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Minutes for SB410 - Committee on Insurance
Short Title
Updating captive insurance statutes and providing for association and branch captive insurance companies and special purpose insurance captives.
Minutes Content for Thu, Mar 15, 2018
Chairperson Jene Vickrey opened the hearing on SB410.
Eileen Ma, Office of the Revisor of Statutes, presented a bill brief for SB410. (Attachment 7)
Clark Shultz testified in support of the bill. Mr. Shultz stated the fact that Kansas has not updated its captive laws doesn't prevent or discourage corporations from forming a captive. They simply go to a state or offshore jurisdiction that has updated laws in order to form their captive. He stated the goal is to keep the captive assets and related services in our state. (Attachment 8)
Representative Jim Kelly asked for an example of what type of company would set up a captive insurance company and why would they be in Kansas. Mr. Shultz explained that virtually any type of company from an industrial to financial company could set up a captive company. It works best for large companies versus small companies. All Fortune 500 companies have a captive insurance company. They would be in Kansas because it would be to their advantage to have the formation in Kansas and regulated in Kansas.
Representative Dan Hawkins commented on how the health insurance industry uses captives. The are not involved with the sale of insurance products, they handle the risk and the money part.
Representative Elizabeth Bishop asked if the company was obtaining life insurance on behalf of the employee and was the beneficiary of the policy. Grace Lancaster explained that the employee was getting the life insurance and selecting their own beneficiary. Eileen Ma added that you could think of the captive as being self-insurance by the company on behalf of the employees. The employees would be voluntarily signing up for life insurance and pooling it under the umbrella of the captive.
Representative Gail Finney asked what the benefit to Kansas is to have these captive insurance companies located in Kansas. Representative Hawkins responded that the benefit for Kansas is to make sure these companies are well regulated and that they have the proper capital and are financially sound.
Mr. Shultz added that Representative Hawkins was correct. He added that right now a company that wants to have a captive insurance company can do that, however, they have to do it in another state or off-shore and then they are being regulated by someone else, not Kansas.
Representative Tim Hodge asked Mr. Shultz, why these companies exist. Mr. Shultz responded if you are a large company and purchasing insurance of some kind, you are paying a premium. If you want to set up a captive company you can manage that risk with savings. You are directly involved with the management of that captive that only insures the interest of your company, thus there are cost savings for the company. Representative Hodge continued, if the parent company is going to own the subsidiary/captive, why do they need that level of isolation between the parent company and subsidiary. Grace Lancaster responded that it creates an extra layer that protects liability.
Representative Roger Elliot commented that in the fiscal note it states there will be a $10,000 fee for a new captive in Kansas. He also asked if Kansas was looking at Vermont's regulations in how to set up Kansas captives. Grace Lancaster responded that the Kansas bill is based on similar legislation from Georgia, Missouri, and Vermont.
Representative Corbet asked how it worked for a company like the railroad that goes through multiple states and would they need a license in all the other states. Grace Lancaster responded that if they chose to be domiciled in Kansas and then transact business in other states, they would need a license there.
Representative Hawkins asked if it was correct that often captives are formed by many companies, not just one because they can better manage the risk. Ms. Lancaster confirmed that is correct.
Representative John Eplee asked if a company had a captive in Missouri and now it was going to be in Kansas, is there reciprocity to the laws or would they have to meet Kansas regulations. Ms. Lancaster replied that they would have to meet the regulations of Kansas. Representative Eplee asked if the insurance department would oversee all these regulations of the captives, specifically how much capital and resources are dictated by the insurance commissioner. Grace Lancaster responded, there is a section in the bill for capital and surplus requirements and that the insurance department would administer that part and make sure they were at those levels. One of the major regulations is their reporting requirements. If there is a substantial or material change in their outfit or a material change they're trying to enact like a large dividend, they would have to report that to the commissioner. Representative Eplee asked if the amount of capital required is in the bill. Eileen Ma, quoted the section of the bill that addresses capital requirements.
Chairperson Vickrey asked if there was any more discussion. He then asked if there was anyone else to testify as a proponent or opponent. He then closed the hearing.
Meeting adjourned at 10:09 am.
