TITLE 23 -- PUBLIC UTILITIES AND REGULATED INDUSTRIES...Subtitle 3. Insurance...Chapter 63 -- INSURANCE COMPANIES GENERALLY...Subchapter 16. Licensing and Regulation of Captive Insurers

23-63-1602

Licensing requirements

(a) A captive insurance company, when permitted by its articles of incorporation or charter, may apply to the Insurance Commissioner for a license to do any and all insurance, including workers' compensation insurance, authorized by the Arkansas Insurance Code. However:

(1) A pure captive insurance company may not insure any risks other than those of its parent and affiliated companies or controlled unaffiliated business;

(2) An association captive insurance company may not insure any risks other than those of the member organizations of its association and their affiliated companies;

(3) An industrial insured captive insurance company may not insure any risks other than those of the industrial insureds that compose the industrial insured group and their affiliated companies;

(4) A captive insurance company may not provide personal motor vehicle or homeowner's insurance coverage or any component of these coverages;

(5) A captive insurance company may not accept or cede reinsurance except as authorized by s 23-63-1611; and

(6) A producer reinsurance captive insurance company may not accept retrocession of any risks other than those written by or placed through its parent or affiliated licensed insurance producer and written by authorized insurers.

(b) To conduct insurance business in this state, a captive insurance company shall:

(1) Obtain from the commissioner a license authorizing it to conduct insurance business in this state;

(2) Hold at least one (1) board of directors meeting, or in the case of a reciprocal insurer, a subscriber's advisory committee meeting, each year in this state;

(3) Maintain its principal place of business in this state, or in the case of a branch captive insurance company, maintain the principal place of business for its branch operations in this state; and

(4)(A) Appoint a resident registered agent to accept service of process and to act on its behalf in this state.

(B) In the case of a captive insurance company:

(i) Formed as a corporation, the commissioner must be an agent of the captive insurance company upon whom any process, notice, or demand may be served whenever the registered agent cannot, with reasonable diligence, be found at the registered office of the captive insurance company;

(ii) Formed as a reciprocal insurer, the commissioner must be an agent of the captive insurance company upon whom any process, notice, or demand may be served whenever the registered agent cannot, with reasonable diligence, be found at the registered office of the captive insurance company.

(c)(1) Before receiving a license, a captive insurance company:

(A) Formed as a corporation shall file with the commissioner:

(i) A certified copy of its charter and bylaws;

(ii) A statement under oath of its president and secretary showing its financial condition; and

(iii) Any other statements or documents required by the commissioner;

(B) Formed as a reciprocal shall file with the commissioner:

(i) A certified copy of the power of attorney of its attorney in fact;

(ii) A certified copy of its subscribers' agreement;

(iii) A statement under oath of its attorney in fact showing its financial condition; and

(iv) Any other statements or documents required by the commissioner; or

(C)(i) Formed as a reciprocal shall obtain the commissioner's approval of its coverages, deductibles, coverage limits, and rates.

(ii) If there is a subsequent material change in an item in the description, the reciprocal captive insurance company shall submit to the commissioner for approval an appropriate revision and may not offer any additional kinds of insurance until a revision of the description is approved by the commissioner.

(iii) The reciprocal captive insurance company shall inform the commissioner of any material change in rates within thirty (30) days of the adoption of the change.

(2) In addition to the information required by subsection (c)(1) of this section, an applicant captive insurance company shall file with the commissioner evidence of:

(A) The amount and liquidity of its assets relative to the risks to be assumed;

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

(C) The overall soundness of its plan of operation;

(D) The adequacy of the loss-prevention programs of its parent, member organizations, or industrial insureds, as applicable; and

(E) Other factors considered relevant by the commissioner in ascertaining whether the proposed captive insurance company will be able to meet its policy obligations.

(3) In addition to the information required by subdivisions (c)(1) and (2) of this section, an applicant producer reinsurance captive insurance company or a sponsored captive insurance company shall file with the commissioner:

(A) A business plan demonstrating how the applicant will account for the loss and expense experience of each protected cell at a level of detail found to be sufficient by the commissioner, and how it will report the experience to the commissioner;

(B) A statement acknowledging that all financial records of the captive insurance company, including records pertaining to any protected cells, must be made available for inspection or examination by the commissioner; and

(C) Evidence that expenses will be allocated to each protected cell in an equitable manner.

(4) In addition to the information required by subdivisions (c)(1) -- (3) of this section, an applicant-sponsored captive insurance company shall file with the commissioner all contracts between the sponsored captive insurance company and any participants.

(5) Information submitted under this subsection is confidential and may not be made public by the commissioner or an agent or employee of the commissioner without the written consent of the company, except that:

(A) Information may be discoverable by a party in a civil action or contested case to which the captive insurance company that submitted the information is a party, upon a showing by the party seeking to discover the information that:

(i) The information sought is relevant to and necessary for the furtherance of the action or case;

(ii) The information sought is unavailable from other nonconfidential sources; and

(iii) A subpoena issued by a judicial or administrative officer of competent jurisdiction has been submitted to the commissioner. However, subdivision (c)(4) of this section does not apply to an industrial insured captive insurance company insuring the risks of an industrial insured group; and

(B) The commissioner may disclose the information to a public officer having jurisdiction over the regulation of insurance in another state if:

(i) The public official agrees in writing to maintain the confidentiality of the information; and

(ii) The laws of the state in which the public official serves require the information to be confidential.

(d)(1) A captive insurance company shall pay to the State Insurance Department Trust Fund a nonrefundable fee in an amount and manner to be prescribed by regulation.

(2) The commissioner may retain legal, financial, and examination services from outside the department, the reasonable cost of which may be charged against the applicant.

(3) Section 23-61-208 applies to examinations, investigations, and processing conducted under the authority of this section.

(4) In addition, a captive insurance company shall pay to the fund a license fee for the year of registration and a renewal fee in an amount and manner to be prescribed by regulation.

(e) If the commissioner is satisfied that the documents and statements filed by the captive insurance company comply with this subchapter, the commissioner may grant a license authorizing the company to do insurance business in this state until March 1, at which time the license may be renewed.