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The Oregon Administrative Rules contain OARs filed through September 15, 2014
 
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DEPARTMENT OF CONSUMER AND BUSINESS SERVICES,
INSURANCE DIVISION

 

DIVISION 29

CAPTIVE INSURERS

836-029-0000

Authority

OAR 836-029-0000 to 836-029-0120 are adopted under the general rulemaking authority of the Director of the Department of Consumer and Business Services under ORS 731.244 and the specific authority granted by Section 4, chapter 84, Oregon Laws 2012.

Stat. Auth.: ORS 731.244, 2012 OL Ch. 84, Sec. 4 (Enrolled SB 1547)
Stats. Implemented: 2012 OL Ch. 84, Sec. 2-22 (Enrolled SB 1547)
Hist.: ID 11-2012(Temp), f. 6-15-12, cert. ef. 7-1-12 thru 12-27-12; ID 17-2012, f. & cert. ef. 11-7-12; ID 17-2012, f. & cert. ef. 11-7-12

836-029-0005

Purpose and Scope

The purpose of these rules is to set forth the financial, reporting, record-keeping and other requirements the Director of the Department of Consumer and Business Services considers necessary for the regulation of captive insurers, under sections 2 to 22, chapter 84, Oregon Laws 2012.

Stat. Auth.: ORS 731.244, 2012 OL Ch. 84, Sec. 4 (Enrolled SB 1547)
Stats. Implemented: 2012 OL Ch. 84, Sec. 2-22 (Enrolled SB 1547)
Hist.: ID 11-2012(Temp), f. 6-15-12, cert. ef. 7-1-12 thru 12-27-12; ID 17-2012, f. & cert. ef. 11-7-12

836-029-0010

Definitions

As used in OAR 836-029-0000 to 836-029-0120:

(1) “GAAP” means generally accepted accounting principles.

(2) "Work Papers" or "working papers" include but are not limited to schedules, analyses, reconciliations, abstracts, memoranda, narratives, flow charts, copies of captive insurer records or other documents prepared or obtained by the independent certified public accountant and the accountant's employees in the conduct of their audit of a captive insurer.

Stat. Auth.: ORS 731.244, 2012 OL Ch. 84, Sec. 4 (Enrolled SB 1547)
Stats. Implemented: 2012 OL Ch. 84, Sec. 2-22 (Enrolled SB 1547)
Hist.: ID 11-2012(Temp), f. 6-15-12, cert. ef. 7-1-12 thru 12-27-12; ID 17-2012, f. & cert. ef. 11-7-12

836-029-0015

Annual Reporting Requirements

(1) Not later than March 1, a captive insurer authorized in this state shall file an annual report of its financial condition as of the immediately preceding December 31 with the Director of the Department of Consumer and Business Services. The report shall be verified by oath of two of its executive officers and shall be prepared using GAAP. The annual report may be filed electronically in accordance with directions from the director.

(2) An association captive insurer shall comply with the requirements of section 13, chapter 84, Oregon Laws 2012 when filing an annual report on the captive insurer’s financial condition.

(3) All captive insurers must use the "Captive Insurer Annual Statement Form” as set forth on the Insurance Division website of the Department of Consumer and Business Services at www.insurance.oregon.gov.

(4) The annual report required under section (1) of this rule must be accompanied by a management discussion and analysis that provides details of the captive’s financial condition, changes in financial condition and results of operations. The Management Discussion and analysis shall be prepared in accordance with annual statement instructions set forth on the Insurance Division website of the Department of Consumer and Business Services at www.insurance.oregon.gov and applicable to the required filing period as set forth in OAR 836-011-0000.

(5) The director may require a captive insurer to provide information applicable to its holding company systems covering activities for the preceding year.

(6) Upon request, the director may grant an extension of time for filing a report or document required under this rule.

Stat. Auth.: ORS 731.244, 2012 OL Ch. 84, Sec. 4 (Enrolled SB 1547)
Stats. Implemented: 2012 OL Ch. 84, Sec. 2-22 (Enrolled SB 1547)
Hist.: ID 11-2012(Temp), f. 6-15-12, cert. ef. 7-1-12 thru 12-27-12; ID 17-2012, f. & cert. ef. 11-7-12

836-029-0020

Risk Limitation

The Director of the Department of Consumer and Business Services may:

(1) Limit the net amount of risk a captive insurer retains for a single risk after considering the impact of the retention on the captive insurer's capital and surplus; or

(2) Prescribe and demand additional capital and surplus of any captive insurer if the director determines that the captive insurer is not adequately capitalized for the type, volume and nature of the risk that is being covered by the captive insurer.

