Amends TCA Title 56.

ON MARCH 4, 2024, THE SENATE ADOPTED AMENDMENT #1 AND PASSED SENATE BILL 2024, AS AMENDED. AMENDMENT #1 rewrites the bill to make the changes described below to the Revised Tennessee Captive Insurance Act. AGENCY CAPTIVE INSURANCE COMPANY This amendment authorizes an agency captive insurance company to reinsure any risks of the policies that are placed by or through the insurance agency or brokerage that owns the agency captive insurance company. As used in this amendment, an ''agency captive insurance company'' means a company or protected cell that is owned by an insurance agency or brokerage and that only reinsures risks of policies that are placed by or through the agency or brokerage. ANNUAL MEETING Present law prohibits a captive insurance company from transacting any insurance business in this state unless its board of directors or committee of members or managers or, in the case of a reciprocal insurer, its subscribers' advisory committee holds at least one meeting each year in this state. This amendment adds to the present law by providing that with the approval of the commissioner of the department of commerce and insurance ("commissioner"), its board of directors or committee of members or managers or, in the case of a reciprocal insurer, its subscribers' advisory committee, is not required to hold a meeting each year in this state if the captive insurance company utilizes at least two service providers with physical office locations in this state. CAPITAL AND SURPLUS REQUIREMENTS This amendment prohibits an agency captive insurance company from being issued a license unless it possesses and maintains unimpaired paid-in capital and surplus of not less than $250,000. ORGANIZATION OF COMPANY Present law authorizes a pure captive insurance company to be incorporated as a stock insurer with its capital divided into shares and held by the stockholders, as a nonprofit corporation with one or more members, or as a limited liability company. This amendment adds to the present law by also authorizing an agency captive insurance company to be incorporated as a stock insurer with its capital divided into shares and held by the stockholders, as a nonprofit corporation with one or more members, or as a limited liability company. Present law requires a captive insurance company incorporated or organized in this state to have not less than three incorporators or three organizers of whom not less than one must be a resident of this state. This amendment revises the present law and, instead, requires a captive insurance company incorporated or organized in this state to have not less than one incorporator or one organizer. ANNUAL REPORTS Present law authorizes a captive insurance company, except for a risk retention group, to make written application to the commissioner for filing the required report on a fiscal year-end. If an alternative reporting date is granted by the commissioner, then (i) the annual report is due 75 days after the fiscal year-end; and (ii) in order to provide sufficient detail to support the premium tax return, the pure captive insurance company or industrial insured captive insurance company must file, prior to March 15 of each year for each calendar year-end, such information as may be required on a form approved by the commissioner, verified by oath of two of its executive officers. This amendment revises the present law above by requiring the pure captive insurance company or industrial insured captive insurance company to file, prior to March 15 of each year for each calendar year-end, such information as may be required on a form approved by the commissioner, verified by oath of two of its executive officers, unless the commissioner approves an alternative date for filing and paying the premium tax. INSPECTIONS AND AUDITS At least once every three years, and whenever the commissioner determines it to be prudent, present law requires the commissioner to 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 existing law. The commissioner may extend such three-year period to five years so long as the captive insurance company is subject to a comprehensive annual audit by independent auditors approved by the commissioner during such five-year period. The comprehensive audit must be of a scope satisfactory to the commissioner. The expenses and charges of the examination must be paid by the captive insurance company. This amendment adds to the present law by providing that if the captive insurance company chooses to be audited annually by an independent auditor, it is a best practice for the captive insurance company to rotate independent auditors every five years, but the captive insurance company is not required to rotate independent auditors unless the commissioner determines otherwise on a case-by-case basis. REINSURANCE Except where specifically provided otherwise, present law provides that insurance by a captive insurance company of any workers' compensation or accident and health qualified self-insured plan of its parent and affiliates, and the assumption of risk by a captive insurance company under any service contract issued by a parent or affiliate, is deemed to be reinsurance. This amendment revises the present law by, instead, providing that the assumption of risk by a captive insurance company under any service contract is deemed to be reinsurance. TAXES This amendment authorizes the commissioner, in the commissioner's sole discretion, to approve an alternative date for filing and paying the premium tax due for captive insurance companies on a fiscal year-end. The alternative filing and payment date must be no later than 75 days after the captive insurance company's fiscal year-end. Captive insurance companies on a fiscal year-end may apply for an alternate filing and payment date on forms developed by the commissioner. MATERIAL CHANGE Present law prohibits a captive insurance company from making any material change or changes to its plan of operation until the department of commerce and insurance has approved the change or changes. This amendment adds to the present law by providing that a material change does not include adding an additional line of coverage or increasing or decreasing premiums for a line of coverage as long as such increase or decrease is less than 15 percent. DORMANT CAPTIVE INSURANCE COMPANY Present law requires a dormant captive insurance company that has been issued a letter of dormancy to do the following: (i) possess, and thereafter maintain unimpaired, paid-in capital and surplus of not less than $25,000; (ii) prior to March 15 of each year, submit to the commissioner a report of its financial condition; and (iii) pay the fee of $55 for an annual statement. A dormant captive insurance company that has been issued a letter of dormancy is not subject to or liable for the payment of the annual minimum aggregate tax. However, a dormant captive insurance company is liable for payment of premium tax on premiums received before issuance of a letter of dormancy. Present law requires a dormant captive insurance company that has been issued a letter of dormancy to apply to the commissioner for and receive a rescission of the letter of dormancy and restore its unimpaired paid-in capital and surplus to the amount required in existing law prior to issuing any insurance policies and resuming the business of insurance. Present law provides that the captive insurance company is responsible for all taxes, fees, and statutory requirements for the year in which the rescission or expiration of its letter of dormancy occurs. This amendment authorizes the commissioner to waive any of the above requirements for a dormant captive insurance company. If the commissioner waives a requirement, then the commissioner may impose actuarial reporting requirements and additional capital and surplus requirements on the dormant captive insurance company. CONDITIONS FOR FORMATION OR LICENSURE Present law requires a protected cell to have its own distinct name or designation that must include the words "protected cell" or "incorporated cell." However, an incorporated cell formed as a series of a limited liability company, if formed after July 1, 2015, must bear a distinct name or designation as reflected in its formation documents and must include the words "series cell." This amendment adds to the present law by providing that such names or designations may also be reasonably abbreviated, including, without limitation, PC or P.C. for ''protected cell'', IC, I.C., IPC, or I.P.C. for ''incorporated cell", and SC, S.C., SPC, or S.P.C. for ''series cell.'' CAPTIVE INSURANCE COMPANY DEFINITION As used in the present law above, a "captive insurance company" means any pure captive insurance company, association captive insurance company, industrial insured captive insurance company, risk retention group, protected cell captive insurance company, incorporated cell captive insurance company, or special purpose financial captive insurance company formed or licensed under the Revised Tennessee Captive Insurance Act. This amendment adds an agency captive insurance company to the definition of a "captive insurance company."