(A)(1) The director may not issue a license to a captive insurance company unless the company possesses and maintains free and unimpaired paid-in capital, surplus, or unrestricted net assets for a nonprofit corporation, or a combination thereof of:

(a) in the case of a pure captive insurance company, not less than two hundred and fifty thousand dollars;

(b) in the case of an association captive insurance company incorporated as a stock insurer, mutual insurer, or organized as a limited liability company, not less than seven hundred and fifty thousand dollars;

(c) in the case of an industrial insured captive insurance company or risk retention group, not less than five hundred thousand dollars;

(d) in the case of a sponsored captive insurance company, not less than two hundred fifty thousand dollars;

(e) in the case of a special purpose captive insurance company that is not a risk retention group, an amount determined by the director after giving due consideration to the company's business plan, feasibility study, and pro formas, including the nature, scale, and complexity of the risks to be insured.

(2) The director may prescribe additional capital and surplus requirements based upon the type, volume, and nature of insurance business to be transacted.

(3) The free and unimpaired paid-in capital, surplus, or combination thereof required by this section must be in the form of cash, securities approved by the director, a clean irrevocable letter of credit issued by a bank approved by the director, or other form approved by the director.

(B) For purposes of subsection (A), the director may issue a license expressly conditioned upon the captive insurance company providing to the director satisfactory evidence of possession of the minimum required free and unimpaired paid-in capital, surplus, or combination thereof. Until this evidence is provided, the captive insurance company may not issue any policy, assume any liability, or otherwise provide coverage. The director summarily may revoke the conditional license without legal recourse by the company if satisfactory evidence of the required capital, surplus, or combination thereof is not provided within a maximum period of time, not to exceed one year, to be established by the director at the time the conditional license is issued.

(C) In the case of a branch captive insurance company, as security for the payment of liabilities attributable to branch operations, the director shall require that a trust account, 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 the security may be no less than the reserves on these insurance policies or reinsurance contracts, including reserves for losses, allocated loss adjustment expenses, incurred but not reported losses and unearned premiums with regard to business written through branch operations; however, the director may permit a branch captive insurance company that is required to post security for loss reserves on branch business by its reinsurer or front company 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 or front company. 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.

(D) A captive insurance company may not pay a dividend out of, or other distribution with respect to, capital or surplus, in excess of the limitations set forth in Section 38-21-250 through Section 38-21-270, without the approval of the director. Approval of an ongoing plan for the payment of dividends or other distributions must 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 director.

(E) An irrevocable letter of credit, which is issued by a financial institution other than a bank chartered by this State or a member bank of the Federal Reserve System, must be in a form as prescribed by the director.

HISTORY: 2000 Act No. 331, Section 1; 2002 Act No. 188, Section 4, eff March 12, 2002; 2003 Act No. 73, Section 24.C, eff June 25, 2003; 2004 Act No. 291, Section 20, eff July 29, 2004; 2006 Act No. 332, Section 15, eff June 1, 2006; 2009 Act No. 28, Section 3, eff June 2, 2009; 2010 Act No. 217, Section 7, eff June 7, 2010; 2014 Act No. 282 (S.909), Section 7, eff June 10, 2014; 2018 Act No. 251 (H.4675), Section 1, eff May 18, 2018.

Effect of Amendment

2014 Act No. 282, Section 7, in subsection (A)(1)(c), inserted "or in the case of a captive insurance company formed as a risk retention group,"; in subsection (A)(1)(e), inserted "that is not a special purpose captive insurance company formed as a risk retention group,"; rewrote subsection (A)(2); rewrote subsection (B); in subsection (D), inserted "Notwithstanding the provision of this section,"; and made other nonsubstantive changes.

2018 Act No. 251, Section 1, rewrote the section.