Senate File 549 H-1211 Amend Senate File 549, as amended, passed, and reprinted by 1 the Senate, as follows: 2 1. By striking everything after the enacting clause and 3 inserting: 4 < Section 1. NEW SECTION . 432.1A Tax on premiums —— captive 5 insurance companies. 6 1. a. Each captive company under chapter 521J shall pay 7 on or before March 1 of each year a tax on the direct premiums 8 collected or contracted for on policies or contracts of 9 insurance written by the captive company during the immediately 10 preceding calendar year, after deducting from the direct 11 premiums the amounts paid to policyholders as return premiums, 12 including dividends on unabsorbed premiums or premium deposits 13 returned or credited to policyholders. 14 b. The tax due under paragraph “a” on direct premiums 15 collected or contracted for by a captive company shall be 16 calculated as follows: 17 (1) Seven-twentieths of one percent on the first twenty 18 million dollars of direct premiums. 19 (2) One-quarter of one percent on each dollar of direct 20 premiums after the first twenty million dollars collected under 21 subparagraph (1). 22 2. a. Each captive company under chapter 521J shall pay 23 on or before March 1 of each year a tax on assumed reinsurance 24 premiums. A reinsurance tax shall not apply to premiums for 25 risks or portions of risks that are subject to taxation on a 26 direct basis pursuant to subsection 1. 27 b. A reinsurance premium tax shall not be payable by a 28 captive company in connection with the receipt by the captive 29 company of assets in exchange for the assumption of loss 30 reserves and other liabilities of another insurer under common 31 ownership and control if the transaction is part of a plan 32 to discontinue the operations of the other insurer, and if 33 the intent of the parties to the transaction is to renew or 34 maintain the other insurer’s business with the captive company. 35 -1- SF 549.1647 (3) 90 ko/rn 1/ 36 #1.

c. The amount of reinsurance tax due from a captive company 1 under paragraph “a” shall be calculated as follows: 2 (1) Two-tenths of one percent on the first twenty million 3 dollars of assumed reinsurance premiums. 4 (2) One-eighth of one percent on the twenty million 5 dollars of assumed reinsurance premiums collected after the 6 first twenty million dollars of assumed reinsurance premiums 7 collected under subparagraph (1). 8 (3) Five percent on each dollar of assumed reinsurance 9 premiums collected after the twenty million dollars collected 10 under subparagraph (1) and the twenty million dollars collected 11 under subparagraph (2). 12 3. a. (1) Except as provided in subparagraphs (2) and 13 (3), if the aggregate taxes as calculated under subsections 14 1 and 2 that are payable by a captive company are less than 15 five thousand dollars for any one tax year, the captive company 16 shall pay five thousand dollars in tax for that tax year. 17 (2) If a captive company is subject to the minimum tax under 18 subparagraph (1) in the calendar year in which the company is 19 first granted a certificate of authority under section 521J.2, 20 the tax shall be prorated as follows: 21 (a) If a certificate of authority is first granted in the 22 first quarter of the calendar year, the tax shall be five 23 thousand dollars. 24 (b) If a certificate of authority is first granted in the 25 second quarter of the calendar year, the tax shall be three 26 thousand seven hundred fifty dollars. 27 (c) If a certificate of authority is first granted in 28 the third quarter of the calendar year, the tax shall be two 29 thousand five hundred dollars. 30 (d) If a certificate of authority is first granted in the 31 fourth quarter of the calendar year, the tax shall be one 32 thousand five hundred dollars. 33 (3) If a captive company that is subject to the minimum tax 34 under subparagraph (1) surrenders the company’s certificate of 35 -2- SF 549.1647 (3) 90 ko/rn 2/ 36