Stat. Auth.: ORS 731.244, 2012 OL Ch. 84, Sec. 4 (Enrolled SB 1547)
Stats. Implemented: 2012 OL Ch. 84, Sec. 2-22 (Enrolled SB 1547)
Hist.: ID 11-2012(Temp), f. 6-15-12, cert. ef. 7-1-12 thru 12-27-12; ID 17-2012, f. & cert. ef. 11-7-12

836-029-0025

Annual Audit

(1) All captive insurers shall have an annual audit by an independent certified public accountant, approved by the Director of the Department of Consumer and Business Services, and shall file an audited financial report with the director on or before June 30 for the preceding year. Financial statements furnished under this section shall be prepared in accordance with generally accepted auditing standards as determined by the AICPA. At the discretion of the director, the requirement of an audit may be waived.

(2) The annual audit report shall be filed not later than June 30 and shall be considered part of the captive insurer's annual report of financial condition except with respect to the date by which it must be filed with the director. The director may grant an extension of time for filing the annual audit.

(3) The annual audit shall include all of the following:

(a) Opinion of an Independent Certified Public Accountant. The opinion of the independent certified public accountant shall:

(A) Cover all years presented; and

(B) Be addressed to the captive insurer on stationery of the accountant showing the address of issuance, shall bear original manual signatures and shall be dated.

(b) Internal Controls Letter.

(A) In accordance with AU Section 319 of the Professional Standards of the AICPA, Considerations of Internal Controls in a Financial Statement Audit, the independent certified public accountant shall obtain an understanding of internal controls sufficient to plan the audit. To the extent required by AU 319, for those insurers required to file a Management’s Report of Internal Control over Financial Reporting pursuant to 836-029-0030, the independent certified public accountant shall consider (as that term is defined in Statement on Auditing Standards (SAS) No. 102, Defining Professional Requirements in Statements on Auditing Standards or its replacement) the most recently available report in planning and performing the audit of the financial statements.

(B) Based on such understanding, the accountant shall include a letter about the internal controls of the captive insurer relating to the methods and procedures used in the securing of assets and the reliability of the financial records, including but not limited to, controls as the system of authorization and approval and the separation of duties. The review shall be conducted in accordance with generally accepted auditing standards and procedures.

(c) Accountant's Letter of Qualifications. For a captive insurer that has an annual direct written premium of $500 million or more, the accountant shall furnish the captive insurer, for inclusion in the filing of the audited annual report, a letter stating:

(A) That the accountant is independent with respect to the captive insurer and conforms to the standards of the profession as contained in the Code of Professional Ethics and pronouncements of the AICPA and pronouncements of the Financial Accounting Standards Board;

(B) The general background and experience of the staff engaged in the audit, including their experience in auditing captive or other insurance companies;

(C) That the accountant understands that the audited annual report and the accountant’s opinions on the audited annual report will be filed in compliance with this rule.

(D) That the accountant consents to the requirements of OAR 836-029-0055;

(E) That the accountant consents and agrees to make the work papers available for review by the director and any designee or agent of the director; and

(F) That the accountant is properly licensed by an appropriate state licensing authority.

(d) Financial Statements. The financial statements required shall include all of the following:

(A) Balance sheet;

(B) Statement of gain or loss from operations;

(C) Statement of changes in financial position;

(D) Statement of cash flow;

(E) Statement of changes in capital paid up, gross paid in and contributed surplus and unassigned funds (surplus); and

(F) Notes to financial statements required by GAAP including:

(i) A reconciliation of differences, if any, between the audited financial report and the statement or form filed with the director;

(ii) A summary of ownership and relationship of the captive insurer and all affiliated corporations or companies insured by the captive;

(iii) A narrative explanation of all material transactions with the captive insurer. For purposes of this provision, no transaction shall be deemed material unless it involves three percent or more of a captive insurer's admitted assets as of the immediately preceding December 31; and

(iv) A reconciliation of differences between capital paid up, gross paid in and contributed surplus and unassigned funds (surplus) prepared on a GAAP and Statutory Accounting basis.

(e) Certification of Loss Reserves and Loss Expense Reserves of the Captive Insurer's Opining Actuary. The annual audit shall include an actuarial opinion as to the reasonableness of the captive insurer's loss reserves and loss expense reserves.

(A) The individual who certifies as to the reasonableness of reserves shall be approved by the director and shall be a Fellow or Associate of the Casualty Actuarial Society and a member in good standing of the American Academy of Actuaries, for property and casualty companies.

(B) The director may waive the requirement under this section to include an actuarial opinion as to the reasonableness of the captive insurer's loss reserves and loss expense reserves.

(C) Certification under this subsection shall be in the form the director determines appropriate.

(4) As used in this rule, “AICPA” means American Institute of Certified Public Accountants.

