ENGROSSED SENATE
BILL NO. 700	By:	Stanislawski of the Senate

			and

		Mulready of the House

An Act relating to insurance; prohibiting captive insurance companies from taking certain actions without Insurance Commissioner approval; requiring captive insurance companies to maintain certain records; providing requirements for captive insurance companies conducting business; allowing captive insurance companies to combine certain assets; amending 36 O.S. 2011, Sections 6470.2, 6470.3, as amended by Section 5, Chapter 365, O.S.L. 2012, 6470.6, 6470.10, 6470.11, 6470.12, 6470.13, 6470.14 6470.15, 6470.16, 6470.18, 6470.19, as amended by Section 6, Chapter 365, O.S.L. 2012, 6470.20, 6470.22, 6470.27, 6470.28, 6470.29, 6470.30 and 6470.31 (36 O.S. Supp. 2012, Sections 6470.3 and 6470.19), which relate to the Oklahoma Captive Insurance Company Act; modifying certain definitions; adding certain definitions; removing certain definitions; modifying limitations on risks covered by captive insurance companies; allowing captive insurance companies to provide certain workers’ compensation insurance; modifying license application requirements; allowing issuance of certain provisional licenses; modifying certain paid-in capital and security requirements; removing certain organization requirements; providing formation requirements of captive insurance companies; modifying certain accounting principles permitted to be used in certain reports; authorizing the Insurance Commissioner to permit certain companies to discount loss and loss adjustment expense reserves; modifying certain examination requirements; modifying when a license may be suspended or revoked; modifying certain investment requirements; modifying when a captive insurance company may provide reinsurance on certain risks; modifying certain membership limitations; modifying certain tax rate requirements; removing certain sanctions related to reinsurance companies; modifying certain exemptions for special purpose captive insurance companies; clarifying language; modifying certain acquisition of control and merger regulations; requiring the filing of certain application materials; modifying qualification and participation requirements for sponsored captive insurance companies; repealing 36 O.S. 2011, Sections 6470.4, 6470.7, 6470.8, 6470.9, 6470.26, 6470.32 and 6470.33, which relate to the Oklahoma Captive Insurance Company Act; providing for codification; and providing an effective date.

BE IT ENACTED BY THE PEOPLE OF THE STATE OF OKLAHOMA:
SECTION 1.     NEW LAW     A new section of law to be codified in the Oklahoma Statutes as Section 6470.24.1 of Title 36, unless there is created a duplication in numbering, reads as follows:
No captive insurance company shall voluntarily take any of the following actions without providing the Insurance Commissioner at least thirty (30) days prior written notice and receiving the Commissioner's approval of any such action: 
1.  The dissolution of the captive insurance company;
2.  A sale, exchange, lease, mortgage, assignment, pledge or other transfer of or granting of a security interest in, all or substantially all of the assets of the captive insurance company; 
3.  Incurring a material indebtedness by the captive insurance company;
4.  Any making of a material loan or other material extension of credit by the captive insurance company;
5.  Any material payment out of capital and surplus;
6.  Any merger or consolidation to which the captive insurance company is a constituent party;
7.  Any conversion of the captive insurance company to another business form;
8.  Any transfer to or domestication in any jurisdiction by the captive insurance company; or
9.  Any amendment of the organizational documents of the captive insurance company. 
For purposes of this section, “material”, in relation to financial matters, means any transaction or series of related transactions involving more than the lesser of five percent (5%) of the captive insurance company’s assets or twenty-five percent (25%) of its capital and surplus.  “Assets” and “capital and surplus” shall be measured as of the most recent filed report required by Section 6470.11 of Title 36 of the Oklahoma Statutes.
SECTION 2.     NEW LAW     A new section of law to be codified in the Oklahoma Statutes as Section 6470.24.2 of Title 36, unless there is created a duplication in numbering, reads as follows:
A.  Unless otherwise approved by the Commissioner, a captive insurance company formed under the provisions of this act shall maintain its books, records, documents, accounts, vouchers and agreements in this state. 
A captive insurance company shall make its books, records, documents, accounts, vouchers and agreements available for inspection by the Commissioner at any time.  A captive insurance company shall keep its books, records, documents, accounts, vouchers and agreements in such manner that its financial condition, affairs and operations can be readily ascertained and in such manner that the Commissioner may readily verify its financial statements and determine its compliance with this act. 
B.  Unless otherwise approved by the Commissioner, all original books, records, documents, accounts, vouchers and agreements of a captive insurance company formed under the provisions of this act must be preserved and kept available in this state for the purpose of examination and inspection until the Commissioner approves the destruction or other disposition of the books, records, documents, accounts, vouchers and agreements.  If the Commissioner approves the preservation and keeping of the foregoing outside this state, the captive insurance company shall maintain a complete and true copy of each such original in the state.  Books, records, documents, accounts, vouchers and agreements may be photographed, reproduced on film or stored and reproduced electronically.
SECTION 3.     NEW LAW     A new section of law to be codified in the Oklahoma Statutes as Section 6470.30.1 of Title 36, unless there is created a duplication in numbering, reads as follows:
The business written by a sponsored captive insurance company with respect to each protected cell must be:
1.  Fronted by an insurance company licensed pursuant to the laws of any state or any jurisdiction if the insurance company is a wholly owned subsidiary of an insurance company licensed pursuant to the laws of any state; or
2.  Reinsured by a reinsurer authorized or approved by this state; or
3.  Secured by a trust fund in the United States for the benefit of policyholders and claimants or funded by an irrevocable letter of credit or other asset acceptable to the Insurance Commissioner.  The amount of security provided may not be less than the reserves associated with those liabilities, not fronted or reinsured, including reserves for losses, allocated loss adjustment expenses, incurred but unreported losses, and unearned premiums for business written through the protected cell of the participant.  The Insurance Commissioner may require the sponsored captive to increase the funding of any security arrangement established pursuant to this subsection.  If the form of security is a letter of credit, the letter of credit must be established, issued, or confirmed by a financial institution chartered in this state, a member of the federal reserve system, or a bank chartered by another state if that state-chartered bank is acceptable to the Insurance Commissioner.  A trust and trust instrument maintained pursuant to this item must be in a form and upon terms approved by the Insurance Commissioner.
SECTION 4.     NEW LAW     A new section of law to be codified in the Oklahoma Statutes as Section 6470.31.1 of Title 36, unless there is created a duplication in numbering, reads as follows:
Notwithstanding the provisions of paragraph 2 of subsection B of Section 6470.29 of Title 36 of the Oklahoma Statutes, a sponsored captive insurance company may combine the assets of two or more protected cells for purposes of investing those assets.  Such a combination of assets may not be construed as defeating the segregation of assets required by this act, or for accounting or other purposes.
