SB197 (2005) Detail

Relative to captive insurance companies and reciprocal insurers.


SB 197-FN – AS INTRODUCED

2005 SESSION

05-0490

01/10

SENATE BILL 197-FN

AN ACT relative to captive insurance companies and reciprocal insurers.

SPONSORS: Sen. Flanders, Dist 7; Rep. Hunt, Ches 7

COMMITTEE: Banks and Insurance

ANALYSIS

This bill establishes laws governing captive insurance companies and reciprocal insurers.

This bill is a request of the insurance department.

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Explanation: Matter added to current law appears in bold italics.

Matter removed from current law appears [in brackets and struckthrough.]

Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.

05-0490

01/10

STATE OF NEW HAMPSHIRE

In the Year of Our Lord Two Thousand Five

AN ACT relative to captive insurance companies and reciprocal insurers.

Be it Enacted by the Senate and House of Representatives in General Court convened:

1 New Chapters; Captive Insurance Companies. Amend RSA by inserting after chapter 405-A the following new chapters:

CHAPTER 405-B

CAPTIVE INSURANCE COMPANIES

405-B:1 Definitions. In this chapter:

I. “Affiliated company” means any company in the same corporate system as a parent, an industrial insured, or a member organization by virtue of common ownership, control, operation, or management.

II. “Association” means any legal association of individuals, corporations, limited liability companies, partnerships, associations, or other entities that has been in continuous existence for at least one year, the member organizations of which or which does itself, whether or not in conjunction with some or all of the member organizations:

(a) Own, control, or hold with power to vote all of the outstanding voting securities of an association captive insurance company incorporated as a stock insurer;

(b) Have complete voting control over an association captive insurance company incorporated as a mutual insurer; or

(c) Constitute all of the subscribers of an association captive insurance company formed as a reciprocal insurer.

III. “Association captive insurance company” means any company that insures risks of the member organizations of the association, and their affiliated companies.

IV. “Captive insurance company” means any pure captive insurance company, association captive insurance company, sponsored captive insurance company, industrial insured captive insurance company, or risk retention group formed or licensed under the provisions of this chapter. For purposes of this chapter, a branch captive insurance company shall be a pure captive insurance company with respect to operations in this state, unless otherwise permitted by the commissioner.

V. “Commissioner” means the insurance commissioner.

VI. “Controlled unaffiliated business” means any company:

(a) That is not in the corporate system of a parent and affiliated companies;

(b) That has an existing contractual relationship with a parent or affiliated company; and

(c) Whose risks are managed by a pure captive insurance company in accordance with RSA 405-B:19.

VII. “Excess workers’ compensation insurance” means, in the case of an employer that has insured or self-insured its workers’ compensation risks in accordance with applicable state or federal law, insurance in excess of a specified per-incident or aggregate limit established by the commissioner.

VIII. “Industrial insured” means an insured:

(a) Who procures the insurance of any risk or risks by use of the services of a full-time employee acting as an insurance manager or buyer;

(b) Whose aggregate annual premiums for insurance on all risks total at least $25,000; and

(c) Who has at least 25 full-time employees.

IX. “Industrial insured captive insurance company” means any company that insures risks of the industrial insureds that comprise the industrial insured group, and their affiliated companies.

X. “Industrial insured group” means any group of industrial insureds that collectively:

(a) Own, control, or hold with power to vote all of the outstanding voting securities of an industrial insured captive insurance company incorporated as a stock insurer;

(b) Have complete voting control over an industrial insured captive insurance company incorporated as a mutual insurer; or

(c) Constitute all of the subscribers of an industrial insured captive insurance company formed as a reciprocal insurer.

XI. “Member organization” means any individual, corporation, limited liability company, partnership, association, or other entity that belongs to an association.

XII. “Mutual corporation” means a corporation organized without stockholders and includes a nonprofit corporation with members.

XIII. “Parent” means a corporation, limited liability company, partnership, other entity, or individual, that directly or indirectly owns, controls, or holds with power to vote more than 50 percent of the outstanding voting:

(a) Securities of a pure captive insurance company organized as a stock corporation; or

(b) Membership interests of a pure captive insurance company organized as a nonprofit corporation.

XIV. “Pure captive insurance company” means any company that insures risks of its parent and affiliated companies or controlled unaffiliated business.

XV. “Risk retention group” means a captive insurance company organized under RSA 405-A pursuant to the Liability Risk Retention Act of 1986, 15 U.S.C. section 3901 et seq., as amended, as a stock or mutual corporation, a reciprocal or other limited liability entity.

405-B:2 Licensing; Authority.

I. Any captive insurance company, when permitted by its articles of association, charter, or other organizational document, may apply to the commissioner for a license to do any and all insurance comprised in RSA 401:1; provided, however, that:

(a) No pure captive insurance company may insure any risks other than those of its parent and affiliated companies or controlled unaffiliated business;

(b) No association captive insurance company may insure any risks other than those of the member organizations of its association, and their affiliated companies;

(c) No industrial insured captive insurance company may insure any risks other than those of the industrial insureds that comprise the industrial insured group, and their affiliated companies;

(d) No risk retention group may insure any risks other than those of its members and owners;

(e) No captive insurance company may provide personal motor vehicle or homeowner’s insurance coverage or any component thereof;

(f) No captive insurance company may accept or cede reinsurance except as provided in RSA 405-B:11;

(g) Any captive insurance company may provide excess workers’ compensation insurance to its parent and affiliated companies, unless prohibited by the federal law or laws of the state having jurisdiction over the transaction. Any captive insurance company, unless prohibited by federal law, may reinsure workers’ compensation of a qualified self-insured plan of its parent and affiliated companies; and

(h) Any captive insurance company which insures risks described in RSA 401:1, III and IV shall comply with all applicable state and federal laws.

II. No captive insurance company shall do any insurance business in this state unless:

(a) It first obtains from the commissioner a license authorizing it to do insurance business in this state;

(b) Its board of directors, or in the case of a reciprocal insurer its subscribers’ advisory committee, holds at least one meeting each year in this state;

(c) It maintains its principal place of business in this state; and

(d) It appoints a registered agent to accept service of process and to otherwise act on its behalf in this state; provided, that whenever such registered agent cannot with reasonable diligence be found at the registered office of the captive insurance company, the commissioner shall be an agent of such captive insurance company upon whom any process, notice, or demand may be served.

III.(a) Before receiving a license, a captive insurance company shall:

(1) File with the commissioner a certified copy of its organizational documents, a statement under oath of its president and secretary showing its financial condition, and any other statements or documents required by the commissioner; and

(2) Submit to the commissioner for approval a description of the coverages, deductibles, coverage limits, and rates, together with such additional information as the commissioner may reasonably require. In the event of any subsequent material change in any item in such description, the captive insurance company shall submit to the commissioner for approval an appropriate revision and shall not offer any additional kinds of insurance until a revision of such description is approved by the commissioner. The captive insurance company shall inform the commissioner of any material change in rates within 30 days of the adoption of such change.

(b) Each applicant captive insurance company shall also file with the commissioner evidence of the following:

(1) The amount and liquidity of its assets relative to the risks to be assumed;

(2) The adequacy of the expertise, experience, and character of the person or persons who will manage it;

(3) The overall soundness of its plan of operation;

(4) The adequacy of the loss prevention programs of its insureds; and

(5) Such other factors deemed relevant by the commissioner in ascertaining whether the proposed captive insurance company will be able to meet its policy obligations.

