H.B. 220
GENERAL ASSEMBLY OF NORTH CAROLINA
Feb 27, 2019
SESSION 2019 HOUSE PRINCIPAL CLERK
H D
HOUSE BILL DRH30071-MH-24B*
Short Title: Insurance Technical Changes.-AB (Public)
Sponsors: Representatives Setzer, Bumgardner, and Corbin (Primary Sponsors).
Referred to:
1 A BILL TO BE ENTITLED
2 AN ACT TO MAKE TECHNICAL AND CLARIFYING CHANGES TO THE INSURANCE
3 LAWS, AS RECOMMENDED BY THE DEPARTMENT OF INSURANCE.
4 The General Assembly of North Carolina enacts:
5
6 PART I. CAPTIVE INSURANCE CHANGES
7 SECTION 1. G.S. 58-10-395 reads as rewritten:
8 "§ 58-10-395. Plan of operation change.
9 (a) Any material change in a captive insurance company's plan of operation plan of
10 operation that was filed with the Commissioner at the time of initial application and any
11 subsequent amendment of the plan requires prior approval from the Commissioner.
12 (b) Any change in any other information filed with the application must be filed with the
13 Commissioner within 60 days but does not require prior approval.
14 (c) G.S. 58-10-345(f) shall apply to all information filed pursuant to this section."
15 SECTION 2. G.S. 58-10-415(c) reads as rewritten:
16 "(c) Captive insurance companies with less than one million two hundred thousand dollars
17 ($1,200,000) in written premium may make a written request for exemption from the annual audit
18 requirement. Upon written request by any captive insurance company, the Commissioner may
19 grant an exemption from compliance with any and all provisions of this section if the
20 Commissioner finds, upon review of the request, that compliance with this section would
21 constitute a financial or organizational hardship upon the insurer. Such request must be made at
22 least 90 days prior to the captive insurance company's fiscal year-end or as otherwise required
23 by the Commissioner. Requests will be considered on a case-by-case basis and may be subject
24 to the Commissioner receiving an annual audit of the captive insurance company's parent in lieu
25 of the annual audit of the captive insurance company."
26 SECTION 3. G.S. 58-10-430 reads as rewritten:
27 "§ 58-10-430. Audits.Audits and Financial Analyses.
28 (a) Whenever the Commissioner determines it to be prudent, the Commissioner shall
29 audit a captive insurance company's affairs to ascertain its financial condition, its ability to fulfill
30 its obligations, and whether it has complied with this Part. The expenses and charges of the audit
31 shall be paid by the captive insurance company.
32 (a1) Whenever the Commissioner determines it to be prudent, the Commissioner shall
33 conduct a financial analysis of information submitted to or obtained by the Commissioner
34 pursuant to this Part. Except as otherwise provided in this Part, the captive insurance company is
35 not required to pay the expense and charges of the financial analysis.
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1 (b) G.S. 58-2-160 shall apply to audits and financial analyses conducted under this
2 section.
3 (c) All audit reports, preliminary audit reports or results, working papers, recorded
4 information, documents, and copies thereof produced by, obtained by, or disclosed to the
5 Commissioner or any other person in the course of an audit or financial analysis made under this
6 section are confidential, are not subject to subpoena, and may not be made public by the
7 Commissioner or an employee or agent of the Commissioner. Nothing in this subsection shall
8 prevent the Commissioner from using such information in furtherance of the Commissioner's
9 regulatory authority under this Chapter. The Commissioner shall have the discretion to grant
10 access to such information to public officials having jurisdiction over the regulation of insurance
11 in any other state or country or to law enforcement officers of this State or any other state or
12 agency of the federal government at any time only if the officials receiving the information agree
13 in writing to maintain the confidentiality of the information in a manner consistent with this
14 subsection.
15 (d) Risk retention groups are not subject to this section and shall instead be audited in
16 accordance with the Examination Law, G.S. 58-2-131 through G.S 58-2-134."
17 SECTION 4.(a) G.S. 58-10-340 is amended by adding a new subsection to read:
18 "(16a) Governing board. – The board of directors or officials possessing similar authority."
19 SECTION 4.(b) G.S. 58-10-345(b) reads as rewritten:
20 "(b) No captive insurance company shall transact any insurance business in this State
21 unless:
22 …
23 (2) Its board of directors or committee of managers or, in the case of a reciprocal
24 insurer, its subscribers' advisory committee governing board holds at least one
25 meeting each year in this State. A captive insurance company will be exempt
26 from this board meeting requirement if the captive insurance company utilizes
27 the services of at least two of the following North Carolina-based service
28 providers:
29 a. Legal.
