<p> 1 South Carolina General Assembly 2 116th Session, 2005-2006 3 4 S. 792 5 6 STATUS INFORMATION 7 8 General Bill 9 Sponsors: Senator Thomas 10 Document Path: l:\council\bills\dka\3307dw05.doc 11 Companion/Similar bill(s): 3996 12 13 Introduced in the Senate on April 27, 2005 14 Introduced in the House on May 2, 2006 15 Last Amended on April 26, 2006 16 Currently residing in the House 17 18 Summary: Special Purpose Financial Captive (SPFC) 19 20 21 HISTORY OF LEGISLATIVE ACTIONS 22 23 Date Body Action Description with journal page number 24 4/27/2005 Senate Introduced and read first time SJ-2 25 4/27/2005 Senate Referred to Committee on Banking and Insurance SJ-2 26 3/8/2006 Senate Committee report: Favorable with amendment Banking and Insurance SJ-19 27 4/26/2006 Senate Amended SJ-33 28 4/26/2006 Senate Read second time SJ-33 29 4/27/2006 Senate Read third time and sent to House SJ-29 30 5/2/2006 House Introduced and read first time HJ-11 31 5/2/2006 House Referred to Committee on Labor, Commerce and Industry HJ-15 32 5/24/2006 House Recalled from Committee on Labor, Commerce and Industry HJ-111 33 5/30/2006 House Debate adjourned until Wednesday, May 31, 2006 HJ-162 34 5/31/2006 House Debate adjourned HJ-33 35 5/31/2006 House Debate adjourned HJ-98 36 5/31/2006 House Debate adjourned until Thursday, June 1, 2006 HJ-230 37 6/1/2006 House Debate adjourned HJ-26 38 6/1/2006 House Debate adjourned HJ-177 39 6/1/2006 House Debate adjourned until Friday, June 2, 2006 HJ-177 40 41 42 VERSIONS OF THIS BILL 43 44 4/27/2005 45 3/8/2006 46 4/26/2006 47 5/24/2006 48 1 Indicates Matter Stricken 2 Indicates New Matter 3 4 RECALLED 5 May 24, 2006 6 7 S. 792 8 9 Introduced by Senator Thomas 10 11 S. Printed 5/24/06--H. 12 Read the first time May 2, 2006. 13 14</p><p>1 [792-1] 1 2 3 4 5 6 7 8 9 A BILL 10 11 TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 12 1976, BY ADDING SECTION 38-90-485 SO AS TO PROVIDE 13 THAT THE CREATION OF A PROTECTED CELL DOES NOT 14 CREATE A LEGAL PERSON SEPARATE FROM A SPECIAL 15 PURPOSE FINANCIAL CAPTIVE (SPFC); BY ADDING 16 SECTION 38-90-515 SO AS TO PROVIDE THAT SECURITIES 17 ISSUED BY A SPFC PURSUANT TO INSURANCE 18 SECURITIZATION MAY NOT BE CONSIDERED TO BE 19 INSURANCE OR INSURANCE CONTRACTS; TO AMEND 20 SECTION 38-13-400, RELATING TO THE REPORT 21 REQUIRED TO BE FILED DISCLOSING MATERIAL 22 ACQUISITIONS AND DISPOSITIONS OF ASSETS OR 23 MATERIAL NONRENEWALS, CANCELLATIONS, OR 24 REVISIONS OF CEDED REINSURANCE; TO AMEND 25 SECTION 38-13-410, RELATING TO REPORTING AN 26 INSURER’S ACQUISITIONS OR DISPOSITIONS OF ASSETS, 27 SO AS TO ADD HEALTH MAINTENANCE 28 ORGANIZATIONS TO THE REPORTING REQUIREMENTS; 29 TO AMEND SECTION 38-13-420, RELATING TO 30 REPORTING NONRENEWALS, CANCELLATIONS, OR 31 REVISIONS OF CEDED REINSURANCE AGREEMENTS, SO 32 AS TO ADD HEALTH MAINTENANCE ORGANIZATIONS 33 TO THE REPORTING REQUIREMENTS; TO AMEND 34 SECTION 38-71-880, AS AMENDED, RELATING TO 35 MEDICAL AND SURGICAL BENEFITS AND MENTAL 36 BENEFITS COVERAGE, SO AS TO CHANGE THE DATE FOR 37 THE APPLICABILITY OF BENEFITS FOR SERVICES 38 FURNISHED; TO AMEND SECTION 38-71-1410, RELATING 39 TO THE SOUTH CAROLINA SMALL EMPLOYER INSURER 40 REINSURANCE PROGRAM, SO AS TO ESTABLISH CODE 41 REFERENCES FOR SELECTING A LICENSED 42 ADMINISTRATOR INSTEAD OF AN ADMINISTERING</p><p>1 [792] 1 1 INSURER; TO AMEND SECTION 38-73-220, RELATING TO 2 THE APPROVAL PROCESS FOR INSURANCE RATE LEVEL 3 CHANGES, SO AS TO CHANGE CODE REFERENCES FROM 4 THE ARTICLE TO THE CHAPTER; TO AMEND SECTION 5 38-73-240, RELATING TO RATE FILINGS WHERE THE LINE 6 OF INSURANCE IS DECLARED COMPETITIVE, SO AS TO 7 CHANGE CODE REFERENCES FROM ARTICLE TO 8 CHAPTER; TO AMEND SECTION 38-73-260, RELATING TO 9 THE APPROVAL PROCESS FOR INSURANCE RATE LEVEL 10 CHANGES, SO AS TO CHANGE CODE REFERENCES FROM 11 ARTICLE TO CHAPTER; TO AMEND SECTION 38-73-270, 12 RELATING TO THE CONSUMER INFORMATION SYSTEM 13 FOR VARIOUS TYPES OF INSURANCE COVERAGE, SO AS 14 TO CHANGE CODE REFERENCES FROM ARTICLE TO 15 CHAPTER; TO AMEND SECTION 38-74-30, AS AMENDED, 16 RELATING TO ELIGIBILITY FOR COVERAGE UNDER THE 17 SOUTH CAROLINA HEALTH INSURANCE POOL, SO AS TO 18 FURTHER DEFINE COVERAGE FOR AN INDIVIDUAL 19 UNDER THE AGE OF SIXTY-FIVE; TO AMEND SECTION 20 38-74-60, AS AMENDED, RELATING TO COVERAGE 21 UNDER THE POOL’S MAJOR EXPENSE PROVISIONS, SO 22 AS TO PROVIDE MEDICARE SUPPLEMENTAL HEALTH 23 INSURANCE COVERAGE TO AN INDIVIDUAL FOR 24 REASONS OTHER THAN AGE; TO AMEND SECTION 25 38-77-530, RELATING TO THE PLAN OF OPERATION OF 26 THE REINSURANCE FACILITY, SO AS TO AUTHORIZE 27 THE GOVERNING BOARD OF THE FACILITY TO DECLARE 28 AN ASSESSMENT ON INSURERS; TO AMEND SECTION 29 38-77-580, RELATING TO THE GOVERNING BOARD OF 30 THE REINSURANCE FACILITY, SO AS TO CHANGE THE 31 COMPOSITION OF THE BOARD; TO AMEND SECTION 32 38-90-40, AS AMENDED, RELATING TO CAPITALIZATION 33 AND SECURITY REQUIREMENTS FOR A CAPTIVE 34 INSURANCE COMPANY, SO AS TO AUTHORIZE THE 35 DIRECTOR OF INSURANCE TO ISSUE A LICENSE TO A 36 CAPTIVE INSURANCE COMPANY IF THE COMPANY 37 PROVIDES THE DIRECTOR WITH EVIDENCE OF 38 MINIMUM REQUIRED UNIMPAIRED PAID-IN CAPITAL; TO 39 AMEND SECTION 38-90-50, AS AMENDED, RELATING TO 40 FREE SURPLUS REQUIREMENTS FOR A CAPTIVE 41 INSURANCE COMPANY, SO AS TO AUTHORIZE THE 42 DIRECTOR OF INSURANCE TO ISSUE A LICENSE TO A 43 CAPTIVE INSURANCE COMPANY CONDITIONED ON</p><p>1 [792] 2 1 EVIDENCE OF MINIMUM REQUIRED FREE SURPLUS; TO 2 AMEND SECTION 38-90-100, AS AMENDED, RELATING TO 3 APPLICABILITY OF INVESTMENT REQUIREMENTS FOR 4 AN ASSOCIATION CAPTIVE INSURANCE COMPANY AND 5 AN INDUSTRIAL INSURED CAPTIVE INSURANCE 6 COMPANY, SO AS TO CHANGE A REFERENCE FROM AN 7 INDUSTRIAL INSURED CAPTIVE INSURANCE COMPANY 8 TO A CAPTIVE INSURANCE COMPANY AND ADD A 9 REFERENCE TO A SPECIAL PURPOSE CAPTIVE 10 INSURANCE COMPANY; TO AMEND SECTION 38-90-140, 11 AS AMENDED, RELATING TO THE TAX REQUIRED TO BE 12 PAID TO THE DEPARTMENT OF INSURANCE BY A 13 CAPTIVE INSURANCE COMPANY, SO AS TO CLARIFY ON 14 WHAT THE TAX IS PAYABLE AND ESTABLISH A 15 MAXIMUM TAX; TO AMEND SECTION 38-90-175, 16 RELATING TO THE CAPTIVE INSURANCE REGULATORY 17 AND SUPERVISION FUND, SO AS TO INCREASE FROM 18 TEN TO TWENTY PERCENT THE AMOUNT OF FUNDS THE 19 DEPARTMENT OF INSURANCE SHALL TRANSFER INTO 20 THE FUND; TO AMEND SECTION 38-90-420, RELATING TO 21 DEFINITIONS USED REGARDING SPECIAL PURPOSE 22 FINANCIAL CAPTIVE INSURANCE COMPANIES, SO AS TO 23 ADD THE DEFINITIONS OF “ADMINISTRATIVE LAW 24 COURT”, “CONTESTED CASE”, AND “THIRD PARTY”, AND 25 CHANGE THE DEFINITION OF “INSOLVENCY”; TO 26 AMEND SECTION 38-90-430, RELATING TO THE 27 RELATIONSHIP OF ARTICLE 3, CHAPTER 90, TITLE 38 28 (SPECIAL PURPOSE FINANCIAL CAPTIVES) TO OTHER 29 TITLE 38 PROVISIONS, SO AS TO ADD A REFERENCE TO A 30 SPFC’S PROTECTED CELL; TO AMEND SECTION 38-90-440, 31 RELATING TO THE REQUIREMENTS OF A SPFC TO 32 TRANSACT BUSINESS IN THIS STATE, SO AS TO CHANGE 33 AND ADD CERTAIN REQUIREMENTS; TO AMEND 34 SECTION 38-90-450, RELATING TO ORGANIZATIONAL 35 REQUIREMENTS OF A SPFC, SO AS TO DELETE THE 36 REQUIREMENT THAT CAPITAL STOCK OF A SPFC MUST 37 BE ISSUED AT NOT LESS THAN PAR VALUE; TO AMEND 38 SECTION 38-90-480, RELATING TO THE ESTABLISHMENT 39 OF PROTECTED CELLS BY A SPFC, SO AS TO CHANGE 40 THE PROCEDURE FOR ESTABLISHING PROTECTED 41 CELLS; TO AMEND SECTION 38-90-550, RELATING TO A 42 MATERIAL CHANGE OF A SPFC’S PLAN OF OPERATION, 43 SO AS TO REQUIRE A STATEMENT OF OPERATIONS BE</p><p>1 [792] 3 1 FILED IF APPROVED OR REQUIRED RATHER THAN 2 REQUESTED BY THE DIRECTOR OF INSURANCE; TO 3 AMEND SECTION 38-90-570, RELATING TO THE 4 EXPIRATION OF AUTHORITY GRANTED BY THE 5 DIRECTOR OF INSURANCE ON CESSATION OF BUSINESS, 6 SO AS TO AUTHORIZE THAT THE DIRECTOR SUSPEND 7 OR REVOKE THE LICENSE OF A SPFC FOR FAILURE TO 8 MEET THE PROVISIONS OF SECTION 38-90-480(D); TO 9 AMEND SECTION 38-90-600, RELATING TO THE 10 AUTHORITY OF THE DIRECTOR OF INSURANCE TO 11 PETITION THE CIRCUIT COURT FOR AN ORDER TO 12 CONSERVE, REHABILITATE, OR LIQUIDATE A SPFC 13 DOMICILED IN THIS STATE FOR CERTAIN GROUNDS, SO 14 AS TO ADD ADDITIONAL GROUNDS; TO AMEND 15 SECTION 38-90-620, RELATING TO STANDARDS AND 16 CRITERIA APPLICABLE IN A CONTESTED CASE 17 BROUGHT BY A THIRD PARTY BASED ON THE DECISION 18 OF THE DIRECTOR OF INSURANCE INVOLVING A SPFC, 19 SO AS TO MODIFY THE STANDARDS AND CRITERIA; TO 20 AMEND ACT 154 OF 1997, RELATING TO THE MOTOR 21 VEHICLE FINANCIAL RESPONSIBILITY ACT, SO AS TO 22 DELAY THE REPEAL OF ARTICLE 5, CHAPTER 77, TITLE 23 38, CODE OF LAWS OF SOUTH CAROLINA, 1976, FROM 24 JANUARY 1, 2006 TO JANUARY 1, 2010; AND TO AMEND 25 ACT 291 OF 2004, RELATING TO VARIOUS AMENDMENTS 26 TO THE INSURANCE LAW, SO AS TO DELAY THE 27 EFFECTIVE DATE OF SECTION 38-43-106(H) OF THE 1976 28 CODE FROM MAY 1, 2006 TO MAY 1, 2010. 29 30 Be it enacted by the General Assembly of the State of South 31 Carolina: 32 33 SECTION 1. Article 3, Chapter 90, Title 38 of the 1976 Code is 34 amended by adding: 35 36 “Section 38-90-485. (A)(1) The creation of a protected cell 37 does not create, with respect to that protected cell, a legal person 38 separate from the SPFC. 39 (2) Notwithstanding the provision of item (1), a protected 40 cell must have its own distinct name or designation that includes 41 the words ‘protected cell’. The SPFC shall transfer all assets 42 attributable to the protected cell to one or more separately</p><p>1 [792] 4 1 established and identified protected cell accounts bearing the name 2 or designation of that protected cell. 3 (3) Although it is not a separate legal person, the property of 4 a SPFC in a protected cell is subject to orders of a court by name 5 as it would have been if the protected cell were a separate legal 6 person. 7 (4) The property of a SPFC in a protected cell must be 8 served in its own name with process in all civil actions or 9 proceedings involving or relating to the activities of that protected 10 cell or a breach by the SPFC of a duty to the protected cell or to a 11 counterparty to a transaction linked or attributed to it by serving 12 the SPFC in the manner described in Section 15–9–270. 13 (5) A protected cell exists only at the pleasure of the SPFC. 14 At the cessation of business of a protected cell in accordance with 15 the plan approved by the director, the SPFC voluntarily shall close 16 out the protected cell account. 17 (B) Nothing in this section may be construed to prohibit a 18 SPFC from contracting with, or arranging for, an investment 19 advisor, commodity trading advisor, or other third party to manage 20 the assets of a protected cell, if all remuneration, expenses, and 21 other compensation of the third party advisor or manager are 22 payable from the assets of that protected cell and not from the 23 assets of other protected cells or the assets of the SPFC’s general 24 account, unless approved by the director. 25 (C) Creditors with respect to a protected cell are not entitled to 26 have recourse against the protected cell assets of other protected 27 cells or the assets of the SPFC’s general account. If an obligation 28 of a SPFC relates only to the general account, the obligation of the 29 SPFC extends only to that creditor, with respect to that obligation, 30 and is entitled to have recourse only to the assets of the SPFC’s 31 general account. 