legislative update - tncaptives.org...update tcia tennessee captive insurance association, inc....

TCIATennessee Captive Insurance Association, Inc.

Legislative Update


STATE OF TENNESSEEDepartment of Commerce & Insurance


Public Chapter 156

• HB 70 by Casada, SB 80 by Overby• Passed Senate March 16, 2015• Passed House April 6, 2015• Signed by Governor Haslam April 16, 2015 and became

effective on that date.


Public Chapter 156• Revisions to statute on direct writing of workers comp

through a captive. Still work to do on the administrative rule.• LLC can be member or manager managed• Clarified that RRGs report under GAAP by default• Pure and protected cell captives file a statement of

investment policy approved by its board and must follow it. Department given notice only – no advance approval required.• Loan backs, investments in the parent still require

Commissioner Approval


Public Chapter 156• Fees:

• $675 formation fee applies to all protected cells• $400 fee for changes in business plan or change in ownership• $125 fee for change in ownership of an individual cell

• Premium Tax floor and ceiling:• No change on actual premium tax (normally 0.4%)• No change on pure and protected cell captives with 10 or fewer

cells ($5,000 minimum premium tax, $100,000 maximum premium tax).

• For protected cell companies with more than 10 cells:• Minimum premium tax still $10,000.• Maximum premium tax: $100,000 plus # of cells over 10 x $5000.


Public Chapter 156• Maximum premium tax for protected cells with more than

10 cells: Maximum premium tax: $100,000 plus # of cells over 10 x $5000.• 11 Cells: Maximum tax is $105,000• 20 Cells: Maximum tax is $150,000• 30 Cells: Maximum tax is $200,000

• Previous law set a maximum tax at a flat $200,000• 100 Cells: Maximum tax is : $550,000

• Premium tax ceiling adjustment effective 1/1/16 (for premium tax to be paid in March 2017)• Authorized use of premium tax dollars to promote captive

insurance industry


Public Chapter 155

• HB 72 by Brooks, SB 82 by Norris• Passed Senate March 23, 2015• Passed House April 1, 2015• Signed by Governor on March 16, 2015


Public Chapter 155• Administration bill implementing NAIC accreditation

standards and technical amendments to the insurance code.• Updated Tennessee’s self procurement tax statute:

• Old Statute: Under T.C.A. § 56-2-409, 56-2-410 and this section are also included citizens of this state procuring and holding insurance contracts on policies in fire, fire marine, or marine insurance companies or associations upon property situated or located in this state in companies not authorized to transact business in this state; and the procuring or accepting policies or contracts of the insurance in the unauthorized companies or associations makes every citizen holding the contracts or policies liable for taxes, the same as if each company or association was duly authorized to transact business in this state.

• Statute enacted in 1899 and amended in 1932.


Public Chapter 155• New Statute (TCA 56-2-411):• (a)Under §§ 56-2-409,56-2-410,andthissectionarealsoincludedcitizensofthisstateprocuringandholdinginsurancecontractsorpoliciesonthetypesofcoveragelistedin § 56-2-201 uponpropertysituatedorlocatedinthisstateincompaniesnotauthorizedtotransactbusinessinthisstate.• (b)Theprocuringoracceptingpoliciesorcontractsoftheinsurancefromunauthorizedcompaniesorassociationsmakeseverycitizenofthisstate,includingindustrialinsuredsasdefinedin § 56-2-105(7),holdingthecontractsorpoliciesliablefortaxes,thesameasifeachcompanyorassociationweretransactingbusinessinthisstateasasurpluslinesinsurer.Thetaxesshallbepaidatthesametime,inthesamemanner,andatthesamerateasthetaxleviedonsurpluslinesinsurancein §§ 56-14-106 and 56-14-113.


Insurance Bulletin 15-02• Commissioner issued bulletin on October 22, 2015 on Tennessee

captives taking credit for reinsurance• Credit for reinsurance granted on case by case basis.• Not applicable for reinsurance to TN captive or traditional insurer.• Reinsurance arrangements included in existing business plans

were approved by Commissioner and are reviewed as needed or during exam.

• Reinsurance program structure should be included in the captives business plan.

• Bulletin is an aid to captive managers and department staff on preferred reinsurance program attributes. It is not a statute or rule.

• If you have a proposed structure with merit, come talk with us.


Insurance Bulletin 15-02Preferred attributes in reinsurance program:• Original policy is fronted• Reinsurance on secured collateral: (funds withheld,

domestic U.S. trust, LOC from domestic bank).• Obtained from TCA 56-2-208 accredited reinsurer• Reinsurer is highly rated.• Reinsurer has cap & surplus of at least $20,000,00 and

submits financial statements to the Department.


Insurance Bulletin 15-02Department is also looking for:• Reinsurer domiciled in reputable jurisdiction• Reputable, experienced captive manager and service

providers.Pools:• Pool participants managed by the same captive manager.• Pooled funds are held in a domestic trust.• Adequate controls are present to ensure that the pool and

pool participants are sufficiently liquid and accountable.


Pending Revisions to Captive Rules

• Draft rules are under internal review.• Department will file a notice of rulemaking hearing with

the Secretary of State at least 45 days before the hearing.• Adopted rules must be approved by Attorney General

then filed with the Secretary of State.• Rules go into effect 90 days after filing.



Items under consideration* in draft rules:• Technical clarifications to annual report requirements.• Voluntary deferral of audited financials reporting

• Companies or cells formed within 90 days of year end could elect to roll that reporting period into next year’s audit.

• Dormant cells could defer audited financials until it resumes business or to the last year before exam.

• Clarifying audit requirements for protected cell companies to get auditor’s opinion on whether any one cell is over-reserved or under-reserved.



Items under consideration* in draft rules:• Establish the format of optional alternate limited-purpose

exams for when a full exam is not necessary.• Clarifying the process for replacing a captive manager to

include approval by the department of the new captive manager.

legislative update - tncaptives.org...update tcia tennessee captive insurance association, inc....

Documents