Stat. Auth.: ORS 731.244, 2012 OL Ch. 84, Sec. 4 (Enrolled SB 1547)
Stats. Implemented: 2012 OL Ch. 84, Sec. 2-22 (Enrolled SB 1547)
Hist.: ID 11-2012(Temp), f. 6-15-12, cert. ef. 7-1-12 thru 12-27-12; ID 17-2012, f. & cert. ef. 11-7-12

836-029-0030

Management’s Report of Internal Control over Financial Reporting

(1) Each insurer required to file an audited financial report pursuant to OAR 836-029-0015 that has annual direct written and assumed premiums of $500,000,000 or more, excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, shall prepare a report of the insurer’s or group of insurers’ internal control over financial reporting. The insurer shall file the report with the director, along with the Communication of Internal Control Related Matters Noted in an Audit, as described in 836-029-0035. The Management’s Report of Internal Control over Financial Reporting shall be as of December 31 immediately preceding.

(2) A Management’s Report of Internal Control over Financial Reporting must include:

(a) A statement that management is responsible for establishing and maintaining adequate internal control over financial reporting;

(b) A statement that management has established internal control over financial reporting and an assertion, to the best of management’s knowledge and belief, after diligent inquiry, as to whether its internal control over financial reporting is effective to provide reasonable assurance regarding the reliability of financial statements in accordance with statutory accounting principles;

(c) A statement that briefly describes the approach or processes by which management evaluated the effectiveness of its internal control over financial reporting;

(d) A statement that briefly describes the scope of work that is included and whether any internal controls were excluded;

(e) Disclosure of any unremediated material weaknesses in the internal control over financial reporting identified by management as of December 31 immediately preceding;

(f) A statement regarding the inherent limitations of internal control systems; and

(g) Signatures of the chief executive officer and the chief financial officer (or equivalent position and title).

(3) For a Management’s Report of Internal Control over Financial Reporting under section (2) of this rule, management may not conclude that the internal control over financial reporting is effective to provide reasonable assurance regarding the reliability of financial statements in accordance with statutory accounting principles if there is one or more unremediated material weaknesses in its Internal control over financial reporting

(4) Management shall document and make available upon financial condition examination the basis upon which its assertions, required in section (2) of this rule, are made. Management may base its assertions, in part, upon its review, monitoring and testing of internal controls undertaken in the normal course of its activities. In addition:

(a) Management shall have discretion as to the nature of the internal control framework used, and the nature and extent of documentation, in order to make its assertion in a cost effective manner and, as such, may include assembly of or reference to existing documentation.

(b) Management’s Report on Internal Control over Financial Reporting, required by section (1) of this rule, and any documentation provided in support thereof during the course of a financial condition examination, shall be kept confidential by the Department.

Stat. Auth.: ORS 731.244, 2012 OL Ch. 84, Sec. 4 (Enrolled SB 1547)
Stats. Implemented: 2012 OL Ch. 84, Sec. 2-22 (Enrolled SB 1547)
Hist.: ID 11-2012(Temp), f. 6-15-12, cert. ef. 7-1-12 thru 12-27-12; ID 17-2012, f. & cert. ef. 11-7-12

836-029-0035

Communication of Internal Control Related Matters Noted in an Audit

(1) In addition to the annual audited financial report, each captive insurer that has annual direct written premium of $500,000,000 or more shall furnish the director with a written communication as to any unremediated material weaknesses in its internal control over financial reporting noted during the audit. The communication must be prepared by the accountant not later than the 60th day after the filing of the annual audited financial report and shall contain a description of any unremediated material weakness (as the term material weakness is defined by Statement on Auditing Standard 60, Communication of Internal Control Related Matters Noted in an Audit, or its replacement) as of December 31 immediately preceding (so as to coincide with the audited financial report required by OAR 836-029-0025 in the captive insurer’s internal control over financial reporting noted by the accountant during the course of their audit of the financial statements. If no unremediated material weaknesses were noted, the communication must so state.

(2) The captive insurer shall submit with the report required under section (1) of this rule a description of remedial actions taken or proposed to correct unremediated material weaknesses, if the actions are not described in the accountant's report.

(3) The captive insurer shall maintain information about significant deficiencies communicated by the independent certified public accountant. The information must be made available to the examiner conducting a financial condition examination for review and kept in such a manner as to remain confidential.

Stat. Auth.: ORS 731.244, 2012 OL Ch. 84, Sec. 4 (Enrolled SB 1547)
Stats. Implemented: 2012 OL Ch. 84, Sec. 2-22 (Enrolled SB 1547)
Hist.: ID 11-2012(Temp), f. 6-15-12, cert. ef. 7-1-12 thru 12-27-12; ID 17-2012, f. & cert. ef. 11-7-12

836-029-0040

Designation of Service Providers

(1) A certified public accountant retained to conduct the independent annual audit must be selected from the list of approved certified public accounting firms or individual certified public accountants maintained by the Director of the Department of Consumer and Business Services.

