ncdoi license application case study ......ncdoi license application case study & regulatory...

NCDOI LICENSE APPLICATION CASE STUDY & REGULATORY

UPDATE

NORTH CAROLINA CAPTIVE INSURANCE ASSOCIATION

ANNUAL CONFERENCE AUGUST 23, 2016

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Agenda

• Introduction of the NCDOI Team

• Current Status of the NC Captive Insurance Company Program

• 2016 Legislative Update

• NCDOI License Application Best Practices

NCDOI Team • Wayne Goodwin N.C. Insurance Commissioner

• Raymond Martinez Senior Deputy Commissioner

• Ben Popkin Legislative Counsel

• Kevin Conley Chief Actuary

• Debra Walker Deputy Commissioner

• Rick Kohan Associate Actuary

• Ke Xu Chief Examiner

• Kevin Brodie Senior Captive Insurance Specialist

• Leane Rafalko Senior Captive Insurance Specialist

• Hasije Harris Insurance Co. Examiner Manager

• Rick Kilpatrick Senior Regulatory Specialist

• Ben Blackmon Senior Captive Financial Analyst

• Michael Arcangel Captive Financial Analyst

• Roulin Zhang Financial Examiner

• Kathy Hart Administrative Assistant

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STATUS OF THE NORTH CAROLINA CAPTIVE INSURANCE COMPANY PROGRAM

Status of the Program

The North Carolina Captive Insurance Company Program has reached another milestone!

• Pure captives – 72

• Protected cell captives – 15

• Special purpose captives – 10

• RRGs - 3

• The 15 licensed protected cell captive insurance companies and certain special purpose captive insurers house approximately 240 protected cells/series.

• The number of approved captive managers actively managing North Carolina companies is 25.

• Marketing and promotion efforts of the NCDOI and others in the captive industry are making an impact.

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Impact of the Program on NC’s Economy

• The captive insurance company program is favorably impacting the economy of NC.

• The favorable economic impact generated during the first 2 years of operation is conservatively estimated to be approximately $18 million.

• The economy of NC is being favorably impacted by service provider and hospitality revenues, premium tax revenues, and over 50 new NC-based jobs.

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2016 LEGISLATIVE UPDATE

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Legislative Amendments

• We treat the North Carolina Captive Insurance Act (“Act”) as a “living document” by reviewing the Act on a regular basis to identify enhancements.

• As in 2014 and 2015, amendments to the Act were proposed and enacted during 2016 with the support of the Commissioner, the North Carolina General Assembly, and the Governor.

• House Bill 287: The substantial 2016 amendments to the Act are discussed on the following slides.

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Exemption from the In-state Board Meeting Requirement

• An amendment to G.S. 58-10-345 (b) (2) allows a captive insurance company to obtain an exemption from the requirement of holding at least one annual board meeting in North Carolina, if the captive insurance company utilizes the services of at least two North Carolina service providers.

• The service providers may include legal, accounting, actuarial, investment advisor, captive management or other service providers acceptable to the Commissioner.

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Licensing of an Entity Organized in Another Jurisdiction

• G.S. 58-10-345(i) was added to allow an entity formed in another jurisdiction to obtain a license as a captive insurer in North Carolina.

• In the event of conflict between the captive insurance laws of North Carolina and the laws of the jurisdiction under which the business entity was organized, the provisions of the captive insurance laws of North Carolina shall control.

• The entity will register with the North Carolina Secretary of State’s Office as a foreign corporation conducting business in North Carolina.

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90-Day Provisional Approval for a License

• The addition of G.S. 58-10-347 allows for the Commissioner to issue provisional approval to an applicant business entity not to exceed 90 days; however, the entity may request an extension of the provisional time limit, if the request is received in writing not less than 10 days before the 90-day expiration date.

• Extensions are granted in 30-day periods by the Commissioner.

