- Legislation Substantially Relaxing South Carolina Captive Insurance Law Heads to Governor Nikki Haley for Action
- June 23, 2014
- Law Firm: Colodny Fass P.A. - Fort Lauderdale Office
A bill that would relax laws governing captive insurance companies doing business in South Carolina and allow the formation of incorporated cells passed the South Carolina General Assembly on May 28, 2014. The legislation, Senate Bill 909, will now be presented to Governor Nikki Haley for consideration.
South Carolina's Captive Insurance Law (Title 38, Chapter 90) currently includes provisions that were adopted in accordance with National Association of Insurance Commissioners' ("NAIC") Accreditation Standards. These provisions are intended to apply to all risk retention groups domiciled in South Carolina and generally apply to all "industrial insured captives" as defined in Section 38-90-10(17).
SB 909 was drafted by the South Carolina Department of Insurance to clarify that all risk retention groups domiciled in South Carolina must comply with the NAIC Accreditation Standards.
Notably, the bill amends South Carolina's current "protected cell" law by adding Section 38-90-215 to enable individual cells to incorporate, provided that they satisfy, inter alia, paid-in capital, and surplus, loss reserves and trust fund requirements. A protected cell is a company that has been separated into legally distinct cells, which allows the assets and liabilities of individual cells to be separate from one another.
If enacted, SB 909 would make these and other substantial changes to South Carolina's existing law as follows:
- Add Section 38-90-165 authorizing the South Carolina insurance director to declare certain captives to be deemed inactive, thereby reducing their premium tax obligations.
- Add Section 38-90-250 to specify that a licensed captive insurance that satisfies the requirements of the South Carolina Insurance Code must considered for issuance of a certificate of authority as an insurer in South Carolina.
- Amend Section 38-90-10, setting forth the various definitions applicable to captive insurance companies. The bill adds new definitions for "General Account" and "Risk Retention Group." It also revises the definition of "Protected Cell," and adds the definitions of "Protected Cell Account," "Protected Cell Assets" and "Protected Cell Liabilities."
- Delete the requirement in Section 38-90-20 for a certificate of general good to be issued by South Carolina's insurance director in approving a foreign or alien captive insurer as a domestic captive.
- Revise Section 38-90-40 relating to captive capitalization requirements to include captives and special purpose captives formed as risk retention groups.
- Amend Section 38-90-35 to modify what constitutes confidential information and permitted disclosures by the South Carolina insurance director.
- Revise Section 38-90-40 relating to capitalization requirements to include language pertaining to captives formed as risk retention groups.
- Add risk retention group language to Section 38-90-50 regarding free surplus requirements.
- Delete numerous requirements in Section 38-90-55 for the incorporation of captive reinsurers.
- Amend Section 38-90-60 to allow a captive to be incorporated as a reciprocal insurer or mutual insurer without capital stock; delete existing incorporation requirements for pure captives, sponsored and association captives, and industrial insured captives. Revisions to 38-90-60 also add Board of Directors residency requirements for certain types of captives.
- Subject to approval by South Carolina's insurance director, enable captives to participate in commercial risk sharing pools by amending Section 38-90-130.
- Substantially amend Section 38-90-210 to enable sponsored captives to form one or more protected cells; and Sections 38-90-220 and 38-90-230 relating to sponsor requirements, and sponsored captive participants and obligations, respectively.
- Add language in Section 38-90-240 defining participants of a special purpose financial captive, but specifying that sponsored captives established pursuant to Section 38-90-210 may not be used to facilitate insurance securitizations, which are governed by Title 38, Chapter 10.
- Delete certain provisions in Section 38-90-450 relating to the incorporation of special purpose financial captives.
- Completely repeal Section 38-90-235, which provides that terms and conditions for protected cell insurance companies apply to sponsored captive insurance companies (including the exception that Section 38-10-40(F) does not apply).
The South Carolina Captive Insurance Association explains that, by allowing captives to form incorporated protected cells, SB 909 would enhance the integrity of each cell's separated risks. With encouragement for Governor Haley to sign it into law, the organization lists the following benefits to the legislation:
- Would enable small businesses to group together to obtain better rates and treatment.
- Would encourage the formation of cells by providing better protections for each cell's assets.
- Would position South Carolina to better compete with other domiciles including Delaware, Washington D.C., Vermont and Tennessee, which currently allow incorporated cells.
- Would help keep business in South Carolina when the Internal Revenue Service requires cell incorporation for tax purposes
- Improve South Carolina's economic development recruitment efforts for large corporations that utilize captives for meeting their insurance needs.
Governor Haley must sign or veto SB 909 within five days of receiving it (except for Sunday), or it becomes law without her signature.