32 (D) The assets of the protected cell may not be used to pay 33 expenses or claims other than those attributable to the protected 34 cell. Protected cell assets are available only to the SPFC contract 35 counterparty and other creditors of the SPFC that are creditors only 36 with respect to that protected cell and, accordingly, are entitled, in 37 conformity with this article, to have recourse to the protected cell 38 assets attributable to that protected cell and absolutely are 39 protected from the creditors of the SPFC that are not creditors with 40 respect to that protected cell and who, accordingly, are not entitled 41 to have recourse to the protected cell assets attributable to that 42 protected cell. If an obligation of a SPFC to a person or 43 counterparty arises from a SPFC contract or related insurance</p><p>1 [792] 5 1 securitization transaction, or is otherwise incurred, with respect to 2 a protected cell: 3 (1) that obligation of the SPFC extends only to the protected 4 cell assets attributable to that protected cell, and the person or 5 counterparty, with respect to that obligation, is entitled to have 6 recourse only to the protected cell assets attributable to that 7 protected cell; and 8 (2) that obligation of the SPFC does not extend to the 9 protected cell assets of another protected cell or the assets of the 10 SPFC’s general account, and that person, with respect to that 11 obligation, is not entitled to have recourse to the protected cell 12 assets of another protected cell or the assets of the SPFC’s general 13 account. The SPFC’s capitalization held separate and apart from 14 the capitalization of its protected cell or cells as required by 15 Section 38–90–480(D) must be available at all times to pay 16 expenses of or claims against the SPFC and may not be used to 17 pay expenses or claims attributable to any protected cell. 18 (E) Notwithstanding another provision of law, a SPFC may 19 allow for a security interest in accordance with applicable law to 20 attach to protected cell assets or a protected cell account when in 21 favor of a creditor of the protected cell or to facilitate the insurance 22 securitization, including, without limitation, the issuance of the 23 SPFC contract, to the extent those protected cell assets are not 24 required at all times to support the risk, but without otherwise 25 affecting the discharge of liabilities under the SPFC contract, or as 26 otherwise approved by the director. 27 (F) A SPFC shall establish administrative and accounting 28 procedures necessary to properly identify the one or more 29 protected cells of the SPFC and the protected cell assets and 30 protected cell liabilities to each protected cell. The directors of a 31 SPFC shall keep protected cell assets and protected cell liabilities: 32 (1) separate and separately identifiable from the assets and 33 liabilities of the SPFC’s general account; and 34 (2) attributable to one protected cell separate and separately 35 identifiable from protected cell assets and protected cell liabilities 36 attributable to other protected cells. 37 (G) All contracts or other documentation reflecting protected 38 cell liabilities clearly must indicate that only the protected cell 39 assets are available for the satisfaction of those protected cell 40 liabilities. In all SPFC insurance securitizations involving a 41 protected cell, the contracts or other documentation effecting the 42 transaction must contain provisions identifying the protected cell 43 to which the transaction is attributed. In addition, the contracts or</p><p>1 [792] 6 1 other documentation clearly must disclose that the assets of that 2 protected cell, and only those assets, are available to pay the 3 obligations of that protected cell. Notwithstanding the provisions 4 of this subsection and subject to the provisions of this article and 5 another applicable law or regulation, the failure to include this 6 language in the contracts or other documentation may not be used 7 as the sole basis by creditors, insureds or reinsureds, insurers or 8 reinsurers, or other claimants to circumvent the provisions of this 9 section. 10 (H) A SPFC with protected cells annually shall file with the 11 department accounting statements and financial reports required by 12 this article which, among other things, must: 13 (1) detail the financial experience of each protected cell and 14 the SPFC separately; and 15 (2) provide the combined financial experience of the SPFC 16 and all protected cells. 17 (I) A SPFC with protected cells shall notify the director in 18 writing within ten business days of a protected cell becoming 19 insolvent.” 20 21 SECTION 2. Article 3, Chapter 90, Title 38 of the 1976 Code is 22 amended by adding: 23 24 “Section 38-90-515. Securities issued by a SPFC pursuant to an 25 insurance securitization may not be considered to be insurance or 26 reinsurance contracts. An investor in these securities or a holder of 27 these securities, by sole means of this investment or holding, may 28 not be considered to be transacting the business of insurance in this 29 State. The underwriter’s placement or selling agents and their 30 partners, directors, officers, members, managers, employees, 31 agents, representatives, and advisors involved in an insurance 32 securitization pursuant to this article may not be considered to be 33 insurance producers or brokers or conducting business as an 34 insurance or reinsurance company or agency, brokerage, 35 intermediary, advisory, or consulting business only by virtue of 36 their activities in connection with them.” 37 38 SECTION 3. Section 38-13-400 of the 1976 Code is amended to 39 read: 40 41 “Section 38-13-400. (A) Effective January 1, 1995, every each 42 insurer domiciled in this State and, effective July 1, 2006, each 43 health maintenance organization domiciled in this State, shall file a</p><p>1 [792] 7 1 report with the director or his designee disclosing material 2 acquisitions and dispositions of assets or material nonrenewals, 3 cancellations, or revisions of ceded reinsurance agreements, unless 4 such these acquisitions and dispositions of assets or material 5 nonrenewals, cancellations, or revisions of ceded reinsurance 6 agreements have been submitted to the director or his designee for 7 review, approval, or information purposes pursuant to other 8 provisions of the insurance laws, regulations, or other 9 requirements. 10 (B) The report required in subsection (A) is due within fifteen 11 days after the end of the calendar month in which any of the 12 foregoing transactions occur. 13 (C) One complete copy of the report, including any exhibits or 14 other attachments filed as part thereof, must be filed with: 15 (1) the director or his designee; and 16 (2) the National Association of Insurance Commissioners. 17 (D) All reports obtained by or disclosed to the director or his 18 designee, pursuant to this section or Sections Section 38-13-410 or 19 38-13-420 must be given confidential treatment and are not subject 20 to subpoena and shall may not be made public by the director, or 21 his designee, the National Association of Insurance 22 Commissioners, or any other person, except to insurance 23 departments of other states, without the prior written consent of the 24 insurer or health maintenance organization to which it pertains, 25 unless the director or his designee, after giving the insurer or 26 health maintenance organization which would be that is affected 27 thereby notice and an opportunity to be heard, determines that the 28 interest of policyholders, shareholders, or the public will be is best 29 served by the publication thereof of the reports, in which event 30 then the director or his designee may publish all or any part thereof 31 of them in such the manner as the director or his designee 32 considers appropriate.” 33 34 SECTION 4. Section 38-13-410 of the 1976 Code is amended to 35 read: 36 37 “Section 38-13-410. (A) No Acquisitions or dispositions of 38 assets need may not be reported pursuant to Section 38-13-400 if 39 the acquisitions or dispositions are not material. For purposes of 40 this section and Sections 38-13-400 and 38-13-420, a material 41 acquisition (or the aggregate of any series of related acquisitions 42 during any thirty-day period), or disposition (or the aggregate of 43 any series of related dispositions during any thirty-day period) is</p><p>1 [792] 8 1 one that is nonrecurring and not in the ordinary course of business 2 and involves more than five percent of the reporting insurer’s total 3 admitted assets as reported in its the most recent annual statement 4 of the insurer or health maintenance organization as filed with the 5 insurance department of the insurer’s state of domicile director or 6 his designee. 7 (B)(1) Asset acquisitions subject to this section and Sections 8 38-13-400 and 38-13-420 include every each purchase, lease, 9 exchange, merger, consolidation, succession, or other acquisition 10 other than the construction or development of real property by or 11 for the reporting insurer or health maintenance organization or the 12 acquisition of materials for such that purpose. 13 (2) Asset dispositions subject to this section and Sections 14 38-13-400 and 38-13-420 include every each sale, lease, exchange, 15 merger, consolidation, mortgage, hypothecation, assignment 16 (whether for the benefit of creditors or otherwise), abandonment, 17 destruction, or other disposition. 18 (C)(1) The following information must be disclosed in any 19 report of a material acquisition or disposition of assets: 20 (a) date of the transaction; 21 (b) manner of acquisition or disposition; 22 (c) description of the assets involved; 23 (d) nature and amount of the consideration given or 24 received; 25 (e) purpose of, or reason for, the transaction; 26 (f) manner by which the amount of consideration was 27 determined; 28 (g) gain or loss recognized or realized as a result of the 29 transaction; and 30 (h) names of the persons from whom the assets were 31 acquired or to whom they were disposed. 32 (2) Insurers An insurer and a health maintenance 33 organization shall report material acquisitions and dispositions on 34 a nonconsolidated basis unless the insurer or health maintenance 35 organization is part of a consolidated group of insurers or health 36 maintenance organizations which utilizes utilize a pooling 37 arrangement or one hundred percent reinsurance agreement that 38 affects the solvency and integrity of the insurer’s or health 39 maintenance organization’s reserves and such the insurer or health 40 maintenance organization ceded substantially all of its direct and 41 assumed business to the pool. An insurer or a health maintenance 42 organization is considered to have ceded substantially all of its 43 direct and assumed business to a pool if the insurer or a health</p><p>1 [792] 9 1 maintenance organization has less than one million dollars total 2 direct plus assumed written premiums during a calendar year that 3 are not subject to a pooling arrangement and the net income of the 4 business not subject to the pooling arrangement represents less 5 than five percent of the insurer’s or health maintenance 6 organization’s capital and surplus.” 7 8 SECTION 5. Section 38-13-420(A) and (C) of the 1976 Code is 9 amended to read: 10 11 “(A) No Nonrenewals, cancellations, or revisions of ceded 12 reinsurance agreements need may not be reported pursuant to 13 Section 38-13-400 if the nonrenewals, cancellations, or revisions 14 are not material. For purposes of this section and Sections 15 38-13-400 and 38-13-410, a material nonrenewal, cancellation, or 16 revision is one that affects, for property and casualty business, 17 including accident and health business when written as such, more 18 than fifty percent of an insurer’s or health maintenance 19 organization’s ceded written premium, or, for life, annuity, and 20 accident and health business, more than fifty percent of the total 21 reserve credit taken for business ceded, on an annualized basis as 22 indicated in the insurer’s or health maintenance organization’s 23 most recently filed annual statement; provided,. However, that no 24 a filing is not required if the insurer’s or health maintenance 25 organization’s ceded written premium or the total reserve credit 26 taken for business ceded represents, on an annualized basis, less 27 than ten percent of direct plus assumed written premium or ten 28 percent of the statutory reserve requirement before any cession, 29 respectively. 30 31 (C)(1) The following information must be disclosed in any 32 report of a material nonrenewal, cancellation, or revision of ceded 33 reinsurance agreements: 34 (a) effective date of the nonrenewal, cancellation, or 35 revision; 36 (b) the description of the transaction with an identification 37 of the initiator of the transaction; 38 (c) purpose of, or reason for, the transaction; and 39 (d) if applicable, the identity of the replacement 40 reinsurers. 