SECTION 5.     AMENDATORY     36 O.S. 2011, Section 6470.2, is amended to read as follows:
Section 6470.2  As used in the Oklahoma Captive Insurance Company Act:
1.  “Alien captive insurance company” means an insurance company formed to write insurance business for its parents and affiliates and licensed pursuant to the laws of an alien jurisdiction which imposes statutory or regulatory standards in a form acceptable to the Insurance Commissioner on companies transacting the business of insurance in such a country or jurisdiction other than the United States of America, or any of its states, districts, commonwealths and possessions;
2.  “Affiliated company” means a company in the same corporate system as a parent, an industrial insured, or a member organization by virtue of common ownership, control, operation, or management;
3.  “Association” means a legal association of individuals, corporations, partnerships, or associations that has been in continuous existence for at least one (1) year or such lesser period of time approved by the Commissioner:
a.	the member organizations of which collectively, or which does itself:
(1)	or either of them acting in concert directly or indirectly own, control, or hold with power to vote all of the outstanding voting securities or interests of, or have complete voting control over an association captive insurance company incorporated as a stock insurer, or
(2)	have complete voting control over an association captive insurance company incorporated as a mutual insurer, or
b.	the member organizations of which collectively constitute all of the subscribers of an association captive insurance company formed as a reciprocal insurer;
4.  “Association captive insurance company” means a captive insurance company that insures risks of the member organizations of the association and their affiliated companies;
5.  “Branch business” means any insurance business transacted by a branch captive insurance company in this state;
6.  “Branch captive insurance company” means an alien captive insurance company licensed by the Insurance Commissioner to transact the business of insurance in this state through a business unit with a principal place of business in this state.  A branch captive insurance company must be a pure captive insurance company with respect to operations in this state, unless otherwise permitted by the Insurance Commissioner;
7.  “Branch operations” means any business operations of a branch captive insurance company in this state;
8.  “Capital and surplus” means the amount by which the value of all of the assets of the captive insurance company exceeds all of the liabilities of the captive insurance company, as determined under the method of accounting utilized by the captive insurance company in accordance with the applicable provisions of this act;
9.  “Captive insurance company” means a pure captive insurance company, association captive insurance company, captive reinsurance company, sponsored captive insurance company, special purpose captive insurance company, or industrial insured captive insurance company formed or licensed under the Oklahoma Captive Insurance Company Act.  For purposes of the Oklahoma Captive Insurance Company Act, a branch captive insurance company must be a pure captive insurance company with respect to operations in this state, unless otherwise permitted by the Insurance Commissioner;
9.  “Captive reinsurance company” means a reinsurance company that is formed or licensed pursuant to the Oklahoma Captive Insurance Company Act and is wholly owned by a qualifying reinsurance parent company.  A captive reinsurance company is a stock corporation;
10.  “Consolidated debt to total capital ratio” means the ratio of the sum of all debts and hybrid capital instruments including, but not limited to, all borrowings from banks, all senior debt, all subordinated debts, all trust preferred shares, and all other hybrid capital instruments that are not included in the determination of consolidated GAAP new worth issued and outstanding to total capital, consisting of all debts and hybrid capital instruments described in this paragraph plus equity of the shareholders determined in accordance with GAAP for reporting to the United States Securities and Exchange Commission;
11.  “Consolidated GAAP net worth” means the consolidated shareholders’ equity determined in accordance with GAAP for reporting to the United States Securities and Exchange Commission;
12. 10.  “Controlled unaffiliated business” means a company:
a.	that is not in the corporate system of a parent and affiliated companies,
b.	that has an existing contractual relationship with a parent or affiliated company, and
c.	whose risks are managed by a pure captive insurance company in accordance with Section 34 6470.27 of this act title;
13. 11.  “Insurance Commissioner” means the Insurance Commissioner of the State of Oklahoma or designee of the Insurance Commissioner;
14. 12.  “Department” means the Oklahoma Department of Insurance;
15. 13.  "Excess workers' compensation insurance" means, in the case of an employer that has insured its workers' compensation risks in accordance with applicable law, insurance in excess of specified limits established by the Commissioner;
14.  “GAAP” means generally accepted accounting principles;
16. 15.  “Industrial insured” means an insured insured under industrial life insurance as defined in Section 4202 of Title 36 of the Oklahoma Statutes:
a.	who procures the insurance of any risk or risks by use of the services of a full-time employee acting as an insurance manager or buyer,
b.	whose aggregate annual premiums for insurance on all risks total at least Twenty-five Thousand Dollars ($25,000.00), and
c.	who has at least twenty-five full-time employees;
17. 16.  “Industrial insured captive insurance company” means a company that insures risks of the industrial insureds that comprise the industrial insured group and their affiliated companies;
18. 17.  “Industrial insured group” means a group that meets either of the following criteria:
a.	a group of industrial insureds that collectively:
(1)	directly or indirectly owns, controls, or holds with power to vote all of the outstanding voting securities of or other voting interests or has complete control over an industrial insured captive insurance company incorporated as a stock insurer, or
(2)	has complete voting control over an industrial insured captive insurance company incorporated as a mutual insurer, or
b.	a group which is created under the Liability Risk Retention Act of 1986, 15 U.S.C., Section 3901 et seq., as amended, as a corporation or other limited liability association taxable as a stock insurance company or a mutual insurer under this title;
19. 18.  “Member organization” means any individual, corporation, partnership, or association that belongs to an association;
20. 19.  “Parent” means any corporation, partnership, or individual that directly or indirectly owns, controls, or holds with power to vote more than fifty percent (50%) of the outstanding voting securities of a pure captive insurance company;
21. 20.  “Participant” means an entity as defined in Section 38 6470.31 of this act title, and any affiliates of that entity, that are insured by a sponsored captive insurance company, where the losses of the participant are limited through a participant contract to the participant’s pro rata share of the assets of a protected cell one or more protected cells identified in the participant contract;
22. 23.  “Participant contract” means a contract by which a sponsored captive insurance company insures the risks of a participant one or more participants and limits the losses of the each participant to the assets of a protected cell its pro rata share of the assets of one or more protected cells identified in the participant contract;
23. 24.  “Protected cell” means a separate account established and maintained by a sponsored captive insurance company for one participant and distinct account established and maintained by or on behalf of a sponsored captive insurance company in which assets are accounted for and recorded for one or more participants in accordance with the terms of one or more participant contracts to fund the liability of the sponsored captive insurance company assumed on behalf of the participants as set forth in the participant contracts;
24. 25.  “Pure captive insurance company” means a company that insures risks of its parent, affiliated companies, of its parent and any controlled unaffiliated business, or a combination thereof.  For purposes of this paragraph, “controlled unaffiliated business” means an entity insured by a pure captive insurance company:
a.	that is not in the corporate system of a parent and affiliated companies,
b.	that has an existing contractual relationship with a parent or affiliated company, and
c.	whose risks are managed by a pure captive insurance company;
25.  “Qualifying reinsurer parent company” means a reinsurer authorized to write reinsurance by this state and that has a consolidated GAAP net worth of not less than Five Hundred Million Dollars ($500,000,000.00) and consolidated debt to total capital ratio not greater than 0.50;
26.  “Reciprocal insurer” has the meaning given that term in Article 29 of the Oklahoma Insurance Code;
27.  “Risk retention group” means a risk retention group formed pursuant to the Liability Risk Retention Act of 1986 under Section 3901 of Title 15 of the United States Code; 
28.  “Special purpose captive insurance company” means a captive insurance company that is formed or licensed under the Oklahoma Captive Insurance Code Company Act that does not meet the definition of any other type of captive insurance company defined in this section and is designated as a special purpose captive insurance company by the Commissioner;
27. 29.  “Sponsor” means an entity that meets the requirements of Section 37 6470.30 of this act title and is approved by the Insurance Commissioner to provide all or part of the capital and surplus required by applicable law and to organize and operate a sponsored captive insurance company; and
28. 30.  “Sponsored captive insurance company” means a captive insurance company:
a.	in which the minimum capital and surplus required by applicable law is provided by one or more sponsors,
b.	that is formed or licensed under the Oklahoma Captive Insurance Company Act,
c.	that insures the risks of separate its participants only through the separate participant contracts contract, and
d.	that segregates the funds its liability of to each participant through one 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 sponsored captive insurance company's general account. 
29.  “Treasury rates” means the United States Treasury strips asked yield as published in the Wall Street Journal as of a balance sheet date.