(2) A captive insurer that terminates the appointment of an independent certified public accountant retained to conduct the annual audit required in this rule shall report the name and address of the certified public accountant in writing to the director within ninety days after the appointment is terminated and shall within the same period report the name and address of the certified public accountant that is subsequently retained.

(3) A captive manager hired to manage a captive insurer must be selected from the list of approved captive managers maintained by the Director of the Department of Consumer and Business Services.

(4) A captive insurer that terminates the appointment of a captive manager hired to manage a captive insurer shall report the name and address of the captive manager in writing to the director within ninety days after the appointment is terminated and shall within the same period report the name and address of the captive manager that is subsequently retained.

(5) An actuary hired to opine on the reserves of a captive insurer must be selected from the list of approved actuaries maintained by the Director of the Department of Consumer and Business Services.

(6) A captive insurer that terminates the appointment of an actuary hired to opine on the reserves of a captive insurer shall report the name and address of the actuary in writing to the director within ninety days after the appointment is terminated and shall within the same period report the name and address of the actuary that is subsequently retained.

Stat. Auth.: ORS 731.244, 2012 OL Ch. 84, Sec. 4 (Enrolled SB 1547)
Stats. Implemented: 2012 OL Ch. 84, Sec. 2-22 (Enrolled SB 1547)
Hist.: ID 11-2012(Temp), f. 6-15-12, cert. ef. 7-1-12 thru 12-27-12; ID 17-2012, f. & cert. ef. 11-7-12

836-029-0045

Notification of Material Misstatement of Financial Condition

A captive insurer shall require its certified public accountant to immediately notify an officer and all members of the board of directors of the captive insurer in writing of any determination by the independent certified public accountant that the captive insurer has materially misstated its financial condition in its report to the Director of the Department of Consumer and Business Services. The captive insurer shall furnish the notification to the director within five working days after receiving the notification from its certified public accountant.

Stat. Auth.: ORS 731.244, 2012 OL Ch. 84, Sec. 4 (Enrolled SB 1547)
Stats. Implemented: 2012 OL Ch. 84, Sec. 2-22 (Enrolled SB 1547)
Hist.: ID 11-2012(Temp), f. 6-15-12, cert. ef. 7-1-12 thru 12-27-12; ID 17-2012, f. & cert. ef. 11-7-12

836-029-0050

Additional Deposit Requirement

(1) Whenever the Director of the Department of Consumer and Business Services determines that the financial condition of a captive insurer warrants additional security, the director may require the captive insurer to deposit with the director, in trust for the captive insurer, cash, securities approved by the director, or an irrevocable letter of credit issued by a bank chartered by the State of Oregon or a member bank of the Federal Reserve System with the director.

(2) The director shall return the deposit or letter of credit of a captive insurer if the captive insurer ceases to do any business only after being satisfied that all obligations of the captive insurer have been discharged.

(3) With the approval of the director a captive insurer may receive interest or dividends from the deposit or exchange the deposits for others of equal value.

Stat. Auth.: ORS 731.244, 2012 OL Ch. 84, Sec. 4 (Enrolled SB 1547)
Stats. Implemented: 2012 OL Ch. 84, Sec. 2-22 (Enrolled SB 1547)
Hist.: ID 11-2012(Temp), f. 6-15-12, cert. ef. 7-1-12 thru 12-27-12; ID 17-2012, f. & cert. ef. 11-7-12

836-029-0055

Availability and Maintenance of Working Papers of the Independent Certified Public Accountant

Availability and Maintenance of Working Papers of the Independent Certified Public Accountant

(1) Each captive insurer shall require its independent certified public accountant to make all work papers prepared in the conduct of the audit of the captive insurer available for review by the Director of the Department of Consumer and Business Services or his appointed agent. The captive insurer shall require that the accountant retain the audit work papers for a period of not less than five years after the end of the report period.

(2) The review by the director shall be considered an official investigation by the director and all working papers obtained during the course of such investigation shall be confidential business papers and shall be classified as business confidential protected records. The captive insurer shall require that the independent certified public accountant provide photocopies to the department of any of the working papers that the department considers relevant. The department may retain any photocopies of working papers.

Stat. Auth.: ORS 731.244, 2012 OL Ch. 84, Sec. 4 (Enrolled SB 1547)
Stats. Implemented: 2012 OL Ch. 84, Sec. 2-22 (Enrolled SB 1547)
Hist.: ID 11-2012(Temp), f. 6-15-12, cert. ef. 7-1-12 thru 12-27-12; ID 17-2012, f. & cert. ef. 11-7-12

836-029-0060

Documentation Required to be Held in Oregon by Licensed Captives

(1) Any captive insurer authorized by the Director of the Department of Consumer and Business Services, shall maintain and make ready for inspection and examination by the director, or the director's agent, any and all documents pertaining to the formation, operation, management, finances, insurance and reinsurance of the captive insurer.

