GENERAL ASSEMBLY OF NORTH CAROLINA
SESSION 2021
SESSION LAW 2022-7
SENATE BILL 347
AN ACT amending statutes relating to captive insurance.
The General Assembly of North Carolina enacts:
PART I. CAPTIVE INSURANCE LAW CONFIDENTIALITY CLARIFICATIONS
SECTION 1.(a) G.S. 58‑10‑375 reads as rewritten:
"§ 58‑10‑375. Dividends and distributions.
No captive insurance company shall pay a dividend or other distribution from capital or surplus without the prior approval of the Commissioner. Approval of an ongoing plan for the payment of dividends or other distributions shall 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 Commissioner. A captive insurance company may otherwise make such distributions as are in conformity with its purposes and approved by the Commissioner. G.S. 58‑10‑345(f) shall apply to all information filed pursuant to this section."
SECTION 1.(b) G.S. 58‑10‑395 reads as rewritten:
"§ 58‑10‑395. Plan of operation change.
(a) Any material change in a
captive insurance company's plan of operation plan of operation that was
filed with the Commissioner at the time of initial application and any
subsequent amendment of the plan requires prior approval from the Commissioner.
…
(c) G.S. 58‑10‑345(f) shall apply to all information filed pursuant to this section."
SECTION 1.(c) G.S. 58‑10‑440 reads as rewritten:
"§ 58‑10‑440. Investment requirements.
…
(c) No captive insurance company or protected cell shall make a loan to or an investment in an affiliate or a participant without prior written approval of the Commissioner, and any such loan or investment shall be evidenced by documentation approved by the Commissioner. Loans of minimum capital and surplus funds required by G.S. 58‑10‑370 are prohibited. G.S. 58‑10‑345(f) shall apply to all information filed pursuant to this section.
…."
PART II. CAPTIVE INSURANCE LAW ANNUAL AUDIT EXEMPTION
SECTION 2. G.S. 58‑10‑415 reads as rewritten:
"§ 58‑10‑415. Annual audit and statement of actuarial opinion.
…
(c) Captive insurance
companies with less than one million two hundred thousand dollars ($1,200,000)
in written premium may make a written request for exemption from the annual
audit requirement. Upon written request
by any captive insurance company, the Commissioner may grant an exemption from
compliance with any or all provisions of this section if the Commissioner finds
that compliance would cause the insurer a financial or organizational hardship.
Such request must be made at least 90 days
prior to the captive insurance company's fiscal year‑end or as otherwise
required by the Commissioner. Requests will be considered on a case‑by‑case
basis and may be subject to the Commissioner receiving an annual audit of the
captive insurance company's parent in lieu of the annual audit of the captive
insurance company.
…."
PART III. CAPTIVE INSURANCE LAW FINANCIAL ANALYSIS
SECTION 3. G.S. 58‑10‑430 reads as rewritten:
"§ 58‑10‑430. Audits.Audits and
Financial Analysis.
…
(a1) Whenever the Commissioner determines it to be prudent, the Commissioner shall conduct a financial analysis of information submitted to or obtained by the Commissioner pursuant to this Part. Except as otherwise provided in this Part, the captive insurance company is not required to pay the expense and charges of the financial analysis.
(b) G.S. 58‑2‑160 shall apply to audits and financial analyses conducted under this section.
(c) All audit reports, preliminary audit reports or results, working papers, recorded information, documents, and copies thereof produced by, obtained by, or disclosed to the Commissioner or any other person in the course of an audit or financial analysis made under this section are confidential, are not subject to subpoena, and may not be made public by the Commissioner or an employee or agent of the Commissioner. Nothing in this subsection shall prevent the Commissioner from using such information in furtherance of the Commissioner's regulatory authority under this Chapter. The Commissioner shall have the discretion to grant access to such information to public officials having jurisdiction over the regulation of insurance in any other state or country or to law enforcement officers of this State or any other state or agency of the federal government at any time only if the officials receiving the information agree in writing to maintain the confidentiality of the information in a manner consistent with this subsection.