authority in the year that the captive company is subject to 1 the minimum tax, the tax shall be prorated on a quarterly basis 2 as follows: 3 (a) If the certificate of authority is surrendered in 4 the first quarter of the calendar year, the tax shall be one 5 thousand dollars. 6 (b) If the certificate of authority is surrendered in the 7 second quarter of the calendar year, the tax shall be two 8 thousand five hundred dollars. 9 (c) If the certificate of authority is surrendered in the 10 third quarter of the calendar year, the tax shall be three 11 thousand seven hundred fifty dollars. 12 (d) If the certificate of authority is surrendered in the 13 fourth quarter of the calendar year, the tax shall be five 14 thousand dollars. 15 b. Each protected cell in a protected cell captive company 16 shall be considered separately in determining the aggregate 17 tax to be paid by the protected cell captive company. If the 18 protected cell captive company insures any risks in addition 19 to the protected cells, the determination of the aggregate tax 20 shall, in addition to the protected cells, also include the 21 premium on all insured risks. 22 c. Each series of members of a limited liability company 23 formed as a special purpose captive company shall be considered 24 separately under this section, except that the minimum tax as 25 described in paragraph “a” shall be considered in the aggregate. 26 4. A captive company, other than a protected cell captive 27 company, shall not be required to pay aggregate taxes under 28 this section that exceed one hundred thousand dollars in any 29 one tax year. 30 5. Two or more captive companies under common ownership 31 and control shall be taxed as a single captive company. For 32 the purposes of this subsection, “common ownership and control” 33 means either of the following: 34 a. In the case of a stock corporation, the direct or 35 -3- SF 549.1647 (3) 90 ko/rn 3/ 36

indirect ownership of eighty percent or more of the outstanding 1 voting stock of two or more corporations by the same 2 shareholder or shareholders. 3 b. In the case of a mutual insurer, the direct or indirect 4 ownership of eighty percent or more of the surplus, and the 5 voting power of two or more insurers, by the same member or 6 members. 7 6. Only the branch business of a branch captive company 8 shall be subject to taxation under this section. 9 7. The tax provided for in this section shall be calculated 10 on an annual basis notwithstanding a policy or a contract 11 of insurance, or a contract of reinsurance, that is issued 12 on a multiyear basis. In the case of a multiyear policy or 13 a multiyear contract, the premium shall be prorated for the 14 purpose of calculating the appropriate tax. 15 Sec. 2. Section 507C.3, Code 2023, is amended by adding the 16 following new subsection: 17 NEW SUBSECTION . 8. Captive companies under chapter 521J. 18 Sec. 3. NEW SECTION . 521J.1 Definitions. 19 As used in this chapter, unless the context otherwise 20 requires: 21 1. “Affiliated company” means a company that is in the 22 same corporate system as a parent, an industrial insured, or 23 a member based on common ownership, control, operation, or 24 management. 25 2. “Alien captive company” means a captive company 26 formed under the laws of an alien jurisdiction that imposes 27 statutory or regulatory standards in a form acceptable to the 28 commissioner on companies transacting the business of insurance 29 in such jurisdiction. 30 3. “Branch business” means any insurance business transacted 31 by a branch captive company in this state. 32 4. “Branch captive company” means an alien captive company 33 authorized by the commissioner by rule to transact the business 34 of insurance in this state through a business entity with its 35 -4- SF 549.1647 (3) 90 ko/rn 4/ 36

principal place of business in this state. 1 5. “Branch operations” means any business operations of a 2 branch captive company. 3 6. “Business entity” means a corporation, a limited 4 liability company, or other legal entity formed by an 5 organizational document. “Business entity” does not include a 6 sole proprietorship. 7 7. “Captive company” means any pure captive company, 8 protected cell captive company, special purpose captive 9 company, or industrial insured captive company formed or 10 authorized under this chapter. 11 8. “Captive reinsurance company” means a captive insurance 12 company in this state, as authorized by the commissioner by 13 rule, that reinsures the risk ceded by any other insurer. 14 9. “Captive risk retention group” means a captive insurance 15 risk retention group formed under this chapter and that is 16 subject to chapter 515E. 17 10. “Cash equivalent” means any short-term, highly liquid 18 investment with an original maturity of three months or less 19 that is readily convertible to known amounts of cash. 20 11. “Commissioner” means the commissioner of insurance. 21 12. “Controlled unaffiliated business entity” means a 22 business entity or sole proprietorship that meets all of the 23 following requirements: 24 a. The business entity or sole proprietorship is not in a 25 parent’s corporate system that consists of the parent and any 26 affiliated companies. 27 b. The business entity or sole proprietorship has an 28 existing, controlling contractual relationship with the parent 29 or an affiliated company. 30 c. The business entity’s or sole proprietorship’s risks 31 are managed by a pure captive company or an industrial insured 32 captive company, as applicable. 33 13. “Excess workers’ compensation insurance” means, for 34 an employer that has insured or self-insured the employer’s 35 -5- SF 549.1647 (3) 90 ko/rn 5/ 36

