9 February 2015Law & regulation

TxCIA backs expansion of captive insurance bill

The Texas Captive Insurance Association (TxCIA) is set to expand the provisions of SB 734 that passed in 2013 authorising captive insurance in Texas for the first time.

Firstly, it will add reinsurance pooling as an option for risk sharing to allow captives to introduce third party risk to insure deductibility of premium.

Secondly, it will provide discretion to insurance regulators in determining when credit for reinsurance will be granted.

Thirdly, the bill will require notice be given to the Texas Department of Insurance (TDI) when a captive declares stockholder dividends.

The TxCIA said that “currently the law allows for policyholder dividends and while in many cases the policyholders and shareholders are the same entity, amending the law to recognise shareholder dividends recognises the ownership rights and expectations of shareholder’s return on investment.”

The association is also writing bill language on two other issues of interest in Texas. The first would authorise TDI to ‘incorporate’ captive insurers as it does other insurers. The process currently involves both TDI and the Texas Secretary of State.

Both TDI and the Secretary of State’s Office are supportive of this consolidation. However, given current statutes, this consolidation would be lengthy and more complex than the three initiatives outlined in the bill. Amending the original bill to include this provision will depend on whether acceptable language can be written and the approval of the two agencies.

The other issue would authorise a captive to be formed as a reciprocal insurer and these issues would most likely be introduced as committee amendments to the filed bill, assuming consensus from regulators and stakeholders.