SECTION 6.     AMENDATORY     36 O.S. 2011, Section 6470.3, as amended by Section 5, Chapter 365, O.S.L. 2012 (36 O.S. Supp. 2012, Section 6470.3), is amended to read as follows:
Section 6470.3  A.  A captive insurance company, when permitted by its articles of incorporation or charter, may apply to the Insurance Commissioner for a license to do any and all insurance, except workers' compensation insurance, authorized by this title; however:
1.  A pure captive insurance company may not insure any risks other than those of its parent, affiliated companies, controlled unaffiliated business, or a combination thereof;
2.  An association captive insurance company may not insure any risks other than those of the member organizations of its association and their affiliated companies;
3.  An industrial insured captive insurance company may not insure any risks other than those of the industrial insureds that comprise the industrial insured group and their affiliated companies;
4.  A special purpose captive insurance company may only insure the risks of its parent.  Notwithstanding any other provisions of the Oklahoma Captive Insurance Company Act, a special purpose captive insurance company may provide insurance or reinsurance, or both, for risks as approved by the Insurance Commissioner;
5.  A captive insurance company may not provide personal motor vehicle or homeowner's insurance coverage or any component of these coverages; and
6.  A captive insurance company may not accept or cede reinsurance except as provided in Section 6470.16 of this title Any captive insurance company may provide excess workers' compensation insurance to its parent and affiliated companies, unless prohibited by federal law or laws of this state or any other state having jurisdiction over the transaction, and any captive insurance company, unless prohibited by federal law, may reinsure workers' compensation of a qualified self-insured plan of its parent and affiliated companies. 
B.  To conduct insurance business in this state a captive insurance company shall:
1.  Obtain from the Insurance Commissioner a license authorizing it to conduct insurance business in this state;
2.  Hold at least one board of directors meeting, or in the case of a reciprocal insurer, a subscriber's advisory committee meeting, each year in this state;
3. 2.  Maintain its principal a place of business in this state, or in the case of a branch captive insurance company, maintain the principal place of business for its branch operations in this state designated as its registered office; and
4. 3.  Appoint a resident registered agent to accept service of process and to otherwise act on its behalf in this state.  In the case of a captive insurance company:
a.	formed as a corporation, whenever Whenever the registered agent cannot with reasonable diligence be found at the registered office of the captive insurance company, the Insurance Commissioner must shall be deemed an agent of the captive insurance company upon whom any process, notice, or demand may be served, or
b.	formed as a reciprocal insurer, whenever the registered agent cannot with reasonable diligence be found at the registered office of the captive insurance company, the Insurance Commissioner must be an agent of the captive insurance company upon whom any process, notice, or demand may be served.
C.  1.  Before receiving a license, a captive insurance company:
a.	formed as a corporation, shall file with the Insurance Commissioner a certified copy of its charter and bylaws, a statement under oath of its president and secretary showing its financial condition, and any other statements or documents required by the Insurance Commissioner, or
b.	formed as a reciprocal shall:
(1)	file with the Insurance Commissioner a certified copy of the power of attorney of its attorney-in-fact, a certified copy of its subscribers' agreement, a statement under oath of its attorney-in-fact showing its financial condition and any other statements or documents required by the Insurance Commissioner, and
(2)	submit to the Insurance Commissioner for approval a description of the coverages, deductibles, coverage limits, and rates and any other information the Insurance Commissioner may reasonably require.  If there is a subsequent material change in an item in the description, the reciprocal captive insurance company shall submit to the Insurance Commissioner for approval an appropriate revision and may not offer any additional kinds of insurance until a revision of the description is approved by the Insurance Commissioner.  The reciprocal captive insurance company shall inform the Insurance Commissioner of any material change in rates within thirty (30) days of the adoption of the change
shall file with the Commissioner a certified copy of its organizational documents, a statement under oath of its president or other authorized person showing its financial condition, a feasibility study, a business plan, and any other statements, information or documents required by the Commissioner.
2.  In addition to the information required by paragraph 1 of this subsection, an applicant captive insurance company shall file with the Insurance Commissioner evidence of:
a.	the amount and liquidity of its assets relative to the risks to be assumed,
b.	the adequacy of the expertise, experience, and character of the person or persons who will manage it,
c.	the overall soundness of its plan of operation,
d.	the adequacy of the loss prevention programs of its parent, member organizations, or industrial insureds as applicable, and
e.	such other factors considered relevant by the Insurance Commissioner in ascertaining whether the proposed captive insurance company will be able to meet its policy obligations.
3.  In addition to the information required by paragraphs 1 and 2 of this subsection, an applicant sponsored captive insurance company shall file with the Insurance Commissioner:
a.	a business plan demonstrating how the applicant will account for the loss and expense experience of each protected cell at a level of detail found to be sufficient by the Insurance Commissioner, and how it will report the experience to the Insurance Commissioner,
b.	a statement acknowledging that all financial records of the sponsored captive insurance company, including records pertaining to any protected cells, must be made available for inspection or examination by the Insurance Commissioner,
c.	all contracts or sample contracts between the sponsored captive insurance company and any participants, and
d.	evidence that expenses will be allocated to each protected cell in an equitable manner.
4.  Information submitted pursuant to this subsection is confidential and may not be made public by the Insurance Commissioner or an agent or employee of the Insurance Commissioner without the written consent of the company, except that:
a.	information may be discoverable by a party in a civil action or contested case to which the captive insurance company that submitted the information is a party, upon a showing by the party seeking to discover the information that:
(1)	the information sought is relevant to and necessary for the furtherance of the action or case,
(2)	the information sought is unavailable from other nonconfidential sources, and
(3)	a subpoena issued by a judicial or administrative officer of competent jurisdiction has been submitted to the Insurance Commissioner; however, the provisions of this paragraph do not apply to an industrial insured captive insurance company insuring the risks of an industrial insured group, and
b.	the Insurance Commissioner may disclose the information to a public officer having jurisdiction over the regulation of insurance in another state if:
(1)	the public official agrees in writing to maintain the confidentiality of the information, and
(2)	the laws of the state in which the public official serves require the information to be confidential.
D.  A captive insurance company shall pay to the Department a nonrefundable application fee of Two Hundred Dollars ($200.00) for reviewing its application to determine whether it is complete and a nonrefundable processing fee of Three Thousand Dollars ($3,000.00) for examining, investigating, and processing its application for license, and in addition, the Insurance Commissioner may retain legal, financial, and examination services from outside the Department, the reasonable cost of which may be charged against the applicant.  This title applies to examinations, investigations, and processing conducted under the authority of this section.  In addition Also, a captive insurance company shall pay a license fee for the year of registration and a renewal fee of Three Hundred Dollars ($300.00).
E.  Two or more captive insurance companies under common ownership and control shall pay the Two-Hundred-Dollar application fee and the Three-Hundred-Dollar renewal fee required by subsection D of this section as though they were a single captive insurance company; provided however, that each such captive insurance company shall pay the processing fee of Three Thousand Dollars ($3,000.00) and shall be charged the reasonable cost of any legal, financial and examination services and other expert services from outside the Department retained by the Commissioner in connection with the examination, investigation and processing of their applications for certificates of authority.  For purposes of this subsection, "control" has the meaning set forth in Article 16A of this title.
F.  If the Insurance Commissioner is satisfied that the documents and statements filed by the captive insurance company comply with the provisions of the Oklahoma Captive Insurance Company Act, the Insurance Commissioner may grant a license authorizing the company to do insurance business in this state until the succeeding March 1 at which time the license may be renewed.
G.  1.  Notwithstanding any other provision of this act, the Commissioner may issue a provisional license to any applicant captive insurance company for a period not to exceed sixty (60) days if the Insurance Commissioner deems that the public interest will be served by the issuance of such license.