(c) Information submitted pursuant to this paragraph shall be and remain confidential, and shall not be made public by the commissioner or an employee or agent of the commissioner without the written consent of the company, except that:

(1) Such information may be discoverable by a party in a civil action or contested case to which the captive insurance company that submitted such information is a party, upon a showing by the party seeking to discover such information that:

(A) The information sought is relevant to and necessary for the furtherance of such action or case;

(B) The information sought is unavailable from other nonconfidential sources; and

(C) A subpoena issued by a judicial or administrative officer of competent jurisdiction has been submitted to the commissioner; provided, however, that the provisions of this subparagraph shall not apply to any risk retention group; and

(2) The commissioner may, in the commissioner’s discretion, disclose such information to a public officer having jurisdiction over the regulation of insurance in another state, provided, that:

(A) Such public official shall agree in writing to maintain the confidentiality of such information; and

(B) The laws of the state in which such public official serves require such information to be and to remain confidential.

(d) Each captive insurance company shall pay to the commissioner a nonrefundable fee of $200 for examining, investigating, and processing its application for license, and the commissioner is authorized to retain legal, financial, and examination services from outside the department, the reasonable cost of which may be charged against the applicant. The provisions of RSA 405-B:8 and RSA 400-A:37 shall apply to examinations, investigations, and processing conducted under the authority of this section. In addition, each captive insurance company shall pay a license fee for the year of registration and a renewal fee for each year thereafter of $300.

(e) If the commissioner is satisfied that the documents and statements that such captive insurance company has filed comply with the provisions of this chapter, the commissioner may grant a license authorizing it to do insurance business in this state until April 1 thereafter, which license may be renewed.

405-B:3 Names of Companies. No captive insurance company shall adopt a name that is the same, deceptively similar, or likely to be confused with or mistaken for any other existing business name registered in the state of New Hampshire.

405-B:4 Minimum Capital and Surplus; Letter of Credit.

I. No captive insurance company shall be issued a license unless it shall possess and thereafter maintain unimpaired paid-in capital and surplus of:

(a) In the case of a pure captive insurance company, not less than $250,000;

(b) In the case of an association captive insurance company, not less than $750,000;

(c) In the case of an industrial insured captive insurance company, not less than $500,000;

(d) In the case of a risk retention group, not less than $1,000,000; and

(e) In the case of a sponsored captive insurance company, not less than $500,000.

II. The commissioner may prescribe additional capital and surplus based upon the type, volume, and nature of insurance business transacted.

III. Capital and surplus may be in the form of cash or an irrevocable letter of credit issued by a bank chartered by the state of New Hampshire or a member bank of the Federal Reserve System and approved by the commissioner.

405-B:5 Dividends. No captive insurance company shall pay a dividend out of, or other distribution with respect to, capital or surplus without the prior approval of the commissioner. Approval of an ongoing plan for the payment of dividends or other distributions shall be conditioned upon the retention, at the time of each payment, of capital or surplus in excess of amounts specified by, or determined in accordance with formulas approved by, the commissioner. Notwithstanding the provisions of RSA 292, a captive insurance company organized under the provisions of RSA 292 may make such distributions as are in conformity with its purposes and approved by the commissioner.

405-B:6 Formation of Captive Insurance Companies in this State.

I. A pure captive insurance company may be incorporated as a stock insurer with its capital divided into shares and held by the stockholders, or as a nonprofit corporation with one or more members.

II. An association captive insurance company, an industrial insured captive insurance company, or a risk retention group may be:

(a) Incorporated as a stock insurer with its capital divided into shares and held by the stockholders;

(b) Incorporated as a mutual insurer without capital stock, the governing body of which is elected by its insureds; or

(c) Organized as a reciprocal insurer in accordance with RSA 405-C.

III. A captive insurance company incorporated or organized in this state shall have not less than 3 incorporators or 3 organizers of whom not less than one shall be a resident of this state.

IV. In the case of a captive insurance company:

(a) Formed as a corporation, before the articles of incorporation are transmitted to the secretary of state, the incorporators shall petition the commissioner to issue a certificate setting forth the commissioner’s finding that the establishment and maintenance of the proposed corporation will promote the general good of the state. In arriving at such a finding the commissioner shall consider:

(1) The character, reputation, financial standing, and purposes of the incorporators;

(2) The character, reputation, financial responsibility, insurance experience, and business qualifications of the officers and directors; and

(3) Such other aspects as the commissioner shall deem advisable.

(b) The articles of incorporation, such certificate, and the organization fee shall be transmitted to the secretary of state, who shall thereupon record both the articles of incorporation and the certificate.

(c) Formed as a reciprocal insurer, the organizers shall petition the commissioner to issue a certificate setting forth the commissioner’s finding that the establishment and maintenance of the proposed association will promote the general good of the state. In arriving at such a finding the commissioner shall consider the items set forth in subparagraph (a).

V. The capital stock of a captive insurance company incorporated as a stock insurer may be authorized with no par value.

VI. In the case of a captive insurance company:

(a) Formed as a corporation, at least one of the members of the board of directors shall be a resident of this state; and

(b) Formed as a reciprocal insurer, at least one of the members of the subscribers’ advisory committee shall be a resident of this state.

VII. Other than captive insurance companies formed as nonprofit corporations under RSA 292, captive insurance companies formed as corporations under the provisions of this chapter shall have the privileges and be subject to the provisions of RSA 293-A, as well as the applicable provisions contained in this chapter. In the event of conflict between the provisions of such corporation law and the provisions of this chapter, the latter shall control.

VIII. Captive insurance companies formed as nonprofit corporations under the provisions of this chapter shall have the privileges and be subject to the provisions of RSA 292, as well as the applicable provisions contained in this chapter. In the event of conflict between the provisions of RSA 292 and the provisions of this chapter, the latter shall control.

IX. The provisions of RSA 401-B and RSA 403-B, pertaining to mergers, consolidations, conversions, mutualizations, redomestications, and mutual holding companies, shall apply in determining the procedures to be followed by captive insurance companies in carrying out any of the transactions described therein, except that:

(a) The commissioner may, upon request of an insurer party to a merger authorized under this paragraph, waive the requirements of RSA 401-B:17 and RSA 403-B:3;

(b) The commissioner may waive or modify the requirements for public notice and hearing in accordance with rules which the commissioner may adopt addressing categories of transactions. If a notice of public hearing is required, but no one requests a hearing, then the commissioner may cancel the hearing;

(c) The provisions of RSA 403-B:4 III and IV shall not apply, and the commissioner may waive or modify the requirement of RSA 403-B:4, I and II, with respect to market value of a converted company as necessary or desirable to reflect applicable restrictions on ownership of companies formed under this chapter; and

(d) An alien insurer may be a party to a merger authorized under this paragraph; provided, that the requirements for a merger between a captive insurance company and a foreign insurer shall apply to a merger between a captive insurance company and an alien insurer under this paragraph. Such alien insurer shall be treated as a foreign insurer under RSA 401-B and such other jurisdictions shall be the equivalent of a state for purposes of RSA 401-B.

X. Captive insurance companies formed as reciprocal insurers under the provisions of this chapter shall have the privileges and be subject to the provisions of RSA 405-C in addition to the applicable provisions of this chapter. In the event of a conflict between the provisions of RSA 405-C and the provisions of this chapter, the latter shall control. To the extent a reciprocal insurer is made subject to other provisions of this title pursuant to RSA 405-C, such provisions shall not be applicable to a reciprocal insurer formed under this chapter unless such provisions are expressly made applicable to captive insurance companies under this chapter.

XI. The articles of incorporation or bylaws of a captive insurance company formed as a corporation may authorize a quorum of its board of directors to consist of no fewer than 1/3 of the fixed or prescribed number of directors determined under RSA 293-A, or under RSA 292.

XII. The subscribers’ agreement or other organizing document of a captive insurance company formed as a reciprocal insurer may authorize a quorum of its subscribers’ advisory committee to consist of no fewer than 1/3 of the number of its members.

405-B:7 Reports and Statements.

