New Texas Bill Amends Captive Insurance Exchanges and Formation

On June 15th, Governor Greg Abbott of Texas signed into effect a measure that would amend the state’s previously-established captive insurance law. The bill, titled House Bill 1944, addresses captive exchanges, the definition of captive insurance, captive insurance and employee benefits, and more.

The state of Texas’s captive insurance legislature began in 2013, when the Texas Legislature approved the licensing of captive insurance companies and gave the state insurance department the authority to enforce taxes and other fees upon these captive insurance companies. In 2015, the law was amended to account for the increasing numbers of captive insurance companies in Texas and allow for a greater range of companies and provide them with more options and regulations. In June 2017, Business Insurance’s captive survey reported 34 Texas captives, which is an increase from 21 reported captives in 2015 and 12 captives in 2014.

HB 1944 makes a number of changes to the existing laws, which include:

• Updating the definition of captive insurance to include captive exchanges, which HB 1944 defines as: “‘Captive exchange’ means a reciprocal or interinsurance exchange formed under this chapter. The term includes the attorney in fact through which a reciprocal or interinsurance contract, as defined by Section 942.001, is exchanged.”
• Authorizing Texas captive insurance companies to be formed as reciprocal insurance exchanges.
• Allowing Texas captives to take credit for reinsurance given to non-affiliated reinsurers when certain requirements are met.
• Permitting captive insurance companies to issue life insurance to insure employee benefits under ERISA (the Employee Retirement Income Security Act of 1974).
• Enabling surplus capital to be held as Texas county or municipal bonds.
• Giving insurance commissioners the authority to disregard the requirement to provide an actuarial report with the captive’s annual filing if specific conditions are met.
• Removing the requirement for captives to have licensed claims adjusters if the claims are restricted to first party claims of the captive’s parent or affiliates.
• Streamlining the corporate formation processes between the Department of Insurance and the Secretary of State.

Going into more detail on the amendments to Texas’s captive formation conditions, when a captive applies for a certificate of authority, it can now submit “other documentation demonstrating the valid formation of the captive insurance company, other than a captive exchange, or the attorney in fact.”

In regards to actuarial reports, the aforementioned “specific conditions” that allow captives to waive the requirement to file actuarial reports are if said captive has been in operation for less than sixth months as of the end of the prior calendar year, or if the captive’s net worth of written premium or reinsurance is less than $1 million.

About Caitlin Morgan

Caitlin Morgan provides a broad range of captive insurance solutions which we are happy to review with you in detail, and we are happy to help you determine whether a captive is right for your organization. Give us a call at (317) 575-4440 to learn more about our solutions.

Sources: Business Insurance, Insurance Journal, Texas Legislature Online, Bloomberg