(2) Original documents may be kept in the offices of the captive insurer's captive manager, the captive insurer's parent or the captive insurer itself. Accurate and complete copies shall be held in an office located in Oregon designated by the captive insurer and approved by the director as part of the application process.

Stat. Auth.: ORS 731.244, 2012 OL Ch. 84, Sec. 4 (Enrolled SB 1547)
Stats. Implemented: 2012 OL Ch. 84, Sec. 2-22 (Enrolled SB 1547)
Hist.: ID 11-2012(Temp), f. 6-15-12, cert. ef. 7-1-12 thru 12-27-12; ID 17-2012, f. & cert. ef. 11-7-12

836-029-0065

Reinsurance

(1) Any captive insurer authorized to do business in this state may take credit for reserves on risks ceded to a reinsurer subject to the following limitations:

(a) No credit shall be allowed for reinsurance where the reinsurance contract does not result in the transfer of the risk or liability to the reinsurer.

(b) No credit shall be allowed, as an asset or a deduction from liability, to any ceding insurer for reinsurance unless the reinsurance is payable by the assuming insurer on the basis of the liability of the ceding insurer under the contract reinsured without diminution because of the insolvency of the ceding insurer.

(2) Reinsurance under this section shall be effected through a written agreement of reinsurance setting forth the terms, provisions and conditions governing such reinsurance.

(3) A captive insurer shall file with the Director of the Department of Consumer and Business Services complete copies of all reinsurance treaties and contracts for prior approval by the director. Any amendments to reinsurance agreements must be submitted to the director for prior approval.

Stat. Auth.: ORS 731.244, 2012 OL Ch. 84, Sec. 4 (Enrolled SB 1547)
Stats. Implemented: 2012 OL Ch. 84, Sec. 2-22 (Enrolled SB 1547)
Hist.: ID 11-2012(Temp), f. 6-15-12, cert. ef. 7-1-12 thru 12-27-12; ID 17-2012, f. & cert. ef. 11-7-12

836-029-0070

Service Providers

A person may not act in or from this state, as a service provider, including but not limited to as a captive insurance manager, producer, actuary or certified public accountant, for a captive insurer without the authorization of the Director of the Department of Consumer and Business Services. Application for such authorization must be on a form prescribed by the director. The application shall include information regarding the service provider’s character, reputation and experience, relative to captive insurer. Any person who solicits business entities to form a captive insurer must be licensed as a producer under ORS 744.052 to 744.089.

Stat. Auth.: ORS 731.244, 2012 OL Ch. 84, Sec. 4 (Enrolled SB 1547)
Stats. Implemented: 2012 OL Ch. 84, Sec. 2-22 (Enrolled SB 1547)
Hist.: ID 11-2012(Temp), f. 6-15-12, cert. ef. 7-1-12 thru 12-27-12; ID 17-2012, f. & cert. ef. 11-7-12

836-029-0075

Directors

(1) Every captive insurer shall report any change in its executive officers or directors to the Director of the Department of Consumer and Business Services within thirty days after a change is made and include in its report, a biographical affidavit of any new executive officer or director.

(2) No director, officer or employee of a captive insurer shall, except on behalf of the captive insurer, accept, or be the beneficiary of, any fee, brokerage, gift or other emolument because of any investment, loan, deposit, purchase, sale, payment or exchange made by or for the captive insurer. The person may receive only reasonable compensation for necessary services rendered to the captive insurer in the person’s usual private, professional or business capacity.

(3) Any profit or gain received by or on behalf of any person in violation of this section shall inure to and be recoverable by the captive insurer.

Stat. Auth.: ORS 731.244, 2012 OL Ch. 84, Sec. 4 (Enrolled SB 1547)
Stats. Implemented: 2012 OL Ch. 84, Sec. 2-22 (Enrolled SB 1547)
Hist.: ID 11-2012(Temp), f. 6-15-12, cert. ef. 7-1-12 thru 12-27-12; ID 17-2012, f. & cert. ef. 11-7-12

836-029-0080

Conflict of Interest

(1) Each captive insurer licensed in Oregon shall adopt a conflict of interest statement for officers, directors and key employees. The statement shall disclose that the individual has no outside commitments, personal or otherwise, that would divert the person from the duty to further the interests of the captive insurer the person represents but this shall not preclude a person from being a director or officer in more than one insurance captive insurer.

(2) Each officer, director and key employee shall file a yearly disclosure with the board of directors.

