Texas Regulators Propose Increased Opportunities for Domestic Captives

The Texas Department of Insurance (TDI) has proposed a new rule and certain amendments to existing rules intended to implement provisions of the Texas Insurance Code that apply to captive insurance companies.

The proposed rule and amendments follow 2015 and 2017 legislative amendments to the Insurance Code, which enacted certain provisions that: (i) allow a captive insurance company to be formed as a captive exchange; (ii) authorize the Secretary of State to form a captive insurance company prior to receiving TDI approval of the captive insurance company’s formation documents; (iii) allow the TDI Commissioner to waive the actuarial opinion required with the annual report for a captive insurance company that meets certain requirements; (iv) allow TDI to approve dividends and distributions to a captive insurance company’s policyholders and its equity interest holders; and (v)  providing a procedure for determining acceptable qualified jurisdictions and rating agencies for reinsurance transactions under the Insurance Code.

If approved, the new rule and amendments will, among other things, provide a simplified process for the licensing and regulation of captive exchanges. Additionally, captive insurance companies would be able to be formed by the Secretary of State’s office first without having to obtain both approval and a certificate of general good from TDI. Lastly, captive insurance companies with excess surplus would be able to, with TDI approval, make payments through dividends and distributions to its equity interest holders.

Within the broader context of a state regulatory environment increasingly focused on facilitating alternative risk management strategies, the TDI proposal seeks to advance an already favorable regulatory environment for Texas-licensed captive insurance companies and to encourage Texas businesses with captive insurance companies in other jurisdictions to re-domesticate to Texas.

To see a copy of the proposed rule and amendments, click here. TDI will consider any written comments on the proposal if received by 5:00 CST on October 22, 2018.