PROCEDURES FOR FORMING
A CAPTIVE OR RRG INSURANCE COMPANY
Legislation allowing Captive Insurance Companies to be LICENSED and to do business are now present in 17 states.
The procedures listed below should be followed to incorporate a captive insurer and to apply for a certificate of authority.
1. Prepare the documents needed to incorporate the insurer. The services of a local attorney may be desirable. The articles of incorporation must comply with the procedures for filing the articles of incorporation with the Commissioner of Insurance and the Secretary of State and for obtaining the commissioner’s approval of the proposed articles of incorporation. If the captive insurer will be a mutual company, the bylaws must be filed and approved by the commissioner.
2. Prepare the documents needed for the application for certificate of authority.
3. Submit the application to the commissioner for review. Include the state required application fee and the states required license fee.
4. The Captive states insurance code authorizes the commissioner to obtain services to review the application for a captive insurer at the applicant’s expense. If the commissioner determines that such services are needed, the Captive/RRG will be required to submit an additional copy of the application materials to the reviewer and the Captive/RRG will be notified of the cost.
5. Provide information concerning the adequacy of the expertise, experience, and character of the person or persons who will manage the captive insurer.
6. Have a CPA complete the necessary form for authorization to perform audits.
7. Have an actuary complete the necessary form for authorization to render the opinion on reserves.
The Insurance Department may perform an organizational examination as soon as possible after you receive the Certificate of Authority and have capitalized the captive. The cost of this examination will be borne by the applicant.
The following is a summary of the administrative rules governing Captive Insurance Companies.
1. Each State will accept a Captive Insurance Company’s application during the organizing process.
2. The rule before licensing captives permits the commissioner to conduct an organizational examination or investigation before licensing a captive insurer.
3. The rules that apply when captives are authorized:
A. Permit the commissioner to require additional deposits or letters of credit, if he finds it necessary.
B. Permit the Commissioner to establish requirements concerning reinsurance:
1. Credit is not allowed for reinsurance where there is not a complete transfer of risk to the reinsurer;
2. Credit is not allowed for reinsurance where there is not an insolvency clause in the reinsurance agreement;
3. A written reinsurance agreement is required;
4. The Commissioner may require that each reinsurance contract be filed and approved.
4. The rules generally require insurance managers, brokers, agents, salespersons, and reinsurance intermediaries to be specifically authorized by the commissioner.
5. The rules generally require insurers to notify the commissioner within 30 days of changes in directors and officers, providing biographical information about the new directors and officers. It also includes a provision concerning transactions between the directors, officers, and employees and the insurers.
6. The rules generally require adoption of a conflict of interest statement for officers, directors and key employees, with annual disclosure to the insurer’s Board of Directors.
7. The rules generally require the Commissioner’s advance written approval for the acquisition of control of a captive insurer.
8. The rules generally require filing and advance approval by the commissioner for changes in the nature of a captive’s business from the plan of operation in the application.
9. The rules generally will require an annual audit by a CPA approved by the Commissioner, to be filed on or before June 30th of each year. Contents of the audit must include:
1. The opinion of the CPA;
2. A report of the Evaluation of Internal Controls;
3. The Accountant’s Letter of Qualifications;
4. The Financial statements; and,
5. A Certification of Loss Reserves and Loss Expense Reserves by a qualified actuary approved by the commissioner.
10. The rules generally require insurers to report to the commissioner the CPA who will conduct the annual audit in advance.
11. The rules will generally state that insurers must require CPAs to notify a company officer and all directors if the CPA determines that the company has materially misstated its annual statement. The notification must be provided to the commissioner within five days of receipt.
12. The rules generally will state that insurers must require CPAs to make audit work papers available for review by the commissioner.
B. The rules will permit the Commissioner to rescind a captive’s certificate of authority:
1. If the insurer has not commenced business within two years of being authorized;
2. If the company ceases to carry on the business of insurance in or from acceptable to the Commissioner within the state;
3. At the company’s request to rescind the Certificate of Authority; or,
4. For any reason provided by law.