumed reinsurance premiums
4 collected under subparagraph (1).
5 (3) Five percent on each dollar of assumed reinsurance
6 premiums collected after the twenty millions dollars collected
7 under subparagraph (1) and the twenty million dollars collected
8 under subparagraph (2).
9 3. a. (1) Except as provided in subparagraphs (2) and
10 (3), if the aggregate taxes as calculated under subsections
11 1 and 2 that are payable by a captive company are less than
12 five thousand dollars for any one tax year, the captive company
13 shall pay five thousand dollars in tax for that tax year.
14 (2) If a captive company is subject to the minimum tax under
15 subparagraph (1) in the calendar year in which the company is
16 first granted a certificate of authority under section 521J.2,
17 the tax shall be prorated as follows:
18 (a) If a certificate of authority is first granted in the
19 first quarter of the calendar year, the tax shall be five
20 thousand dollars.
21 (b) If a certificate of authority is first granted in the
22 second quarter of the calendar year, the tax shall be three
23 thousand seven hundred fifty dollars.
24 (c) If a certificate of authority is first granted in
25 the third quarter of the calendar year, the tax shall be two
26 thousand five hundred dollars.
27 (d) If a certificate of authority is first granted in the
28 fourth quarter of the calendar year, the tax shall be one
29 thousand five hundred dollars.
30 (3) If a captive company that is subject to the minimum tax
31 under subparagraph (1) surrenders the company’s certificate of
32 authority in the year that the captive company is subject to
33 the minimum tax, the tax shall be prorated on a quarterly basis
34 as follows:
35 (a) If the certificate of authority is surrendered in
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1 the first quarter of the calendar year, the tax shall be one
2 thousand dollars.
3 (b) If the certificate of authority is surrendered in the
4 second quarter of the calendar year, the tax shall be two
5 thousand five hundred dollars.
6 (c) If the certificate of authority is surrendered in the
7 third quarter of the calendar year, the tax shall be three
8 thousand seven hundred fifty dollars.
9 (d) If the certificate of authority is surrendered in the
10 fourth quarter of the calendar year, the tax shall be five
11 thousand dollars.
12 b. Each protected cell in a protected cell captive company
13 shall be considered separately in determining the aggregate
14 tax to be paid by the protected cell captive company. If the
15 protected cell captive company insures any risks in addition
16 to the protected cells, the determination of the aggregate tax
17 shall, in addition to the protected cells, also include the
18 premium on all insured risks.
19 c. Each series of members of a limited liability company
20 formed as a special purpose captive company shall be considered
21 separately under this section, except that the minimum tax as
22 described in paragraph “a” shall be considered in the aggregate.
23 4. Under this section, a captive company, other than a
24 protected cell captive company, shall not be required to pay
25 aggregate taxes that exceed one hundred thousand dollars in any
26 one tax year.
27 5. Two or more captive companies under common ownership
28 and control shall be taxed as a single captive company. For
29 the purposes of this subsection, “common ownership and control”
30 means either of the following:
31 a. In the case of a stock corporation, the direct or
32 indirect ownership of eighty percent or more of the outstanding
33 voting stock of two or more corporations by the same
34 shareholder or shareholders.
35 b. In the case of a mutual insurer, the direct or indirect
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1 ownership of eighty percent or more of the surplus, and the
2 voting power of two or more insurers, by the same member or
3 members.
4 6. Only the branch business of a branch captive company
5 shall be subject to taxation under this section.
6 7. The tax provided for in this section shall be calculated
7 on an annual basis notwithstanding a policy or a contract
8 of insurance, or a contract of reinsurance, that is issued
9 on a multiyear basis. In the case of a multiyear policy or
10 a multiyear contract, the premium shall be prorated for the
11 purpose of calculating the appropriate tax.
12 Sec. 2. Section 507C.3, Code 2023, is amended by adding the
13 following new subsection:
14 NEW SUBSECTION. 8. Captive companies under chapter 521J.
15 Sec. 3. NEW SECTION. 521J.1 Definitions.
16 As used in this chapter, unless the context otherwise
17 requires:
18 1. “Affiliated company” means a company that is in the
19 same corporate system as a parent, an industrial insured, or
20 a member based on common ownership, control, operation, or
21 management.
22 2. “Association” means a legal entity comprised of sole
23 proprietorships or of business entities that has been in
24 continuous existence for a minimum of one consecutive year,
25 unless the one-year requirement is waived by the commissioner,
26 and all of the members collectively, or the legal entity
27 itself, meets either of the following requirements:
28 a. Owns, controls, or holds with power to vote all of
29 the outstanding voting securities of an association captive
30 company incorporated as a stock insurer; or has complete voting
31 control over an association captive company incorporated as a
32 mutual insurer; or constitutes all of the subscribers of an
33 association captive company formed as a reciprocal insurer.
34 b. Owns, controls, or holds with power to vote all of the
35 outstanding ownership interests of an association captive
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1 company organized as a limited liability company.
2 3. “Association captive company” means an insurance company
3 that insures risks of the association’s members and the risks
4 of the association’s affiliated companies of members.
5 4. “Branch business” means any insurance business transacted
6 by a branch captive company in this state.
7 5. “Branch captive company” means a foreign captive company
8 authorized by the commissioner by rule to transact the business
9 of insurance in this state through a business entity with a
10 principal place of business in this state.
11 6. “Branch operations” means any business operations of a
12 branch captive company.
13 7. “Business entity” means a corporation, a limited
14 liability company, or other legal entity formed by an
15 organizational document. “Business entity” does not include a
16 sole proprietor.