41 (2) Insurers An insurer and a health maintenance 42 organization are required to report all material nonrenewals, 43 cancellations, or revisions of ceded reinsurance agreements on a</p><p>1 [792] 10 1 nonconsolidated basis unless the insurer or health maintenance 2 organization is part of a consolidated group of insurers or health 3 maintenance organizations which utilizes a pooling arrangement or 4 one hundred percent reinsurance agreement that affects the 5 solvency and integrity of the insurer’s or health maintenance 6 organization’s reserves and the insurer or health maintenance 7 organization ceded substantially all of its direct and assumed 8 business to the pool. An insurer or a health maintenance 9 organization is deemed considered to have ceded substantially all 10 of its direct and assumed business to a pool if the insurer or health 11 maintenance organization has less than one million dollars total 12 direct plus assumed written premiums during a calendar year that 13 are not subject to a pooling arrangement and the net income of the 14 business not subject to the pooling arrangement represents less 15 than five percent of the insurer’s or health maintenance 16 organization’s capital and surplus.” 17 18 SECTION 6. Section 38-71-880(F) of the 1976 Code, as last 19 amended by Act 73 of 2003, is further amended to read: 20 21 “(F) This section shall does not apply to benefits for services 22 furnished on or after December 31, 2003 2006.” 23 24 SECTION 7. Section 38-71-1410(F)(2) of the 1976 Code is 25 amended to read: 26 27 “(2) establish procedures for selecting an administering insurer 28 a licensed administrator, as provided in Sections 38 - 51 - 10 through 29 38 - 51 - 60, and setting forth the powers and duties of the 30 administering insurer licensed administrator;” 31 32 SECTION 8. Section 38-73-220(B) and (C) of the 1976 Code, as 33 added by Act 290 of 2004, is amended to read: 34 35 “(B) Notwithstanding any other provisions another provision of 36 this article chapter, for any policies governed by this section, 37 filings that produce rate-level changes within the limitation 38 specified in subsection (A) become effective without prior 39 approval. No more than two rate increases within the limitation 40 specified in subsection (A) may be implemented during any 41 twelve-month period and the second rate-increase filing in the 42 twelve-month period is subject to prior approval.</p><p>1 [792] 11 1 (C) A rate increase or decrease falling within the limitation in 2 subsection (B) may become effective not less than thirty days after 3 the date of the filing with the director. The filing is considered to 4 meet the requirements of this article chapter. If the director finds 5 that this filing is not in compliance with this article chapter, he 6 shall issue a written order specifying in detail the provisions with 7 which the insurer has not complied and state a reasonable period in 8 which the filing is considered no longer effective. An order by the 9 director pursuant to this section that is issued more than thirty days 10 from the date on which the director received the rate filing is on a 11 prospective basis only and does not affect any contract issued or 12 made before the effective date of the order.” 13 14 SECTION 9. Section 38-73-240(A), (D), and (E) of the 1976 15 Code, as added by Act 290 of 2004, is amended to read: 16 17 “(A) In a line of insurance declared competitive, each insurer 18 shall file with the director all rates, supplementary rate 19 information, and supporting information for competitive markets at 20 least thirty days before the proposed effective date. The director or 21 his designee may give written notice, within thirty days of the 22 receipt of the filing, that additional time is needed, not to exceed 23 thirty days from the date of the notice, to consider the filing. Upon 24 written application of the insurer, the director or his designee may 25 authorize rates to be effective before the expiration of the waiting 26 period or an extension of it. A filing is considered to meet the 27 requirements of this article chapter and to become effective unless 28 disapproved pursuant to this section by the director or his designee 29 before the expiration of the waiting period or an extension of it. 30 Residual market mechanisms or advisory organizations may file 31 residual market rates. 32 33 (D) All rates, supplementary rate information, and any 34 supporting information filed pursuant to this article chapter is open 35 to public inspection after the filing becomes effective. 36 (E) With respect to applications for rate increases for fire, 37 allied lines, and homeowner’s insurance that exceed the seven 38 percent cap as provided for in Section 38-73-260(A) and if an 39 applicant insurer had earned premiums in this State in the previous 40 calendar year of more than ten million dollars for the line or type 41 of insurance for which the rate increase is sought, the director or 42 his designee shall provide a copy of the filing to the Consumer 43 Advocate or, in the alternative, shall direct the insurer to provide a</p><p>1 [792] 12 1 copy simultaneously to the Consumer Advocate. Within ten 2 business days of the receipt of the filing, the Consumer Advocate 3 may request from the insurer additional information. A copy of the 4 request must be served on the director or his designee. Within ten 5 business days of the receipt of the information sought, the 6 Consumer Advocate shall inform the insurer and the director if, in 7 his opinion, the filing is not in compliance with this article chapter 8 and specify in detail the reason for his opinion. If the filing is 9 accepted by the director and becomes effective, the Consumer 10 Advocate, upon good cause shown, may request a hearing before 11 the Administrative Law Judge Division Court. An order of the 12 administrative law judge issued pursuant to the provisions of this 13 section is on a prospective basis only and does not affect any 14 contract issued or made before the effective date of the order.” 15 16 SECTION 10. Section 38-73-260(B), (C), and (E) of the 1976 17 Code, as added by Act 290 of 2004, is amended to read: 18 19 “(B) Notwithstanding another provision of this article chapter, 20 for any policies governed by this section, filings that produce 21 rate-level changes within the limitation specified in subsection (A) 22 become effective without prior approval. No more than two rate 23 increases within the limitation specified in subsection (A) may be 24 implemented during a twelve-month period and the second rate 25 increase filing in the twelve-month period is subject to prior 26 approval. 27 (C) A rate increase or decrease falling within the limitation in 28 subsection (B) may become effective not less than thirty days after 29 the date of the filing with the director. The filing is considered to 30 meet the requirements of this article chapter. If the director finds 31 that this filing is not in compliance with this article chapter, he 32 shall issue a written order specifying in detail the provisions with 33 which the insurer has not complied and state a reasonable period in 34 which the filing is considered no longer effective. An order by the 35 director pursuant to this section that is issued more than thirty days 36 from the date on which the director received the rate filing is on a 37 prospective basis only and does not affect a contract issued or 38 made before the effective date of the order. 39 40 (E) With respect to applications for rate increases for fire, 41 allied lines, and homeowner’s insurance that exceed the seven 42 percent cap as provided in subsection (A) and if an applicant 43 insurer had earned premiums in this State in the previous calendar</p><p>1 [792] 13 1 year of more than ten million dollars for the line or type of 2 insurance for which the rate increase is sought, the director or his 3 designee shall provide a copy of the filing to the Consumer 4 Advocate or, in the alternative, shall direct the insurer to provide a 5 copy simultaneously to the Consumer Advocate. Within ten 6 business days of the receipt of the filing, the Consumer Advocate 7 may request from the insurer additional information. A copy of the 8 request must be served on the director or his designee. Within ten 9 business days of the receipt of the information sought, the 10 Consumer Advocate shall inform the insurer and the director if, in 11 his opinion, the filing is not in compliance with this article chapter 12 and specify in detail the reason for his opinion. If the filing is 13 accepted by the director and becomes effective, the Consumer 14 Advocate, upon good cause shown, may request a hearing before 15 the Administrative Law Judge Division Court. An order of the 16 administrative law judge issued pursuant to the provisions of this 17 section is on a prospective basis only and does not affect any 18 contract issued or made before the effective date of the order.” 19 20 SECTION 11. Section 38-73-270 of the 1976 Code, as added by 21 Act 290 of 2004, is amended to read: 22 23 “Section 38-73-270. The director shall utilize, develop, or 24 cause to be developed, a consumer information system which 25 provides and disseminates price and other relevant information on 26 a readily available basis to purchasers of homeowner’s, private 27 passenger nonfleet automobile, or property insurance for personal, 28 family, or household needs. The director may utilize, develop, or 29 cause to be developed, a consumer information system which 30 provides and disseminates price and other relevant information on 31 a readily available basis to purchasers of insurance for commercial 32 risks and personal risks not otherwise specified. The activity may 33 be conducted internally within the insurance department, in 34 cooperation with other state insurance departments, through 35 outside contractors, or in another appropriate manner. As 36 necessary and appropriate, the director, insurers, advisory 37 organizations, statistical agents, and other persons or organizations 38 involved in conducting the business of insurance in this State, 39 pursuant to the provisions of this article chapter, shall cooperate in 40 the development and utilization of a consumer information 41 system.” 42</p><p>1 [792] 14 1 SECTION 12. Section 38-74-30(A)(3) of the 1976 Code, as last 2 amended by Act 240 of 2002, is further amended to read: 3 4 “(3) if the individual is under the age of sixty - five and covered 5 under Medicare Parts A and B due to disability and is under age 6 sixty-five for reasons other than age.” 7 8 SECTION 13. Section 38-74-60(B) of the 1976 Code, as last 9 amended by Act 240 of 2002, is further amended to read: 10 11 “(B) The pool shall offer Medicare supplemental health 12 insurance coverage to every each person who is under age 13 sixty - five covered under Medicare Parts A and B for reasons other 14 than age. The benefit plans to be offered shall must include 15 Medicare supplement plan A and plan C.” 16 17 SECTION 14. Section 38-77-580 of the 1976 Code is amended 18 to read: 19 20 (A) The operations and affairs of the facility are under the 21 direction and control of a governing board of nineteen five persons 22 of whom four must be residents of South Carolina appointed by 23 the Governor of South Carolina to represent consumers. The 24 director shall appoint eight three persons to represent the insurance 25 industry. In making these appointments, the director may accept 26 nominations for qualified individuals from the American Insurance 27 Association, the National Association of Independent Insurers, The 28 Alliance of American Insurers, and any other individual, group, or 29 trade or professional association. However, of the eight persons 30 appointed to represent the insurance industry, not less than five 31 Three persons must be either residents of South Carolina and those 32 who are not residents of South Carolina or must have job 33 responsibilities that include the supervision over South Carolina 34 operations; not less than two must be officers or employees of 35 insurers licensed to transact automobile insurance in South 36 Carolina and domiciled therein. The director shall appoint six 37 persons to represent producers, all of whom must be residents of 38 South Carolina. The state independent agents’ association, the 39 South Carolina Professional Auto Insurance Agents’ Association, 40 the state professional insurance agents’ association, and any other 41 individual, group, or insurance agent, trade, or professional 42 association may nominate qualified candidates for appointment.</p><p>1 [792] 15 1 Vacancies on the board must be published in newspapers of 2 general, statewide circulation. 