Texas Register, Volume 38, Number 47, Pages 8313-8478, November 22, 2013 Page: 8,361
8313-8478 p. ; 28 cm.View a full description of this periodical.
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ing technical operations that the captive insurance company has
chosen to perform in-house, members of the governing body,
and other corporate officers. Individuals with technical manage-
ment responsibilities and corporate officers may be members of
the governing body. The section does not require captive insur-
ance companies to employ individuals to perform these technical
and administrative functions. The captive insurance company is
not required to provide biographical information if the function is
performed by a captive management company.
Subsection (b) sets forth the biographical information that will
be required. As addressed in regard to the application require-
ment in 6.202, fingerprints are not required for these individu-
als because in the situation of pure captives and to some extent
controlled unaffiliated business captives, these persons are not
managing an unrelated third party's risk.
6.304. Material Change in the Plan of Operations. This sec-
tion requires that the captive insurance company notify the de-
partment if it has material changes in its plan of operation. The
section defines a material change as a "change in operations of
the captive insurance company that results in a significant modi-
fication in the risk profile of the captive insurance company" and
lists eight examples. This requirement is not a report of the cap-
tive insurance company's financial condition, but maintenance
of the information supporting its certificate of authority. Because
the plan of operation was approved in the decision to grant the
captive insurance company's certificate of authority, changes to
the plan require prior commissioner approval.
As required in subsection (c), the captive insurance company
must provide updated financial projections if the change in the
plan of operation will result in a variation in the most recently
filed projections equal to an amount greater than 15 percent of
projected net equity. The updated projections must be submitted
with the notice of the material change.
Further, as provided in subsection (d), the department will eval-
uate if a change in the plan of operations may necessitate a
change in the captive insurance company's minimum capital and
surplus requirements. In considering the change and its effect
on capital and surplus, the department may require the captive
insurance company to provide an actuarial analysis.
6.305. Sale of a Covered Affiliate. Insurance Code 964.051
and 964.052 limit captive insurance companies to insuring and
reinsuring the operational risks of the captive insurance com-
pany's affiliates. This section clarifies that the captive insurance
company may no longer provide insurance coverage for a former
affiliate effective the date the affiliation ends, unless the captive
insurance company provides information acceptable to the com-
missioner that the coverage provided meets the requirements to
be categorized as controlled unaffiliated business.
6.306. Books and Records. Insurance Code 964.055 requires
that a captive insurance company maintain its books and records
within this state unless commissioner authorizes the captive in-
surance company to locate them outside of the state. This sec-
tion clarifies the requirement primarily for the purpose of han-
dling electronic records and addresses the difference between
maintenance and location of the records. The department rec-
ognizes that while some entities may use physical records, many
will use electronic records that can be accessed from almost any
location, rendering the location of the record somewhat elusive.
However, maintenance of the records involves individuals per-
forming data entry, requiring a physical location. This section
specifies that the captive insurance company must give noticewhere the records are maintained and seek approval of the com-
missioner if that location is outside of the state. This section does
not require all persons maintaining the records to be at the same
physical location; however, all of the locations must be known to
the department. Subsection (c) sets forth the information that
must be submitted to the commissioner to request permission to
locate or maintain records outside of the state.
Section 6.306(d) - (g) establishes the condition of the books
and records to enable the department to examine the captive in-
surance company, particularly for electronic records. Insurance
Code 964.002(a)(3) provides that Insurance Code Chapter 401
applies to captive insurance companies. Insurance Code Chap-
ter 401, Subchapter B establishes an examination requirement
and its application to captive insurance companies is referenced
in Insurance Code 964.065. These standards include a means
of recovering records and data. The department has not spec-
ified a means of performing this function. Rather, the captive
insurance company must demonstrate or document how it can
recover its information in the event of a failure in its information
storage system. That system is a business decision of the cap-
tive insurance company.
6.307. Changes to Formation Documents. This section estab-
lishes a procedure for captive insurance companies to request
the commissioner's approval for changes in their formation doc-
uments so that they may comply with Insurance Code 964.062.
Subchapter E. Financial Information and Reporting. This sub-
chapter establishes requirements for annual reports and provid-
ing notices of certain financial events, including changes in fi-
nancial projections, loans to affiliates, letters of credit, and poli-
cyholder dividends.
6.401. Annual Report. The Texas Captive Annual Report form
and instructions are adopted by reference. The final annual re-
port will include formulas in the document; however, the data
and calculation requirements are shown in the proposed form.
As defined in 6.1, the annual report consists of three parts: (1)
the captive insurance company's financial statements, including
disclosures and supporting schedules; (2) an actuarial opinion
completed by a qualified actuary that provides an opinion relat-
ing to policy reserves and other actuarial items for risks insured;
and (3) financial projections every third year, as required under
6.406. The submission deadlines for the annual report follow
the requirements established in Insurance Code 964.060. If the
captive insurance company uses a fiscal year end other than a
calendar year end, the deadlines in 6.404 will apply.
6.402. Basis of Accounting. This section clarifies that the re-
quirement to use generally accepted accounting principles in In-
surance Code 964.054(c) means that captive insurance com-
pany financial statements in this chapter will be based on gener-
ally accepted accounting principles issued by the Financial Ac-
counting Standards Board for use in the United States.
6.403. Audited Financial Statements. As required under In-
surance Code 964.060(b)(2), the captive insurance company
must file with the department by June 1 of each year, a report of
the captive insurance company's financial condition at last year
end. Insurance Code 964.002(a)(3) provides that the captive
insurance companies are also subject to the requirements of In-
surance Code Chapter 401. Insurance Code Chapter 401, Sub-
chapter A, applies to audited financial statements. The depart-
ment considers this to include the filing exemption in Insurance
Code 401.006 for insurers with less that $1 million in written
premium.PROPOSED RULES November 22, 2013 38 TexReg 8361
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Texas. Secretary of State. Texas Register, Volume 38, Number 47, Pages 8313-8478, November 22, 2013, periodical, November 22, 2013; Austin, Texas. (https://texashistory.unt.edu/ark:/67531/metapth379965/m1/49/: accessed July 17, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu.; crediting UNT Libraries Government Documents Department.