Delaware General Assembly


CHAPTER 454

FORMERLY

SENATE BILL NO. 527

AS AMENDED BY SENATE AMENDMENT NOS. 1 AND 2

AN ACT TO AMEND TITLE 18, DELAWARE CODE BY ADDING A NEW CHAPTER RELATING TO CAPTIVE INSURANCE COMPANIES.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE:

Section 1. Amend Title 18, Delaware Code by adding thereto a new chapter to read as follows:

"CHAPTER 69. CAPTIVE INSURANCE COMPANIES

§6901. Definitions

(1) '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.

(2) 'Association' means any legal association of individuals, corporations, partnerships, or associations that has been in continuous existence for at least one year, the member organizations of which collectively 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, or have complete voting control over an association captive insurance company incorporated as a mutual insurer.

(3) 'Association captive insurance company' means any pure captive that insures risks of the member organizations of the association, and their affiliated companies.

(4) 'Captive insurance company' means any pure captive insurance company, association captive insurance company, or industrial insured captive insurance company formed or licensed under the provisions of this chapter.

(5) 'Commissioner' means the Commissioner of the Insurance Department.

(6) 'Industrial insured' means an insured 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, and whose aggregate annual premiums for insurance on all risks total at least $25,000.00, and who has at least 25 full-time employees.

(7) 'Industrial insured captive insurance company' means any company that insures risks of the industrial insured that comprises the industrial insured group, and their affiliated companies.

(8) 'Industrial insured group' means any group that meets either of the following criteria

any group of industrial insured that collectively

(i) 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, or

(ii) have complete voting control over an industrial insured captive insurance company incorporated as a mutual Insurer; or any group which is created under the Product Liability Risk Retention Act of 1981 (U.S. Public Law 97-45) as a corporation or other limited liability association taxable as a stock insurance company or a mutual insurer under the law of the State of Delaware:

(iii) whose primary activity consists of assuming and spreading all, or any portion, of the product liability or completed operations liability risk exposure of its group members; and

(iv) which is organized for the primary purpose of conducting the activity described in subdivision (i) of this section; and which does not exclude any person from membership in the group solely to provide for members of such group a competitive advantage over such a persom and which is composed of members each of whose principal activity consists of the manufacture, design, importation, distribution, packaging, labeling, lease, or sale of a product or products.

(9) 'Member organization' means any individual, corporation, partnership, or association that belongs to an association.

(10) 'Parent' means a corporation, partnership or individual that directly or indirectly owns, controls, or holds with power to vote more than 50 per centum of the outstanding voting securities of a pure captive insurance company.

(11) 'Pure captive insurance company' means any company that insures risks of its parent and affiliated companies.

§6902 Licensing Authority

(a) Any captive insurance company, when permitted by its articles of association or charter, may applly to the Commissioner for a license to do any and all insurance comprised in Sections 904, 905, 906 (except §906(a)(3)) and 907 of this Title; provided, however, that:

no pure captive insurance company may directly Insure any risks other than those of its parent and affiliated companies;

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

no industrial insured captive insurance company may insure any risks other than those of the industrial insured that comprise the industrial insured group, and their affiliated companies;

no captive insurance company may provide personal motor vehicle or homeowner's insurance coverage or any component thereof; and no captive insurance company may accept or cede reinsurance except as provided in Section 6911 hereof.

(b) No captive insurance company shall do any insurance business in this state unless:

it first obtains from the Commissioner a license authorizing it to do insurance business in this State.

it maintains its principal place of business in this State; and

it appoints a resident registered agent to accept service of process and to otherwise act on its behalf in this State. Whenever such registered agent cannot with reasonable diligence be found at the registered office of the captive insurance company, the Secretary of State shall be an agent of such captive insurance company upon whom any process, notice, or demand may be served.

(c)(1) Before receiving a license a captive insurance company shall file with the Commissioner a certified copy of its charter and bylaws, a statement under oath of its president and secretary showing its financial condition, and any other statements or documents required by the Commissioner.

(2) In addition to the information required by subdivision (1) of subsection (c), each applicant captive insurance company shall file with the Commissioner evidence of the following:

the amount and liquidity of its assets relative to the risks to be assumed;

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

the overall soundness of its plan of operation;

the adequacy of the loss prevention programs of its parent, member organizations, or industrial insured as applicable; and

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

Each captive insurance company shall pay to the Commissioner a nonrefundable fee of $200.00 for examining, investigating, and processing its application for license. In addition, it shall pay a fee for the year of registration and a renewal fee for each year thereafter of $300.00.

If the Commissioner is satisfied that the documents and statements that sustained insurance company has filed comply with the provisions of this chapter, he may grant a license authorizing it to do insurance business in this State until April 1 thereafter, which license may be renewed.

§6903. 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 Delaware.

§6904. Minimum Capital: Letter of Credit

No pure captive insurance company, association captive insurance company incorporated as a stock insurer, or industrial insured captive insurance company incorporated as a stock insurer shall be issued a license unless it shall possess and thereafter maintained unimpaired paid-in capital of:

in the case of a pure captive insurance company, not less than $100,000.00.

in the case of an association captive insurance company incorporated as a stock insurer, not less than $400,000.00, and

in the case of an industrial insured captive insurance company incorporated as a stock insurer, not less than $200,000.00.

Such capital may be in the form of cash or an irrevocable letter of credit issued by a bank chartered by the State of Delaware or a member bank of the Federal Reserve System and approved by the Commissioner.