workers’ compensation risks in accordance with applicable state 1 or federal law, insurance in excess of a specified per-incident 2 or aggregate limit as established by the commissioner by rule. 3 14. “Industrial insured” means an insured that meets all of 4 the following requirements: 5 a. The insured procures the insurance of any risk by use 6 of the services of a full-time employee acting as an insurance 7 manager or buyer. 8 b. The insured’s aggregate annual premiums for insurance on 9 all risks are at least twenty-five thousand dollars. 10 c. The insured employs a minimum of twenty-five full-time 11 employees. 12 15. “Industrial insured captive company” means an insurance 13 company that insures the risks of industrial insureds, 14 comprised of the industrial insured group and the industrial 15 insured group’s affiliated companies and the risks of the 16 controlled unaffiliated business of an industrial insured or 17 its affiliates. 18 16. “Industrial insured group” means a group of industrial 19 insureds that meets either of the following requirements: 20 a. The group collectively owns, controls, or holds with 21 the power to vote all of the outstanding voting securities 22 of an industrial insured captive company incorporated as a 23 stock insurer, or has complete voting control over any of the 24 following: 25 (1) An industrial insured captive company incorporated as 26 a mutual insurer. 27 (2) An industrial insured captive company formed as a 28 reciprocal insurer. 29 (3) An industrial insured captive company formed as a 30 limited liability company. 31 b. The group is a captive risk retention group. 32 17. “Mutual insurer” means a business entity that does 33 not have capital stock, and that has a governing body elected 34 by the insurer’s policyholders. “Mutual insurer” includes a 35 -6- SF 549.1647 (3) 90 ko/rn 6/ 36

nonprofit corporation with members. 1 18. “Organizational document” means articles of 2 incorporation, articles of organization, a subscribers’ 3 agreement, a charter, or any other document that can legally 4 establish a business entity in this state. 5 19. “Parent” means a sole proprietorship, a business entity, 6 or an individual that directly or indirectly owns, controls, 7 or holds with power to vote more than fifty percent of the 8 outstanding voting securities or membership interests of a 9 captive company. 10 20. “Participant” means a sole proprietorship or a business 11 entity and any affiliates that are insured by a protected cell 12 captive company and whose losses are limited by a participant 13 contract to such participant’s pro rata share of the assets 14 of one or more protected cells identified in the participant 15 contract. 16 21. “Participant contract” means a contract by which 17 a protected cell captive company insures the risks of a 18 participant and limits the losses of each participant in the 19 contract to the participant’s pro rata share of the assets of 20 one or more protected cells as identified in the contract. 21 22. “Protected cell” means a separate account established 22 by a protected cell captive company formed or authorized 23 under this chapter in which an identified pool of assets and 24 liabilities are segregated and insulated, as provided in 25 section 521J.17, from the remainder of the protected cell 26 captive company’s assets and liabilities in accordance with 27 the terms of one or more participant contracts to fund the 28 liability of the protected cell captive company with respect to 29 the participants. 30 23. “Protected cell assets” means all assets, contract 31 rights, and general intangibles identified and attributable to 32 a specific protected cell of a protected cell captive company. 33 24. “Protected cell captive company” means a captive company 34 that meets all of the following requirements: 35 -7- SF 549.1647 (3) 90 ko/rn 7/ 36

