Texas Register, Volume 38, Number 47, Pages 8313-8478, November 22, 2013 Page: 8,366
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adopts the Texas Captive Annual Report form and instructions
by reference. Captive insurance companies must annually
submit financial statements and an actuarial opinion relating to
policy reserves and other actuarial items. The actuarial report is
necessary to determine the adequacy of the captive insurance
company's capital and surplus. Additionally, 6.401 and 6.407
require the captive insurance company to include updated
financial projections in every third annual report.
Each captive insurance company's actual costs to prepare an
annual report will depend on its size and organization, will require
the services of actuaries and accountants, and may require le-
gal assistance. It is a business decision of the captive insurance
company to hire staff or contract for services through a captive
management company. While it is not feasible to determine the
actual cost of employees for all captive insurance companies,
the United States Department of Labor, Bureau of Labor Sta-
tistics' May 2012, Occupational Employment Statistics indicates
that the average hourly wages for these professions in Texas
are $52.58 for actuaries, $34.54 for accountants and auditors,
and $62.27 for lawyers. It is not feasible to estimate the cost of
contracting for each service for all captive insurance companies.
The method of compliance, and ultimate cost of compliance, is a
business decision of the insurance company and not a require-
ment of this proposal.
The annual report will require a copy of Microsoft Excel to be
completed, and access to an Internet connection to download
and submit. A single license of Microsoft Office Professional is
currently available from Microsoft for download at a listed price
of $399.99. Transfer of data from a proprietary system would be
included in the costs of services for preparing the annual report.
An Internet connection is considered a standard business utility
and not likely an additional cost resulting from this proposal.
The industry estimated overall annual maintenance costs to in-
clude the annual report, audit reports, and actuarial reports; how-
ever, industry did not allocate costs to specific requirements. In-
dustry also did not allocate costs to specific items, such as allo-
cating costs of implementing the statute, the proposal, and other
anticipated costs. The department determined industry's esti-
mated costs here are not entirely the result of this proposal, but
include amounts required to comply with the statute and other
costs that are anticipated but not required for compliance. Indus-
try's annual cost estimates for accounting and auditing services
range from $15,000 to $150,000, for actuarial services estimated
costs range from $2,500 to $60,000, and for legal services es-
timated costs range from $250 to $15,000. Industry also esti-
mated unspecified "other" costs that would range from $250 to
$15,000 annually.
Insurance Code 964.060(b)(2) requires the report of financial
condition with an independent certified public accountant's
opinion of the company's financial report. Insurance Code
964.002(a)(3) provides that the captive insurance companies
are also subject to the requirements of Insurance Code Chapter
401. Insurance Code Chapter 401, Subchapter A applies
to audited financial statements. Sections 7.85 and 7.88 are
adopted to implement Insurance Code Chapter 401, Subchapter
A. Costs associated with these rules are not a requirement
resulting from the adoption or implementation of this proposal.
Government Code 2006.001(2) defines "small business" as a
legal entity, including a corporation, partnership, or sole propri-
etorship, that is formed for the purpose of making a profit; is inde-
pendently owned and operated; and has fewer than 100 employ-
ees or less than $6 million in annual gross receipts. GovernmentCode 2006.001(1) defines "micro business" similarly to "small
business" but specifies that a micro business may not have more
than 20 employees. The department anticipates that, with few
exceptions, almost all captive management companies and cap-
tive insurance companies subject to this proposal will be small or
micro businesses based solely on the employment criteria. For
this reason, Ms. Walker does not expect a disproportionate eco-
nomic impact on small or micro businesses.
ECONOMIC IMPACT STATEMENT AND REGULATORY FLEX-
IBILITY ANALYSIS FOR SMALL AND MICRO BUSINESSES.
Government Code 2006.002(c) provides that if a proposed rule
may have an economic impact on small businesses, state agen-
cies must prepare, as part of the rulemaking process, an eco-
nomic impact statement that assesses the potential impact of
the proposed rule on these businesses and a regulatory flexibil-
ity analysis that considers alternative methods of achieving the
purpose of the rule. Government Code 2006.001(2) defines
"small business" as a legal entity, including a corporation, part-
nership, or sole proprietorship, that is formed for the purpose
of making a profit; is independently owned and operated; and
has fewer than 100 employees or less than $6 million in annual
gross receipts. Government Code 2006.001(1) defines "micro
business" similarly to "small business," but specifies that a micro
business may not have more than 20 employees.
As specified in the Public Benefit/Cost Note section of this pro-
posal, the proposal has an economic impact on captive manage-
ment companies and captive insurance companies.
Captive management companies. Because the proposal regu-
lates a new type of registrant, no captive management compa-
nies are currently registered in Texas. The department antici-
pates that, with a few exceptions, captive management compa-
nies that will register under these rules will be small or micro
businesses based solely on the employment criteria.
The department has determined that 6.101 - 6.103 may have
an adverse economic effect on insurers operating as small or
micro businesses. So the department, to comply with the Gov-
ernment Code 2006.002(c-1), has considered the following al-
ternative methods of achieving the purpose of the proposed rule
while reducing costs to insurers operating as small and micro
businesses.
The department considered using a different means of back-
ground check for designated responsible parties instead of the
fingerprint requirement. The fingerprint requirement cost is ap-
proximately $41.45 to $63. The department has received in-
formation that the costs of third-party verification services can
range from $220 to $265 depending on the number of names
to be searched for an individual. Because of the significantly
greater costs of the third-party verification service, the depart-
ment determined that it is not practical or cost effective to sub-
stitute third-party verification for the fingerprint requirement.
The department also considered eliminating or waiving the
fingerprint requirement; however, eliminating this requirement
would effectively eliminate the primary background check on
registrants. The department considers the legislature's general
grant of authority to include allowing the department to require
background information with the registration that is necessary to
reasonably vet the registrant. The department is concerned that
the registration alone creates the appearance for the public that
the registrant has been vetted; but without fingerprinting, a mini-
mal background check cannot be done. Because most, if not all,
captive management companies are small or micro businesses,38 TexReg 8366 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/m1/54/: accessed July 17, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu.; crediting UNT Libraries Government Documents Department.