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Relating to reinsurance, distributions, and pooling arrangements by captive insurance companies.
No significant fiscal implication to the State is anticipated.
HB 1700 would amend chapter 964 of the Insurance Code that deals with the regulations of captive insurance companies (CIC). It would permit CICs, with approval from the commissioner of insurance, to accept risks from and cede risks to or take credit for risks ceded to a captive reinsurance pool that is composed of other CICs only. Additionally, a CIC would be able to accept from or cede risks to an affiliated CIC.
This legislation would allow CICs to issue dividends to interest holders in the company. However, this is contingent on the commissioner’s approval, and the commissioner would be responsible for implementing the rules for this.
Lastly, HB 1700 would add a new section under chapter 964. This section would give the commissioner the authority to approve a CICs participation in a captive reinsurance pool. Moreover, the commissioner may impose additional restrictions or requirements on a CIC that he or she deems necessary to protecting the company.
A CIC is an insurance company that is specifically created and owned by one or more non-insurance companies to insure the risks of those non-insurance companies. As the National Association of Insurance Commissioners (NAIC) succinctly puts it, “captives are essentially a form of self-insurance whereby the insurer is owned wholly by the insured.”
The 83rd Legislature made huge strides by voting to allow CICs to operate in Texas for the first time, but currently there remain many prohibitive regulations over this type of insurance. Fortunately, the 84th Legislature is continuing in the footsteps of the 83rd by further opening up options for CICs to operate.
HB 1700 would expand the captive insurance market by removing additional regulations that prevent CICs from entering into a reinsurance pool.
Unfortunately, this bill is not perfect. Specifically, we do not agree with the increased authority allotted to the commissioner of insurance. A CIC should not need approval from the commissioner to enter into a reinsurance pool. Moreover a CIC should not have to endure arbitrary limits or requirements placed on it by the commissioner.
Although we believe this bill could have gone further in limiting government interference, we still support HB 1700 because it pushes the captive insurance market into a less prohibitive regulatory environment, which is good news for our free market principle.