3 (B) In addition, the Consumer Advocate is an ex-officio 4 member of the governing board of the Reinsurance Facility. No A 5 person who is associated with any a business within the meaning 6 of Section 8-13-20, which is either subject to regulation by the 7 Department of Insurance or which provides goods or services to 8 the facility for compensation, is not eligible for appointment to the 9 board to represent consumers, except that any a person serving on 10 the board representing consumers on the effective date of this 11 provision who would otherwise be disqualified from serving based 12 on this provision may continue to serve for the remainder of his 13 current term. 14 (C) The director is chairman of the board, ex officio, but has no 15 vote except in the case of a tie. The director, or his designated 16 representative, shall preside over all meetings which must be held 17 not less than quarterly in South Carolina at the times and places the 18 director designates. However, upon the filing with the director of a 19 request for a meeting signed by not fewer than five three members 20 of the board and specifying the subjects to be discussed at the 21 proposed meeting, the director shall call a special meeting of the 22 board to be held not less than fifteen nor more than thirty days 23 after receipt of the request. Notice, in writing, of the special 24 meeting must be provided to members of the board. 25 (D) Members of the board shall serve two years or until their 26 successors are appointed and have qualified. Any A vacancy must 27 be filled for the unexpired term only. The director may receive 28 nominations from any individual, group, or insurance agent trade 29 or professional association for any a vacancy. 30 (E) Amendment of the plan of operation may be made only at 31 the annual meeting of the board or at a special meeting called by 32 the director for that purpose and so specified in the notice of 33 meeting. Amendments of the plan require the affirmative vote of 34 two-thirds of all the board members and are subject to the approval 35 of the director or his designee. The director or his designee may 36 approve amendments only if they are consistent with the purposes 37 of this chapter. If the consumer-representative members of the 38 board unanimously dissent from a proposed amendment and 39 specify their reasons for dissent in writing, the director or his 40 designee may not approve the amendment until after a public 41 hearing addressed to the reasons for the dissent. The director may 42 make provision for voting by proxy at meetings. </p><p>1 [792] 16 1 (F) The director or his designee, through the department, may 2 propose to the board any amendment to or modification of the plan 3 that the director or his designee considers to be necessary to render 4 the plan reasonable or consistent with the purposes of this chapter, 5 specifying in writing the reasons for any proposed amendment or 6 modification. In the event that If the board fails to adopt his 7 proposed amendment or modification, the director or his designee 8 may, after notice and public hearing addressed to the reasons for 9 the proposed amendment or modification, may promulgate the 10 amendment or modification considered necessary to render the 11 plan reasonable or consistent with the purposes of this chapter.” 12 13 SECTION 15. Section 38-90-40 of the 1976 Code, as last 14 amended by Act 291 of 2004, is further amended to read: 15 16 “Section 38-90-40. (A)(1) The director may not issue a license 17 to a captive insurance company unless the company possesses and 18 maintains unimpaired paid-in capital of: 19 (a) in the case of a pure captive insurance company, not 20 less than one hundred thousand dollars; 21 (b) in the case of an association captive insurance 22 company incorporated as a stock insurer or organized as a limited 23 liability company, not less than four hundred thousand dollars; 24 (c) in the case of an industrial insured captive insurance 25 company incorporated as a stock insurer or organized as a limited 26 liability company, not less than two hundred thousand dollars; 27 (d) in the case of a sponsored captive insurance company, 28 not less than five hundred thousand dollars; however, if the 29 sponsored captive insurance company does not assume any risk, 30 the risks insured by the protected cells are homogeneous and there 31 are no more than ten cells, the director may reduce this amount to 32 an amount not less than one hundred fifty thousand dollars; 33 (e) in the case of a special purpose captive insurance 34 company, an amount determined by the director after giving due 35 consideration to the company’s business plan, feasibility study, 36 and pro-formas, including the nature of the risks to be insured. 37 (2)(a) Except for a sponsored captive insurance company 38 that does not assume any risk, the capital must be in the form of 39 cash, cash equivalent, or an irrevocable letter of credit issued by a 40 bank chartered by this State or a member bank of the Federal 41 Reserve System with a branch office in this State or as approved 42 by the director. </p><p>1 [792] 17 1 (b) For a sponsored captive insurance company that does 2 not assume any risk, the capital also may be in the form of other 3 high quality securities as approved by the director. 4 (B)(1) The director may not issue a license to a captive 5 insurance company incorporated as a nonprofit corporation unless 6 the company possesses and maintains unrestricted net assets of: 7 (a) in the case of a pure captive insurance company, not 8 less than two hundred fifty thousand dollars; and 9 (b) in the case of a special purpose captive insurance 10 company, an amount determined by the director after giving due 11 consideration to the company’s business plan, feasibility study, 12 and pro-formas, including the nature of the risks to be insured. 13 (2) Contributions to a captive insurance company 14 incorporated as a nonprofit corporation must be in the form of 15 cash, cash equivalent, or an irrevocable letter of credit issued by a 16 bank chartered by this State or a member bank of the Federal 17 Reserve System with a branch office in this State or as approved 18 by the director. 19 (C) For purposes of subsections (A) and (B), the director may 20 issue a license expressly conditioned upon the captive insurance 21 company providing to the director satisfactory evidence of 22 possession of the minimum required unimpaired paid - in capital. 23 Until this evidence is provided, the captive insurance company 24 may not issue any policy, assume any liability, or otherwise 25 provide coverage. The director summarily may revoke the 26 conditional license without legal recourse by the company if 27 satisfactory evidence of the required capital is not provided within 28 a maximum period of time, not to exceed one year, to be 29 established by the director at the time the conditional license is 30 issued. 31 (D) The director may prescribe additional capital or net assets 32 based upon the type, volume, and nature of insurance business 33 transacted. Contributions in connection with these prescribed 34 additional net assets or capital may must be in the form of: 35 (1) cash; 36 (2) cash equivalent; 37 (3) an irrevocable letter of credit issued by a bank chartered 38 by this State or a member bank of the Federal Reserve System with 39 a branch office in this State or as approved by the director; or 40 (4) securities invested as provided in Section 38 - 90 - 100. 41 (D)(E) In the case of a branch captive insurance company, as 42 security for the payment of liabilities attributable to branch 43 operations, the director shall require that a trust fund, funded by an</p><p>1 [792] 18 1 irrevocable letter of credit or other acceptable asset, be established 2 and maintained in the United States for the benefit of United States 3 policyholders and United States ceding insurers under insurance 4 policies issued or reinsurance contracts issued or assumed, by the 5 branch captive insurance company through its branch operations. 6 The amount of the security may be no less than the capital and 7 surplus required by this chapter and the reserves on these insurance 8 policies or reinsurance contracts, including reserves for losses, 9 allocated loss adjustment expenses, incurred but not reported 10 losses and unearned premiums with regard to business written 11 through branch operations; however, the director may permit a 12 branch captive insurance company that is required to post security 13 for loss reserves on branch business by its reinsurer to reduce the 14 funds in the trust account required by this section by the same 15 amount so long as the security remains posted with the reinsurer. 16 If the form of security selected is a letter of credit, the letter of 17 credit must be established by, or issued or confirmed by, a bank 18 chartered in this State or a member bank of the Federal Reserve 19 System. 20 (E)(F)(1) A captive insurance company may not pay a dividend 21 out of, or other distribution with respect to, capital or surplus, in 22 excess of the limitations set forth in Section 38-21-250 through 23 Section 38-21-270, without the prior approval of the director. 24 Approval of an ongoing plan for the payment of dividends or other 25 distributions must be conditioned upon the retention, at the time of 26 each payment, of capital or surplus in excess of amounts specified 27 by, or determined in accordance with formulas approved by, the 28 director. 29 (2) A captive insurance company incorporated as a nonprofit 30 corporation may not make any distributions without the prior 31 approval of the director. 32 (F)(G) An irrevocable letter of credit, which is issued by a 33 financial institution other than a bank chartered by this State or a 34 member bank of the Federal Reserve System, shall meet the same 35 standards as an irrevocable letter of credit which has been issued 36 by either entity.” 37 38 SECTION 16. Section 38-90-50 of the 1976 Code, as last 39 amended by Act 291 of 2004, is further amended to read: 40 41 “Section 38-90-50. (A)(1) The director may not issue a license 42 to a captive insurance company unless the company possesses and 43 maintains free surplus of: </p><p>1 [792] 19 1 (a) in the case of a pure captive insurance company, not 2 less than one hundred fifty thousand dollars; 3 (b) in the case of an association captive insurance 4 company incorporated as a stock insurer or organized as a limited 5 liability company, not less than three hundred fifty thousand 6 dollars; 7 (c) in the case of an industrial insured captive insurance 8 company incorporated as a stock insurer or organized as a limited 9 liability company, not less than three hundred thousand dollars; 10 (d) in the case of an association captive insurance 11 company incorporated as a mutual insurer, not less than seven 12 hundred fifty thousand dollars; 13 (e) in the case of an industrial insured captive insurance 14 company incorporated as a mutual insurer, not less than five 15 hundred thousand dollars; 16 (f) in the case of a sponsored captive insurance company, 17 not less than five hundred thousand dollars; however, if the 18 sponsored captive insurance company does not assume any risk, 19 the risks insured by the protected cells are homogeneous and there 20 are no more than ten cells, the director may reduce this amount to 21 an amount not less than one hundred fifty thousand dollars; and 22 (g) in the case of a special purpose captive insurance 23 company, an amount determined by the director after giving due 24 consideration to the company’s business plan, feasibility study, 25 and pro-formas, including the nature of the risks to be insured. 26 (2)(a) Except for a sponsored captive insurance company 27 that does not assume any risk, the surplus must be in the form of 28 cash, cash equivalent, or an irrevocable letter of credit issued by a 29 bank chartered by this State or a member bank of the Federal 30 Reserve System with the branch office in this State and approved 31 by the director. 32 (b) For a sponsored captive insurance company that does 33 not assume any risk, the surplus also may be in the form of other 34 high quality securities as approved by the director. 