Texas Register, Volume 38, Number 47, Pages 8313-8478, November 22, 2013 Page: 8,362
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Subsection (a) provides that the Insurance Code 964.060(b)(2)
requirement is subject to Insurance Code Chapter 401, Sub-
chapter A. Subsection (b) further provides the Insurance Code
964.060(b)(2) requirement that the report must include a quali-
fied accountant's opinion of the captive insurance company's fi-
nancial condition and establishes that the qualified accountant's
opinion must meet the requirements established in Insurance
Code Chapter 401, Subchapter A, and 7.85 and 7.88 of this
title.
6.404. Captive Insurance Companies Using Other Than Calen-
dar Year Fiscal Years. This section establishes the procedure for
requesting permission to use a fiscal year other than a calendar
year. If the request is granted, the captive insurance company
must submit the annual report using the schedule established in
Insurance Code 964.060, which is set forth in subsection (c) for
convenience.
For premium tax purposes, however, the captive insurance com-
pany must comply with Insurance Code 964.060(c)(3) and sub-
mit certain information before March 1 of each year. Subsection
(b) establishes that the information required to be submitted for
premium tax purposes must be in the annual report format estab-
lished in the Texas Captive Annual Report form adopted under
6.401. Subsection (b) refers to the asset page and liability, cap-
ital, and surplus page rather than the "balance sheet" because
that is the terminology used in the Texas Captive Annual Report
form.
6.405. Capital and Surplus Requirements. Because captive
insurance companies cover a broad variety of risks and have
various business models, this section does not propose specific
capital and surplus requirements. Rather, the commissioner will
consider factors that are relevant to the specific risk profile and
business model of each captive insurance company. The sec-
tion also points to three factors that should be relevant in almost
all situations: (1) net writings to policyholders' surplus ratio, (2)
net reserves to policyholders' surplus ratio; and (3) net retention
of an individual loss per occurrence as a percentage of policy-
holders' surplus.
6.406. Financial Projections. This section establishes that the
captive insurance company must provide financial projections
covering the next four years of operations. In general, the cap-
tive insurance company will be required to submit projections
upon application and with its annual report every third year. Up-
dated financial projections are also required if the captive insur-
ance company reports a material change in operations that will
result in a variation in the most recently filed projections equal to
an amount greater than 15 percent of projected net equity, or if
requested by the department. Subsection (b) requires the finan-
cial projections to include a projected asset page; liability, capital,
and surplus page; income statement page; and cash flow page
in the same format as the annual report.
Subsection (c) creates exceptions to the annual report require-
ment in subsection (a), if the captive insurance company has
already submitted updated financial projections during the third
year or if the department agrees to waive the requirement. Sub-
section (e) provides that the commissioner will evaluate the cap-
tive insurance company's minimum capital and surplus when
there is an update to the captive insurance company's financial
projections. The department may also require an actuarial opin-
ion on the effect of the change in the financial projections.
6.407. Loans to Affiliates. The section establishes the stan-
dards for approval of a loan to an affiliate. Subsections (a) - (c)establish requirements for a loan if the insurer is not part of an
insurance holding company system subject to Insurance Code
823 under Insurance Code 964.002. To expedite processing,
the submission will be labeled as "Loans to Affiliates' Captives."
Insurance Code 964.002 provides that if a captive insurance
company is affiliated with another insurance company that is part
of a holding company subject to Insurance Code Chapter 823,
the captive insurance company is also subject to Insurance Code
Chapter 823. Because the holding company requirements differ
from the requirements in subsections (a) - (c), subsection (d)
clarifies that a captive insurance company subject to Insurance
Code Chapter 823 must comply with Insurance Code Chapter
823 and the holding company rules as addressed in 6.410.
6.408. Letters of Credit. Insurance Code 964.056(c)(2) au-
thorizes a captive insurance company to recognize a letter of
credit as an asset that is acceptable for meeting minimum capi-
tal and surplus requirements. The commissioner must approve
the letter of credit. Subsection (a) provides the standards for an
acceptable letter of credit. Using a letter of credit as an asset
may be a departure from generally accepted account principles.
Subsection (a) does not apply to the use of a letter of credit
in a reinsurance transaction. As provided in Insurance Code
964.052(d), captives may take credit on reserves for risks
ceded to reinsurers under Subchapter C, Insurance Code
Chapters 492 and Subchapter C, and Insurance Code Chapter
493. Section 7.610 sets standards for a suitable letter of credit
under those chapters. Subsection (b) clarifies that a letter of
credit used for reinsurance purposes by a captive insurance
company must meet the 7.610 requirements.
6.409. Policyholder Dividends. Insurance Code 964.063 re-
quires the captive insurance company to notify the commissioner
when issuing a policyholder dividend. The notice must be given
within 30 days of issuing the dividend.
6.410. Application of Holding Company Rules. Insurance Code
964.002(c) provides that Insurance Code Chapter 823 applies
to a captive insurance company that is affiliated with another in-
surance company that is part of a holding company subject to
Insurance Code Chapter 823. A captive insurance company in
this circumstance is also subject to the regulations and require-
ments that implement Insurance Code Chapter 823, including
the holding company rules in 28 TAC Chapter 7, Subchapter B.
This chapter does not provide an exclusive listing of the regu-
lations that could apply to a captive insurance company that is
subject to Insurance Code Chapter 823 under Insurance Code
964.002(c). However, the department does not anticipate that
Insurance Code Chapter 823 and its implementing regulations
will affect the requirements in this chapter, except as provided in
6.407(d).
Subchapter F. Workers' Compensation. This subchapter clarifies
in 6.501 that captive insurance companies are subject to work-
ers' compensation insurance statutes in the Insurance Code and
the Labor Code.
Subchapter G. Taxes. This subchapter establishes in 6.601 a
procedure for a foreign or alien captive insurance company redo-
mesticating from another jurisdiction to request that the commis-
sioner postpone or waive the imposition of any tax or fee under
the Insurance Code. The request may be for a waiver of all or
part of the maintenance tax, the premium tax, or licensing fees.
The commissioner may grant or deny the waiver request in whole
or in part in the commissioner's sole discretion.38 TexReg 8362 November 22, 2013 Texas Register
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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/m1/50/: accessed July 17, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu.; crediting UNT Libraries Government Documents Department.