Stat. Auth.: ORS 731.244, 2012 OL Ch. 84, Sec. 4 (Enrolled SB 1547)
Stats. Implemented: 2012 OL Ch. 84, Sec. 2-22 (Enrolled SB 1547)
Hist.: ID 11-2012(Temp), f. 6-15-12, cert. ef. 7-1-12 thru 12-27-12; ID 17-2012, f. & cert. ef. 11-7-12

836-029-0085

Acquisition of Control of or Merger with Domestic Captive insurer

The acquisition of control of, or merger of, a domestic captive insurer shall be regulated in accordance with section 9, chapter 84, Oregon Laws 2012. However, the Director of the Department of Consumer and Business Services may waive or modify the requirements for public notice and hearing when the director concludes the public hearing is not necessary due to limited public interest in the change of control.

Stat. Auth.: ORS 731.244, 2012 OL Ch. 84, Sec. 4 (Enrolled SB 1547)
Stats. Implemented: 2012 OL Ch. 84, Sec. 2-22 (Enrolled SB 1547)
Hist.: ID 11-2012(Temp), f. 6-15-12, cert. ef. 7-1-12 thru 12-27-12; ID 17-2012, f. & cert. ef. 11-7-12

836-029-0090

Suspension or Revocation

(1) The Director of the Department of Consumer and Business Services may by order suspend or revoke the license of a captive insurer or place the captive insurer on probation on the following grounds:

(a) The captive insurer has not commenced business according to its plan of operation within two years of being authorized;

(b) The captive insurer has ceased to carry on insurance business in or from within Oregon;

(c) At the request of the captive insurer;

(d) The captive insurer uses methods that render the operation of the captive insurer detrimental to the public or the policyholders of the captive insurer according to standards set forth in OAR 836-029-0095 or

(e) Any reason provided in section 16, chapter 84, Oregon Laws 2012.

(2) Before the director takes any action set forth under section 16, chapter 84, Oregon Laws 2012 the director shall give the captive insurer notice in writing of the grounds on which the director proposes to act, and shall provide an opportunity for hearing on the proposed action in accordance with the provision applicable to a contested case proceeding in ORS 183.310 to 183.490.

Stat. Auth.: ORS 731.244, 2012 OL Ch. 84, Sec. 4 (Enrolled SB 1547)
Stats. Implemented: 2012 OL Ch. 84, Sec. 2-22 (Enrolled SB 1547)
Hist.: ID 11-2012(Temp), f. 6-15-12, cert. ef. 7-1-12 thru 12-27-12; ID 17-2012, f. & cert. ef. 11-7-12

836-029-0095

Standards

The director may consider the following standards, either singly or in combination of two or more, to determine whether the continued operation of any captive insurer transacting insurance in this state might be determined to be hazardous to the policyholders, its creditors or the general public:

(1) Adverse findings reported in financial condition and audit reports, and actuarial opinions, reports or summaries.

(2) Whether the captive insurer has made adequate provision, according to presently accepted actuarial standards of practice, for the anticipated cash flows required by the contractual obligations and related expenses of the captive insurer, when considered in light of the assets held by the captive insurer with respect to such reserves and related actuarial items including but not limited the investment earnings on such assets, and the considerations anticipated to be received and retained under such policies and contracts.

(3) The ability of an assuming reinsurer to perform and whether the captive insurer's reinsurance program provides sufficient protection for the captive insurer's remaining capital and surplus after taking into account the captive insurer's cash flow and the classes of business written as well as the financial condition of the assuming reinsurer.

(4) Whether the captive insurer's operating loss in the last 12-month period or any shorter period of time, including but not limited to net capital gain or loss, change in non-admitted assets and cash dividends paid to shareholders, is greater than 50 percent of the captive insurer's remaining capital and surplus in excess of the minimum required.

(5) Whether the captive insurer’s operating loss in the last 12-month period or any shorter period of time, excluding net capital gains, is greater than 20 percent of the captive insurer’s remaining surplus as regards policyholders in excess of the minimum required.

(6) Whether a reinsurer or obligor, or any entity within the captive insurer’s insurance holding company system is insolvent, threatened with insolvency or delinquent in payment of its monetary or other obligations and which, in the opinion of the director may affect the solvency of the captive insurer.

(7) Contingent liabilities, pledges or guaranties that either individually or collectively involve a total amount that in the opinion of the director may affect the solvency of the captive insurer.

(8) Whether any "controlling person" of a captive insurer is delinquent in the transmitting to, or payment of, net premiums to the captive insurer.

(9) The age and collectability of receivables.

(10) Whether the management of a captive insurer, including officers, directors or any other person who directly or indirectly controls the operation of the captive insurer, fails to possess and demonstrate the competence, fitness and reputation determined by the director to be necessary to serve the captive insurer in such position.