17 8. “Captive company” means any pure insurance company,
18 association captive company, protected cell captive company,
19 special purpose captive company, or industrial insured captive
20 company formed or authorized under this chapter.
21 9. “Captive reinsurance company” means a captive insurance
22 company in this state, as authorized by the commissioner by
23 rule, that reinsures the risk ceded by any other insurer.
24 10. “Captive risk retention group” means a captive insurance
25 risk retention group formed under this chapter and that is
26 subject to chapter 515E.
27 11. “Cash equivalent” means any short-term, highly liquid
28 investment with an original maturity of three months or less
29 that is all of the following:
30 a. Readily convertible to known amounts of cash.
31 b. Close enough to maturity that the investment presents
32 insignificant risk of change in value if interest rates
33 fluctuate.
34 12. “Commissioner” means the commissioner of insurance.
35 13. “Controlled unaffiliated business entity” means a
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1 business entity or sole proprietorship that meets all of the
2 following requirements:
3 a. The business entity or sole proprietorship is not in a
4 parent’s corporate system that consists of the parent and any
5 affiliated companies.
6 b. The business entity or sole proprietorship has an
7 existing, controlling contractual relationship with the parent
8 or an affiliated company.
9 c. The business entity’s or sole proprietorship’s risks are
10 managed by a pure captive insurance company.
11 14. “Excess workers’ compensation insurance” means, for
12 an employer that has insured or self-insured the employer’s
13 workers’ compensation risks in accordance with applicable state
14 or federal law, insurance in excess of a specified per-incident
15 or aggregate limit as established by the commissioner by rule.
16 15. “Foreign captive company” means a captive insurance
17 company formed under the laws of a jurisdiction other than this
18 state.
19 16. “Industrial insured” means an insured that meets all of
20 the following requirements:
21 a. The insured procures the insurance of any risk by use
22 of the services of a full-time employee acting as an insurance
23 manager or buyer.
24 b. The insured’s aggregate annual premiums for insurance on
25 all risks are at least twenty-five thousand dollars.
26 c. The insured employs a minimum of twenty-five full-time
27 employees.
28 17. “Industrial insured captive company” means an insurance
29 company that insures the risks of the industrial insureds that
30 is comprised of the industrial insured group and the industrial
31 insured group’s affiliated companies.
32 18. “Industrial insured group” means a group that meets
33 either of the following requirements:
34 a. The group collectively owns, controls, or holds with
35 the power to vote all of the outstanding voting securities of
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1 an industrial insured captive company incorporated as a stock
2 insurer; or has complete voting control over an industrial
3 insured captive company incorporated as a mutual insurer.
4 b. The group is a captive risk retention group.
5 19. “Member” means a sole proprietorship or a business
6 entity that belongs to an association.
7 20. “Mutual insurer” means a business entity that does not
8 have capital stock, and that has a governing body elected by
9 the insurer’s policyholders.
10 21. “Organizational document” means articles of
11 incorporation, articles of organization, a subscribers’
12 agreement, a charter, or any other document that can legally
13 establish a business entity in this state.
14 22. “Parent” means a sole proprietorship, a business entity,
15 or an individual that directly or indirectly owns, controls,
16 or holds with power to vote more than fifty percent of the
17 outstanding voting securities of a captive company.
18 23. “Participant” means a sole proprietorship or a business
19 entity and any affiliates that are insured by a protected cell
20 captive company and whose losses are limited by a participant
21 contract.
22 24. “Participant contract” means a contract by which
23 a protected cell captive company insures the risks of a
24 participant and limits the losses of each participant in the
25 contract to the participant’s share of the assets of one or
26 more protected cells as identified in the participant contract.
27 25. “Protected cell” means a separate account established
28 by a protected cell captive company formed or authorized
29 under this chapter, in which an identified pool of assets
30 and liabilities are segregated and insulated, as provided in
31 section 521J.17, from the remainder of the protected cell
32 captive company’s assets and liabilities in accordance with
33 the terms of one or more participant contracts to fund the
34 liability of the protected cell captive company with respect to
35 the participants.
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1 26. “Protected cell assets” means all assets, contract
2 rights, and general intangibles identified and attributable to
3 a specific protected cell of a protected cell captive company.
4 27. “Protected cell captive company” means a captive company
5 that meets all of the following requirements:
6 a. The minimum legally required capital and surplus of the
7 company is provided by one or more sponsors.
8 b. The company is formed or authorized under this chapter.
9 c. The company insures the risks of separate participants
10 through participant contracts.
11 d. The company funds the company’s liability to each
12 participant through one or more protected cells, and segregates
13 the assets of each protected cell from the assets of other
14 protected cells, and from the assets of the protected cell
15 captive company’s general account.
16 e. The company is incorporated or formed as a limited
17 liability company.
18 28. “Protected cell liabilities” means all liabilities
19 and other obligations identified with and attributable to a
20 specific protected cell of a protected cell captive company.
21 29. “Public records” means the same as defined in section
22 22.1.
23 30. “Pure captive company” means an insurance company that
24 insures the risks of the company’s parent and the parent’s
25 affiliated companies, and the risks of controlled unaffiliated
26 business entities.
27 31. “Series of members” means a group or collection of
28 members of a limited liability company who share interests
29 and who have separate rights, powers, or duties with respect
30 to property, obligations, or profits and losses associated
31 with property or obligations and who are specified in the
32 articles of organization or operating agreement of the limited
33 liability company, or that are specified by one or more members
34 or managers of the limited liability company or other persons
35 as provided in the articles of organization or operating
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