a. The minimum legally required capital and surplus of the 1 company is provided by one or more sponsors. 2 b. The company is formed or authorized under this chapter. 3 c. The company insures the risks of separate participants 4 through participant contracts. 5 d. The company funds the company’s liability to each 6 participant through one or more protected cells, and segregates 7 the assets of each protected cell from the assets of other 8 protected cells, and from the assets of the protected cell 9 captive company’s general account. 10 e. The company is incorporated or formed as a limited 11 liability company. 12 25. “Protected cell liabilities” means all liabilities 13 and other obligations identified with and attributable to a 14 specific protected cell of a protected cell captive company. 15 26. “Public records” means the same as defined in section 16 22.1. 17 27. “Pure captive company” means an insurance company that 18 insures the risks of the company’s parent and the parent’s 19 affiliated companies, and the risks of controlled unaffiliated 20 business entities. 21 28. “Qualified actuary” means an individual who meets all 22 of the following requirements: 23 a. The individual is a member of the American academy of 24 actuaries. 25 b. The individual is qualified to provide the certifications 26 as described in the United States qualifications standards 27 promulgated by the American academy of actuaries pursuant 28 to the code of professional conduct adopted by the American 29 academy of actuaries, the society of actuaries, the American 30 society of pension professionals and actuaries, the casualty 31 actuarial society, and the conference of consulting actuaries. 32 29. “Series of members” means a group or collection of 33 members of a limited liability company who share interests 34 and who have separate rights, powers, or duties with respect 35 -8- SF 549.1647 (3) 90 ko/rn 8/ 36

to property, obligations, or profits and losses associated 1 with property or obligations, and who are specified in the 2 organizational document or operating agreement of the limited 3 liability company, or that are specified by one or more 4 members or managers of the limited liability company or other 5 persons as provided in the organizational document or operating 6 agreement. 7 30. “Sole proprietorship” means an individual who does 8 business in a noncorporate form. 9 31. “Special purpose captive company” means a captive 10 company that is formed or authorized under this chapter that 11 does not meet the definition of any other type of captive 12 company as defined in this section, or that is formed by, on 13 behalf of, or for the benefit of a political subdivision of 14 this state. 15 32. “Sponsor” means any person that meets the requirements 16 of sections 521J.17 and 521J.18, and that is approved by the 17 commissioner to do all of the following: 18 a. Provide all or part of the capital and surplus required 19 of a protected cell captive company by law. 20 b. Organize and operate a protected cell captive company. 21 Sec. 4. NEW SECTION . 521J.2 Certificate of authority. 22 1. If permitted by its organizational document, a captive 23 company may apply to the commissioner for a certificate of 24 authority to provide property insurance, casualty insurance, 25 life insurance, disability income insurance, surety insurance, 26 marine insurance, health insurance, or a group health plan, 27 with the following exceptions: 28 a. A pure captive company shall only insure risks of the 29 company’s parent and affiliated companies, and of the company’s 30 controlled unaffiliated business entities. 31 b. An industrial insured captive company shall only insure 32 risks of the industrial insured company, comprised of the 33 industrial insured group and the industrial insured group’s 34 affiliated companies, and the controlled unaffiliated business 35 -9- SF 549.1647 (3) 90 ko/rn 9/ 36

of an industrial insured group or the industrial insured 1 group’s affiliated companies. 2 c. A special purpose captive company shall not provide 3 insurance or reinsurance for risks unless approved by the 4 commissioner. 5 d. A captive company or a branch captive company shall not 6 do any of the following: 7 (1) Provide personal lines of insurance, including but not 8 limited to motor vehicle insurance, homeowner’s insurance, 9 or any component of motor vehicle insurance or homeowner’s 10 insurance on a direct basis. 11 (2) Accept or cede reinsurance except as permitted by the 12 commissioner by rule. 13 (3) Provide health insurance coverage or a group health 14 plan unless the captive company or the branch captive company 15 provides the health insurance coverage or the group health plan 16 only for the parent company and the parent company’s affiliated 17 companies. 18 (4) Write workers’ compensation insurance on a direct 19 basis. 20 (5) Write life insurance on a direct basis. 21 e. A protected cell captive company shall not insure any 22 risks other than those of the protected cell captive company’s 23 participants. 24 2. A captive company shall not write any insurance business 25 unless the captive company complies with all of the following: 26 a. The captive company obtains a certificate of authority 27 from the commissioner prior to writing any insurance business. 28 b. The captive company’s board of directors, board of 29 managing members, or a reciprocal insurer’s subscribers’ 30 advisory committee, holds at least one annual meeting in the 31 state. 32 c. The captive company maintains its principal place of 33 business in the state. 34 d. The captive company designates a registered agent 35 -10- SF 549.1647 (3) 90 ko/rn 10/ 36