35 (B) Notwithstanding the requirements of subsection (A) a 36 captive insurance company organized as a reciprocal insurer under 37 this chapter may not be issued a license unless it possesses and 38 thereafter maintains free surplus of one million dollars. 39 (C) For purposes of subsections (A) and (B), the director may 40 issue a license expressly conditioned upon the captive insurance 41 company providing to the director satisfactory evidence of 42 possession of the minimum required free surplus. Until this 43 evidence is provided, the captive may not issue any policy, assume</p><p>1 [792] 20 1 any liability, or otherwise provide coverage. The director 2 summarily may revoke the conditional license without legal 3 recourse by the company if satisfactory evidence of the required 4 capital is not provided within a maximum period of time, not to 5 exceed one year, to be established by the director at the time the 6 conditional license is issued. 7 (D) The director may prescribe additional surplus based upon 8 the type, volume, and nature of insurance business transacted. This 9 capital may additional surplus must be in the form of: 10 (1) cash; 11 (2) cash equivalent; 12 (3) an irrevocable letter of credit issued by a bank 13 chartered by this State, or a member bank of the Federal Reserve 14 System with a branch in this State or as approved by the director or 15 (4) securities invested as provided in Section 38 - 90 - 100. 16 (D)(E) A captive insurance company may not pay a dividend out 17 of, or other distribution with respect to, capital or surplus in excess 18 of the limitations set forth in Section 38-21-270, without the prior 19 approval of the director. Approval of an ongoing plan for the 20 payment of dividends or other distribution must be conditioned 21 upon the retention, at the time of each payment, of capital or 22 surplus in excess of amounts specified by, or determined in 23 accordance with formulas approved by, the director. 24 (E)(F) An irrevocable letter of credit, which is issued by a 25 financial institution other than a bank chartered by this State or a 26 member bank of the Federal Reserve System, shall meet the same 27 standards as an irrevocable letter of credit which has been issued 28 by either entity.” 29 30 SECTION 17. Section 38-90-100(B) of the 1976 Code, as last 31 amended by Act 58 of 2001, is further amended to read: 32 33 “(B) A pure captive insurance company, an industrial insured 34 captive insurance company a captive reinsurance company, a 35 special purpose captive insurance, and a sponsored captive 36 insurance company are not subject to any restrictions on allowable 37 investments contained in this title; however, the director may 38 request a written investment plan and may prohibit or limit an 39 investment that threatens the solvency or liquidity of the 40 company.” 41</p><p>1 [792] 21 1 SECTION 18. Section 38-90-140(B), (C), and (E) of the 1976 2 Code, as last amended by Act 73 of 2003, is further amended to 3 read: 4 5 “(B) A captive insurance company shall pay to the department 6 by March first of each year, a tax at the rate of two hundred and 7 twenty-five thousandths of one percent on the first twenty million 8 dollars of assumed reinsurance premium, and one hundred fifty 9 thousandths of one percent on the next twenty million dollars and 10 fifty thousandths of one percent on the next twenty million dollars 11 and twenty-five thousandths of one percent of each dollar of 12 assumed reinsurance premium after that up to a maximum tax of 13 one hundred thousand dollars. However, no reinsurance tax applies 14 does not apply to premiums for risks or portions of risks which are 15 subject to taxation on a direct basis pursuant to subsection (A). A 16 premium tax is not payable in connection with the receipt of assets 17 in exchange for the assumption of loss reserves and other liabilities 18 of another insurer or other funding mechanism under common 19 ownership and control if the transaction is part of a plan to 20 discontinue the operations related to the loss reserves and other 21 liabilities being assumed of the other insurer or funding 22 mechanism and if the intent of the parties to the transaction is to 23 renew or maintain business with the captive insurance company. 24 (C)(1) If the aggregate taxes to be paid by a captive insurance 25 company calculated under subsections (A) and (B) amount to less 26 than five thousand dollars in any year, the captive insurance 27 company shall pay a minimum tax of five thousand dollars for that 28 year. However, in the calendar year in which a captive is first 29 licensed, the minimum tax will must be prorated on a quarterly 30 basis. 31 (2) For captives licensed in the: 32 (a) first quarter, the prorated minimum tax is five 33 thousand dollars. For captives licensed in the; 34 (b) second quarter, the prorated minimum tax is three 35 thousand seven hundred fifty dollars. For captives licensed in the; 36 (c) third quarter, the prorated minimum tax is two 37 thousand five hundred dollars. For captives licensed in the; and 38 (d) fourth quarter, the prorated minimum tax is one 39 thousand two hundred fifty dollars. 40 (2) In the calendar year in which a captive is first licensed, if 41 the aggregate taxes to be paid by a captive insurance company 42 calculated under subsections (A) and (B) amount to less than the 43 minimum tax prorated on a quarterly basis, the captive insurance</p><p>1 [792] 22 1 company shall pay the prorated minimum tax for that calendar 2 year. 3 (3) If the aggregate taxes to be paid by a captive insurance 4 company calculated under subsections (A) and (B) amount to more 5 than one hundred thousand dollars in any year, the captive 6 insurance company shall pay a maximum tax of one hundred 7 thousand dollars for that year. 8 9 (E) Two or more captive insurance companies under common 10 ownership and control must be taxed, as though they were a single 11 separate captive insurance company companies.” 12 13 SECTION 19. Section 38-90-175(A) of the 1976 Code, as added 14 by Act 188 of 2002, is amended to read: 15 16 “(A) There is hereby created a fund to be known as the ‘Captive 17 Insurance Regulatory and Supervision Fund’ for the purpose of 18 providing the financial means for the director to administer 19 Chapter 87 and Chapter 90 of this title and for reasonable expenses 20 incurred in promoting the captive insurance industry in the State. 21 The transfer of ten twenty percent of the taxes collected by the 22 department pursuant to Chapter 90 of this title, and all fees and 23 assessments received by the department pursuant to the 24 administration of this chapter shall must be credited to this fund. 25 All fees received by the department from reinsurers who assume 26 risk solely only from captive insurance companies, shall must be 27 deposited into the Captive Insurance Regulatory and Supervision 28 Fund. All fines and administrative penalties, however, shall must 29 be deposited directly into the general fund.” 30 31 SECTION 20. Section 38-90-420 of the 1976 Code, as added by 32 Act 291 of 2004, is amended to read: 33 34 “Section 38-90-420. For purposes of this article: 35 (1) ‘Administrative Law Court’ means that agency and court of 36 record created pursuant to the provisions of Section 1 - 23 - 500. 37 (2) ‘Affiliated company’ means a company in the same 38 corporate system as a parent, by virtue of common ownership, 39 control, operation, or management. 40 (3) ‘Contested case’ means a proceeding in which the legal 41 rights, duties, obligations, or privileges of a party are required by 42 law to be determined by the Administrative Law Court after an 43 opportunity for hearing. </p><p>1 [792] 23 1 (2)(4) ‘Control’ including the terms ‘ controlling’, ‘controlled 2 by’, and ‘under common control with’ means the possession, direct 3 or indirect, of the power to direct or cause the direction of the 4 management and policies of a person, whether through the 5 ownership of voting securities, by contract other than a 6 commercial contract for goods or nonmanagement services, or 7 otherwise, unless the power is the result of an official position with 8 or corporate office held by the person. Control must be presumed 9 to exist if a person, directly or indirectly, owns, controls, holds 10 with the power to vote, or holds proxies representing ten percent or 11 more of the voting securities of another person. This presumption 12 may be rebutted by a showing that control does not exist. 13 Notwithstanding other provisions of this item, for purposes of this 14 article, the fact that a SPFC exclusively provides reinsurance to a 15 ceding insurer under a SPFC contract is not by itself sufficient 16 grounds for a finding that the SPFC and ceding insurer are under 17 common control. 18 (3)(5) ‘Counterparty’ means a SPFC’s parent or affiliated 19 company, as ceding insurer to the SPFC contract, or subject to the 20 prior approval of the director, a nonaffiliated company. 21 (4)(6) ‘Director’ means the Director of the South Carolina 22 Department of Insurance or the director’s designee. 23 (5)(7) ‘Department’ means the South Carolina Department of 24 Insurance. 25 (6)(8) ‘Fair value’ means: 26 (a) as to cash, the amount of it; and 27 (b) as to an asset other than cash: 28 (i) the amount at which that asset could be bought or sold 29 in a current transaction between arms-length, willing parties; 30 (ii) the quoted mid-market price for the asset in active 31 markets must be used if available; and 32 (iii) if quoted mid-market prices are not available, a value 33 determined using the best information available considering values 34 of similar assets and other valuation methods, such as present 35 value of future cash flows, historical value of the same or similar 36 assets, or comparison to values of other asset classes, the value of 37 which have been historically related to the subject asset. 38 (7)(9) ‘Insolvency’ or ‘insolvent’ means that the SPFC or one 39 or more of its protected cells is unable to pay its obligations when 40 they are due, unless those obligations are the subject of a bona fide 41 dispute, or the director previously has established by order other 42 criteria for determining the solvency of the SPFC or one or more</p><p>1 [792] 24 1 of its protected cells. In which case the SPFC is insolvent if it fails 2 to meet that criteria. 3 (8)(10)‘Insurance securitization’ means a package of related risk 4 transfer instruments, capital market offerings, and facilitating 5 administrative agreements by which proceeds are obtained by a 6 SPFC directly or indirectly through the issuance of securities, 7 which complies with applicable securities law, and which proceeds 8 are held in trust pursuant to the provisions of this article to secure 9 the obligations of the SPFC under one or more SPFC contracts 10 with a counterparty, where investment risk to the holders of these 11 securities is contingent upon the obligations of the SPFC to the 12 counterparty under the SPFC contract in accordance with the 13 transaction terms. 14 (9)(11)‘Management’ means the board of directors, managing 15 board, or other individual or individuals vested with overall 16 responsibility for the management of the affairs of the SPFC, 17 including the election and appointment of officers or other of those 18 agents to act on behalf of the SPFC. 19 (10)(12) ‘Organizational document’ means the SPFC’s Articles 20 of Incorporation, Articles of Organization, Bylaws, Operating 21 Agreement, or other foundational documents that establish the 22 SPFC as a legal entity or prescribes its existence. 23 (11)(13) ‘Parent’ means any corporation, limited liability 24 company, partnership, or individual that directly or indirectly 25 owns, controls, or holds with power to vote more than fifty percent 26 of the outstanding voting securities of a SPFC. 27 (12)(14) ‘Permitted investments’ means those investments that 28 meet the qualifications pursuant to Section 38-90-530. 29 (13)(15) ‘Protected cell’ means a separate account established 30 and maintained by a SPFC for one SPFC contract and the 31 accompanying insurance securitization with a counterparty as 32 further provided for in Chapter 10 of this title. 