• In order to obtain a provisional license, an application must have been filed and the Commissioner must have made a determination that the expertise, experience and character of the person(s) who will control and manage the applicant are acceptable. If the applicant fails to complete the application process, the provisional approval shall terminate automatically.

• The Commissioner may limit the authority of any provisional licensee in any way deemed necessary.

• The Commissioner may rescind the provisional approval at any time if it is determined that the interests of the insureds or the public are at risk.

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Minimum Capital and Surplus Requirement for a Protected Cell Captive Insurance Company

• The amendment of G.S. 58-10-370(a)(5) provides the Commissioner with discretion to establish the minimum capital and surplus of a protective cell captive insurance company to an amount lower than $250,000.

• An amount lower than $250,000 may be sufficient, if the Commissioner determines this amount is supported by the business plan and feasibility study of the applicant business entity or licensed captive insurance company.

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Extensions of the Annual Report Filing Date

• The addition of G.S. 58-10-405(f) provides the Commissioner with the authority to grant 30-day extensions of the annual report due date.

• The extension request is to be made by the captive insurance company, in writing, not less than 10 days before the due date.

• The captive insurance company will provide justification of the extension request in sufficient detail that the Commissioner may make an informed decision on the extension request.

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NC ONLINE FILING SYSTEM

NC Online Filing System

A user may access the online filing system in several ways from the home page at www.nccaptives.com:

1. Click on “Filing Requirements and Forms,” which is located on the left-hand side of the webpage, and choose the type of filing you desire to submit.

2. Under “Forms,” which is located on the lower left-hand side of the webpage, choose the type of filing you desire to submit.

3. Click on “Captive Manager Login,” which is located on the left-hand side of the webpage, and enter your log-in credentials to begin.

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Benefits of the NC Online Filing System

• The system provides a secure mechanism to provide confidential documents to the NCDOI.

• The system eliminates the submission of hard copy documents to the NCDOI.

• The system allows each user to start an application, save the application while work is in process, and submit the application online when the user is ready to do so.

• The system will allow a user to file an incomplete application initially, then return and file the remaining information through the system to complete the application.

BEST PRACTICES FOR FILING A NORTH CAROLINA CAPTIVE

INSURANCE COMPANY APPLICATION

Prior to Filing a Captive Insurance Company Application

Meet or hold a conference call with Captive Insurance Companies Division representatives to discuss the captive insurance company applicant.

Determine if the proposed structure will comply with the North Carolina Captive Insurance Act (“Act”).

If applicable, request the North Carolina Department of Insurance (“Department”) templates for letters of credit and/or surplus notes.

(Continued)

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Prior to Filing a Captive Insurance Company Application

The North Carolina Secretary of State’s (“NCSOS”) template forms for the Articles of Incorporation/Organization (“Articles”) are available at https://www.sosnc.gov/corporations/printforms.aspx.

If the captive insurance company applicant desires to incorporate/organize prior to the submission of the license application, the applicant may submit the draft Articles for the Department’s review.

As stated in the Articles, the principal place of business and registered agent of the captive insurer will be located in North Carolina.

Following the Department’s review of the Articles and correction of any matters raised by the Department, the applicant is to submit executed Articles for the Department’s certification and then file the certified Articles on-line with NCSOS’s office.

Contact Tab - NC Online Filing System

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Applicant Tab - NC Online Filing System

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Best Practices - Applicant Tab

The minimum capital and surplus requirement for pure captive insurers, special purpose captive insurers, and protected cell captive insurers, subject to the Commissioner’s discretion, may be less than or greater than $250,000.

The proposed amount of initial capital stated in the application must be supported by the applicant’s feasibility study and business plan.

Address Tab - NC Online Filing System

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Registered Agent Tab - NC Online Filing System

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Best Practices - Principals Tab

Biographical affidavits are to be provided for the officers/directors and members/managers of a captive insurer.

At least one director/manager is to be a North Carolina resident.