to accept service of process, files the name and contact 1 information and any subsequent changes regarding the 2 registered agent with the commissioner, and agrees that if the 3 registered agent cannot be found with reasonable diligence, the 4 commissioner may act as an agent of the captive company with 5 respect to any action or proceeding and may be served pursuant 6 to section 505.30. 7 3. a. Prior to receiving a certificate of authority, a 8 captive company shall do all of the following: 9 (1) File with the commissioner all of the following: 10 (a) A certified copy of the business entity’s 11 organizational document. 12 (b) A statement under oath of an officer of the business 13 entity showing the business entity’s financial condition. 14 (c) Any other statement or document required by the 15 commissioner as established by rule. 16 (2) Submit a description of coverages, deductibles, 17 coverage limits, rates, and any additional information 18 requested by the commissioner to the commissioner for approval. 19 (3) Provide a statement to the commissioner that describes 20 all of the following: 21 (a) The character, reputation, and financial standing of 22 the organizers of the business entity. 23 (b) The character, reputation, financial responsibility, 24 insurance experience, and business qualifications of all 25 officers, directors, and managing members of the business 26 entity. 27 (4) Provide any other information required by the 28 commissioner as established by rule. 29 b. If there is a subsequent material change in the 30 information provided to the commissioner under paragraph 31 “a” , the captive company shall submit appropriate supporting 32 documentation to the commissioner for approval. The captive 33 company shall not offer any additional lines of insurance until 34 on or after the date on which the commissioner approves the 35 -11- SF 549.1647 (3) 90 ko/rn 11/ 36

supporting documentation. The captive company shall inform the 1 commissioner of any change in rates within thirty calendar days 2 of the captive company’s adoption of a change in rate. 3 c. In addition to the information required under paragraphs 4 “a” and “b” , each applicant captive company shall file with the 5 commissioner evidence of all of the following: 6 (1) The amount and liquidity of the captive company’s assets 7 relative to the risks to be assumed by the captive company. 8 (2) The adequacy of the expertise, experience, and 9 character of the persons who will manage the captive company. 10 (3) The overall soundness of the captive company’s plan of 11 operation. 12 (4) The adequacy of the loss prevention program of the 13 captive company’s parent, members, or industrial insureds, as 14 applicable. 15 (5) Any other factors deemed relevant by the commissioner to 16 ascertain if the proposed captive company will be able to meet 17 the company’s policy obligations. 18 d. In addition to the information required under paragraph 19 “a” , each applicant that is a protected cell captive company 20 shall file with the commissioner all of the following: 21 (1) A business plan that demonstrates, at a level of detail 22 deemed sufficient by the commissioner, how the applicant will 23 account for the loss and expense experience of each protected 24 cell, and how the applicant will report the loss and expense 25 experience of each protected cell to the commissioner. 26 (2) A statement that acknowledges that all financial 27 records of the protected cell captive company, including 28 records pertaining to any protected cells, shall be made 29 available upon request for inspection or examination by the 30 commissioner or the commissioner’s designated agent. 31 (3) A copy of each participant contract. 32 (4) Evidence that expenses will be allocated to each 33 protected cell in a fair and equitable manner. 34 e. In addition to the requirements of paragraph “a” , a 35 -12- SF 549.1647 (3) 90 ko/rn 12/ 36

captive company formed as a reciprocal insurer shall file with 1 the commissioner a certified copy of the power of attorney of 2 the reciprocal insurer’s attorney-in-fact, a certified copy of 3 the reciprocal insurer’s subscribers’ agreement, a statement 4 under oath of the reciprocal insurer’s attorney-in-fact that 5 shows the reciprocal insurer’s financial condition, and any 6 other statements or documents required by the commissioner as 7 established by rule. 8 f. All documents and information submitted pursuant to this 9 subsection shall be confidential and shall not be made public 10 without the advance written consent of the submitting company, 11 with the following exceptions: 12 (1) The documents and information shall be discoverable 13 by a party in a civil action or in a contested case to which 14 the captive company that submitted the information is a party 15 upon a showing by the party seeking to discover the information 16 that the information sought is relevant to, and necessary for, 17 the furtherance of the action or case; the information sought 18 is unavailable from other nonconfidential sources; and that a 19 subpoena issued by a judicial or an administrative officer has 20 been submitted to the commissioner. 21 (2) The commissioner may, in the commissioner’s discretion, 22 disclose the documents and information to a public official 23 having jurisdiction over the regulation of insurance in another 24 state, or to a public official of the federal government, 25 provided that the public official agrees in writing to maintain 26 the confidentiality of the information, and that the laws of 27 the state in which the public official serves require that the 28 information remain confidential. 29 4. a. Each captive company, each individual series of 30 members of a limited liability company, and each protected 31 cell shall pay a nonrefundable fee to the commissioner of 32 two hundred dollars for the examination, investigation, and 33 processing of its application for a certificate of authority. 34 The commissioner shall be authorized to retain legal, 35 -13- SF 549.1647 (3) 90 ko/rn 13/ 36