33 (14)(16) ‘Qualified United States financial institution’ means, 34 for purposes of meeting the requirements of a trustee as specified 35 in Section 38-90-530, a financial institution that is eligible to act as 36 a fiduciary of a trust, and is: 37 (a) organized or, in the case of a United States branch or 38 agency office of a foreign banking organization, is licensed under 39 the laws of the United States or any state of the United States; and 40 (b) regulated, supervised, and examined by federal or state 41 authorities having regulatory authority over banks and trust 42 companies. </p><p>1 [792] 25 1 (15)(17) ‘Securities’ means those different types of debt 2 obligations, equity, surplus certificates, surplus notes, funding 3 agreements, derivatives, and other legal forms of financial 4 instruments. 5 (16)(18) ‘Securities Commissioner’ means the Attorney 6 General of the State of South Carolina as provided in Title 35. 7 (17)(19) ‘SPFC’ or ‘Special Purpose Financial Captive’ means 8 a captive insurance company which has received a certificate of 9 authority from the director for the limited purposes provided for in 10 this article. 11 (18)(20) ‘SPFC contract’ means a contract between the SPFC 12 and the counterparty pursuant to which the SPFC agrees to provide 13 insurance or reinsurance protection to the counterparty for risks 14 associated with the counterparty’s insurance or reinsurance 15 business. 16 (19)(21) ‘SPFC securities’ means the securities issued by a 17 SPFC. 18 (20)(22) ‘Surplus note’ means an unsecured subordinated debt 19 obligation deemed to be a surplus certificate as described in 20 Section 38-13-110(4) and otherwise possessing characteristics 21 consistent with paragraph 3 of the Statement of Statutory 22 Accounting Principals No. 41, as amended, National Association 23 of Insurance Commissioners (NAIC). 24 (23) ‘Third party’ means a person unrelated to an SPFC or its 25 counterparty, or both, that has been aggrieved by a decision of a 26 director regarding that SPFC or its activities.” 27 28 SECTION 21. Section 38-90-430(C) of the 1976 Code, as added 29 by Act 291 of 2004, is amended to read: 30 31 “(C) The director, by rule, regulation, or order, may exempt a 32 SPFC or their protected cells, on a case-by-case basis, from 33 provisions of this article that he determines to be inappropriate 34 given the nature of the risks to be insured.” 35 36 SECTION 22. Section 38-90-440(B) and (C) of the 1976 Code, 37 as added by Act 291 of 2004, is amended to read: 38 39 “Section 38-90-440. (A) A SPFC, when permitted by its 40 organizational documents, may apply to the director for a license 41 to transact insurance or reinsurance business as authorized by this 42 article. A SPFC only may insure or reinsure the risks of its 43 counterparty. Notwithstanding another provision of this article, a</p><p>1 [792] 26 1 SPFC may purchase reinsurance to cede the risks assumed under 2 the SPFC contract as approved by the director. 3 (B) To transact business in this State a SPFC shall: 4 (1) obtain from the director a license authorizing it to 5 conduct insurance or reinsurance business, or both, in this State; 6 (2) hold at least one management meeting each year in this 7 State; 8 (3) maintain its principal place of business in this State; and 9 (4) appoint a resident registered agent to accept service of 10 process and to otherwise act on its behalf in this State. If the 11 registered agent, with reasonable diligence, is not found at the 12 registered office of the SPFC, the director must be an agent of the 13 SPFC upon whom any process, notice, or demand may be served.; 14 (5) provide such documentation of the insurance 15 securitization as requested by the director immediately upon 16 closing of the transaction, including: 17 (a) an opinion of legal counsel with respect to compliance 18 with this article and any other applicable laws as of the effective 19 date of the transaction; and 20 (b) a statement under oath of its president and secretary 21 showing its financial condition; and 22 (6) provide a complete set of the documentation of the 23 insurance securitization to the director shortly following closing of 24 the transaction. 25 (C)(1) Before receiving a license, a SPFC shall file with the 26 director A complete SPFC application must include the following: 27 (1) a certified copy of its organizational documents, a 28 statement under oath of its president and secretary showing its 29 financial condition, and any other statements or documents 30 required by the director.; and 31 (2) In addition to the information required by item (1), an 32 applicant SPFC shall file with the director evidence of: 33 (a) the amount and liquidity of its assets relative to the 34 risks to be assumed; 35 (b) the adequacy of the expertise, experience, and 36 character of the person or persons who manages it; 37 (c) the overall soundness of its plan of operation; and 38 (d) other factors considered relevant by the director in 39 ascertaining whether the proposed SPFC is able to meet its policy 40 obligations; and 41 (e) the applicant SPFC’s financial condition, including the 42 source and form of the minimum capitalization to be contributed to 43 the SPFC. </p><p>1 [792] 27 1 (3) A plan of operation, consisting of a description of or 2 statement of intent with respect to the contemplated insurance 3 securitization, the SPFC contract, and related transactions, which 4 must include: 5 (a) draft documentation or, at the discretion of the 6 director, a written summary of all material agreements that are 7 entered into to effectuate the SPFC contract and, before effecting 8 such, the insurance securitization, to include the names of the 9 counterparty, the nature of the risks being assumed, the proposed 10 use of protected cells, if any, and the maximum amounts, purpose, 11 and nature and the interrelationships of the various transactions 12 required to effectuate the insurance securitization; 13 (b) the source and form of additional capitalization to be 14 contributed to the SPFC; 15 (c) the proposed investment strategy of the SPFC; 16 (d) a description of the underwriting, reporting, and 17 claims payment methods by which losses covered by the SPFC 18 contract are reported, accounted for, and settled; and 19 (e) a pro forma balance sheet and income statement 20 illustrating various stress case scenarios for the performance of 21 SPFC under the SPFC contract. 22 (4) Biographical affidavits in NAIC format of all of the 23 prospective SPFC’s officers and directors, providing their legal 24 names, any names under which they have or are conducting their 25 affairs, and any affiliations with other persons as defined in 26 Chapter 21 of this title, together with other biographical 27 information as the director may request; 28 (5) An affidavit from the applicant SPFC verifying: 29 (a) the applicant SPFC meets the provisions of this article; 30 (b) the applicant SPFC operates only pursuant to the 31 provisions in this article; 32 (c) the applicant SPFC’s investment strategy reflects and 33 takes into account the liquidity of assets and the reasonable 34 preservation, administration, and asset management of such assets 35 relative to the risks associated with the SPFC contract and the 36 insurance securitization transaction; 37 (d) the securities proposed to be issued are valid legal 38 obligations that are either properly registered with the Securities 39 Commissioner or constitute an exempt security or form part of an 40 exempt transaction pursuant to Section 35–1–310 or 35–1–320; 41 and 42 (e) unless otherwise exempted by the director, the trust 43 agreement, the trusts holding assets that secure the obligations of</p><p>1 [792] 28 1 the SPFC under the SPFC contract, and the SPFC contract with the 2 counterparty in connection with the contemplated insurance 3 securitization are structured pursuant to the provisions in this 4 article. 5 (6) Any other statements or documents required by the 6 director to evaluate and complete the licensing of the SPFC. 7 (D) In addition to the information required by items (1) and (2) 8 subsection (C), and to the provisions of Section 38-90-480, if a 9 protected cell is used, an applicant SPFC shall file with the 10 director: 11 (a) a business plan demonstrating how the applicant 12 accounts for the loss and expense experience of each protected cell 13 at a level of detail found to be sufficient by the director, and how it 14 reports the experience to the director; 15 (b) a statement acknowledging that all financial records of 16 the SPFC, including records pertaining to any protected cells, must 17 be made available for inspection or examination by the director; 18 (c) all contracts or sample contracts between the SPFC and 19 any counterparty, related to each protected cell; and 20 (d) evidence that a description of the expenses are allocated 21 to each protected cell in an equitable manner. 22 (4)(E) Information submitted pursuant to this subsection is 23 confidential and is subject to Section 38-90-610. 24 (D)(F) Section 38-13-60 applies to examinations, investigations, 25 and processing conducted pursuant to the authority of this article. 26 (E) In addition, a complete SPFC application must include the 27 following: 28 (1) an affidavit from the applicant verifying that the 29 prospective SPFC meets the provisions of this article; 30 (2) a representation from the applicant that the prospective 31 SPFC will operate only pursuant to the provisions in this article; 32 (3) biographical affidavits in NAIC format of all of the 33 prospective SPFC’s officers and directors, providing their legal 34 names, any names under which they have or are conducting their 35 affairs, and any affiliations with other persons as defined in 36 Chapter 21 of this title, together with other biographical 37 information as the director may request; 38 (4) the source and form of the minimum capital to be 39 contributed to the SPFC; 40 (5) a plan of operation, consisting of a description of the 41 contemplated insurance securitization, the SPFC contract, and 42 related transactions, which must include: </p><p>1 [792] 29 1 (a) draft documentation or, at the discretion of the 2 director, a written summary of all material agreements that are 3 entered into to effectuate the SPFC contract and the insurance 4 securitization, to include the names of the counterparty, the nature 5 of the risks being assumed, the proposed use of protected cells, if 6 any, and the maximum amounts, purpose, and nature and the 7 interrelationships of the various transactions required to effectuate 8 the insurance securitization; 9 (b) the investment strategy of the SPFC and a 10 representation from the applicant that the investment strategy 11 complies with the investment provisions provided for in this 12 article; 13 (c) a description of the underwriting, reporting, and 14 claims payment methods by which losses covered by the SPFC 15 contract are reported, accounted for, and settled; 16 (d) a representation from the applicant that the trust 17 agreement, the trusts holding assets that secure the obligations of 18 the SPFC under the SPFC contract, and the SPFC contract with the 19 counterparty in connection with the contemplated insurance 20 securitization is structured pursuant to the provisions in this article; 21 (e) a pro forma balance sheet and income statements 22 illustrating various stress case scenarios for the performance of 23 SPFC under the SPFC contract; and 24 (f) an affidavit from the applicant that the securities 25 proposed to be issued are valid legal obligations that are either 26 properly registered with the Securities Commissioner or constitute 27 an exempt security or form part of an exempt transaction pursuant 28 to Section 35-1-310 or 35-1-320. 29 (F)(G) To transact insurance or reinsurance business in this 30 State, a SPFC shall pay to the department: 31 (1) A SPFC shall pay to the department a nonrefundable fee 32 of two hundred dollars for processing its application for license. In 33 addition, the director may retain legal, financial, and examination 34 services from outside the department to examine and investigate 35 the application, the reasonable cost of which may be charged 36 against the applicant, or the director may use internal resources to 37 examine and investigate the application for a fee of twelve 38 thousand dollars, half of which is payable upon filing of the 39 application and the remainder upon licensure., or both; 40 (2) In addition, a SPFC also shall pay a license fee for the 41 year of registration of three hundred dollars and an annual renewal 42 fee of five hundred dollars.; </p><p>1 [792] 30 1 (3) A SPFC shall pay an annual review fee of twenty-four 2 hundred dollars or, if higher, the actual cost as determined by the 3 director.; and 4 (4) premium taxes as required by this article. 