(11) Whether management of a captive insurer has failed to respond to inquiries relating to the condition of the captive insurer or has furnished false and misleading information concerning an inquiry.

(12) Whether the captive insurer has failed to meet financial and holding company filing requirements in the absence of a reason satisfactory to the director.

(13) Whether management of an captive insurer either has filed a false or misleading sworn financial statement or has released a false or misleading financial statement to lending institutions or to the general public, or has made a false or misleading entry, or has omitted an entry of material amount in the books of the captive insurer.

(14) Whether the captive insurer has grown so rapidly and to such an extent that it lacks adequate financial and administrative capacity to meet its obligations in a timely manner.

(15) Whether the captive insurer has experienced or will experience in the foreseeable future cash flow or liquidity problems, or both.

(16) Whether management has established reserves that do not comply with minimum standards established by state insurance laws, regulations, statutory accounting standards, sound actuarial principles and standards of practice.

(17) Whether management persistently engages in material under reserving that results in adverse development.

(18) Whether transactions among affiliates, subsidiaries or controlling persons for which the captive insurer receives assets or capital gains, or both, do not provide sufficient value, liquidity or diversity to assure the captive insurer’s ability to meet its outstanding obligations as they mature.

(19) Any other finding determined by the director to be hazardous to the captive insurer’s policyholders, creditors or general public.

Stat. Auth.: ORS 731.244, 2012 OL Ch. 84, Sec. 4 (Enrolled SB 1547)
Stats. Implemented: 2012 OL Ch. 84, Sec. 2-22 (Enrolled SB 1547)
Hist.: ID 11-2012(Temp), f. 6-15-12, cert. ef. 7-1-12 thru 12-27-12; ID 17-2012, f. & cert. ef. 11-7-12

836-029-0100

Director's Authority

(1) For the purposes of making a determination of the financial condition of a captive insurer under OAR 836-029-0090 to 836-029-0100, the director may do one or more of the following:

(a) Disregard any credit or amount receivable resulting from transactions with a reinsurer that is insolvent, impaired or otherwise subject to a delinquency proceeding;

(b) Make appropriate adjustments to asset values attributable to investments in or transactions with parents, subsidiaries or affiliates;

(c) Refuse to recognize the stated value of accounts receivable if the ability to collect receivables is highly speculative in view of the age of the account or the financial condition of the debtor; or

(d) Increase the captive insurer's liability in an amount equal to any contingent liability, pledge, or guarantee not otherwise included if there is a substantial risk that the captive insurer will be called upon to meet the obligation undertaken within the next 12-month period.

(2) An order of the director under ORS 731.385 regarding a foreign captive insurer may be limited to the extent provided by statute.

(3) In addition to the requirements the director may impose under ORS 731.385, if the director determines that the continued operation of the captive insurer licensed to transact business in this state may be hazardous to the policyholders or the general public, the director may require the captive insurer to:

(a) File reports in a form acceptable to the director concerning the market value of the captive insurer’s assets;

(b) Document the adequacy of premium rates in relation to the risks insured;

(c) In addition to regular annual statements, file interim financial reports on the form specified by the director;

(d) Correct corporate governance practice deficiencies, and adopt and utilize the governance practices acceptable to the director; or

(e) Provide a business plan to the director in order to continue to transact business in this state.

(4) Notwithstanding any other provision of law limiting the frequency or amount of premium rate adjustments, the director may include as a requirement under section (3) of this rule, any rate adjustment for any non-life insurance product written by the captive insurer that the director considers necessary to improve the financial condition of the captive insurer.

Stat. Auth.: ORS 731.244, 2012 OL Ch. 84, Sec. 4 (Enrolled SB 1547)
Stats. Implemented: 2012 OL Ch. 84, Sec. 2-22 (Enrolled SB 1547)
Hist.: ID 11-2012(Temp), f. 6-15-12, cert. ef. 7-1-12 thru 12-27-12; ID 17-2012, f. & cert. ef. 11-7-12

836-029-0105

Change of Information in Initial Application

(1) Any material change in a captive insurer's business plan that is filed with the Director of the Department of Consumer and Business Services at the time of initial application and any subsequent amendment of the plan requires prior approval of the director.

(2) Any change in any other information filed with the initial application must be filed with the director within sixty days after the change, but does not require prior approval.

(3) The captive insurer shall immediately notify the director upon making changes in board members or officers of the captive insurer.