financial, and examination services from outside experts as 1 necessary for review of the application, the reasonable cost of 2 which may be charged to the applicant. 3 b. Each captive insurance company, each individual series of 4 members of a limited liability company, and each protected cell 5 shall pay an initial registration fee, and an annual renewal 6 registration fee, of three hundred dollars. 7 5. If the commissioner is satisfied with the documents 8 and statements that an applicant captive company has filed in 9 compliance with this chapter, and the applicable provisions 10 of Title XIII, subtitle 1, the commissioner may grant a 11 certificate of authority to the captive company that permits 12 the company to do the business of insurance in this state. The 13 certificate of authority must be renewed annually and may be 14 renewed if the applicant is in compliance with this chapter. 15 Sec. 5. NEW SECTION . 521J.3 Captive companies —— names. 16 A captive company shall not adopt a name that is the same, 17 deceptively similar, or likely to be confused with or mistaken 18 for any other existing business name already registered in this 19 state. 20 Sec. 6. NEW SECTION . 521J.4 Minimum capital and surplus 21 requirements. 22 1. The commissioner shall not issue a certificate of 23 authority to a captive company unless the captive company 24 possesses and maintains unimpaired paid-in capital and surplus 25 that meets the following requirements: 26 a. Is not less than two hundred fifty thousand dollars for 27 a pure captive company. 28 b. Is not less than five hundred thousand dollars for an 29 industrial insured captive company, including a captive risk 30 retention group. 31 c. Is an amount as determined by the commissioner after 32 giving due consideration to the captive company’s business 33 plan, feasibility study, and pro forma documents, including, 34 for a special purpose captive company, the nature of the risks 35 -14- SF 549.1647 (3) 90 ko/rn 14/ 36

to be insured. 1 d. Is not less than five hundred thousand dollars for a 2 protected cell captive company. If, however, the protected 3 cell captive company does not assume any risks, the risks 4 insured by the protected cells are homogenous, and there are 5 not more than ten cells, the commissioner may reduce the amount 6 to an amount not less than two hundred fifty thousand dollars. 7 e. Is not less than the applicable amount of capital and 8 surplus required in paragraphs “a” through “d” , as determined 9 based upon the organizational form of the alien captive 10 company, for a branch captive company. The minimum capital 11 and surplus shall be jointly held by the commissioner and the 12 branch captive company in a bank of the federal reserve system 13 as approved by the commissioner by rule. 14 f. Is not less than fifty percent of the capital required 15 for that type of captive company for a captive reinsurance 16 company. 17 2. The commissioner may require additional capital and 18 surplus for a captive company under subsection 1 based upon the 19 type, volume, and nature of the insurance business transacted 20 by the captive company. 21 3. The capital and surplus required under subsection 1 and 22 subsection 2, if applicable, shall be in the form of cash, 23 cash equivalent, or an irrevocable letter of credit on a form 24 as prescribed by the commissioner by rule and as issued by 25 a bank chartered by the state of Iowa, a member bank of the 26 federal reserve system, or a bank chartered by another state if 27 approved by the commissioner. 28 Sec. 7. NEW SECTION . 521J.5 Captive companies —— formation. 29 1. A captive company must be formed or organized as a 30 business entity as provided under this chapter. 31 2. An industrial insured captive company shall be formed or 32 organized in one of the following ways: 33 a. Incorporated as a stock insurer with the stock insurer’s 34 capital divided into shares and held by the stockholders. 35 -15- SF 549.1647 (3) 90 ko/rn 15/ 36