30 b. Accounting.
31 c. Actuarial.
32 d. Investment advisor.
33 e. Captive manager.
34 f. Other service providers acceptable to the Commissioner.
35 …."
36 SECTION 4.(c) G.S. 58-10-380(e) reads as rewritten:
37 "(e) In the case of a captive insurance company formed as a corporation, at At least one
38 of the members of the board of directors governing board shall be a resident of this State. In the
39 case of a captive insurance company formed as a reciprocal insurer, at least one of the members
40 of the subscribers' advisory committee shall be a resident of this State. In the case of a captive
41 insurance company formed as a limited liability company, at least one of the managers shall be
42 a resident of this State."
43 SECTION 4.(d) G.S. 58-10-380(i) reads as rewritten:
44 "(i) The articles of incorporation or bylaws organizational documents of a captive
45 insurance company formed as a corporation may authorize a quorum of its board of directors
46 governing board to consist of no fewer than one-third of the fixed or prescribed number of
47 directors.board members."
48 SECTION 4.(e) G.S. 58-10-385 reads as rewritten:
49 "§ 58-10-385. Directors.Governing board members, officers, and employees.
50 (a) Every captive insurance company shall report to the Commissioner within 30 days
51 after any change in its executive officers or directors, governing board members, including in its
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1 report a biographical affidavit for each new officer or go director. governing board member. The
2 change shall be deemed approved unless it is disapproved within 30 days from the completion of
3 the Commissioner's review of the biographical affidavit.
4 (b) No director, governing board member, officer, or employee of a captive insurance
5 company shall, except on behalf of the captive insurance company, accept or be the beneficiary
6 of, any fee, brokerage, gift, or other compensation because of any investment, loan, deposit,
7 purchase, sale, payment, or exchange made by or for the captive insurance company unless
8 otherwise approved in advance by the Commissioner, but such person may receive reasonable
9 compensation for necessary services rendered to the captive insurance company in his or her
10 usual private, professional, or business capacity.
11 (c) Any profit or gain received by or on behalf of any person in violation of this section
12 shall inure to and be recoverable by the captive insurance company."
13 SECTION 4.(f) G.S. 58-10-390 reads as rewritten:
14 "§ 58-10-390. Conflict of interest.
15 (a) Each captive insurance company licensed in this State is required to adopt a conflict
16 of interest statement for officers, directors, governing board members, and key employees. Such
17 statement shall disclose that the individual has no outside commitments, personal or otherwise,
18 that would divert him or her from his or her duty to further the interests of the captive insurance
19 company he or she represents, but this shall not preclude such person from being a director or
20 officer in more than one insurance company.
21 (b) Each officer, directors, governing board member, and key employee shall file such
22 disclosure with the board of directors or other governing body governing board of the captive
23 insurance company annually."
24 SECTION 4.(g) G.S. 58-10-420(b) reads as rewritten:
25 "(b) A captive insurance company shall require its independent certified public accountant
26 to immediately notify in writing an officer and all members of the board of directors or other
27 governing body governing board of the captive insurance company of any determination by the
28 independent certified public accountant that the captive insurance company has materially
29 misstated its financial condition in its report to the Commissioner as required in G.S. 58-10-405.
30 A captive insurance company receiving a notification pursuant to this subsection shall forward a
31 copy of the notification to the Commissioner within five business days after receipt of the
32 notification and shall provide the independent certified public accountant with proof that the
33 notification was forwarded to the Commissioner. If the independent certified public accountant
34 fails to receive the proof within the five-day period required by this subsection, the independent
35 certified public accountant shall within the next five business days submit a copy of the
36 notification to the Commissioner."
37 SECTION 4.(h) G.S. 58-10-510(d) reads as rewritten:
38 "(d) A protected cell captive insurance company shall establish administrative and
39 accounting procedures necessary to properly identify (i) the one or more protected cells of the
40 protected cell captive insurance company and (ii) the assets and liabilities attributable to each
41 protected cell. The directors governing board of a protected cell captive insurance company shall
42 keep protected cell assets and liabilities:
43 (1) Separate and separately identifiable from the assets and liabilities of the
44 protected cell captive insurance company's general account.
45 (2) Attributable to one protected cell separate and separately identifiable from
46 protected cell assets and protected cell liabilities attributable to other protected
47 cells.