2.  As a condition precedent to the issuance of a provisional license under this section, the applicant shall have filed a complete application containing all information required by this section, paid all fees required for licensure and the Commissioner shall have made a preliminary finding that the expertise, experience and character of the person or persons who will control and manage the applicant captive insurer are acceptable.
3.  The Insurance Commissioner may by order limit the authority of any provisional licensee in any way deemed necessary to protect insureds and the public.  The Insurance Commissioner may by order revoke a provisional license if the interests of insureds or the public are endangered.  If the applicant fails to complete the regular licensure application process, the provisional license shall terminate automatically. 
SECTION 7.     AMENDATORY     36 O.S. 2011, Section 6470.6, is amended to read as follows:
Section 6470.6  A.  The Insurance Commissioner may not issue a or renew the license to of a captive insurance company unless the company possesses and thereafter maintains unimpaired aggregate paid-in capital and surplus of:
1.  In the case of a pure captive insurance company, not less than One Hundred Thousand Dollars ($100,000.00) Two Hundred Fifty Thousand Dollars ($250,000.00), One Hundred Fifty Thousand Dollars ($150,000.00) of which must be paid-in prior to the issuance of a license, and an additional One Hundred Thousand Dollars ($100,000.00) of which must be paid-in on or before the first anniversary of the issuance of the initial license;
2.  In the case of an association captive insurance company incorporated as a stock insurer, not less than Four Hundred Thousand Dollars ($400,000.00) Seven Hundred Fifty Thousand Dollars ($750,000.00);
3.  In the case of an industrial insured captive insurance company incorporated as a stock insurer, not less than Two Hundred Thousand Dollars ($200,000.00) Five Hundred Thousand Dollars ($500,000.00);
4.  In the case of a sponsored captive insurance company, not less than Five Hundred Thousand Dollars ($500,000.00); and
5.  In the case of any captive insurance company doing business as a risk retention group, not less than One Million Dollars ($1,000,000.00); and
6.  In the case of a special purpose or branch captive insurance company, not less than Two Hundred Fifty Thousand Dollars ($250,000.00) or an amount determined by the Insurance Commissioner after giving due consideration to the business plan of the company, feasibility study, and pro formas, including the nature of the risks to be insured.  The capital may be in the form of cash, cash equivalent, or an irrevocable letter of credit issued by a bank chartered by this state or a member bank of the Federal Reserve System and approved by the Insurance Commissioner.
B.  The Insurance Commissioner may prescribe additional capital and surplus based upon the type, volume, and nature of insurance business transacted.  This capital may be in the form of an irrevocable letter of credit issued by a bank chartered by this state or a member bank of the Federal Reserve System.
C.  In the case of a branch captive insurance company, as security for the payment of liabilities attributable to branch operations, the Insurance Commissioner shall may require that a trust fund, funded by an irrevocable letter of credit or other acceptable asset, be established and maintained in the United States for the benefit of United States policyholders and United States ceding insurers under insurance policies issued or reinsurance contracts issued or assumed, by the branch captive insurance company through its branch operations.  The amount of the security may be no less than the capital and surplus required by the Oklahoma Captive Insurance Company Act and the reserves on these insurance policies or reinsurance contracts, including reserves for losses, allocated loss adjustment expenses, incurred but not reported losses and unearned premiums with regard to business written through branch operations; however, the Insurance Commissioner may permit a branch captive insurance company that is required to post security for loss reserves on branch business by its reinsurer to reduce the funds in the trust account required by this section by the same amount so long as the security remains posted with the reinsurer.  If the form of security selected is a letter of credit, the letter of credit must be established by, or issued or confirmed by, a bank chartered in this state or a member bank of the Federal Reserve System.
D.  A captive insurance company may not pay a dividend out of, or other distribution with respect to, capital or surplus, in excess of the limitations set forth in the Oklahoma Insurance Code, without the prior approval of the Insurance Commissioner.  Approval of an ongoing plan for the payment of dividends or other distributions must be conditioned upon the retention, at the time of each payment, of capital or surplus in excess of amounts specified by, or determined in accordance with formulas approved by, the Insurance Commissioner.
SECTION 8.     AMENDATORY     36 O.S. 2011, Section 6470.10, is amended to read as follows:
Section 6470.10  A.  A pure captive insurance company or a sponsored captive insurance company must may be incorporated as a stock insurer with its capital divided into shares and held by the stockholders corporation or as a nonstock corporation, or may be formed as a limited liability company, partnership, limited partnership, statutory trust or any lawful form approved by the Commissioner.
B.  An association captive insurance company or an, industrial insured captive insurance company or special purpose captive insurance company may be:
1.  Incorporated as a stock insurer with its capital divided into shares and held by the stockholders;
2.  Incorporated as a mutual insurer without capital stock, the governing body of which is elected by the member organizations of its association; or
3.  Organized organized as a reciprocal insurer.
C.  A captive insurance company may not have fewer than three incorporators of whom not fewer than two must be residents of this state.
D.  In the case of a captive insurance company formed as a corporation, before the articles of incorporation are transmitted to the Secretary of State, the incorporators shall petition the Insurance Commissioner to issue a certificate setting forth a finding that the establishment and maintenance of the proposed corporation will The Commissioner shall not issue the initial license or review the license of any captive insurer unless the Commissioner determines the following matters serve the best interest of the prospective policyholders and promote the general good of the state.  In arriving at this finding, the Insurance Commissioner shall consider:
1.  The character, reputation, financial standing, and purposes of the incorporators principals, owners or other persons who will direct or control the affairs of the captive insurer;
2.  The character, reputation, financial responsibility, insurance experience, and business qualifications of the officers and directors; and
3.  Other aspects as the Insurance Commissioner considers advisable.
E.  The articles of incorporation, the certificate issued pursuant to subsection D of this section, and the organization fees must be transmitted to the Secretary of State, who shall record both the articles of incorporation and the certificate.
F.  In the case of a captive insurance company formed as a reciprocal insurer, the organizers shall petition the Insurance Commissioner to issue a certificate setting forth the finding of the Insurance Commissioner that the establishment and maintenance of the proposed association will promote the general good of the state.  In arriving at this finding, the Insurance Commissioner shall consider:
1.  The character, reputation, financial standing, and purposes of the incorporators;
2.  The character, reputation, financial responsibility, insurance experience, and business qualifications of the officers and directors; and
3.  Other aspects the Insurance Commissioner considers advisable.
G. D.  In the case of a captive insurance company licensed as a branch captive insurance company, the findings required in subsection C of this section shall be in respect to the alien captive insurance company shall petition the Insurance Commissioner to issue a certificate setting forth the finding of the Insurance Commissioner that, after considering the character, reputation, financial responsibility, insurance experience, and business qualifications of the officers and directors of the alien captive insurance company, the licensing and maintenance of the branch operations will promote the general good of the state.  The alien captive insurance company may register to do business in this state after a certificate of the Insurance Commissioner has been issued.
H.  The capital stock of a captive insurance company incorporated as a stock insurer must be issued at not less than par value.
I.  In the case of a captive insurance company formed as a corporation, at least one of the members of the board of directors of a captive insurance company incorporated in this state must be a resident of this state.
J.  In the case of a captive insurance company formed as a reciprocal insurer, at least one of the members of the advisory committee of the subscribers must be a resident of this state.
K. E.  1.  A captive insurance company formed as a corporation under the Oklahoma Captive Insurance Company Act has laws of this state or under the laws of another jurisdiction that is licensed under the provisions of this title shall have the privileges and is be subject to the provisions of the general corporation law laws of this state or the laws of such other jurisdiction, as applicable, under which such captive insurance company is organized as well as the applicable provisions contained in the Oklahoma Captive Insurance Company Act this title.  If a conflict occurs between a provision of the general corporation law and a provision of the Oklahoma Captive Insurance Company Act In the event of conflict between the provisions of the laws of this state or the laws of such other jurisdiction, as applicable, under which such captive insurance company is organized, and the provisions of this title, the latter controls shall control.