5 (G)(H) The director may grant a license authorizing the SPFC to 6 transact insurance or reinsurance business as a SPFC in this State 7 until March first, at which time the license may be renewed, upon 8 finding that the: 9 (1) the proposed plan of operation provides a reasonable and 10 expected successful operation; 11 (2) the terms of the SPFC contract and related transactions 12 comply with this article; 13 (3) the proposed plan of operation is not hazardous to any 14 counterparty; 15 (4) the commissioner of the state of domicile of each 16 counterparty has notified the director in writing or otherwise 17 provided assurance satisfactory to the director that it has approved 18 or nondisapproved the transaction; and 19 (5) the director may grant a license authorizing the SPFC to 20 do insurance or reinsurance business in this State until March first 21 at which time the license may be renewed; 22 (6) the certificate of authority authorizing the SPFC to 23 transact business is limited only to the insurance or reinsurance 24 activities that the SPFC is allowed to conduct pursuant to this 25 article;. 26 (7) the SPFC shall provide a complete set of the 27 documentation of the insurance securitization to the director upon 28 closing of the transactions, including an opinion of legal counsel 29 with respect to compliance with this article and any other 30 applicable laws as of the effective date of the transaction; 31 (8)(I) In evaluating the expectation of a successful operation, 32 the director shall consider, among other factors, whether the 33 proposed SPFC, and its management are of known good character 34 and reasonably believed not to be affiliated, directly or indirectly, 35 through ownership, control, management, reinsurance transactions, 36 or other insurance or business relations, with a person known to 37 have been involved in the improper manipulation of assets, 38 accounts, or reinsurance. 39 (H)(J) A foreign or alien corporation or limited liability 40 company, upon approval of the director, may become a domestic 41 SPFC by complying with all of the provisions of this article and by 42 filing with the Secretary of State its organizational documents, 43 together with appropriate amendments to it, as may be adopted</p><p>1 [792] 31 1 pursuant to the provisions of this article to bring these 2 organizational documents into compliance with this article. After 3 this is accomplished, the foreign or alien corporation or limited 4 liability company is entitled to the necessary or appropriate 5 certificates or licenses to transact business as a SPFC in this State 6 and is subject to the authority and jurisdiction of this State. In 7 connection with this redomestication, the director may waive any 8 requirements for public hearings. It is not necessary for a 9 corporation or limited liability company redomesticating into this 10 State to merge, consolidate, transfer assets, or otherwise engage in 11 another reorganization, other than as specified in this section.” 12 13 SECTION 23. Section 38-90-450(G), (H), and (I) of the 1976 14 Code, as added by Act 291 of 2004, is amended to read: 15 16 “(G) The capital stock of a SPFC incorporated as a stock insurer 17 must be issued at not less than par value. 18 (H) At least one of the members of the management of the 19 SPFC must be a resident of this State. 20 (I)(H) A SPFC formed pursuant to the provisions of this article 21 has the privileges of and is subject to the provisions of the 1976 22 Code, applicable to its formation, as well as the applicable 23 provisions contained in this article. If a conflict occurs between a 24 provision of the applicable law and a provision of this article, the 25 latter controls. Nothing contained in this provision with respect to 26 a SPFC shall abrogate, limit, or rescind in any way the authority of 27 the Securities Commissioner pursuant to the provisions of Title 28 35.” 29 30 SECTION 24. Section 38-90-480 of the 1976 Code, as added by 31 Act 291 of 2004, is amended to read: 32 33 “Section 38-90-480. (A) This section and Section 38 - 90 - 485 34 provide a basis for the creation and use of protected cells by a 35 SPFC as a means of accessing alternative sources of capital, 36 lowering formation and administrative expenses, and generally 37 making insurance securitizations more efficient. If a conflict 38 occurs between a provision of Chapter 10, Title 38 or Article 1, 39 Chapter 90, Title 38 and either this section or Section 38 - 90 - 485, 40 this section and Section 38 - 90 - 485 control. 41 (B) A SPFC may establish and maintain one or more protected 42 cells to insure or reinsure risks of one or more SPFC contracts with 43 a counterparty, subject to with prior written approval of the</p><p>1 [792] 32 1 director and subject to compliance with the applicable provisions 2 of this article and the following conditions: 3 (1) a protected cell must be established only for the purpose 4 of insuring or reinsuring risks of one or more SPFC contracts with 5 a counterparty with the intent of facilitating an insurance 6 securitization; 7 (2) each protected cell must be accounted for separately on 8 the books and records of the SPFC to reflect the financial 9 condition and results of operations of the protected cell, net 10 income or loss, dividends or other distributions to the counterparty 11 for the SPFC contract with each cell, and other factors as may be 12 provided in the SPFC contract, insurance securitization transaction 13 documents, plan of operation, or business plan, or as required by 14 the director; 15 (3) amounts attributed to a protected cell under this chapter, 16 including assets transferred to a protected cell account, are owned 17 by the SPFC, and the SPFC may not be, or may not hold itself out 18 to be, a trustee with respect to those protected cell assets of that 19 protected cell account; 20 (4) all attributions of assets and liabilities between a 21 protected cell and the general account must be in accordance with 22 the plan of operation approved by the director. No other attribution 23 of assets or liabilities may be made by a SPFC between the SPFC’s 24 general account and its protected cell or cells. The SPFC shall 25 attribute all insurance obligations, assets, and liabilities relating to 26 a SPFC contract and the related insurance securitization 27 transaction, including any securities issued by the SPFC as part of 28 the insurance securitization, to a particular protected cell. The 29 rights, benefits, obligations, and liabilities of any securities 30 attributable to that protected cell and the performance under a 31 SPFC contract and the related securitization transaction and any 32 tax benefits, losses, refunds, or credits allocated, or any of them, at 33 any point in time pursuant to a tax allocation agreement between 34 the SPFC and the SPFC’s counterparty, parent, or company or 35 group company, or any of them, in common control with them, as 36 the case may be, including any payments made by or due to be 37 made to the SPFC pursuant to the terms of the agreement, must 38 reflect the insurance obligations, assets, and liabilities relating to 39 the SPFC contract and the insurance securitization transaction that 40 are attributed to a particular protected cell; 41 (2)(5) the assets of a protected cell must not be chargeable 42 with liabilities arising out of another a SPFC contract the SPFC 43 may enter into with the counterparty related to or associated with</p><p>1 [792] 33 1 another protected cell. However, one or more SPFC contracts may 2 be attributed to a protected cell so long as those SPFC contracts are 3 intended to be, and ultimately are, part of a single securitization 4 transaction; 5 (3)(6) a sale, an exchange, or another transfer of assets may 6 not be made by the SPFC between or among any of its protected 7 cells without the consent of the director, counterparty, and each 8 protected cell; 9 (4)(7) except as otherwise contemplated in the SPFC contract 10 and or related insurance securitization transaction documents, or 11 both, a sale, an exchange, a transfer of assets, a dividend, or a 12 distribution may not be made from a protected cell to a 13 counterparty or parent without the director’s approval and may not 14 be approved if the sale, exchange, transfer, dividend, or 15 distribution would result in insolvency or impairment with respect 16 to a protected cell; and 17 (5) a SPFC annually shall file with the director financial 18 reports the director requires, which must include, but are not 19 limited to, accounting statements detailing the financial experience 20 of each protected cell; 21 (6) a SPFC shall notify the director in writing within ten 22 business days of a protected cell that is insolvent or otherwise 23 unable to meet its claims payment or expense obligations; 24 (7) a SPFC contract with a protected cell does not take effect 25 without the director’s prior written approval, and the addition of 26 each new protected cell constitutes a change in the business plan 27 requiring the director’s prior written approval. The director may 28 retain legal, financial, and examination services from outside the 29 department to examine and investigate the application for a 30 protected cell, the reasonable cost of which may be charged against 31 the applicant, or the director may use internal resources to examine 32 and investigate the application the reasonable cost of which may 33 be charged against the applicant up to a maximum of twelve 34 thousand dollars. 35 (8) a SPFC may pay interest or repay principal, or both, and 36 make distributions or repayments in respect of any securities 37 attributed to a particular protected cell from assets or cash flows 38 relating to or emerging from the SPFC contract and the insurance 39 securitization transactions that are attributable to that particular 40 protected cell in accordance with the provisions of this article or as 41 otherwise approved by the director. 42 (B) This section is adopted to provide a basis for the creation of 43 protected cells by a SPFC as one means of accessing alternative</p><p>1 [792] 34 1 sources of capital, lowering formation and administrative 2 expenses, and achieving the benefits of insurance securitization. 3 The creation of protected cells is intended to be a means to achieve 4 more efficiencies in conducting insurance securitizations. 5 (C) A SPFC contract with or attributable to a protected cell 6 does not take effect without the director’s prior written approval, 7 and the addition of each new protected cell constitutes a change in 8 the business plan requiring the director’s prior written approval. 9 The director may retain legal, financial, and examination services 10 from outside the department to examine and investigate the 11 application for a protected cell, the reasonable cost of which may 12 be charged against the applicant, or the director may use internal 13 resources to examine and investigate the application the reasonable 14 cost of which may be charged against the applicant up to a 15 maximum of twelve thousand dollars, or both. 16 (D) A SPFC utilizing protected cells initially shall possess 17 minimum capitalization separate and apart from the capitalization 18 of its protected cell or cells in an amount determined by the 19 director after giving due consideration of the SPFC’s business 20 plan, feasibility study, and pro - formas, including the nature of the 21 risks to be insured or reinsured. For purposes of determining the 22 capitalization of each protected cell, a SPFC initially shall 23 capitalize and after that time maintain capitalization in each 24 protected cell in the amount and manner required for a SPFC in 25 Section 38–90–460. 26 (E) The establishment of one or more protected cells alone 27 does not constitute, and may not be deemed to be, a fraudulent 28 conveyance, an intent by the SPFC to defraud creditors, or the 29 carrying out of business by the SPFC for any other fraudulent 30 purpose.” 