b. Incorporated as a mutual insurer without capital stock. 1 c. Organized as a reciprocal insurer as permitted by the 2 commissioner by rule. 3 d. Organized as a manager-managed limited liability company. 4 3. A captive company incorporated or organized in this state 5 shall be incorporated or organized by at least one incorporator 6 or organizer who is a resident of the state. 7 4. The capital stock of a captive company incorporated as a 8 stock insurer may be authorized with no par value. 9 5. a. At least one member of the board of directors of a 10 captive company shall be a resident of this state. A captive 11 risk retention group shall have a minimum of five directors. 12 b. A captive company formed as a limited liability company 13 shall have at least one manager who is a resident of this 14 state. A captive risk retention group formed as a limited 15 liability company shall not be required to have a manager who 16 is a resident of this state; however, the limited liability 17 company shall maintain a board of directors of which at least 18 one board member shall be a resident of this state. 19 c. A reciprocal insurer shall have at least one member 20 of the subscribers’ advisory committee who is a resident 21 of this state. A captive risk retention group formed as a 22 reciprocal insurer shall have a minimum of five members of 23 the subscribers’ advisory committee who are residents of this 24 state. 25 6. a. A captive company formed as a corporation or another 26 business entity shall have the privileges of, and shall be 27 subject to, state laws governing corporations or other business 28 entities, and the applicable provisions of this chapter. 29 b. In the event of a conflict between a state law governing 30 corporations or other business entities and this chapter, this 31 chapter shall take precedence. 32 7. a. A subscribers’ agreement, or other organizational 33 document of a captive company formed as a reciprocal insurer, 34 shall authorize a quorum of a subscribers’ advisory committee 35 -16- SF 549.1647 (3) 90 ko/rn 16/ 36

to consist of at least one-third of the number of members on 1 the advisory committee. 2 b. In addition to this chapter, a captive risk retention 3 group shall be subject to chapter 515E. In the event of a 4 conflict between chapter 515E and this chapter, this chapter 5 shall take precedence. 6 8. Except as provided in section 521J.11, applicable 7 provisions of chapter 508B shall apply to a merger, 8 consolidation, conversion, mutualization, or voluntary 9 dissolution by a captive company. 10 9. a. An alien captive company must apply to the secretary 11 of state for a certificate of authority for the alien captive 12 company’s branch captive company to transact business in this 13 state. 14 b. A branch captive company established under this chapter 15 to write, in this state, only insurance or reinsurance of the 16 employee benefit business of the branch captive company’s 17 parent and affiliated companies shall be subject to the federal 18 Employee Retirement Income Security Act of 1974, 29 U.S.C. 19 §1001, et seq. 20 c. A branch captive company shall not conduct any insurance 21 business in this state unless the branch captive company 22 maintains the principal place of business for the company’s 23 branch operations in this state. 24 Sec. 8. NEW SECTION . 521J.6 Dividends. 25 1. A captive company shall not pay a dividend out of, or 26 other distribution with respect to, the minimum capital or 27 surplus required under section 521J.4 without the prior written 28 approval of the commissioner. 29 2. The commissioner’s approval of an ongoing plan for 30 the payment of dividends or other distributions shall be 31 conditioned upon retention, at the time of each payment, of 32 capital and surplus in excess of the amounts specified by, 33 or determined in accordance with, a formula approved by the 34 commissioner by rule. 35 -17- SF 549.1647 (3) 90 ko/rn 17/ 36