2.  A captive insurance company, formed or licensed under the Oklahoma Captive Insurance Company Act, has the privileges and is subject to the provisions of Oklahoma law as well as the applicable provisions contained in the Oklahoma Captive Insurance Company Act.  If a conflict occurs between a provision of the general law of Oklahoma and a provision of the Oklahoma Captive Insurance Company Act, the latter controls.  No provision of the Insurance Code, other than those contained in this act or otherwise specifically referencing such companies, shall apply to captive insurance companies.  
3.  In addition to the applicability of law provided in this section, a captive insurance company operating as a risk retention group shall be subject to the provisions of the Oklahoma Risk Retention Act under Sections 6451 through 6468 of this title. 
4.  The provisions of the Oklahoma Insurance Code pertaining to mergers, consolidations, conversions, mutualizations, and redomestications apply in determining the procedures to be followed by a captive insurance company in carrying out any of the transactions described in those provisions, except the Insurance Commissioner may waive or modify the requirements for public notice and hearing in accordance with regulations which the Insurance Commissioner may promulgate addressing categories of transactions.  If a notice of public hearing is required, but no one requests a hearing, the Insurance Commissioner may cancel the hearing.
L.  1.  A captive insurance company formed as a reciprocal insurer under the Oklahoma Captive Insurance Company Act has the privileges and is subject to the provisions of the Oklahoma Insurance Code in addition to the applicable provisions of the Oklahoma Captive Insurance Company Act.  If a conflict occurs, the provisions of the Oklahoma Captive Insurance Company Act control.  To the extent a reciprocal insurer is made subject to other provisions of the Oklahoma Insurance Code, the provisions are not applicable to a reciprocal insurer formed under the Oklahoma Captive Insurance Company Act unless the provisions are expressly made applicable to a captive insurance company under the Oklahoma Captive Insurance Company Act.
2.  In addition to the provisions of paragraph 1 of this subsection, a captive insurance company organized as a reciprocal insurer that is an industrial insured group has the privileges and is subject to the provisions of the Oklahoma Insurance Code.
M.  The articles of incorporation or bylaws of a captive insurance company may authorize a quorum of a board of directors to consist of no fewer than one-third (1/3) of the fixed or prescribed number of directors.
5.  The terms and conditions set forth in Articles 18 and 19 of the Oklahoma Insurance Code pertaining to insurance supervision, conservatorship, rehabilitation, and receiverships apply in full to captive insurance companies formed under the Oklahoma Captive Insurance Company Act. 
SECTION 9.     AMENDATORY     36 O.S. 2011, Section 6470.11, is amended to read as follows:
Section 6470.11  A.  A captive insurance company may not be required to make an annual report except as provided in the Oklahoma Captive Insurance Company Act.
B.  Before March 1 of each year, a captive insurance company or a captive reinsurance company shall submit to the Insurance Commissioner a report of its financial condition, verified by oath of two of its executive officers.  Except as provided in Sections Section 6470.6 and 6470.8 of this title, a captive insurance company or a captive reinsurance company shall report using statutory generally accepted accounting principles, unless the Insurance Commissioner approves the use of generally accepted statutory accounting principles or international accounting standards, with useful or necessary modifications or adaptations required or approved or accepted by the Insurance Commissioner for the type of insurance and kinds of insurers to be reported upon, and as supplemented by additional information required by the Insurance Commissioner.  Except as otherwise provided, an association captive insurance company and an industrial insured group shall file their report in the form required by the Insurance Commissioner, and each industrial insured group shall comply with the requirements set forth in the Oklahoma Insurance Code.  The Insurance Commissioner by regulation shall prescribe the forms in which pure captive insurance companies and industrial insured captive insurance companies shall report.  Any captive insurance company whose use of statutory accounting principles is approved by the Commissioner may make such modifications and adaptations thereof as are necessary: 
1.  To record, as "admitted", the full value of all investments by such captive insurance company permitted under this chapter; and 
2.  Subject to the Commissioner's approval, to make its reports under this section consistent with the purposes of this chapter.
C.  A pure captive insurance company may make written application for filing the required report on a fiscal year-end that is consistent with the fiscal year of the parent company.  If an alternative reporting date is granted:
1.  The annual report is due sixty (60) days after the fiscal year-end; and
2.  In order to provide sufficient detail to support the premium tax return, the pure captive insurance company shall file before March 1 of each year for each calendar year-end, pages 1 through 7 of the “Captive Annual Statement: Pure or Industrial Insured”, verified by oath of two of its executive officers.
D.  Sixty (60) days after the fiscal year-end, a branch captive insurance company shall file with the Insurance Commissioner a copy of all reports and statements required to be filed under the laws of the jurisdiction in which the alien captive insurance company is formed, verified by oath of two of its executive officers.  If the Insurance Commissioner is satisfied that the annual report filed by the alien captive insurance company in its domiciliary jurisdiction provides adequate information concerning the financial condition of the alien captive insurance company, the Insurance Commissioner may waive the requirement for completion of the captive annual statement for business written in the alien jurisdiction.  Such waiver must be in writing and subject to public inspection. 
SECTION 10.     AMENDATORY     36 O.S. 2011, Section 6470.12, is amended to read as follows:
Section 6470.12  A.  A Upon written application, accompanied by such information as the Commissioner requires, the Commissioner may grant permission to a sponsored captive insurance company and a or a special purpose captive reinsurance insurance company may to discount their loss and loss adjustment expense reserves at treasury rates applied to the applicable payments projected through the use of the expected payment pattern associated with the reserves.
B.  A sponsored captive insurance company and a special purpose captive reinsurance insurance company shall file annually an actuarial opinion on loss and loss adjustment expense reserves provided by an independent actuary.  The actuary may not be an employee of the captive company or its affiliates.
C.  The Insurance Commissioner may disallow the discounting of reserves if a sponsored captive insurance company or a captive reinsurance company violates a provision of this title.
SECTION 11.     AMENDATORY     36 O.S. 2011, Section 6470.13, is amended to read as follows:
Section 6470.13  A.  At least once in three (3) five (5) years, and whenever the Insurance Commissioner determines it to be prudent, the Commissioner personally, or a competent person appointed by the Commissioner, shall conduct an examination under Sections 309.1 through 309.7 of this title, as well as determine whether the captive insurer has complied with the Oklahoma Captive Insurance Company Act.  The Commissioner upon application, in his or her discretion, may enlarge the three-year five-year period to five (5) seven (7) years, if a captive insurance company is subject to a comprehensive annual audit during that period of a scope satisfactory to the Commissioner by independent auditors approved by the Commissioner.  The expenses and charges of the examination must be paid in accordance with the payment provisions of Sections 309.1 through 309.7 of this title.
B.  All examination reports, preliminary examination reports or results, working papers, recorded information, documents and copies of documents produced by, obtained by, or disclosed to the  Commissioner or any other person in the course of an examination made under this section are confidential and are not subject to subpoena and may not be made public by the Commissioner or an employee or agent of the Commissioner without the written consent of the company, except to the extent provided in this subsection.  Nothing in this subsection prevents the Commissioner from using this information in furtherance of the regulatory authority of the Commissioner under the Oklahoma Captive Insurance Company Act.  The Commissioner may grant access to this information to public officers having jurisdiction over the regulation of insurance in any other state or country, or to law enforcement officers of this state or any other state or agency of the federal government at any time, so long as the officers receiving the information agree in writing to hold it in a manner consistent with this section.
