Texas has passed a law allowing for the formation of pure captive insurance companies within the state.
Companies doing business in the state are now authorized to self-insure, or provide reinsurance for, its own and its affiliate's operational risks such as employee benefit plans, liability insurance and worker's compensation insurance.
The new law allows for companies to open its own carriers in the state, but does not permit the formation of independent captive insurance carriers in Texas. However, the Texas Department of Insurance (TDI) may approve foreign captives to transfer domiciles to the state on a case-by-case basis.
In an analysis of the bill, the state's House wrote, "CSSB 734 would create a healthier business climate for corporations that have or would like to have a domestic captive insurance company. When a Texas-based corporation must form its captive in another state, in incurs additional expenses and administrative burdens. For example, other states often require captives to engage locally based management companies, hold a minimum number of board meetings within their first jurisdiction each year, and appoint a local resident to the board."
In order to obtain a certificate of authority from the TDI, the pure captive must have significant operations and keep its principal office and records in Texas, and hold at least one board of directors meeting in the state each year.
Captives will be taxed on half of one percent of a captive's premium receipts and other forms of revenue from its annual insurance policies. The maximum tax would be half of one percent on a captive's taxable premium receipts and other forms of revenue from annual insurance policies. The annual minimum captive tax is set $7,500 and the annual maximum tax is $200,000.
The captive will have to maintain a capital and surplus of at least $250,000 in order to operate.
"Allowing domestic captives to form in Texas would attract new business to the state and would help retain existing Texas companies. In addition to lowered taxes for re-domesticated firms, the bill would attract high paying jobs, including attorneys, accountants, actuaries, and their support personnel. It would also result in new revenue for the state through the insurance premium tax," said the House analysis.
Texas captives would not be allowed to participate in any insolvency pools or funds in the state.
Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader
Your access to unlimited PropertyCasualty360 content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- Breaking insurance news and analysis, on-site and via our newsletters and custom alerts
- Weekly Insurance Speak podcast featuring exclusive interviews with industry leaders
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical converage of the employee benefits and financial advisory markets on our other ALM sites, BenefitsPRO and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