I. Captive insurance companies shall not be required to make any annual report except as provided in this chapter.

II. Prior to March 1 of each year, each captive insurance company shall submit to the commissioner a report of its financial condition, verified by oath of 2 of its executive officers. Each captive insurance company shall report using generally accepted accounting principles, unless the commissioner approves the use of statutory accounting principles, with any appropriate or necessary modifications or adaptations thereof required or approved or accepted by the commissioner for the type of insurance and kinds of insurers to be reported upon, and as supplemented by additional information required by the commissioner. Except as otherwise provided, each association captive insurance company and each risk retention group shall file its report in the form required by RSA 400-A:36, and each risk retention group shall comply with the requirements set forth in RSA 400-A:36-a. The commissioner shall by rule propose the forms in which pure captive insurance companies and industrial insured captive insurance companies shall report. RSA 405-B:2, III(c) shall apply to each report filed pursuant to this section, except that such subparagraph shall not apply to reports filed by risk retention groups.

III. Any pure captive insurance company or an industrial insured captive insurance company may make written application for filing the required report on a fiscal year-end. If an alternative reporting date is granted:

(a) The annual report is due 60 days after the fiscal year-end; and

(b) In order to provide sufficient detail to support the premium tax return, the pure captive insurance company or industrial insured captive insurance company shall file prior to March 1 of each year for each calendar year-end, pages 1, 2, 3, and 5 of the “Captive Annual Statement; Pure or Industrial Insured,” verified by oath of 2 of its executive officers.

405-B:8 Examinations and Investigations.

I. At least once in 3 years, and whenever the commissioner determines it to be prudent, the commissioner shall personally, or by some competent person appointed by the commissioner, visit each captive insurance company and thoroughly inspect and examine its affairs to ascertain its financial condition, its ability to fulfill its obligations and whether it has complied with the provisions of this chapter. The commissioner upon application, in the commissioner’s discretion, may extend the aforesaid 3-year period to 5 years; provided, said captive insurance company is subject to a comprehensive annual audit during such period of a scope satisfactory to the commissioner by independent auditors approved by the commissioner. The expenses and charges of the examination shall be paid to the state by the company or companies examined.

II. The provisions of RSA 400-A:37 shall apply to examinations conducted under this section.

III. All examination reports, preliminary examination reports or results, working papers, recorded information, documents and copies thereof produced by, obtained by or disclosed to the commissioner or any other person in the course of an examination made under this section are confidential and are not subject to subpoena and may not be made public by the commissioner or an employee or agent of the commissioner without the written consent of the company, except to the extent provided in this paragraph. Nothing in this subsection shall prevent the commissioner from using such information in furtherance of the commissioner’s regulatory authority under this title. The commissioner may, in the commissioner’s discretion, grant access to such information to public officers having jurisdiction over the regulation of insurance in any other state or country, or to law enforcement officers of this state or any other state or agency of the federal government at any time, if such officers receiving the information agree in writing to hold it in a manner consistent with this section.

405-B:9 Grounds and Procedures for Suspension or Revocation of License.

I. The license of a captive insurance company may be suspended or revoked by the commissioner for any of the following reasons:

(a) Insolvency or impairment of capital or surplus;

(b) Failure to meet the requirements of RSA 405-B:4;

(c) Refusal or failure to submit an annual report, as required by this chapter, or any other report or statement required by law or by lawful order of the commissioner;

(d) Failure to comply with the provisions of its own charter, bylaws, or other organizational document;

(e) Failure to submit to or pay the cost of examination or any legal obligation relative thereto, as required by this chapter;

(f) Use of methods that, although not otherwise specifically prohibited by law, nevertheless render its operation detrimental or its condition unsound with respect to the public or to its policyholders; or

(g) Failure otherwise to comply with the laws of this state.

II. If the commissioner finds, upon examination, hearing, or other evidence, that any captive insurance company has violated any provision of paragraph I, the commissioner may suspend or revoke such company’s license if the commissioner deems it in the best interest of the public and the policyholders of such captive insurance company, notwithstanding any other provision of this title.

405-B:10 Legal Investments.

I. Association captive insurance companies and risk retention groups shall comply with the investment requirements contained in RSA 402:27 through RSA 402:30, as applicable. RSA 402:30 shall apply to association captive insurance companies and risk retention groups except to the extent it is inconsistent with approved accounting standards in use by the company. Notwithstanding any other provision of this title, the commissioner may approve the use of alternative reliable methods of valuation and rating.

II. No pure captive insurance company or industrial insured captive insurance company shall be subject to any restrictions on allowable investments whatever, including those limitations contained in RSA 402:27 through RSA 402:30; provided, however, that the commissioner may prohibit or limit any investment that threatens the solvency or liquidity of any such company.

III. No pure captive insurance company shall make a loan to or an investment in its parent company or affiliates without prior written approval of the commissioner, and any such loan or investment shall be evidenced by documentation approved by the commissioner. Loans of minimum capital and surplus funds required by RSA 405-B:4 are prohibited.

405-B:11 Reinsurance.

I. Any captive insurance company may provide reinsurance, comprised in RSA 401:1, on risks ceded by any other insurer.

II. Any captive insurance company may take credit for the reinsurance of risks or portions of risks ceded to reinsurers complying with the provisions of RSA 405:45 through RSA 405:52. Prior approval of the commissioner shall be required for ceding or taking credit for the reinsurance of risks or portions of risks ceded to reinsurers not complying with RSA 405:45 through RSA 405:52, except for business written by an alien captive insurance company outside of the United States.

III. In addition to reinsurers authorized under the provisions of RSA 405:45 through RSA 405:52, a captive insurance company may take credit for the reinsurance of risks or portions of risks ceded to a pool, exchange or association acting as a reinsurer which has been authorized by the commissioner. The commissioner may require any other documents, financial information or other evidence that such a pool, exchange or association will be able to provide adequate security for its financial obligations. The commissioner may deny authorization or impose any limitations on the activities of a reinsurance pool, exchange or association that, in the commissioner’s judgment, are necessary and proper to provide adequate security for the ceding captive insurance company and for the protection and consequent benefit of the public at large.

IV. For purposes of this chapter, insurance by a captive insurance company of any workers’ compensation qualified self-insured plan of its parent and affiliates shall be deemed to be reinsurance.

405-B:12 Rating Organizations; Memberships. No captive insurance company shall be required to join a rating organization.

405-B:13 Exemption From Compulsory Associations. No captive insurance company shall be permitted to join or contribute financially to any plan, pool, association, or guaranty or insolvency fund in this state, nor shall any such captive insurance company, or any insured or affiliate thereof, receive any benefit from any such plan, pool, association, or guaranty or insolvency fund for claims arising out of the operations of such captive insurance company.

405-B:14 Tax on Premiums Collected.

I. Each captive insurance company shall pay to the commissioner, in the month of February of each year, a tax at the rate of 72/1000 of one percent on each dollar of direct premiums collected or contracted for on policies or contracts of insurance written by the captive insurance company during the year ending December 31 next preceding, after deducting from the direct premiums subject to the tax the amounts paid to policyholders as return premiums which shall include dividends on unabsorbed premiums or premium deposits returned or credited to policyholders; provided, however, that no tax shall be due or payable as to considerations received for annuity contracts.

II. Each captive insurance company shall pay to the commissioner in the month of February of each year a tax at the rate of 24/1000 of one percent on each dollar of assumed reinsurance premium. However, no reinsurance tax applies to premiums for risks or portions of risks which are subject to taxation on a direct basis pursuant to paragraph I. No reinsurance premium tax shall be payable in connection with the receipt of assets in exchange for the assumption of loss reserves and other liabilities of another insurer under common ownership and control if such transaction is part of a plan to discontinue the operations of such other insurer, and if the intent of the parties to such transaction is to renew or maintain such business with the captive insurance company.

III. The annual minimum aggregate tax to be paid by a captive insurance company calculated under paragraphs I and II shall be $7,500, and the annual maximum aggregate tax shall be $200,000. The maximum aggregate tax to be paid by a sponsored insurance company shall apply to each protected cell only and not to the sponsored captive insurance company as a whole.

IV. A captive insurance company failing to make returns as required by RSA 400-A:32 or failing to pay within the time required all taxes assessed by this section, shall be subject to the provisions of RSA 400-A:32, IV.