C.  1.  This section applies to all business written by a captive insurance company; however, the examination for a branch captive insurance company must be of branch business and branch operations only, as long as the branch captive insurance company provides annually to the Commissioner a certificate of compliance, or its equivalent, issued by or filed with the licensing authority of the jurisdiction in which the branch captive insurance company is formed and demonstrates to the satisfaction of the Commissioner that it is operating in sound financial condition in accordance with all applicable laws and regulations of that jurisdiction.
2.  As a condition of licensure, the alien captive insurance company shall grant authority to the Commissioner for examination of the affairs of the alien captive insurance company in the jurisdiction in which the alien captive insurance company is formed.
SECTION 12.     AMENDATORY     36 O.S. 2011, Section 6470.14, is amended to read as follows:
Section 6470.14  A.  The license of a captive insurance company to conduct an insurance business in this state may be suspended or revoked by the Insurance Commissioner for:
1.  Insolvency or impairment of capital or and surplus;
2.  Failure to meet the requirements of Sections Section 6470.6 and 6470.8 of this title;
3.  Refusal or failure to submit an annual report, as required by Section 6470.11 of this title, or any other report or statement required by law or by lawful order of the Commissioner;
4.  Failure to comply with its own charter, bylaws, or other organizational document;
5.  Failure to pay any tax or fee, or submit to examination or any legal obligation relative to an examination, as required by this section;
6.  Refusal or failure to pay the cost of examination;
7.  Use of methods that, although not otherwise specifically prohibited by law, nevertheless render its operation detrimental or its condition unsound with respect to the public or to its policyholders; or
8.  Failure otherwise to comply with laws of this state.
B.  If the Commissioner finds, upon examination, hearing, or other evidence, that a captive insurance company has committed any of the acts specified in subsection A of this section, the Commissioner may suspend or revoke such license if the Commissioner considers it in the best interest of the public and the policyholders of the captive insurance company.
C.  In addition to or in lieu of any applicable revocation or suspension of the license of a captive insurer, the Commissioner may fine any captive insurer who violates any provision of the Oklahoma Insurance Code a civil penalty of not more than Five Thousand Dollars ($5,000.00) for each occurrence.
SECTION 13.     AMENDATORY     36 O.S. 2011, Section 6470.15, is amended to read as follows:
Section 6470.15  A.  An association captive insurance company and an industrial insured captive insurance company insuring the risks of an industrial insured group shall comply with the investment requirements contained in the Oklahoma Insurance Code.  The Insurance Commissioner may approve the use of alternative reliable methods of valuation and rating investment requirements upon application by such captive insurance company.
B.  A pure captive insurance company, special purpose captive insurance company, branch captive insurance company, an industrial insured captive insurance company, and a sponsored captive insurance company are not subject to any restrictions on allowable investments contained in the Oklahoma Insurance Code; however, the Insurance Commissioner may prohibit or limit an investment that threatens the solvency or liquidity of the company.
C.  Only a pure captive insurance company may make loans to its parent company or affiliates and only upon the prior written approval of the Insurance Commissioner and must be evidenced by a note in a form approved by the Insurance Commissioner.  Loans of minimum capital and surplus funds required by Sections 13 and 15 Section 6470.6 of this act title are prohibited.
D.  Subject to subsections A and B of this section and Section 6470.31 of this title, as applicable, a captive insurance company may own securities of or other interests in another captive insurance company, whether voting or nonvoting.
SECTION 14.     AMENDATORY     36 O.S. 2011, Section 6470.16, is amended to read as follows:
Section 6470.16  A.  A captive insurance company may provide reinsurance, as authorized in the Oklahoma Insurance Code, for domestic insurers on risks ceded by any other insurer.
B.  A captive insurance company may take credit for reserves on risks or portions of risks ceded to reinsurers complying only in accordance with the Oklahoma Insurance Code.  A captive insurer may not take credit for reserves on risks or portions of risks ceded to a reinsurer if the reinsurer is not in compliance with the Oklahoma Insurance Code.
SECTION 15.     AMENDATORY     36 O.S. 2011, Section 6470.18, is amended to read as follows:
Section 6470.18  A captive insurance company, including a captive insurance company organized as a reciprocal insurer under the Oklahoma Captive Insurance Company Act, may not join or contribute financially to a plan, pool, association, or guaranty or insolvency fund in this state, and a captive insurance company, or its insured or its parent or any affiliated company or any member organization of its association, or in the case of a captive insurance company organized as a reciprocal insurer, a subscriber of the company, or in the case of a sponsored captive insurance company, a protected cell or participant in a protected cell, may not receive a benefit from a plan, pool, association, or guaranty or insolvency fund for claims arising out of the operations of such captive insurance company.
SECTION 16.     AMENDATORY     36 O.S. 2011, Section 6470.19, as amended by Section 6, Chapter 365, O.S.L. 2012 (36 O.S. Supp. 2012, Section 6470.19), is amended to read as follows:
Section 6470.19  A.  A Each captive insurance company, other than a sponsored captive insurance company, and each protected cell of a sponsored captive insurance company, shall pay to the Department, by March 1 of each year, a tax at the rate of four-tenths of one percent (0.4%) on the first Twenty Million Dollars ($20,000,000.00) and three-tenths of one percent (0.3%) on the next Twenty Million Dollars ($20,000,000.00) and two-tenths of one percent (0.2%) on the next Twenty Million Dollars ($20,000,000.00) and seventy-five thousandths of one percent (0.075%) on each dollar thereafter two-tenths of one percent (0.2%) on the direct premiums collected or contracted for on policies or contracts of insurance written by the captive insurance company during the year ending December 31 next preceding, after deducting from the direct premiums subject to the tax the amounts paid to policyholders as return premiums which shall include dividends on unabsorbed premiums or premium deposits returned or credited to policyholders up to a maximum tax for such year of One Hundred Thousand Dollars ($100,000.00); provided however, that no tax shall be due or payable as to consideration received for annuity contracts.
B.  A captive insurance company, other than a sponsored captive insurance company, and each protected cell of a sponsored captive insurance company, shall pay to the Department, by March 1 of each year, a tax at the rate of two hundred twenty-five thousandths of one percent (0.225%) on the first Twenty Million Dollars ($20,000,000.00) one-tenth of one percent (0.1%) of assumed reinsurance premium, and one hundred fifty thousandths of one percent (0.150%) on the next Twenty Million Dollars ($20,000,000.00) and fifty thousandths of one percent (0.050%) on the next Twenty Million Dollars ($20,000,000.00) and twenty-five thousandths of one percent (0.025%) of each dollar thereafter.  However, no reinsurance tax applies to premiums for risks or portions of risks which are subject to taxation on a direct basis pursuant to subsection A of this section.  A premium tax is not payable in connection with the receipt of assets in exchange for the assumption of loss reserves and other liabilities of another insurer under common ownership and control if the transaction is part of a plan to discontinue the operations of the other insurer and if the intent of the parties to the transaction is to renew or maintain business with the captive insurance company.
C.  A sponsored captive insurance company shall pay to the Department, by March 1 of each year, a tax on direct and assumed premiums equal, in the aggregate, to the minimum tax provided in subsection D of this section.