Sec. 9. NEW SECTION . 521J.7 Reports. 1 1. A captive company shall be required to file an annual 2 report with the commissioner that meets the following 3 requirements: 4 a. Except as provided in paragraph “b” , on or before April 5 1 of each year, each captive company and each captive risk 6 retention group shall submit to the commissioner a report on 7 the company’s financial condition as of December 31 of the 8 preceding year, as verified by oath of two of the company’s or 9 group’s executive officers. The report shall be submitted in a 10 form and manner as prescribed by the commissioner by rule. 11 b. A captive company, other than a captive risk retention 12 group, may apply to the commissioner to file the report 13 required under paragraph “a” on a fiscal year-end basis. If 14 the commissioner approves reporting on a fiscal year-end basis, 15 the captive company shall comply with all of the following 16 requirements: 17 (1) Subject to subparagraph (2), the captive’s company 18 report shall be filed no later than ninety calendar days after 19 the close of the company’s fiscal year. 20 (2) Prior to April 1, the captive company shall file a 21 report covering the immediately preceding calendar year with 22 the commissioner to provide sufficient information to support 23 the captive company’s premium tax return under section 432.1A. 24 c. Each captive company shall use generally accepted 25 accounting principles, unless the commissioner requires, 26 approves, or accepts the use of statutory accounting principles 27 or any other comprehensive accounting principles for the 28 company’s report. The commissioner may require, approve, or 29 accept any appropriate or necessary modifications of statutory 30 accounting principles or other comprehensive accounting 31 principles based on the type of insurance and kinds of insurers 32 that are included in a captive company’s report. The report 33 may include letters of credit that are established, issued, or 34 confirmed by any of the following: 35 -18- SF 549.1647 (3) 90 ko/rn 18/ 36

(1) A bank chartered in this state. 1 (2) A member of the federal reserve system. 2 (3) A bank chartered by another state, if approved by the 3 commissioner. 4 d. An actuarial opinion from a qualified actuary regarding 5 the adequacy of the company’s required reserves to make full 6 provision for the company’s liabilities, insured or reinsured, 7 shall be included in the report. The qualified actuary 8 shall submit a memorandum to the commissioner that details 9 the qualified actuary’s support for the actuarial opinion. 10 The commissioner may require that additional information be 11 submitted to supplement the actuarial opinion. 12 e. All captive companies shall be audited annually by an 13 independent certified public accountant and shall annually file 14 the audited financial report with the commissioner on or before 15 June 1, as a supplement to the annual report required under 16 section 521J.7, subsection 1. 17 f. A captive company may request an extension to file a 18 report required by this section. A written request for an 19 extension must be received by the commissioner not less than 20 ten days before the filing due date, and the request must 21 contain sufficient details to enable the commissioner to make 22 an informed decision regarding the request. The commissioner 23 may grant a thirty-day extension upon a determination by the 24 commissioner that a captive company has good cause for the 25 extension. 26 g. A captive company may be required to file a report on 27 the captive company’s financial condition on a semiannual, 28 quarterly, monthly, or other basis as determined by the 29 commissioner. 30 h. Captive companies shall file all reports required 31 under this section in the form and manner prescribed by the 32 commissioner by rule. 33 2. All reports filed pursuant to this section shall be 34 considered confidential and shall not be a public record. 35 -19- SF 549.1647 (3) 90 ko/rn 19/ 36

Sec. 10. NEW SECTION . 521J.8 Examinations. 1 1. a. Except for captive risk retention groups as provided 2 under paragraph “c” , the commissioner may examine each captive 3 company’s compliance with this chapter, and may examine the 4 affairs, transactions, accounts, records, and assets of each 5 captive company as the commissioner deems necessary. 6 b. The commissioner shall upon the completion of an 7 examination under paragraph “a” , or at such regular intervals 8 prior to completion of an examination as the commissioner 9 determines, prepare an account of the costs incurred in 10 performing and preparing the report of the examination which 11 shall be charged to and paid by the captive company examined. 12 If the captive company fails or refuses to pay the charges, the 13 charges may be recovered in an action brought in the name of 14 the state. 15 c. The commissioner shall examine the affairs, transactions, 16 accounts, records, and assets of each captive risk retention 17 group as the commissioner deems necessary, but no less 18 frequently than every three calendar years. A report produced 19 pursuant to the examination of a captive risk retention group 20 under this section shall be a public record. 21 2. Except as provided in subsection 3, this section shall 22 apply to all business written by a captive company. 23 3. An examination of a branch captive company shall be 24 conducted only on the branch business and branch operations if 25 all of the following requirements are met: 26 a. The branch captive company annually provides the 27 commissioner a certificate of compliance, or equivalent, that 28 was issued by or filed with the licensing authority of the 29 jurisdiction in which the branch captive company is formed. 30 b. The branch captive company demonstrates to the 31 satisfaction of the commissioner that the company is operating 32 in sound financial condition and in compliance with all 33 applicable law and regulations of the jurisdiction in which the 34 branch captive company is formed. 35 -20- SF 549.1647 (3) 90 ko/rn 20/ 36