At least one annual board meeting of the captive insurer is to be physically held in North Carolina.

However, a 2016 legislative amendment provides for an exemption from the requirement to hold at least one annual board meeting in North Carolina, if the captive insurer engages two or more North Carolina-based service providers.

Operations Tab - NC Online Filing System

NC Online System Operation Tab includes: • Plan of Operation • Feasibility Study • Reinsurance and Trust Agreements • Investment Policy • Other pertinent agreements • Questions (#1-#15) are to be addressed

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Best Practices - Operations Tab

Question #1: Summary describing the circumstances that led to the organization.

• A clear description of the business operations and location of the business operations of the insured(s) are to be provided.

• This description allows the Department to determine if the types of policy coverages are reasonable based on the risks associated with the operating company’s business operations.

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Question #2: Description of the coverages, deductibles, policy limits and rates.

• The Department does not typically require that the application contain draft policies; therefore, a detailed description of each policy is needed.

• Coverages, policy limits, deductibles and rates must be consistent with the information contained in the business plan and feasibility study.

• If the policies issued by the captive insurer will ultimately benefit an unrelated third party (i.e. warranty coverage), the description is to indicate the intended beneficiary of claim payments by the captive insurer.

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Question #3: Rating and pricing guidelines and methodologies.

• At all times this information is to be addressed in the feasibility study and must tie to the business plan, if applicable.

• The Department’s actuary will review this information to determine if reasonable actuarial methods and assumptions were used to calculate premiums.

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Question #4: Description of claims management process.

• A narrative of the claims process, beginning with the filing of a claim by the insured, is to be included in the business plan.

• Supporting documents such as a claim form are not required, but are helpful.

• If a third party administrator (“TPA”) is used, the name and address of the TPA is to be included in the service provider section.

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Question #5: Description of the reinsurance program and all draft reinsurance agreements, if not already approved by the Department.

• A detailed narrative description of the reinsurance plan is to be outlined in the business plan and feasibility study and this information must agree to the terms of the reinsurance agreements.

• If the Department has pre-approved template agreements, the application may reference those agreements that are on file with the Department. Following the licensing of an insurer, the Department will request a copy of the executed agreements.

• An audited financial statement or the most recent unaudited financial statement (if audited financial statement is unavailable) of the pooling entity is to be included.

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Question #6: Name of the fronting company, if the captive insurer is operating as a reinsurer.


Question #7: Description of the loss prevention programs currently in place with the proposed insureds.

• The applicant will include a two or three sentence description of the loss prevention programs associated with a policy or group of policies.

• If there are no loss prevention programs in place relevant to the risks covered by a specific policy, indicate N/A for this question and explain the reason(s) loss prevention programs are not in place for that particular risk.

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Question #8: Loss experience for the past five years, together with projections for the next five years.

• If the applicant is planning to insure risks with adequate loss history, then provide this information to the Department.

• If the applicant is planning to insure risks where there is no loss history, please indicate this in the application. The Department will determine if other information is needed to fully evaluate these risks.

• Provide loss projections under both the expected and adverse scenarios.

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Question #9: Names and addresses of service providers.

• Please include in the business plan the full name and address of each service provider that will be engaged by the captive insurer.

• The Department encourages the use of two or more North Carolina service providers within a reasonable period of time following licensure.

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Question #10: Investment policy. •

• In accordance with NCGS 58-10-440(b), the Department reviews the investment policy to determine if any proposed investments will adversely impact the insurer’s liquidity.

• If a captive insurer plans to deviate from its Department-

approved investment policy, it must request prior-approval from the Department to do so.

• If a captive manager is uncertain whether a specific

investment will comply with the approved investment policy, it is recommended that the captive manager discuss the investment with the Department.

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Question #11: Organization chart.

• The organization chart explains the ownership of the captive insurer as well as all insureds or operating companies and affiliates.

