Tennessee Captive Insurance Company!

September 12, 2012

Tennessee Department of Commerce & Insurance

Captive Insurance Division"

"

Michael A. Corbett"Director"

Agenda " !

A. Commerce & Insurance"B. Regulatory Team"C. Captive Assessment"D. Application "E. Forms"F. Q & A

TDCI�s History � In 1878, the Tennessee General Assembly recognized the need for consumer protection and insurance regulation by creating the Bureau of Insurance with the state treasurer acting as insurance commissioner. "� In 1913, a separate Department of Insurance was formed under the direction of a commissioner, who became an officer in the governor�s Cabinet. "� The Fire Prevention Division was added in 1937, and, to reflect its expanded role in business regulation and consumer protection, the State Insurance Department became the Department of Commerce and Insurance in 1983."!

TDCI and the NAIC � The National Association of Insurance Commissioners (NAIC) is

the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer review, and coordinate their regulatory oversight. NAIC staff supports these efforts and represents the collective views of state regulators domestically and internationally. "� As a matter of course, Commissioners of states� departments of

insurance participate in the NAIC. I am the Chair of the Life Insurance and Annuities (A) Committee. A few weeks ago, I testified on behalf of the NAIC before the Department of Labor's Advisory Council on Employee Welfare and Pension Benefit Plans.

TDCI�s Mission

Shared focuses inform TDCI�s mission: protecting the interests of consumers while providing fair, efficient oversight and a level field of competition for a broad array of industries and professionals doing business in Tennessee.

Captive insurance companies are insurance companies established with the specific objective of insuring risks emanating from their parent group or groups

Captive Insurance

Commerce & Insurance � Tennessee is the second-oldest US captive domicile, having first passed a captive law in 1978. "

"� Tennessee Governor Bill Haslam updated the regulatory framework, contained in the Revised Tennessee Captive Insurance Act. This new Act became effective on September 1, 2011.""� Changes in the new Act put Tennessee on the leading edge of captive regulations in the United States."

"

Commerce & Insurance The Law permits the formation of:""

� Traditional single parent captives (Pure)"� Group captives"� Industrial insured captives"� Risk retention groups"� Protected cell companies"� Branch captives, and"� Special purpose financial captives"!

�  Pure captive insurance company - any company that insures risks of its parent, affiliated companies, or controlled unaffiliated business;"�  Association captive insurance

company - any company that insures risks of the member organizations of an association, affiliated companies, or the association itself;

Types of Captives

� Industrial Insured Captive Insurance Company - any company that insures the industrial insureds that comprise its industrial insured group, affiliated companies, and controlled unaffiliated business;""

(A) Who procures insurance by using a full-time employee acting as an insurance manager or buyer;" (B) Whose aggregate annual premiums for insurance on all risks total at least $25,000; and" (C) Who has at least twenty-five (25) full-time employees.

Types of Captives

� Protected cell captive insurance company means any captive:""

(A) In which the minimum capital and surplus are provided by one (1) or more protected cell companies;" (B) That is formed or licensed under this chapter;" (C) That insures the risks of separate participants through participant contracts; and" (D) That funds its liability to each participant through one (1) or more protected cells and segregates the assets of each protected cell from the assets of other protected cells and from the assets of the protected cell captive insurance company's general account.

Types of Captives

�  Incorporated cell captive insurance company means a protected cell captive insurance company that is established as a corporation or other legal entity separate from its incorporated cells that are also organized as separate legal entities.

Types of Captives

� Branch captive insurance company means any alien captive insurance company licensed by the Commissioner to transact insurance in this state through a business unit with a principal place of business in this state. A branch captive insurance company is a pure captive insurance company with respect to operations in this state, unless otherwise permitted by the Commissioner."� Branch captives are permitted for ERISA/employee

benefits, as well as any other insurance or reinsurance permitted under this chapter.

Types of Captives

� SPFC or special purpose financial captive means a captive created for the limited purpose of entering into SPFC contracts and insurance securitization transactions. The creation of SPFCs is intended to achieve greater efficiencies in structuring and executing insurance securitizations, to diversify and broaden sources of capital for insurers, to facilitate access for many insurers to insurance securitization and capital markets financing technology, and to further the economic development and expand the interest of this state through its captive insurance program.

Types of Captives

�  Risk Retention Group - means a captive insurance company organized under the laws of this state pursuant to the Liability Risk Retention Act of 1986, as a stock or mutual corporation, a reciprocal or other limited liability entity.

Types of Captives

Regulatory Team Julie Mix McPeak – Insurance Commissioner""

Larry Knight – Assistant Commissioner""

Michael A. Corbett – Director – Captive Insurance""

Robert J. Ribe – Examinations Director""

Tony Greer – Chief Counsel for Insurance""

Andrew P. Rhea – Assistant General Counsel"""

Focus Two primary objectives: ""

� Monitoring the solvency and standards of captive insurance companies. ""

� Ensuring regulation does not hinder the fair operation of the market.

Application Process Two-track process:"1. Prepare documents necessary for incorporation. "2. Prepare documents necessary for application to the Department."

"!

Application Process Minimum Capital & Surplus Deposited with Commerce & Insurance:"�  Pure - $250,000"

�  Special Purpose Financial - $250,000"

�  Association - $500,000"

�  Industrial - $500,000"

�  Protected Cell - $500,000"

�  RRG - $1,000,000"""

Application (continued) Other requirements: "�  The captive manager, CPA and actuary must be approved by the

captive department."

�  The Department may perform an organizational exam shortly after issuing the Certificate of Authority."

�  Application fee - $675"

�  Feasibility Study Review Pass thru: Est. $3,000 - $4,000"

�  No annual license fee

Local Representation Requirements �  Annual Directors meeting in Tennessee"

�  Principal place of business in Tennessee"

�  One board member must be a Tennessee resident

Forms & Information Forms & information available online "(www.tn.gov/commerce/insurance/captive)"

�  Application form"

�  Biographical affidavit"

�  Approval forms for managers, actuaries & CPA firms"

�  List of currently approved managers, actuaries & CPAs"

�  Index format for captive application"

�  Letter of credit form"

�  Helpful links""

Comments, Questions & Suggestions

State of Tennessee"Department of Commerce & Insurance"

Captive Insurance Department"

Working to create a world class captive insurance domicile in Tennessee

(888) 668-3188"www.tncaptives.org