…."
PART IV. CAPTIVE INSURANCE LAW "GOVERNING BOARD" DEFINITION
SECTION 4.(a) G.S. 58‑10‑340 reads as rewritten:
"§ 58‑10‑340. Definitions.
The following definitions apply in this Part:
…
(16a) Governing board. – The board of directors or officials possessing similar authority.
…."
SECTION 4.(b) G.S. 58‑10‑345 reads as rewritten:
"§ 58‑10‑345. Licensing; authority; confidentiality.
…
(b) No captive insurance company shall transact any insurance business in this State unless:
…
(2) Its board of directors
or committee of managers or, in the case of a reciprocal insurer, its
subscribers' advisory committee governing board holds at least one
meeting each year in this State. A captive insurance company will be exempt
from this board meeting requirement if the captive insurance company utilizes
the services of at least two of the following North Carolina‑based
service providers:
…."
SECTION 4.(c) G.S. 58‑10‑380 reads as rewritten:
"§ 58‑10‑380. Formation of captive insurance companies.
…
(e) In the case of a
captive insurance company formed as a corporation, at At least one of
the members member of the board of directors governing
board shall be a resident of this State. In the case of a captive
insurance company formed as a reciprocal insurer, at least one of the members
of the subscribers' advisory committee shall be a resident of this State. In
the case of a captive insurance company formed as a limited liability company,
at least one of the managers shall be a resident of this State.
…
(i) The articles of
incorporation or bylaws organizational documents of a captive
insurance company formed as a corporation may authorize a quorum of its board
of directors governing board to consist of no fewer than one‑third
of the fixed or prescribed number of directors.board members.
…."
SECTION 4.(d) G.S. 58‑10‑385 reads as rewritten:
"§ 58‑10‑385. Directors.Governing
board members, officers, and employees.
(a) Every captive insurance
company shall report to the Commissioner within 30 days after any change in its
executive officers or directors, governing board members, including
in its report a biographical affidavit for each new executive officer or
director. governing board member. The change shall be deemed
approved unless it is disapproved within 30 days from the completion of the
Commissioner's review of the biographical affidavit.
(b) No director, governing
board member, officer, or employee of a captive insurance company shall,
except on behalf of the captive insurance company, accept or be the beneficiary
of, any fee, brokerage, gift, or other compensation because of any investment,
loan, deposit, purchase, sale, payment, or exchange made by or for the captive
insurance company unless otherwise approved in advance by the Commissioner, but
such person may receive reasonable compensation for necessary services rendered
to the captive insurance company in his or her usual private, professional, or
business capacity.
…."
SECTION 4.(e) G.S. 58‑10‑390 reads as rewritten:
"§ 58‑10‑390. Conflict of interest.
(a) Each captive insurance
company licensed in this State is required to adopt a conflict of interest
statement for officers, directors, governing board members, and
key employees. Such statement shall disclose that the individual has no outside
commitments, personal or otherwise, that would divert him or her from his or
her duty to further the interests of the captive insurance company he or she
represents, but this shall not preclude such person from being a director governing
board member or officer in more than one insurance company.
(b) Each officer, director,
governing board member, and key employee shall file such disclosure
with the board of directors or other governing body governing board of
the captive insurance company annually."
SECTION 4.(f) G.S. 58‑10‑420 reads as rewritten:
"§ 58‑10‑420. Independent certified public accountants.
…
(b) A captive insurance
company shall require its independent certified public accountant to
immediately notify in writing an officer and all members of the board of
directors or other governing body of the governing board of the
captive insurance company of any determination by the independent certified
public accountant that the captive insurance company has materially misstated
its financial condition in its report to the Commissioner as required in
G.S. 58‑10‑405. A captive insurance company receiving a
notification pursuant to this subsection shall forward a copy of the
notification to the Commissioner within five business days after receipt of the
notification and shall provide the independent certified public accountant with
proof that the notification was forwarded to the Commissioner. If the
independent certified public accountant fails to receive the proof within the
five‑day period required by this subsection, the independent certified
public accountant shall within the next five business days submit a copy of the
notification to the Commissioner.