31 32 SECTION 25. Section 38-90-550(C) of the 1976 Code, as added 33 by Act 291 of 2004, is amended to read: 34 35 “(C) Each SPFC shall file by March first, a statement of 36 operations, using either generally accepted accounting principles 37 or, if requested approved or required by the director, statutory 38 accounting principles with useful or necessary modifications or 39 adaptations required or approved or accepted by the director for 40 the type of insurance and kinds of insurers to be reported upon, 41 and as supplemented by additional information required by the 42 director. The statement of operations must include a statement of 43 income, a balance sheet, and may include a detailed listing of</p><p>1 [792] 35 1 invested assets, including identification of assets held in trust to 2 secure the obligations of the SPFC under the SPFC contract. The 3 SPFC also may include with the filing risk based capital 4 calculations and other adjusted capital calculations to assist the 5 director with evaluating the levels of the surplus of the SPFC for 6 the year ending on December thirty-first of the previous year. The 7 statements must be prepared on forms required by the director. In 8 addition the director may require the filing of performance 9 assessments of the SPFC contract.” 10 11 SECTION 26. Section 38-90-570(B) and (D) of the 1976 Code, 12 as added by Act 291 of 2004, is amended to read: 13 14 “(B) The director may suspend or revoke the license of a SPFC 15 in this State for: 16 (1) insolvency; 17 (2) failure to meet the provisions of Section 38-90-460, 18 38 - 90 - 480(D), or 38-90-580; 19 (3) use of methods that, although not otherwise specifically 20 prohibited by law, nevertheless render its operation detrimental or 21 its condition unsound with respect to the public, the holders of the 22 securities, or policyholders of the SPFC; or 23 (4) failure to otherwise comply in any material respect with 24 applicable laws of this State. 25 26 (D) Unless the grounds for suspension or revocation relate only 27 to the financial condition or soundness of the SPFC or to a 28 deficiency in its assets, the director shall notify the SPFC not less 29 than thirty days before revoking its authority to do business in this 30 State and specify in the notice the particulars of the alleged 31 violation of the law or its organizational documents or grounds for 32 revocation and a proper opportunity must be offered the SPFC to 33 be heard before the Administrative Law Judge Division Court.” 34 35 SECTION 27. Section 38-90-600 of the 1976 Code, as added by 36 Act 291 of 2004, is amended to read: 37 38 “Section 38-90-600. (A) Except as otherwise modified in this 39 section, the terms and conditions set forth in Chapters 26 and 27 of 40 this title pertaining to administrative supervision of insurers and 41 the rehabilitation, receiverships, and liquidation of insurers apply 42 in full to SPFCs or each of the SPFC’s protected cells, 43 independently, or both, without causing or otherwise effecting a</p><p>1 [792] 36 1 conservation, rehabilitation, receivership, or liquidation of the 2 SPFC or another protected cell . 3 (1)(B) Notwithstanding the provisions of Chapter Chapters 26 4 and 27, Title 38, and without causing or otherwise affecting the 5 conservation or rehabilitation of an otherwise solvent protected 6 cell of an SPFC and subject to the provisions of subsection (G)(5) 7 of this section, the director may apply by petition to the circuit 8 court for an order authorizing the director to conserve, rehabilitate, 9 or liquidate a SPFC domiciled in this State on one or more of the 10 following grounds: 11 (a)(1) there has been embezzlement, wrongful sequestration, 12 dissipation, or diversion of the assets of the SPFC intended to be 13 used to pay amounts owed to the counterparty or the holders of 14 SPFC securities; or 15 (b)(2) the SPFC is insolvent and the holders of a majority in 16 outstanding principal amount of each class of SPFC securities 17 request or consent to conservation, rehabilitation, or liquidation 18 pursuant to the provisions of this article. 19 (C) Notwithstanding the provisions of Chapters 26 and 27, 20 Title 38, the director may apply by petition to the circuit court for 21 an order authorizing the director to conserve, rehabilitate, or 22 liquidate one or one or more of a SPFC’s protected cells, 23 independently, without causing or otherwise effecting a 24 conservation, rehabilitation, receivership, or liquidation of the 25 SPFC generally or another of its protected cells, on one or more of 26 the following grounds: 27 (1) there has been embezzlement, wrongful sequestration, 28 dissipation, or diversion of the assets of the SPFC attributable to 29 the affected protected cell or cells intended to be used to pay 30 amounts owed to the counterparty or the holders of SPFC 31 securities of the affected protected cell or cells; or 32 (2) the affected protected cell is insolvent and the holders of 33 a majority in outstanding principal amount of each class of SPFC 34 securities attributable to that particular protected cell request or 35 consent to conservation, rehabilitation, or liquidation pursuant to 36 the provisions of this article. 37 (2)(D) The court may not grant relief provided by subitem (a) of 38 item (1) of subsection (B) or item (1) of subsection (C) unless, 39 after notice and a hearing, the director, who must shall have the 40 burden of proof, establishes by clear and convincing evidence that 41 relief must be granted. The court’s order may be made in respect 42 of one or more protected cells by name, rather than the SPFC 43 generally. </p><p>1 [792] 37 1 (B)(E) Notwithstanding another provision in this title, 2 regulations promulgated under this title, or another applicable law 3 or regulation, upon any order of conservation, rehabilitation, or 4 liquidation of a SPFC, or one or more of the SPFC’s protected 5 cells, the receiver shall manage the assets and liabilities of the 6 SPFC pursuant to the provisions of this article. The receiver shall 7 ensure that the assets linked to one protected cell are not applied to 8 the liabilities linked to another protected cell or to the SPFC 9 generally, unless an asset or liability is linked to more than one 10 protected cell, in which case the receiver shall deal with the asset 11 or liability in accordance with the terms of any relevant governing 12 instrument or contract. 13 (C)(F) With respect to amounts recoverable under a SPFC 14 contract, the amount recoverable by the receiver must not be 15 reduced or diminished as a result of the entry of an order of 16 conservation, rehabilitation, or liquidation with respect to the 17 counterparty, notwithstanding another provision in the contracts or 18 other documentation governing the SPFC insurance securitization. 19 (1)(G) Notwithstanding the provisions of Chapter Chapters 26 20 and 27 of this title, or other laws of this State: 21 (1) an application or petition, or a temporary restraining 22 order or injunction issued pursuant to the provisions of Chapter 23 Chapters 26 and 27 of this title, with respect to a counterparty does 24 not prohibit the transaction of a business by a SPFC, including any 25 payment by a SPFC made pursuant to a SPFC security, or any 26 action or proceeding against a SPFC or its assets.; 27 (2) Notwithstanding the provisions of Chapter 27 of this 28 title, the commencement of a summary proceeding or other interim 29 proceeding commenced before a formal delinquency proceeding 30 with respect to a SPFC, and any order issued by the court does not 31 prohibit the payment by a SPFC made pursuant to a SPFC security 32 or SPFC contract or the SPFC from taking any action required to 33 make the payment.; 34 (D) Notwithstanding the provisions of Chapter 27 of this title or 35 other laws of this State: 36 (1)(3) a receiver of a counterparty may not void a 37 nonfraudulent transfer by a counterparty to a SPFC of money or 38 other property made pursuant to a SPFC contract; and 39 (2)(4) a receiver of a SPFC may not void a nonfraudulent 40 transfer by the SPFC of money or other property made to a 41 counterparty pursuant to a SPFC contract or made to or for the 42 benefit of any holder of a SPFC security on account of the SPFC 43 security.; and</p><p>1 [792] 38 1 (5) the director may not seek to have a SPFC with protected 2 cells declared insolvent as long as at least one of the SPFC’s 3 protected cells remains solvent, and in the case such an insolvency, 4 the receiver shall handle SPFC’s assets in compliance with 5 subsection (E) and other laws of this State. 6 (H) Subsection (G) does not prohibit the director from taking 7 any action permitted under Chapter 26 or 27 with respect only to 8 the conservation or rehabilitation of a SPFC with protected cell or 9 cells, provided the director would have had sufficient grounds to 10 seek to declare the SPFC insolvent; subject to and without 11 otherwise affecting the provisions of item (5) of subsection (G). In 12 this case, with respect to the solvent protected cell or cells, the 13 director may not prohibit payments made by the SPFC pursuant to 14 the SPFC security, SPFC contract, or otherwise made under the 15 insurance securitization transaction that are attributable to these 16 protected cell or cells or prohibit the SPFC from taking any action 17 required to make these payments. 18 (E)(I) With the exception of the fulfillment of the obligations 19 under a SPFC contract, and notwithstanding another provision of 20 this article or other laws of this State, the assets of a SPFC, 21 including assets held in trust, must not be consolidated with or 22 included in the estate of a counterparty in any delinquency 23 proceeding against the counterparty pursuant to the provisions of 24 this article for any purpose including, without limitation, 25 distribution to creditors of the counterparty.” 26 27 SECTION 28. Section 38-90-620 of the 1976 Code, as added by 28 Act 291 of 2004, is amended to read: 29 30 “Section 38-90-620. (A) A contested case brought by a third 31 party based on a decision of the director pursuant to this article is 32 governed by applicable civil law of the State of South Carolina 33 except that, the aggrieved third party shall: 34 (1) prove the appeal its case by a clear and convincing 35 evidence standard; 36 (2) demonstrate irreparable harm to the SPFC or its 37 counterparty, or both; 38 (3) not have another show that there is no other adequate 39 remedy at law; and 40 (4) post a bond of sufficient surety to protect the interests of 41 the holders of the SPFC securities and policyholders but in not it 42 may not be less than fifteen percent of the total amount of the 43 securitized transaction. </p><p>1 [792] 39 1 (B) If the a director decides to reverse, amend, or modify 2 reverses, amends, or modifies a license previously issued to a 3 SPFC or the an order issued made in connection with them for a 4 reason other than that specified in Section 38-90-570(B), the 5 director shall meet a license previously issued to a SPFC, the 6 action must comply with the standards and criteria provided in 7 subsection (A), unless the action in reversing, amending, or 8 modifying the license is in conformance with the provisions of 9 Section 38 - 90 - 570(B).” 10 11 SECTION 29. The first paragraph of Section 38-75-370 of the 12 1976 Code is amended to read: 13 14 “All members of the association shall participate in its writings, 15 expenses, profits, and losses in the proportion that the net direct 16 premium of the member written in this State during the preceding 17 calendar year two years before the current year bears to the 18 aggregate net direct premiums written in this State by all members 19 of the association, as certified to the association by the department 20 after review of annual statements, other reports, and other statistics 21 which the department considers necessary to provide the 22 information required and which the department is authorized to 23 obtain from a member of the association. After certification by the 24 department, the association may rely on the member company’s 25 annual statement in determining the company’s participation in 26 profits and losses for each year. 27 28 29 SECTION 30. This act takes effect upon approval by the 30 Governor. 31 ----XX---- 32</p><p>1 [792] 40</p>