V. Two or more captive insurance companies under common ownership and control shall be taxed, as though they were a single captive insurance company.

VI. For the purposes of this section “common ownership and control” means:

(a) In the case of stock corporations, the direct or indirect ownership of 80 percent or more of the outstanding voting stock of 2 or more corporations by the same shareholder or shareholders; and

(b) In the case of mutual or nonprofit corporations, the direct or indirect ownership of 80 percent or more of the surplus and the voting power of 2 or more corporations by the same member or members.

VII. A captive insurance company, first licensed under this chapter after January 1, 2005, shall receive a nonrefundable credit of $5,000 applied against the aggregate taxes owed for the first taxable year for which the company has a liability under this section.

VIII. The tax provided for in this section shall be calculated on an annual basis, notwithstanding policies or contracts of insurance or contracts of reinsurance issued on a multiyear basis. In the case of multiyear policies or contracts, the premium shall be prorated for purposes of determining the tax under this section.

405-B:15 Rules. The commissioner may establish and from time to time amend such rules, pursuant to RSA 541-A, relating to captive insurance companies as are necessary for the proper administration of this chapter.

405-B:16 Laws Applicable. No provisions of this title, other than those contained in this chapter or contained in specific references contained in this chapter, shall apply to captive insurance companies. Risk retention groups shall have the privileges and be subject to the provisions of RSA 405-A in addition to the applicable provisions of this chapter.

405-B:17 Administration Fund. All captive insurers formed pursuant to the provisions of RSA 405-B shall be subject to the administration fund established in RSA 400-B:39.

405-B:18 Delinquency. Except as otherwise provided in this chapter, the terms and conditions set forth in RSA 402-C, pertaining to insurance reorganizations, receiverships and injunctions, shall apply in full to captive insurance companies formed or licensed under this chapter.

405-B:19 Rules for Controlled Unaffiliated Business. The commissioner may adopt rules establishing standards to ensure that a parent or affiliated company is able to exercise control of the risk management function of any controlled unaffiliated business to be insured by the pure captive insurance company; provided, however, that, until such time as rules under this section are adopted, the commissioner may approve the coverage of such risks by a pure captive insurance company.

405-B:20 Conversion to or Merger with Reciprocal Insurer.

I. An association captive insurance company, risk retention group, or industrial insured captive insurance company formed as a stock or mutual corporation may be converted to or merged with and into a reciprocal insurer in accordance with a plan therefore and the provisions of this section.

II. Any plan for such conversion or merger shall provide a fair and equitable plan for purchasing, retiring, or otherwise extinguishing the interests of the stockholders and policyholders of a stock insurer, and the members and policyholders of a mutual insurer, including a fair and equitable provision for the rights and remedies of dissenting stockholders, members, or policyholders.

III. In the case of a conversion authorized under paragraph I:

(a) Such conversion shall be accomplished under such reasonable plan and procedure as may be approved by the commissioner; provided, however, that the commissioner shall not approve any such plan of conversion unless such plan:

(1) Satisfies the provisions of paragraph II;

(2) Provides for a hearing, of which notice is given or to be given to the captive insurance company, its directors, officers, and policyholders, and, in the case of a stock insurer, its stockholders, and in the case of a mutual insurer, its members, all of which persons shall be entitled to attend and appear at such hearing; provided, however, that if notice of a hearing is given and no director, officer, policyholder, member, or stockholder requests a hearing, the commissioner may cancel such hearing;

(3) Provides a fair and equitable plan for the conversion of stockholder, member, or policyholder interests into subscriber interests in the resulting reciprocal insurer, substantially proportionate to the corresponding interests in the stock or mutual insurer; provided, however, that this requirement shall not preclude the resulting reciprocal insurer from applying underwriting criteria that could affect ongoing ownership interests; and

(4) Is approved:

(A) In the case of a stock insurer, by a majority of the shares entitled to vote represented in person or by proxy at a duly called regular or special meeting at which a quorum is present; and

(B) In the case of a mutual insurer, by a majority of the voting interests of policyholders represented in person or by proxy at a duly called regular or special meeting thereof at which a quorum is present;

(b) The commissioner shall approve such plan of conversion if the commissioner finds that the conversion will promote the general good of the state in conformity with those standards set forth in RSA 405-B:6, IV(a)(3);

(c) If the commissioner approves the plan, the commissioner shall amend the converting insurer’s certificate of authority to reflect conversion to a reciprocal insurer and issue such amended certificate of authority to the company’s attorney-in-fact;

(d) Upon the issuance of an amended certificate of authority of a reciprocal insurer by the commissioner, the conversion shall be effective; and

(e) Upon the effectiveness of such conversion the corporate existence of the converting insurer shall cease and the resulting reciprocal insurer shall notify the secretary of state of such conversion.

IV. A merger authorized under subparagraph III(a) of this section shall be accomplished substantially in accordance with the procedures set forth in RSA 401:11 and RSA 401-B, except that, solely for purposes of such merger:

(a) The plan of merger shall satisfy the provisions of paragraph II;

(b) The subscribers’ advisory committee of a reciprocal insurer shall be equivalent to the board of directors of a stock or mutual insurance company;

(c) The subscribers of a reciprocal insurer shall be the equivalent of the policyholders of a mutual insurance company;

(d) If a subscribers’ advisory committee does not have a president or secretary, the officers of such committee having substantially equivalent duties shall be deemed the president or secretary of such committee;

(e) The commissioner may, upon request of an insurer party to a merger authorized under paragraph I waive the requirement of RSA 401-B:3, VI(b);

(f) RSA 401-B:3, I and RSA 401-B:3, VI(b) shall not apply to such merger;

(g) The commissioner shall approve the articles of merger if the commissioner finds that the merger will promote the general good of the state in conformity with those standards set forth in RSA 405-B:6, IV(b). If the commissioner approves the articles of merger, the commissioner shall indorse the commissioner’s approval thereon and the surviving insurer shall present the same to the secretary of state at the secretary of state’s office;

(h) Notwithstanding RSA 405-B:4, the commissioner may permit the formation, without surplus, of a captive insurance company organized as a reciprocal insurer, into which an existing captive insurance company may be merged for the purpose of facilitating a transaction under this section; provided, however, that there shall be no more than one authorized insurance company surviving such merger; and

(i) An alien insurer may be a party to a merger authorized under paragraph I, provided, that the requirements for a merger between a domestic and a foreign insurer under RSA 401-B shall apply to a merger between a domestic and an alien insurer under this subsection. Such alien insurer shall be treated as a foreign insurer under RSA 401-B and such other jurisdictions shall be the equivalent of a state for purposes of RSA 401-B.

V. A conversion or merger under this section shall have all of the effects set forth in RSA 401-B, to the extent such effects are not inconsistent with the provisions of this chapter.

Sponsored Captive Insurance Companies

405-B:21 Formation.

I. One or more sponsors may form a sponsored captive insurance company under this chapter. In addition to the general provisions of this chapter, the provisions of this subdivision shall apply to sponsored captive insurance companies.

II. A sponsored captive insurance company shall be incorporated as a stock insurer with its capital divided into shares and held by the stockholders.

405-B:22 Definitions. In this subdivision:

I. “Participant” means an entity as defined in RSA 405-B:26, and any affiliates thereof, that are insured by a sponsored captive insurance company, where the losses of the participant are limited through a participant contract to such participant’s pro rata share of the assets of one or more protected cells identified in such participant contract.

II. “Participant contract” means a contract by which a sponsored captive insurance company insures the risks of a participant and limits the losses of each such participant to its pro rata share of the assets of one or more protected cells identified in such participant contract.

III. “Protected cell” means a separate account established by a sponsored captive insurance company formed or licensed under the provisions of this chapter, in which assets are maintained for one or more participants in accordance with the terms of one or more participant contracts to fund the liability of the sponsored captive insurance company assumed on behalf of such participants as set forth in such participant contracts.