…."
SECTION 4.(g) G.S. 58‑10‑510 reads as rewritten:
"§ 58‑10‑510. Establishment of protected cells.
…
(d) A protected cell captive
insurance company shall establish administrative and accounting procedures
necessary to properly identify (i) the one or more protected cells of the
protected cell captive insurance company and (ii) the assets and liabilities
attributable to each protected cell. The directors governing board of
a protected cell captive insurance company shall keep protected cell assets and
liabilities:
…."
SECTION 4.(h) G.S. 58‑10‑512 reads as rewritten:
"§ 58‑10‑512. Incorporated protected cells.
…
(c) An incorporated
protected cell may be organized and operated in any form of business
organization authorized by the Commissioner. Unless otherwise permitted by the
organizational documents of a protected cell captive insurance company, each
incorporated protected cell of the protected cell captive insurance company
must have the same directors, governing board members, secretary,
and registered office as the protected cell captive insurance company.
…."
SECTION 4.(i) G.S. 58‑10‑565 reads as rewritten:
"§ 58‑10‑565. Application requirements.
…
(b) To transact business in this State, an SPFC shall:
…
(3) Hold at least one
management meeting each year in this State. For the purposes of this section,
management is defined as the board of directors, managing board, governing
board or other individual or individuals vested with overall responsibility
for the management of the affairs of the SPFC, including the election and
appointment of officers or other of those agents to act on behalf of the SPFC.
…
(c) A complete SPFC application shall include the following:
…
(4) Biographical affidavits
in NAIC format of all of the prospective SPFC's officers and directors, governing
board members, providing the officers' and directors' governing
board members' legal names, any names under which they have or are
conducting their affairs, and any other biographical information as the
Commissioner may request.
…."
PART V. CAPTIVE INSURANCE COMPANY TAX CHANGES
SECTION 5.(a) G.S. 105‑228.4A reads as rewritten:
"§ 105‑228.4A. Tax on captive insurance companies.
(a) Tax Levied. – A tax is
levied in this section on a captive insurance company doing business in this
State. In the case of a branch captive insurance company, the tax levied in
this section applies only to the branch business of the company. Two or more
captive insurance companies under common ownership and control control,
other than a protected cell captive insurance company or a special purpose
captive insurance company with a cell or series structure, are taxed under
this section as a single captive insurance company. The tax levied in this
section does not apply to a foreign captive insurance company.
…
(f) Total Tax Liability. – The aggregate amount of tax payable under this section by a protected cell captive insurance company with more than 10 cells or a special purpose captive insurance company with a cell or series structure with more than 10 cells or series may not be less than ten thousand dollars ($10,000) and may not exceed the lesser of (i) one hundred thousand dollars ($100,000) plus five thousand dollars ($5,000) multiplied by the number of cells or series over 10 and (ii) two hundred thousand dollars ($200,000). The aggregate amount of tax payable under this section for any other captive insurance company may not be less than five thousand dollars ($5,000) and may not exceed one hundred thousand dollars ($100,000).
If a captive insurance company is a special purpose financial captive and if the special purpose financial captive is under common ownership and control with one or more other captive insurance companies, the following provisions apply to the consolidated group of companies that are taxed as a single captive insurance company pursuant to subsection (a) of this section:
…."
SECTION 5.(b) G.S. 105‑228.4A is amended by adding a new subsection to read:
"(g) A captive insurance company formed and licensed under the laws of a jurisdiction other than North Carolina that (i) obtains the approval of the North Carolina Commissioner of Insurance to redomesticate to North Carolina pursuant to G.S. 58‑10‑380(g) to operate as a North Carolina–domiciled captive insurance company and (ii) redomesticates to North Carolina on or before December 31, 2022, is exempted from premium taxes imposed by this section for the year in which the redomestication occurs and the premium taxes imposed by this section for the calendar year following the redomestication. This subsection expires for taxable years beginning on or after January 1, 2024."