D.  If the aggregate taxes to be paid by a captive insurance company or a protected cell of a sponsored captive insurance company calculated under subsections A and B of this section amount to less than Five Thousand Dollars ($5,000.00) in any year, the captive insurance company or protected cell shall pay a minimum tax of Five Thousand Dollars ($5,000.00) for that year.  However, in the calendar year in which a captive is first licensed, or the protected cell is approved by the Commissioner, the minimum tax will be prorated on a quarterly basis.  For captives those licensed in the first quarter, the prorated minimum tax is Five Thousand Dollars ($5,000.00).  For captives those licensed in the second quarter, the prorated minimum tax is Three Thousand Seven Hundred Fifty Dollars ($3,750.00).  For captives those licensed in the third quarter, the prorated minimum tax is Two Thousand Five Hundred Dollars ($2,500.00).  For captives those licensed in the fourth quarter, the prorated minimum tax is One Thousand Two Hundred Fifty Dollars ($1,250.00).  In the calendar year in which a captive is first licensed or the protected cell is first approved by the Commissioner, if the aggregate taxes to be paid by a captive insurance company calculated under subsections A and B of this section amount to less than the minimum tax prorated on a quarterly basis, the captive insurance company or protected cell shall pay the prorated minimum tax for that calendar year.
D.  If E.  Subject to subsections F, G and H of this section, if the aggregate taxes on direct and assumed premiums to be paid by a captive insurance company or a protected cell of a sponsored captive insurance company calculated under subsections A and B of this section amount to more than One Hundred Thousand Dollars ($100,000.00) in any year, the captive insurance company shall pay a maximum tax of One Hundred Thousand Dollars ($100,000.00) for that year.
E.  A captive insurance company, failing to make returns or to pay all taxes required by this section, is subject to the relevant sanctions of the Oklahoma Insurance Code.
F.  Two or more captive insurance companies or a protected cell of a sponsored captive insurance company under common ownership and control must be taxed as though they were a single captive insurance company.
G.  As used in this section, "common ownership and control" means:
1.  In the case of stock corporations, the direct or indirect ownership of eighty percent (80%) or more of the outstanding voting stock or other voting interests of two or more corporations captive insurance companies or protected cells of a sponsored captive insurance company by the same shareholder or shareholders; and 
2.  In the case of mutual corporations, the direct or indirect ownership of eighty percent (80%) or more of the surplus and the voting power of two or more corporations by the same member or members person or persons.
H.  In the case of a branch captive insurance company, the tax provided for in this section applies only to the branch business of the company A captive insurance company that has employed twenty-five (25) or more separate qualified individuals throughout a given tax year and that otherwise would be liable under this section for tax for such year in an amount exceeding Fifty Thousand Dollars ($50,000.00) shall pay to the Commissioner under this section a tax for such year in the amount of Fifty Thousand Dollars ($50,000.00).  For purposes of this subsection, "qualified individual" means a natural person employed in this state on a regular basis of thirty-five (35) or more hours per week either by such captive insurance company, or by a wholly-owned subsidiary of such captive insurance company that provides captive insurance company management, operating, investment or related services exclusively to such captive insurance company.
I.  The tax provided for in this section constitutes all taxes collectible under the laws of this state from a captive insurance company or a protected cell of a sponsored captive insurance company, and no other occupation tax or other taxes may be levied or collected from a captive insurance company by the state or a county, city, or municipality within this state, except ad valorem taxes on real and personal property used in the production of income.
SECTION 17.     AMENDATORY     36 O.S. 2011, Section 6470.20, is amended to read as follows:
Section 6470.20  A.  A captive reinsurance company shall pay to the Department, by March 1 of each year, a captive reinsurance tax of Five Thousand Dollars ($5,000.00).
B.  The tax provided in this section is the only tax collectible pursuant to the laws of this state from a captive reinsurance company, and no tax on reinsurance premiums, other than occupation tax, nor any other taxes may be levied or collected from a captive reinsurance company by the state or a county, city, or municipality within this state, except ad valorem taxes on real and personal property used in the production of income.
C.  A captive reinsurance company failing to make returns or to pay all taxes required by this section is subject to sanctions provided in the Oklahoma Insurance Code.
SECTION 18.     AMENDATORY     36 O.S. 2011, Section 6470.22, is amended to read as follows:
Section 6470.22  The Insurance Commissioner may, by rule, regulation, or order, exempt special purpose captive insurance companies, on a case-by-case basis, from provisions of the Oklahoma Insurance Code, Oklahoma Captive Insurance Company Act and any rule or regulation established under either that he or she determines to be inappropriate to apply to such companies given the nature of the risks to be insured.
SECTION 19.     AMENDATORY     36 O.S. 2011, Section 6470.27, is amended to read as follows:
Section 6470.27  The Insurance Commissioner shall promulgate regulations establishing standards to ensure that a parent or affiliated company is able to exercise control of the risk management function of any controlled unaffiliated business to be insured by the a pure captive insurance company; however, until such time as these regulations are promulgated, the Insurance Commissioner may by temporary order grant authority to a pure captive insurance company to insure risks.
SECTION 20.     AMENDATORY     36 O.S. 2011, Section 6470.28, is amended to read as follows:
Section 6470.28  A.  An association captive insurance company or industrial insured group formed as a stock or mutual corporation may be converted to or merged with and into a reciprocal insurer in accordance with a plan and the provisions of this section.
B.  A plan for this conversion or merger:
1.  Must be fair and equitable to the shareholders, in the case of a stock insurer, or the policyholders, in the case of a mutual insurer; and
2.  Shall provide for the purchase of the shares of any nonconsenting shareholder of a stock insurer or the policyholder interest of any nonconsenting policyholder of a mutual insurer in substantially the same manner and subject to the same rights and conditions as are accorded a dissenting shareholder or a dissenting policyholder.
C.  In the case of a conversion authorized under subsection A of this section:
1.  The conversion must be accomplished under a reasonable plan and procedure as may be approved by the Insurance Commissioner; however, the Insurance Commissioner may not approve the plan of conversion unless the plan:
a.	satisfies the provisions of subsection B of this section,
b.	provides for a hearing, of which notice has been given to the insurer, its directors, officers and stockholders, in the case of a stock insurer, or policyholders, in the case of a mutual insurer, all of whom have the right to appear at the hearing, except that the Insurance Commissioner may waive or modify the requirements for the hearing; however, if a notice of hearing is required, but no hearing is requested, the Insurance Commissioner may cancel the hearing,
c.	provides for the conversion of existing stockholder or policyholder interests into subscriber interests in the resulting reciprocal insurer, proportionate to stockholder or policyholder interests in the stock or mutual insurer, and
d.	is approved:
(1)	in the case of a stock insurer, by a majority of the shares entitled to vote represented in person or by proxy at a duly called regular or special meeting at which a quorum is present, or
(2)	in the case of a mutual insurer, by a majority of the voting interests of policyholders represented in person or by proxy at a duly called regular or special meeting at which a quorum is present;
2.  The Insurance Commissioner shall approve the plan of conversion if the Insurance Commissioner finds that the conversion will promote the general good of the state in conformity with those standards set forth in Section 17 of this act;
3.  If the Insurance Commissioner approves the plan the Insurance Commissioner shall amend the certificate of authority of the converting insurer to reflect conversion to a reciprocal insurer and issue the amended certificate of authority to the attorney-in-fact of the company;
4.  Upon issuance of an amended certificate of authority of a reciprocal insurer by the Insurance Commissioner, the conversion is effective; and
5.  Upon the effectiveness of the conversion the corporate existence of the converting insurer shall cease and the resulting reciprocal insurer shall notify the Secretary of State of the conversion.