Stat. Auth.: ORS 731.244, 2012 OL Ch. 84, Sec. 4 (Enrolled SB 1547)
Stats. Implemented: 2012 OL Ch. 84, Sec. 2-22 (Enrolled SB 1547)
Hist.: ID 11-2012(Temp), f. 6-15-12, cert. ef. 7-1-12 thru 12-27-12; ID 17-2012, f. & cert. ef. 11-7-12

836-029-0110

Application

(1) In order to form a domestic captive insurer a person shall apply to the Director of the Department of Consumer and Business Services for a permit to organize using the form, “Application for Permit to Organize Captive Insurer With or Without Capital Stock” as set forth on the Insurance Division website of the Department of Consumer and Business Services at www.insurance.oregon.gov. The written application for permit to organize, including all required attachments and information, must be submitted to the department in accordance with instructions provided with the application.

(2) In order to be authorized to transact insurance as a captive insurer a person shall apply to the director for authority to conduct a captive insurance using the form, "Application to Form a Captive insurer" as set forth on the Insurance Division website of the Department of Consumer and Business Services at www.insurance.oregon.gov. The application materials must:

(a) Include one complete copy of the application including forms, attachments, exhibits and all other papers and documents filed as a part thereof, accompanied by the appropriate filing fee filed in writing or online with the director. The written application, including all required attachments and information, must be submitted to the department in accordance with instructions provided with the application.

(b) Be signed in the manner prescribed in the application. If the signature of any person is affixed pursuant to a power of attorney or other similar authority, a copy of the power of attorney or other authority must also be filed with the application.

(c) Include with the application a business plan with supporting data and all other information required by the application.

(d) Include a feasibility study demonstrating the feasibility of the business plan of the captive insurer. The department may test the feasibility of the study by examining the captive insurer's corporate records, if any, including but not limited to the insurer’s charter, bylaws and minute books, verification of capital and surplus, verification of principal place of business, determination of assets and liabilities, and any other factor the director considers necessary.

Stat. Auth.: ORS 731.244, 2012 OL Ch. 84, Sec. 4 (Enrolled SB 1547)
Stats. Implemented: 2012 OL Ch. 84, Sec. 2-22 (Enrolled SB 1547)
Hist.: ID 11-2012(Temp), f. 6-15-12, cert. ef. 7-1-12 thru 12-27-12; ID 17-2012, f. & cert. ef. 11-7-12

836-029-0115

Fees

(1) At the time an applicant submits an application under OAR 836-029-0110 for a permit to organize a captive insurer or for a certificate of authority to operate as a captive insurer the applicant shall pay to the Director of the Department of Consumer and Business Services a nonrefundable fee as set forth in 836-009-0007 for processing the initial application for a permit to organize or for a certificate of authority.

(2) In addition, each captive insurer that is authorized by the director shall pay prior to April 1 an annual continuation fee, without proration, for the year following the year during which the certificate of authority was originally issued and each year thereafter in the amount established in OAR 836-009-0007.

Stat. Auth.: ORS 731.244, 2012 OL Ch. 84, Sec. 4 (Enrolled SB 1547)
Stats. Implemented: 2012 OL Ch. 84, Sec. 2-22 (Enrolled SB 1547)
Hist.: ID 11-2012(Temp), f. 6-15-12, cert. ef. 7-1-12 thru 12-27-12; ID 17-2012, f. & cert. ef. 11-7-12

836-029-0120

Authorized Forms

(1) The following forms must be used for any applicant applying for a certificate of authority as a new captive insurer:

(a) "Application for Permit to Organize Captive Insurer With or Without Capital Stock;”

(b) “Application to Form a Captive insurer;"

(c) "Biographical Affidavit for Captive insurer;"

(d) "Oregon Insurance Division Captive insurer Reinsurance Exhibit;"

(e) "Oregon Approved Irrevocable Letter of Credit" if applicable;

(f) "Statement of Economic Benefit to the State of Oregon;" and

(g) "Appointment of a Registered Resident Agent as Attorney to Accept Service of Process."

(2) Except for a captive insurance producer applying to be licensed as a producer pursuant to ORS 744.052 to 744.089, the following forms must be used when applying to become an approved captive insurer service provider:

(a) "Application for Placement on Approved Captive Insurer Management Firm List;"

(b) "Application to Certify Loss and Expense for Captive insurers Captive Actuary Application;" (c) "Application for Authorization as an Independent Certified Public Accountant for Captive insurers;" and

(d) “Application for Authorization as Producer for Captive insurers.”

(3) All captive insurers must use the "Captive Insurer Annual Statement Form."

(4) The forms required in sections (1) to (3) of this section are set forth on the Insurance Division website of the Department of Consumer and Business Services at www.insurance.oregon.gov.

Stat. Auth.: ORS 731.244, 2012 OL Ch. 84, Sec. 4 (Enrolled SB 1547)
Stats. Implemented: 2012 OL Ch. 84, Sec. 2-22 (Enrolled SB 1547)
Hist.: ID 11-2012(Temp), f. 6-15-12, cert. ef. 7-1-12 thru 12-27-12; ID 17-2012, f. & cert. ef. 11-7-12

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