IV. “Sponsor” means any entity that meets the requirements of RSA 405-B:25 and is approved by the commissioner to provide all or part of the capital and surplus required by applicable law and to organize and operate a sponsored captive insurance company.

V. “Sponsored captive insurance company” means any captive insurance company:

(a) In which the minimum capital and surplus required by applicable law is provided by one or more sponsors;

(b) That is formed or licensed under the provisions of this chapter;

(c) That insures the risks only of its participants through separate participant contracts; and

(d) That funds its liability to each participant through one or more protected cells and segregates the assets of each protected cell from the assets of other protected cells and from the assets of the sponsored captive insurance company’s general account.

405-B:23 Supplemental Application Materials. In addition to the information required by RSA 405-B:2, III(a) and (b), each applicant-sponsored captive insurance company shall file with the commissioner the following:

I. Materials demonstrating how the applicant shall account for the loss and expense experience of each protected cell at a level of detail found to be sufficient by the commissioner, and how it will report such experience to the commissioner;

II. A statement acknowledging that all financial records of the sponsored captive insurance company, including records pertaining to any protected cells, shall be made available for inspection or examination by the commissioner or the commissioner’s designated agent;

III. All contracts or sample contracts between the sponsored captive insurance company and any participants; and

IV. Evidence that expenses shall be allocated to each protected cell in a fair and equitable manner.

405-B:24 Protected Cells. A sponsored captive insurance company formed or licensed under the provisions of this chapter may establish and maintain one or more protected cells to insure risks of one or more participants, subject to the following conditions:

I. The shareholders of a sponsored captive insurance company shall be limited to its participants and sponsors, provided that a sponsored captive insurance company may issue nonvoting securities to other persons on terms approved by the commissioner;

II. Each protected cell shall be accounted for separately on the books and records of the sponsored captive insurance company to reflect the financial condition and results of operations of such protected cell, net income or loss, dividends or other distributions to participants, and such other factors as may be provided in the participant contract or required by the commissioner;

III. The assets of a protected cell shall not be chargeable with liabilities arising out of any other insurance business the sponsored captive insurance company may conduct;

IV. No sale, exchange, or other transfer of assets may be made by such sponsored captive insurance company between or among any of its protected cells without the consent of such protected cells;

V. No sale, exchange, transfer of assets, dividend, or distribution may be made from a protected cell to a sponsor or participant without the commissioner’s approval and in no event shall such approval be given if the sale, exchange, transfer, dividend, or distribution would result in insolvency or impairment with respect to a protected cell;

VI. Each sponsored captive insurance company shall annually file with the commissioner such financial reports as the commissioner shall require, which shall include, without limitation, accounting statements detailing the financial experience of each protected cell;

VII. Each sponsored captive insurance company shall notify the commissioner in writing within 10 business days of any protected cell that is insolvent or otherwise unable to meet its claim or expense obligations;

VIII. No participant contract shall take effect without the commissioner’s prior written approval, and the addition of each new protected cell and withdrawal of any participant or termination of any existing protected cell shall constitute a change in the business plan requiring the commissioner’s prior written approval; and

IX. The business written by a sponsored captive, with respect to each cell, shall be:

(a) Fronted by an insurance company licensed under the laws of any state;

(b) Reinsured by a reinsurer authorized or approved by the state of New Hampshire; or

(c) Secured by a trust fund in the United States for the benefit of policyholders and claimants or funded by an irrevocable letter of credit or other arrangement that is acceptable to the commissioner. The amount of security provided shall be no less than the reserves associated with those liabilities which are neither fronted nor reinsured, including reserves for losses, allocated loss adjustment expenses, incurred but not reported losses and unearned premiums for business written through the participant’s protected cell. The commissioner may require the sponsored captive to increase the funding of any security arrangement established under this subdivision. If the form of security is a letter of credit, the letter of credit must be established, issued, or confirmed by a bank chartered in this state, a member of the Federal Reserve System, or a bank chartered by another state if such state chartered bank is acceptable to the commissioner. A trust maintained pursuant to this subdivision shall be established in a form and upon such terms approved by the commissioner.

405-B:25 Qualification of Sponsors. A sponsor of a sponsored captive insurance company shall be an insurer licensed under the laws of any state, a reinsurer authorized or approved under the laws of any state, or a captive insurance company formed or licensed under this chapter. A risk retention group shall not be either a sponsor or a participant of a sponsored captive insurance company.

405-B:26 Participants in Sponsored Captive Insurance Companies.

I. Associations, corporations, limited liability companies, partnerships, trusts, and other business entities may be participants in any sponsored captive insurance company formed or licensed under this chapter.

II. A sponsor may be a participant in a sponsored captive insurance company.

III. A participant need not be a shareholder of the sponsored captive insurance company or any affiliate thereof.

IV. A participant shall insure only its own risks through a sponsored captive insurance company.

405-B:27 Investments by Sponsored Captive Insurance Companies. Notwithstanding the provisions of RSA 405-B:24, the assets of 2 or more protected cells may be combined for purposes of investment, and such combination shall not be construed as defeating the segregation of such assets for accounting or other purposes. Sponsored captive insurance companies shall comply with the investment requirements contained in RSA 402:27 through RSA 402:30, as applicable; provided, however, that compliance with such investment requirements shall be waived for sponsored captive insurance companies to the extent that credit for reinsurance ceded to reinsurers is allowed pursuant to RSA 405-B:11 or to the extent otherwise deemed reasonable and appropriate by the commissioner. RSA 402:27 through RSA 402:30 shall apply to sponsored captive insurance companies except to the extent it is inconsistent with approved accounting standards in use by the company. Notwithstanding any other provision of this title, the commissioner may approve the use of alternative reliable methods of valuation and rating.

405-B:28 Delinquency of Sponsored Captive Insurance Companies. In the case of a sponsored captive insurance company, the provisions of RSA 405-B:18 shall apply; provided, that:

I. The assets of a protected cell may not be used to pay any expenses or claims other than those attributable to such protected cell; and

II. Its capital and surplus shall at all times be available to pay any expenses of or claims against the sponsored captive insurance company.

Branch Captive

405-B:29 Establishment of a Branch Captive.

I. A branch captive may be established in this state in accordance with the provisions of this chapter to write in this state only insurance or reinsurance of the employee benefit business of its parent and affiliated companies which is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. In addition to the general provisions of this chapter, the provisions of this subdivision shall apply to branch captive insurance companies.

II. No branch captive insurance company shall do any insurance business in this state unless it maintains the principal place of business for its branch operations in this state.

405-B:30 Definitions. In this subdivision:

I. “Alien captive insurance company” means any insurance company formed to write insurance business for its parents and affiliates and licensed pursuant to the laws of an alien jurisdiction which imposes statutory or regulatory standards in a form acceptable to the commissioner on companies transacting the business of insurance in such jurisdiction.

II. “Branch business” means any insurance business transacted by a branch captive insurance company in this state.

III. “Branch captive insurance company” means any alien captive insurance company licensed by the commissioner to transact the business of insurance in this state through a business unit with a principal place of business in this state.

IV. “Branch operations” means any business operations of a branch captive insurance company in this state.

405-B:31 Security Required. In the case of a branch captive insurance company, as security for the payment of liabilities attributable to the branch operations, the commissioner shall require that a trust fund, funded by an irrevocable letter of credit or other acceptable asset, be established and maintained in the United States for the benefit of United States policyholders and United States ceding insurers under insurance policies issued or reinsurance contracts issued or assumed by the branch captive insurance company through its branch operations. The amount of such security may be no less than the amount set forth in RSA 405-B:4, I(a) and the reserves on such insurance policies or such reinsurance contracts, including reserves for losses, allocated loss adjustment expenses, incurred but not reported losses, and unearned premiums with regard to business written through the branch operations; provided, however, the commissioner may permit a branch captive insurance company that is required to post security for loss reserves on branch business by its reinsurer to reduce the funds in the trust account required by this section by the same amount so long as the security remains posted with the reinsurer. If the form of security selected is a letter of credit, the letter of credit must be established by, or issued or confirmed by, a bank chartered in this state or a member bank of the Federal Reserve System.