D.  A merger authorized under subsection A of this section must be accomplished substantially in accordance with the procedures set forth in the Oklahoma Insurance Code except that, solely for purposes of the merger:
1.  The plan or merger shall satisfy subsection B of this section;
2.  The advisory committee of subscribers of a reciprocal insurer must be equivalent to the board of directors of a stock or mutual insurance company;
3.  The subscribers of a reciprocal insurer must be the equivalent of the policyholders of a mutual insurance company;
4.  If an advisory committee of subscribers does not have a president or secretary, the officers of the committee having substantially equivalent duties are deemed the president and secretary of the committee;
5.  The Insurance Commissioner shall approve the articles of merger if the Insurance Commissioner finds that the merger will promote the general good of the state in conformity with those standards set forth in Section 17 of this act.  If the Insurance Commissioner approves the articles of merger, the Insurance Commissioner shall endorse his or her approval on the articles and the surviving insurer shall present the name to the Secretary of State at the office of the Secretary of State;
6.  Notwithstanding Section 13 of this act, the Insurance Commissioner may permit the formation, without surplus, of a captive insurance company organized as a reciprocal insurer, into which an existing captive insurance company may be merged for the purpose of facilitating a transaction under this section; however, there may be no more than one authorized insurance company surviving the merger; and
7.  An alien insurer may be a party to a merger authorized under subsection A of this section if the requirements for the merger between a domestic and a foreign insurer apply to a merger between a domestic and an alien insurer under this subsection.  The alien insurer must be treated as a foreign insurer and other jurisdictions must be the equivalent of a state The provisions of Article 16A of the Insurance Code applicable to acquisition of control or merger with a domestic insurer shall apply to acquisition of control of an association captive insurance company, sponsored captive insurance company, special purpose captive insurance company, or industrial insured captive insurance company formed or licensed under the Oklahoma Captive Insurance Company Act.
SECTION 21.     AMENDATORY     36 O.S. 2011, Section 6470.29, is amended to read as follows:
Section 6470.29  A.  In addition to the provisions of Sections 6470.1 through 6470.28 of this title, the provisions of Sections 6470.29 through 6470.31 and Sections 3 and 4 of this act shall apply to sponsored captive insurance companies, and Section 1 of this act shall apply to each protected cell of a sponsored captive insurance company. 
B.  Supplemental license application materials. 
In addition to the information required by subsection C of Section 6470.3 of this title, each applicant sponsored captive insurance company shall file with the Commissioner the following: 
1.  Materials demonstrating to the satisfaction of the Commissioner how the applicant will report to the Commissioner on, and account for, the loss and expense experience of each protected cell; 
2.  A statement acknowledging that all financial records of the sponsored captive insurance company, including records pertaining to any protected cells, shall be made available for inspection or examination by the Commissioner or the Commissioner's designated agent; 
3.  All contracts or sample contracts between the sponsored captive insurance company and any participants; and
4.  Evidence that expenses shall be allocated to each protected cell in a fair and equitable manner. 
C.  One or more sponsors may form a sponsored captive insurance company under the Oklahoma Captive Insurance Company Act.
B. D.  A sponsored captive insurance company formed or licensed under the Oklahoma Captive Insurance Company Act may establish and maintain one or more protected cells to insure risks of one or more participants, subject to the following conditions:
1.  The shareholders persons holding the voting interests of a sponsored captive insurance company must be limited to its participants and sponsors; provided, that a sponsored captive insurance company may issue nonvoting securities or interests to other persons on terms approved by the Commissioner;
2.  Each protected cell must be accounted for separately on the books and records of the sponsored captive insurance company to reflect the financial condition and results of operations of the protected cell, net income or loss, dividends or other distributions to participants, and other factors may be provided in the participant contract or required by the Insurance Commissioner;
3.  The assets of a protected cell must not be chargeable with liabilities arising out of any other insurance business protected cell or, unless otherwise agreed in the applicable participant contract, of the sponsored captive insurance company may conduct;
4.  No sale, exchange, or other transfer of assets, or dividend or other distribution, may be made with respect to a protected cell by the sponsored captive insurance company between or among any of its protected cells without the consent of the participants of each affected protected cells cell;
5.  No sale, exchange, transfer of assets, dividend, or distribution, other than a payment to a sponsor in accordance with the applicable participant contract, may be made from a protected cell to a sponsor or participant without the approval of the Insurance Commissioner and in no event may the approval be given if the sale, exchange, transfer, dividend, or distribution would result in insolvency or impairment with respect to a protected cell;
6.  A sponsored captive insurance company annually shall file with the Insurance Commissioner financial reports the Insurance Commissioner requires, which shall include, but are not limited to, accounting statements detailing the financial experience of each protected cell;
7.  A sponsored captive insurance company shall notify the Insurance Commissioner in writing within ten (10) business days of a protected cell that is insolvent or otherwise unable to meet its claim or expense obligations; and
8.  No participant contract shall take effect without the prior written approval of the Insurance Commissioner, and the addition of each new protected cell and withdrawal of any participant or termination of any existing protected cell constitutes a change in the business plan of the sponsored captive insurance company requiring the prior written approval of the Insurance Commissioner.
SECTION 22.     AMENDATORY     36 O.S. 2011, Section 6470.30, is amended to read as follows:
Section 6470.30  A sponsor of a sponsored captive insurance company must be an insurer licensed pursuant to the laws of a state, an insurance holding company that controls an insurer licensed pursuant to the laws of any state and subject to registration pursuant to the insurance holding company system laws of the state of domicile of the insurer, a reinsurer authorized or approved pursuant to the laws of a state, or a captive insurance company formed or licensed pursuant to the Oklahoma Captive Insurance Company Act.  A risk retention group may not be either a sponsor or a participant of a sponsored captive insurance company only to the extent that it is the sole participant of one or more protected cells.  The business written by a sponsored captive insurance company with respect to each protected cell must be:
1.  Fronted by an insurance company licensed pursuant to the laws of:
a.	any state, or
b.	any jurisdiction if the insurance company is a wholly owned subsidiary of an insurance company licensed pursuant to the laws of any state;
2.  Reinsured by a reinsurer authorized or approved by this state; or
3.  Secured by a trust fund in the United States for the benefit of policyholders and claimants funded by an irrevocable letter of credit or other asset acceptable to the Insurance Commissioner.  The amount of security provided by the trust fund may not be less than the reserves associated with those liabilities, including reserves for losses, allocated loss adjustment expenses, incurred but unreported losses, and unearned premiums for business written through the protected cell of the participant.  The Insurance Commissioner may require the sponsored captive to increase the funding of a trust established pursuant to this item.  If the form of security in the trust is a letter of credit, the letter of credit must be established, issued, or confirmed by a bank chartered in this state, a member of the federal reserve system, or a bank chartered by another state if that state-chartered bank is acceptable to the Insurance Commissioner.  A trust and trust instrument maintained pursuant to this item must be in a form and upon terms approved by the Insurance Commissioner.
SECTION 23.     AMENDATORY     36 O.S. 2011, Section 6470.31, is amended to read as follows:
Section 6470.31  A.  An association, a corporation, a limited liability company, a partnership, a trust, or other business entity may be a participant in a sponsored captive insurance company formed or licensed pursuant to the Oklahoma Captive Insurance Company Act.
B.  A sponsor may be a participant in a sponsored captive insurance company.
C.  A participant need not be a shareholder an owner of the sponsored captive insurance company or an affiliate of the company.
D.  A Unless otherwise approved by the Insurance Commissioner, a participant shall may insure only its own risks through a sponsored captive insurance company, unless otherwise approved by the Insurance Commissioner only its own risks or the risks of its affiliates who are participants.
SECTION 24.     REPEALER     36 O.S. 2011, Sections 6470.4, 6470.7, 6470.8, 6470.9, 6470.26, 6470.32 and 6470.33, are hereby repealed.
SECTION 25.  This act shall become effective November 1, 2013.
Passed the Senate the 6th day of March, 2013.

	
	Presiding Officer of the Senate

Passed the House of Representatives the ____ day of __________, 2013.

	
	Presiding Officer of the House
	of Representatives