PART VI. CAPTIVE INSURANCE LAW APPROVAL OF CAPTIVE MANAGER
SECTION 6. G.S. 58‑10‑360 reads as rewritten:
"§ 58‑10‑360. Designation of captive manager.
Before licensing, the applicant
business entity shall report in writing to the Commissioner the name and
address of any the captive manager designated to manage the
captive insurance company. The Commissioner shall approve the captive manager
and may require the submission of additional information regarding the proposed
captive manager in a form and manner as the Commissioner may designate. All licensed
captive insurance companies shall, at all times, be managed by a captive
manager approved by the Commissioner."
PART VII. CAPTIVE INSURANCE LAW NEW GROUNDS FOR SUSPENSION OR REVOCATION OF LICENSE
SECTION 7. G.S. 58‑10‑435 reads as rewritten:
"§ 58‑10‑435. License suspension or revocation.
(a) The license of a captive
insurance company may be suspended or revoked if the Commissioner finds, upon
audit, hearing, or other evidence, that a captive insurance company has
committed one or more of the violations described in subdivisions (1) through (7)
(7a) of this subsection, or met any of the criteria in subdivisions
(8) through (10) of this subsection, and that the suspension or revocation is
in the best interest of the public and the policyholders of such captive
insurance company, notwithstanding any other provision of this Chapter:
…
(3) Refusal or failure to
submit an annual report, annual report or audit report, as
required by this Part, or any other report or statement required by law or by
lawful order of the Commissioner.
…
(7a) Failure to operate in accordance with the plan of operation approved by the Commissioner.
…."
PART VIII. CAPTIVE INSURANCE LAW: PROHIBIT CAPTIVE BAIL BOND SURETY COMPANIES
SECTION 8. G.S. 58‑10‑345 reads as rewritten:
"§ 58‑10‑345. Licensing; authority; confidentiality.
(a) Any business entity, when permitted by its organizational documents, may apply to the Commissioner for a license to do any insurance comprised in G.S. 58‑7‑15; provided, however, that:
…
(11) No captive insurance company shall provide fidelity and surety insurance for the purpose of becoming surety on or guaranteeing the performance of bail bonds, as defined in G.S. 58‑71‑1(2).
…."
part ix. inactive captive insurance company clarifications
SECTION 9. G.S. 58‑10‑490 reads as rewritten:
"§ 58‑10‑490. Inactive captive insurance companies.
(a) As used in this section,
unless the context requires otherwise, "inactive captive insurance
company" means a captive insurance company which meets both all of
the following criteria:
…
(3) The Commissioner declares the company inactive.
(b) The Commissioner may
declare a captive insurance company, other than a risk retention group, an
inactive captive insurance company, if such captive insurance company meets the
criteria of subsection (a) subdivisions (a)(1) and (a)(2) of this
section.
…
(d) An inactive captive
insurance company shall not be subject to or liable for the payment of any tax
under Article 8B of Chapter 105 of the General Statutes.Statutes for
any full year the captive insurance company is inactive.
…
(f) G.S. 58‑10‑496 is inapplicable to subsection (a) of this section unless the captive insurance company has been placed into supervision, receivership, or liquidation pursuant to Article 30 of Chapter 58 of the General Statutes and the Commissioner has determined that the payment of the minimum tax required by G.S. 105‑228.4A(f) will result in the captive insurance company's inability to meet its insurance obligations."
PART X. EFFECTIVE DATE
SECTION 10. Section 5(a) and Section 9 of this act are effective for premium taxes imposed for taxable years beginning on or after January 1, 2022. Section 5(b) of this act is effective for premium taxes imposed for taxable years beginning on or after January 1, 2021. Except as otherwise provided, this act is effective when it becomes law.
In the General Assembly read three times and ratified this the 6th day of June, 2022.
s/ Mark Robinson
President of the Senate
s/ Tim Moore
Speaker of the House of Representatives
s/ Roy Cooper
Governor
Approved 9:03 a.m. this 14th day of June, 2022