405-B:32 Certificate of General Good. In the case of a captive insurance company licensed as a branch captive, the alien captive insurance company shall petition the commissioner to issue a certificate setting forth the commissioner’s finding that, after considering the character, reputation, financial responsibility, insurance experience, and business qualifications of the officers and directors of the alien captive insurance company, the licensing and maintenance of the branch operations will promote the general good of the state. The alien captive insurance company may register to do business in this state after the commissioner’s certificate is issued.

405-B:33 Branch Captive Reports. Prior to March 1 of each year, or with the approval of the commissioner within 60 days after its fiscal year-end, a branch captive insurance company shall file with the commissioner a copy of all reports and statements required to be filed under the laws of the jurisdiction in which the alien captive insurance company is formed, verified by oath of two of its executive officers. If the commissioner is satisfied that the annual report filed by the alien captive insurance company in its domiciliary jurisdiction provides adequate information concerning the financial condition of the alien captive insurance company, the commissioner may waive the requirement for completion of the captive annual statement for business written in the alien jurisdiction.

405-B:34 Examination of Branch Captives.

I. The examination of a branch captive insurance company pursuant to RSA 405-B:8, shall be of branch business and branch operations only, so long as the branch captive insurance company provides annually to the commissioner a certificate of compliance, or its equivalent, issued by or filed with the licensing authority of the jurisdiction in which the branch captive insurance company is formed, and demonstrates to the commissioner’s satisfaction that it is operating in sound financial condition in accordance with all applicable laws and regulations of such jurisdiction.

II. As a condition of licensure, the alien captive insurance company shall grant authority to the commissioner for examination of the affairs of the alien captive insurance company in the jurisdiction in which the alien captive insurance company is formed.

405-B:35 Taxation of Branch Captives. In the case of a branch captive insurance company, the tax provided for in RSA 405-B:14 and RSA 405-B:17 shall apply only to the branch business of such company.

CHAPTER 405-C

RECIPROCAL INSURERS

405-C:1 Definitions. In this chapter:

I. “Attorney” means the attorney-in-fact of a reciprocal insurer.

II. “Reciprocal” insurance is that resulting from an interchange among persons, known as subscribers, of reciprocal agreements of indemnity, the interchange being effectuated through an attorney-in-fact common to all such persons.

III. “Subscribers” are persons who enter into reciprocal insurance agreements under this chapter.

405-C:2 Scope of Chapter; Existing Insurers.

I. All reciprocal insurers shall be governed by the provisions of this chapter not expressly made applicable to domestic reciprocal insurers.

II. Reciprocal insurers shall comply with this chapter beginning January 1, 2006, and shall make such amendments to their subscribers’ agreement, power of attorney, policies and other documents and accounts and perform such other acts as may be required for such compliance.

405-C:3 Insuring Powers of Reciprocals.

I. A reciprocal insurer may, upon qualifying therefor as provided for by this chapter, transact any kind or kinds of insurance defined by this title, other than life or title insurances.

II. Such an insurer may purchase reinsurance upon the risk of any subscriber or subscribers, and may assume or cede reinsurance as to any kind of insurance it is authorized to transact direct.

405-C:4 Name; Suits. A reciprocal insurer shall:

I. Have and use a business name. The name shall include the word “reciprocal,” or “interinsurer,” or “interinsurance,” or “exchange,” or “underwriters,” or “underwriting,” or “association.”

II. Sue and be sued in its own name.

405-C:5 Attorney.

I. The attorney of a foreign reciprocal insurer, which is duly authorized to transact insurance in this state, shall not, by virtue of discharge of its duties as such attorney with respect to the insurer’s transactions in this state, be deemed to be doing business in this state within the meaning of any laws of this state applying to foreign persons, firms or corporations.

II. The subscribers and the attorney-in-fact comprise a reciprocal insurer and a single entity as to all operations under the insurer’s certificate of authority.

405-C:6 Organization of Reciprocal Insurer.

I. Two or more persons may organize a domestic reciprocal insurer and make application to the commissioner for a certificate of authority to transact insurance.

II. The proposed attorney shall fulfill the requirements of and shall execute and file with the commissioner when applying for a certificate of authority, a declaration setting forth:

(a) The name of the insurer.

(b) The location of the insurer’s principal office, which shall be the same as that of the attorney and shall be maintained within this state.

(c) The kinds of insurance proposed to be transacted.

(d) The names and addresses of the original subscribers.

(e) The designation and appointment of the proposed attorney and a copy of the power of attorney.

(f) The names and addresses of the officers and directors of the attorney, if a corporation, or its members, if a firm or a limited liability company.

(g) The powers of the subscribers’ advisory committee and the names and terms of office of the members thereof.

(h) That all moneys paid to the reciprocal shall, after deducting therefrom any sum payable to the attorney, be held in the name of the insurer and for the purposes specified in the subscribers’ agreement.

(i) A statement that each of the original subscribers has in good faith applied for insurance of a kind proposed to be transacted, and that the insurer has received from each such subscriber the full premium or premium deposit required for the policy applied for, for a term of not less than 6 months at an adequate rate theretofore filed with and approved by the commissioner.

(j) A statement of the financial condition of the insurer, a schedule of its assets, and a statement that the surplus as required by this title is on hand.

(k) A copy of each policy, endorsement and application form it then proposes to issue or use.

III. The declaration shall be acknowledged by the attorney in the manner required for the acknowledgment of deeds.

405-C:7 Certificate of Authority.

I. The certificate of authority of a reciprocal insurer shall be issued to its attorney in the name of the insurer.

II. The commissioner may refuse, suspend or revoke the certificate of authority, in addition to other grounds therefor, for failure of the attorney to comply with any applicable provisions of this title.

405-C:8 Power of Attorney.

I. The rights and powers of the attorney of a reciprocal insurer shall be as provided in the power of attorney given it by the subscribers.

II. The power of attorney shall set forth:

(a) The powers of the attorney;

(b) The general services to be performed by the attorney;

(c) The maximum amount to be deducted from advance premiums or deposits to be paid to the attorney and the general items of expense in addition to losses, to be paid by the insurer; and

(d) Except as to nonassessable policies, a provision for a contingent several liability of each subscriber in a specified amount which amount shall be not less than one nor more than 10 times the premium or premium deposit stated in the policy.

III. The power of attorney may:

(a) Provide for the right of substitution of the attorney and revocation of the power of attorney and rights thereunder.

(b) Impose such restrictions upon the exercise of the power as are agreed upon by the subscribers.

(c) Provide for the exercise of any right reserved to the subscribers directly or through their advisory committee.

(d) Contain other lawful provisions deemed advisable.

IV. The terms of any power of attorney or agreement collateral thereto shall be reasonable and equitable, and no such power or agreement shall be used or be effective in this state until approved by the commissioner.

405-C:9 Modifications. Modifications of the terms of the subscribers’ agreement or of the power of attorney of a domestic reciprocal insurer shall be made jointly by the attorney and the subscribers’ advisory committee. No such modification shall be effective retroactively, nor as to any insurance contract issued prior thereto.

405-C:10 Attorney’s Bond.

I. Concurrently with the filing of the declaration provided for in RSA 405-C:6, the attorney of a domestic reciprocal insurer shall file with the commissioner a bond in favor of this state for the benefit of all persons damaged as a result of breach by the attorney of the conditions of his bond which shall be executed by the attorney and by an authorized corporate surety, and which shall be in the form as set forth in paragraph II. The bond shall be executed subject to the commissioner’s approval.