48 If this subsection is violated, then the remedy of tracing is applicable to protected cell assets when
49 commingled with protected cell assets of other protected cells or the assets of the protected cell
50 captive insurance company's general account. The remedy of tracing shall not be construed as an
51 exclusive remedy."
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1 SECTION 4.(i) G.S. 58-10-512(c) reads as rewritten:
2 "(c) An incorporated protected cell may be organized and operated in any form of business
3 organization authorized by the Commissioner. Unless otherwise permitted by the organizational
4 documents of a protected cell captive insurance company, each incorporated protected cell of the
5 protected cell captive insurance company must have the same directors, governing board
6 members, secretary, and registered office as the protected cell captive insurance company."
7 SECTION 4.(j) G.S. 58-10-565(b) reads as rewritten:
8 "(b) To transact business in this State, an SPFC shall:
9 …
10 (3) Hold at least one management meeting each year in this State. For the
11 purposes of this section, management is defined as the board of directors,
12 managing board, governing board or other individual or individuals vested
13 with overall responsibility for the management of the affairs of the SPFC,
14 including the election and appointment of officers or other of those agents to
15 act on behalf of the SPFC.
16 …."
17 SECTION 4.(k) G.S. 58-10-565(c) reads as rewritten:
18 "(c) A complete SPFC application shall include the following:
19 …
20 (4) Biographical affidavits in NAIC format of all of the prospective SPFC's
21 officers and directors, governing board members, providing the officers' and
22 directors' governing board members' legal names, any names under which
23 they have or are conducting their affairs, and any other biographical
24 information as the Commissioner may request.
25 …."
26 SECTION 5.(a) G.S. 105-228.4A(a) reads as rewritten:
27 "(a) Tax Levied. – A tax is levied in this section on a captive insurance company doing
28 business in this State. In the case of a branch captive insurance company, the tax levied in this
29 section applies only to the branch business of the company. Two or more captive insurance
30 companies under common ownership and control control, other than a protected cell captive
31 insurance company or a special purpose captive insurance company with a cell or series structure,
32 are taxed under this section as a single captive insurance company. The tax levied in this section
33 does not apply to a foreign captive insurance company."
34 SECTION 5.(b) G.S. 105-228.4A(f) reads as rewritten:
35 "(f) Total Tax Liability. – The aggregate amount of tax payable under this section by a
36 protected cell captive insurance company with more than 10 cells or a special purpose captive
37 insurance company with a cell or series structure with 10 or more cells or series may not be less
38 than ten thousand dollars ($10,000) and may not exceed the lesser of (i) one hundred thousand
39 dollars ($100,000) plus five thousand dollars ($5,000) multiplied by the number of cells or series
40 over 10 and (ii) two hundred thousand dollars ($200,000). The aggregate amount of tax payable
41 under this section for any other captive insurance company may not be less than five thousand
42 dollars ($5,000) and may not exceed one hundred thousand dollars ($100,000).
43 If a captive insurance company is a special purpose financial captive and if the special
44 purpose financial captive is under common ownership and control with one or more other captive
45 insurance companies, the following provisions apply to the consolidated group of companies that
46 are taxed as a single captive insurance company pursuant to subsection (a) of this section:
47 (1) The amount of premium tax payable under this section is allocated to each
48 member of the consolidated group in the same proportion that the premium
49 allocable to the member bears to the total premium of all members.
50 (2) The aggregate amount of tax payable under this section by the consolidated
51 group is equal to the greater of the following:
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1 a. The sum of the premium tax allocated to the members.
2 b. Five thousand dollars ($5,000).
3 (3) If the total premium tax allocated to all members of a consolidated group that
4 are special purpose financial captives exceeds one hundred thousand dollars
5 ($100,000), then the total premium tax allocated to those members is one
6 hundred thousand dollars ($100,000).
7 (4) If the total premium tax allocated to all members of the consolidated group
8 that are not special purpose financial captives exceeds one hundred thousand
9 dollars ($100,000), then the total premium tax allocated to those members is
10 one hundred thousand dollars ($100,000)."
11 SECTION 5.(c) G.S. 105-228.4A is amended by adding a new subsection to read:
12 "(g) A captive insurance company formed and licensed under the laws of a jurisdiction
13 other than North Carolina that (i) obtains the approval of the North Carolina Commissioner of
14 Insurance to redomesticate to North Carolina pursuant to G.S. 58-10-380(g) to operate as a North
15 Carolina-domiciled captive insurance company and (ii) redomesticates to North Carolina on or
16 before December 31, 2020, is exempted from prorated premium taxes imposed by