• If a trust or another entity is one of the owners of the aforementioned entities, the ultimate controlling person of that trust or other entity must be disclosed.

• Sufficient information is to be provided in order for the Department to understand the relationship between the owners of the operating company/insureds and the owners of the captive insurer.

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Question #12: Five-year projection of expected gross and net annual premium income by line of business (prorate first year).

The total premium documented in the feasibility study is to be consistently reported in all other relevant documents.

Question #13 Five-year projection of maximum retained risk (per loss and annual aggregate). • The business plan is to include the maximum possible risk on a per

occurrence and annual aggregate basis net of reinsurance, if the captive insurer utilizes reinsurance.

• The business plan is to also include the program aggregate limit, if applicable.

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Maximum Retained Risk Example

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Question #14 Five-year financial projections on an expected and a worst case scenario.

• The financial projections must be accompanied by the assumptions used to develop the projections.

• The Department compares the captive insurer’s performance to the projections during the annual financial analysis process.


Question #15 Feasibility study – actuarial opinion and analysis to support risk assumptions and financial projections.

• The Department’s in-house actuary will review this information to make certain that reasonable actuarial methods and assumptions are used and to determine if the projections are reasonable.

• An initial funding calculation used by the Department’s in-house actuary for an applicant planning to insure enterprise risks is: • Initial capital + first year premium – one large net loss – one year of

underwriting expenses.

• If this number is positive, it is viewed as a favorable indicator.

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Operation Tab Simulation

• Animated Screen Shot showing business plan, feasibility study, etc. being uploaded. Demonstrate the ability to upload more than one document, respond to a question by checking the N/A box and deleting a document.

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Best Practices - Other Tab

• The financial statement attestation (Form C-104) is not required for new captive insurer formations. However, the Department obtains independent confirmation demonstrating the applicant possesses the minimum required capital and surplus prior to licensing.

• If the Department has previously pre-approved draft template agreements that will be used by the applicant, those documents only need to be submitted in executed form (i.e. operating agreement/bylaws, captive management agreement, participation agreement, etc.) following the issuance of the license. The application is to indicate that those template agreements are already on file with the Department.

• If the captive insurer is redomesticating to North Carolina, then the most recent financial statement and, if available, the audited financial statement will be included in this tab.

• Any other information that the filer deems necessary to support the application may be submitted.

• An incomplete application may be submitted; however, the certification page will not become available until all pending items are completed.

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Other Tab - NC Online Filing System

• Animated Screen Shot showing documents and additional information uploaded.

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Review Tab - NC Online Filing System

Best Practices

• Once the Department releases the application containing the review comments, the application contact person will receive an email with a hyperlink to the NC Online Filing System.

• In order for the Department to be notified of a response from the applicant, the applicant is to resubmit the application containing a response to the Department’s questions through the system.

• All review questions do not have to be answered in order to resubmit the application (the responses to the Department’s questions may be sent piecemeal).

• Once the application containing the responses is resubmitted to the Department, the filer may not upload or amend the application until the Department releases the application back to the filer.

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Contact Information

Ray Martinez Debra Walker

Senior Deputy Commissioner Deputy Commissioner

[email protected] [email protected]

919-807-6142 919-807-6165

Rick Kohan Kevin Brodie Leane Rafalko Associate Actuary Senior Captive Insurance Specialist Senior Captive Insurance Specialist [email protected] [email protected] [email protected] 919-807-6145 919-807-6152 919-807-6149 Hasije Harris Rick Kilpatrick Ben Blackmon Insurance Co Examiner Mgr. Senior Regulatory Specialist Sr. Captive Ins. Financial Analyst [email protected] [email protected] [email protected] 919-807-6151 919-807-6185 919-807-6154

Michael Arcangel Kathy Hart Captive Financial Analyst Administrative Assistant – Captive Insurance [email protected] [email protected] 919-807-6153 919-807-6180

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ncdoi license application case study ......ncdoi license application case study & regulatory...

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