II. The bond shall be in the penal sum of $250,000 aggregate in form, conditioned that the attorney will faithfully account for all moneys and other property of the insurer coming into his or her hands, and that he or she will not withdraw or appropriate to his or her own use from the funds of the insurer, any moneys or property to which he or she is not entitled under the power of attorney.

III. The bond shall provide that it is not subject to cancellation unless 30 days’ notice in writing of cancellation is given both the attorney and the commissioner.

IV. The commissioner may waive or reduce the requirements of this section for an attorney that is under common ownership or control with a reciprocal insurer.

405-C:11 Deposit in Lieu of Bond. In lieu of the bond required under RSA 405-C:10, the attorney may maintain on deposit in the office of the commissioner, subject to the same conditions as the bond, a like amount in:

I. Cash;

II. Securities qualified as insurer investments; or

III. A letter of credit issued for the benefit of and acceptable to the commissioner.

405-C:12 Action on Bond. Action on the attorney’s bond or to recover against any such deposit made in lieu thereof may be brought at any time by one or more subscribers suffering loss through a violation of its conditions, or by a receiver or liquidator of the insurer. Amounts recovered on the bond shall be deposited in and become part of the insurer’s funds. The total aggregate liability of the surety shall be limited to the amount of the penalty of such bond.

405-C:13 Services of Process; Judgment.

I. Legal process shall be served upon a domestic reciprocal insurer by serving the insurer’s attorney at his principal office.

II. Any judgment based upon legal process so served shall be binding upon each of the insurer’s subscribers as their respective interests may appear, but in an amount not exceeding their respective contingent liabilities, if any, the same as though personal service of process was had upon each such subscriber.

405-C:14 Contributions to Insurer. The attorney or other parties may advance to a domestic reciprocal insurer upon reasonable terms such funds as it may require from time to time in its operations. Sums so advanced shall not be treated as a liability of the insurer, and, except upon liquidation of the insurer, shall not be withdrawn or repaid except out of the insurer’s realized earned surplus in excess of its minimum required surplus. No such withdrawal or repayment shall be made without the prior written approval of the commissioner. This section does not apply to bank loans, or to other loans made upon security.

405-C:15 Financial Condition; Method of Determining. In determining the financial condition of a reciprocal insurer the commissioner shall apply the following rules:

I. The commissioner shall charge as liabilities the same reserves as are required of incorporated insurers issuing nonassessable policies on a reserve basis.

II. The surplus deposits of subscribers shall be allowed as assets, except that any premium deposit delinquent for 90 days shall first be charged against such surplus deposit.

III. The surplus deposits of subscribers shall not be charged as a liability.

IV. All premium deposits delinquent less than 90 days shall be allowed as assets.

V. An assessment levied upon subscribers, and not collected, shall not be allowed as an asset.

VI. The contingent liability of subscribers shall not be allowed as an asset.

VII. The computation of reserves shall be based upon premium deposits other than membership fees and without any deduction for expenses and the compensation of the attorney.

405-C:16 Subscribers. Individuals, partnerships, and corporations of this state may make application, enter into agreement for and hold policies or contracts in or with and be a subscriber of any domestic, foreign, or alien reciprocal insurer. Any corporation organized under the laws of this state, including nonprofit corporations organized under the provisions of RSA 292, shall, in addition to the rights, powers, and franchises specified in its articles of incorporation, have full power and authority as a subscriber to exchange insurance contracts through such reciprocal insurer. The right to exchange such contracts is declared to be incidental to the purposes for which such corporations are organized and to be as fully granted as the rights and powers expressly conferred upon such corporations. Government or governmental agencies, state or political subdivisions thereof, boards, associations, estates, trustees or fiduciaries are authorized to exchange nonassessable reciprocal interinsurance contracts with each other and with individuals, partnerships and corporations to the same extent that individuals, partnerships and corporations are herein authorized to exchange reciprocal interinsurance contracts. Any officer, representative, trustee, receiver, or legal representative of any such subscriber shall be recognized as acting for or on its behalf for the purpose of such contract but shall not be personally liable upon such contract by reason of acting in such representative capacity.

405-C:17 Subscribers’ Advisory Committee.

I. The advisory committee of a domestic reciprocal insurer exercising the subscribers’ rights shall be selected under such rules as the subscriber prescribes.

II. Not less than 2/3 of the members of the committee shall be subscribers.

III. The committee shall:

(a) Supervise the finances of the insurer.

(b) Supervise the insurer’s operations to such extent as to assure conformity with the subscribers’ agreement and power of attorney.

(c) Procure the audit of the accounts and records of the insurer and of the attorney at the expense of the insurer.

(d) Have such additional powers and functions as may be conferred by the subscribers’ agreement.

405-C:18 Subscribers’ Liability.

I. The liability of each subscriber, other than as to a nonassessable policy, for the obligations of the reciprocal insurer shall be an individual, several and proportionate liability, and not joint.

II. Except as to a nonassessable policy, each subscriber shall have a contingent assessment liability, in the amount provided for in the power of attorney or in the subscribers’ agreement, for payment of actual losses and expenses incurred while his policy was in force. The contingent liability may be at the rate of not less than one nor more than 10 times the premium or premium deposit stated in the policy, and the maximum aggregate thereof shall be computed in the manner set forth in RSA 405-C:22.

III. Each assessable policy issued by the insurer shall contain a statement of the contingent liability, set in type of the same prominence as the insuring clause.

405-C:19 Subscribers’ Liability on Judgment.

I. No action shall lie against any subscriber upon any obligation claimed against the insurer until a final judgment has been obtained against the insurer and remains unsatisfied for 30 days.

II. Any such judgment shall be binding upon each subscriber only in such proportion as his interests may appear and in amount not exceeding his contingent liability, if any.

405-C:20 Assessments.

I. Assessments may from time to time be levied upon subscribers of a domestic reciprocal insurer liable therefor under the terms of their policies by the attorney upon approval in advance by the subscribers’ advisory committee and the commissioner; or by the commissioner in liquidation of the insurer.

II. Each subscriber’s share of a deficiency for which an assessment is made, but not exceeding in any event his or her aggregate contingent liability as computed in accordance with RSA 405-C:22, shall be computed by applying to the premium earned on the subscriber’s policy or policies during the period to be covered by the assessment, the ratio of the total deficiency to the total premiums earned during such period upon all policies subject to the assessment.

III. In computing the earned premiums for the purposes of this section, the gross premium received by the insurer for the policy shall be used as a base, deducting therefrom solely charges not recurring upon the renewal or extension of the policy.

IV. No subscriber shall have an offset against any assessment for which he or she is liable, on account of any claim for unearned premium or losses payable.

405-C:21 Time Limit for Assessments. Every subscriber of a domestic reciprocal insurer having contingent liability shall be liable for, and shall pay his or her share of any assessment, as computed and limited in accordance with this chapter, if:

I. While his or her policy is in force or within one year after its termination, he or she is notified by either the attorney or the commissioner of his or her intentions to levy such assessment, or

II. If an order to show cause why a receiver, conservator, rehabilitator, or liquidator of the insurer should not be appointed is issued while his or her policy is in force or within one year after its termination.

405-C:22 Aggregate Liability No one policy or subscriber as to a policy shall be assessed or charged with an aggregate of contingent liability as to obligations incurred by a domestic reciprocal insurer in any one calendar year, in excess of the amount provided for in the power of attorney or in the subscribers’ agreement, computed solely upon premium earned on such policy during that year.

405-C:23 Nonassessable Policies.

I. If a reciprocal insurer has a surplus of assets over all liabilities at least equal to the minimum capital stock and surplus required to be maintained by a domestic stock insurer authorized to transact like kinds of insurance, upon application of the attorney and as approved by the subscribers’ advisory committee the commissioner shall issue his or her certificate authorizing the insurer to extinguish the contingent liability of subscribers under its policies then in force in this state, and to omit provisions imposing contingent liability in all policies delivered or issued for delivery in this state for so long as all of the surplus remains unimpaired.