§6905. Minimum Surplus:_Letter of Credit

No pure captive insurance company shall be issued a license unless it shall possess and thereafter maintain free surplus of:

in the case of a pure captive insurance company, not less than $150,000.00,

in the case of an association captive Insurance company Incorporated as a stock insurer, not less than $350,000.00,

in the case of an industrial insured captive insurance company incorporated as a stock insurer, not less than $300,000.00,

in the case of an association captive insurance company Incorporated as a mutual insurer, not less than $750,000.00, and

in the case of an Industrial insured captive insurance company incorporated as a mutual insurer, not less than $500,000.00.

Such surplus may be In the form of cash or an irrevocable letter of credit Issued by a bank chartered by the State of Delaware or member bank of the Federal Reserve System and approved by the Commissioner.

§6906. Formation of Captive Insurance CornPanies in this State

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

(b) An association captive insurance company or in an industrial insured captive insurance company may be Incorporated

as a stock insurer with its capital divided into shares and held by the stockholders, or

as a mutual insurer without capital stock, the governing body of which is elected by the member organizations of its association.

(c) A captive insurance company shall not have less than three incorporators of whom not less than two shall be residents of this State.

(d) Before the articles of association are transmitted to the Secretary of State. the

incorporators shall petition the Commissioner to issue a certificate setting forth his finding that the establishment and maintenance of the proposed corporation will promote the general good of the State. In arriving at such finding the Commissioner shall consider:

the character, reputation, financial standing and purpose of the incorporators;

the character, reputation, fianacial responsibility, insurance experience, and business qualifications of the officers and directors: and

such other aspects as the Commissioner shall deem advisable.

The articles of association, 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.

The capital stock of a captive insurance company incorporated as a stock insurer shall be issued at not less than par value.

At least one of the members of the board of directors of a captive insurance company incorporated in this State shall be a resident of this State.

Captive insurance companies formed under the provisions of this chapter shall have the privileges and be subject to the provisions of the general corporatin law as well as the applicable provisions contained in this chapter. In the event of a conflict between the provisions of said general corporation law and the provisions of this chapter, the latter shall control.

§6907. Reports and Statements

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

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 two of its executive officers. Each association captive insurance company shall file its report in the form required by the Insurance Commissioner. The Commissioner shall by rule propose the form in which pure captive insurance companies and industrial insured captive insurance companies shall report.

§6908. Examinations and Investigations

At least once in three years, and whenever the Commissioner determines it to be prudent, he shall personally, or by some competent person appointed by him, 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 his descretion, may enlarge the aforesaid three-year period to five 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 him. The expenses and charges of the examination shall be paid to the State by the company or companies examined and the finance director shall issued his warrants for the proper charges incurred in all examinations.

§6909. Grounds and Procedures for Suspension or Revocation of License

(a) The license of a captive insurance company to do an insurance business in this State may be suspended or revoked by the Commissioner for any of the following reasons:

Insolvency or impairment of capital or surplus;

Failure to meet the requirements of Sections 6904 or 6905;

Refusal or failure to submit an annual report, as required by Section 6907, or any other report or statement required by law or by lawful order of the Commisioner;

Failure to comply with the provisions of its own charter or bylaws;

Failure to submit to examination or any legal obligation relative thereto, as required by Section 6908;

Refusal or failure to pay the cost of examination as required by Section 6908;

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;

(8) Failure otherwise to comply with the laws of this State.

(b) if the Commissioner finds, upon examination, hearing, or other evidence, that any captive insurance company has committed any of the acts specified in subsection (a), he may suspend or revoke such license if he deems it in the best interest of the public and the policyholders of such captive insurance company, notwithstanding any other provision of this title.

§6910. Legal Investments

An association captive insurance company shall comply with the investment requirements contained in this title as applicable.

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 this title provided, however, that the Commissioner may prohibit or limit any investment that threatens the solvency or liquidity of any such company.

§6911. Reinsurance

Any captive insurance company may provide reinsurance, on risks ceded by any other insurer.

Any captive insurance company may take credit for reserves on risks ceded to a reinsurer; provided, however, that no captive insurance company shall reinsure a risk or part thereof with reinsurers not complying with the provisions of this title.

§6912. Rating Organizations: Memberships

No captive insurance company shall be required to join a rating organization.

§6913. Exemption From Compulsory Association

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 captive insurance company, or its insured, or its parent or any affiliated company, or any member organization of its association, 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.

§6914. Tax on Premiums Collected

Each captive insurance company shall pay to the Commissioner in the month of February of each year, a tax at the rate of one percent on the gross amount of all premiums collected or contracted for on policies or contracts of insurance covering property or risks in this State and on risks and property situated elsewhere upon which no premium tax is otherwise paid during the year ending December 31 next preceding, after deducting from the gross amount of premiums subject to the tax the amount paid to policyholders as return premiums which shall include dividends on unabsorbed premiums or premium deposits returned or credited to policyholders.

The tax provided for in this section shall constitute all taxes collectible under the laws of this State from any captive insurance company, and no other occupation tax or other taxes shall be levied or collected from any captive insurance company by the State or any county, city, or municipality within this State, except ad valorem taxes on real and personal property used in the production of income.

§6915. Rules and Regulations

The Commissioner may establish and from time to time amend such rules relating to captive Insurance companies as are necessary to enable him to carry out the provisions of this chapter.

§6916. 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.

§6917. Limitation of Applicability

The provisions of this chapter shall apply only to companies incorporated in the State of Delaware whose principal place of business is in the State of Delaware or to the wholly owned subsidiaries of those companies and who are incorporated in the State of Delaware."

Approved July 23, 1984.