II. Upon impairment of such surplus, the commissioner shall forthwith revoke the certificate. The revocation shall not render subject to contingent liability any policy then in force and for the remainder of the period for which the premium has theretofore been paid; but after the revocation no policy shall be issued or renewed without providing for contingent assessment liability of the subscriber.

III. The commissioner shall not authorize a domestic reciprocal insurer so to extinguish the contingent liability of any of its subscribers or in any of its policies to be issued, unless it is qualified to and does extinguish the liability of all its subscribers and in all policies for all kinds of insurance transacted by it. Nevertheless, if required by the laws of another state in which the insurer is transacting insurance as an authorized insurer, the insurer may issue policies providing for the contingent liability of such of its subscribers as may acquire such policies in that state, and need not extinguish the contingent liability applicable to policies theretofore in force in that state.

405-C:24 Subscribers’ Share in Assets. Upon the liquidation of a domestic reciprocal insurer, its assets remaining after discharge of its indebtedness and policy obligations, the return of any contributions of the attorney or other persons to its surplus, and the return of any unused premium, savings, or credits then standing on subscribers’ account, shall be distributed to its subscribers who were such within the 12 months prior to the last termination of its certificate of authority, according to a reasonable formula which the commissioner approves.

405-C:25 Merger or Conversion.

I. A domestic reciprocal insurer, upon affirmative vote of not less than 2/3 of its subscribers who vote on such merger pursuant to due notice and the approval of the commissioner of the terms therefor, may merge with another reciprocal insurer or be converted to a stock or mutual insurer.

II. Such a stock or mutual insurer shall be subject to the same capital or surplus requirements and shall have the same rights as a like domestic insurer transacting like kinds of insurance.

III. The commissioner shall not approve any plan for merger or conversion which is inequitable to subscribers, or which, if for conversion to a stock insurer, does not give each subscriber preferential right to acquire stock of the proposed insurer proportionate to his or her interest in the reciprocal insurer as determined in accordance with RSA 405-C:24 and a reasonable length of time within which to exercise such right.

405-C:26 Impaired Reciprocals.

I. If the assets of a domestic reciprocal insurer are at any time insufficient to discharge its liabilities, other than any liability on account of funds contributed by the attorney or others, and to maintain the required surplus, its attorney shall forthwith make up the deficiency or levy an assessment upon the subscribers for the amount needed to make up the deficiency, but subject to the limitation set forth in the power of attorney or policy.

II. If the attorney fails to make up such deficiency or to make the assessment within 30 days after the commissioner orders him or her to do so, or if the deficiency is not fully made up within 60 days after the date the assessment was made, the insurer shall be deemed insolvent and shall be proceeded against as authorized by this title.

III. If liquidation of such an insurer is ordered, an assessment shall be levied upon the subscribers for such an amount, subject to limits as provided by this chapter, as the commissioner determines to be necessary to discharge all liabilities of the insurer, exclusive of any funds contributed by the attorney or other persons, but including the reasonable cost of the liquidation.

2 Business Profits Tax. Amend RSA 77-A:1, I to read as follows:

I. “Business organization” means any enterprise, whether corporation, partnership, limited liability company, proprietorship, association, business trust, real estate trust or other form of organization; organized for gain or profit, carrying on any business activity within the state, except such enterprises as are expressly made exempt from income taxation under the United States Internal Revenue Code as defined in RSA 77-A: 1, XX. Each enterprise under this definition shall be subject to taxation under RSA 77-A:2 as a separate entity, unless specifically authorized by this chapter to be treated otherwise, such as, but not limited to, combined reporting. Trusts treated as grantor trusts under section 671 of the United States Internal Revenue Code shall be included in the return of their owners, and such owners shall be subject to the tax thereon to the extent such owners would be considered a business organization hereunder notwithstanding the existence of the trust. The use of consolidated returns as defined in the United States Internal Revenue Code as defined in RSA 77-A:1, XX is not permitted. Notwithstanding any other provision of this paragraph, an enterprise shall not be characterized as a business organization and shall be excluded from taxation at the entity level if it elects to be treated as a qualified investment company as defined in RSA 77-A:1, XXI, or if the enterprise is licensed in this state as a captive insurance company, as defined in RSA 405-B:1, IV. A partnership, limited liability company, estate, trust except grantor trusts pursuant to section 671 of the United States Internal Revenue code, “S” corporation, real estate investment trust, or any other such entity, other than an organization electing to be treated as a qualified investment company as defined in RSA 77-A:1, XXI whose net income is reportable by the true owners either directly or indirectly shall be subject to tax at the entity level, and no part of such earnings or loss shall be included in the calculation of the gross business profits of the owners of such entity.

3 Business Enterprise Tax. Amend RSA 77-E:1, III to read as follows:

III. “Business enterprise” means any profit or nonprofit enterprise or organization, whether corporation, partnership, limited liability company, proprietorship, association, trust, business trust, real estate trust or other form of organization engaged in or carrying on any business activity within this state, except such enterprises as are expressly made exempt from income taxation under section 501(c)(3) of the United States Internal Revenue Code to the extent such enterprise does not engage in any business activity constituting unrelated business activity as defined by section 513 of the United States Internal Revenue Code. Each business enterprise under this definition shall be subject to the tax imposed under RSA 77-E as a separate entity except that trusts treated as grantor trusts under section 671 of the United States Internal Revenue Code shall be included in the return of their owners, and such owners shall be subject to the tax thereon to the extent any such owners would be considered a business enterprise hereunder notwithstanding the existence of the trust. The use of consolidated returns as defined in the United States Internal Revenue Code or of combined reporting is not permitted. Notwithstanding any other provision of this paragraph, an enterprise shall not be characterized as a business enterprise and shall be excluded from taxation at the entity level if it is a qualified investment company as defined in RSA 77-E:1, XIV, or if the enterprise is licensed in this state as a captive insurance company, as defined in RSA 405-B:1, IV.

4 Effective Date. This act shall take effect January 1, 2006.

LBAO

05-0490

Revised 2/2/05

SB 197 FISCAL NOTE

AN ACT relative to captive insurance companies and reciprocal insurers.

FISCAL IMPACT:

The Insurance Department has determined this bill will increase state general fund revenue by $15,000 in FY 2006, $54,000 in FY 2007, $93,000 in FY 2008 and by 132,000 in FY 2009. There will be no fiscal impact on county and local revenue or state, county and local expenditures.

METHODOLOGY:

The Department anticipates that five applications will be submitted and approved during FY 2006, and an additional five applications will be submitted each year after through FY 2009. The Department calculated the impact as follows:

FY 2006 FY 2007 FY 2008 FY 2009

Applications submitted 5 5 5 5

Captives licensed 5 5 5 5

Application Fees $200 $ 1,000 $ 1,000 $1,000 $ 1,000

License Fees $300 1,500 3,000 4,500 6,000

Minimum Premium Tax $7,500 37,500 75,000 112,500 150,000

Non-Refundable Credit $5,000 - 25,000 -25,000 - 25,000 - 25,000

$15,000 $54,000 $ 93,000 $132,000

The Department is unable to estimate how much, if any, additional positive impact the licensing of captive insurance will have on premium tax collections.

The Department of Revenue Administration states this bill seeks to impose a tax on captive insurance companies and reciprocal insurers. This bill would exempt these entities from taxation under the Business Profits Tax (RSA 77-A) and the Business Enterprise Tax (RSA 77-E). The Department does not have the information available to estimate the fiscal impact of this bill. If the entities mentioned in this bill do not already file Business Profit Tax and/or Business Enterprise Tax, the effect is similarly unknown, as the Department does not know which entities are “captive insurance companies or reciprocal insurers” based upon their tax filings with the Department.

Links

SB197 at GenCourtMobile

Action Dates

Date Body Type

Bill Text Revisions

SB197 Revision: 9251 Date: Jan. 21, 2010, midnight

Docket