An Act To Create Economic Development in the State by Modernizing the State's Captive Insurance Laws
Maine Legislature, Session 124, LD 1436
Committee: Insurance and Financial Services
Sponsors: ALFOND, BOWMAN, DAMON, GERZOFSKY, MORRISON, PRESCOTT, RICHARDSON, WATSON
Amends: 24-A MRSA §6701, 24-A MRSA §6702, 24-A MRSA §6704, 24-A MRSA §6705, 24-A MRSA §6706, 24-A MRSA §6708, 24-A MRSA §6709, 24-A MRSA §6710, 24-A MRSA §6711, 24-A MRSA §671, 24-A MRSA §6721, 24-A MRSA §6722, 24-A MRSA §6724, 24-A MRSA §6725

MAINE STATE LEGISLATURE 
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124th MAINE LEGISLA URE 
FIRST REGULAR SESSIOt~-2009 
Legislative Document 
No. 1436 
S.P.520 
In Senate, April 7, 2009 
An Act To Create Economic Development in the State by 
Modernizing the State's Captive Insurance Laws 
Reference to the Committee on Insurance and Financial Services suggested and ordered 
printed. 
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Presented by Senator ALFOND of Cumberland. 
Cosponsored by RepresentativePRIEST of Brunswick and 
9tg{J~ 
JOY J. O'BRIEN 
Secretary of the Senate 
Senators: BOWMAN of York, DAMON of Hancock, GERZOFSKY of Cumberland, 
McCORMICK of Kennebec, Representatives: MORRISON of South Portland, PRESCOTT of 
Topsham, RICHARDSON of Wan en, WATSON of Bath. 
Primed all n.'l:ydL'd paper 
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Be it enacted by th~ People of the State 'of Maine as follows: 
Sec. 1. 
24-A MRSA §6701, sub-§2; as enacted by PL 1997, c. 435, §1, IS 
amended to read: 
2. 
Association. 
"Association" means any legal association of individuals, 
qorporations, limited liability companies, partnerships or associations that have been in 
. 
continuous existence for at least one year,e)wept labor organizations. the merriber 
organizations of which collectively: 
A. Own, control or hold with power to vote all of the outstanding voting securities of 
an association captive insurance company incorporated as a stock insurer; eF 
B. Have complete voting control over an association captive insurance company 
incorporated as a mutual or reciprocal insurer-:,;",Q[ 
C. Constitute all of the subscribers of an association captive insurance company 
formed as a reciprocal insurer. 
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Sec. 2. 
24-A MRSA §6701, sub-§4, as enacted by PL 1997,c. 435, §J, IS 
amended to read: 
4. Captive insurance company. "Captive insurance company" means any pure 
captive insurance company, sponsored captive insurance' company. association captive 
insurance company eF.1 industrial insured captive insurance company formed or licensed 
under this chapter. 
Sec. 3. 24-A MRSA §6701, sub-§5, EITe, as enacted byPL 1997, c. 435, §1, is 
repealed. 
Sec. 4. 24-A MRSA §6701, sub-§5, EffD is enacted to read: 
D. Has all its risks managed by a pure captive insurance company in accordance with 
this chapter. . 
Sec. 5. 24-A MRSA §6701, sub-§8, EITA, as enacted by PL 1997, c. 435, §1, is 
amended to read: 
A. A group of industrial insureds that collectively: 
28(1) Owns, controls or holds with power to vote all of the outstanding voting 
securities of an industrial insured captive insurance company incorporated as a 
stock insurer; eF 
(2) Has complete voting. control over an industrial insured captive insurance 
company incorporated as a mutual insurer; or 
(3) Constitutes all of the subscribers of an industrial insured captive insurance 
company formed as a reciprocal insurer; or 
Sec. 6. 
24-A MRSA §6701, sub-§9, as enacted by PL 1997, c. 435, §1, is 
amended to read: 
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9. 
Member organization. 
"Member organization" means any individual, 
corporation, limited liability company, partnership or association that belongs to an 
association. 
Sec. 7. 24-AMRSA §6701, sub-§lO, as enacted by PL 1997, c. 435, §1, is 
amended to read: 
10. Parent. "Parent" means a corporation, limited liability company, partnership or 
individual that directly or indirectly owns, controls or holds with power to vote more than 
50% ffi: of the outstanding voting securities of a pure captive insurance company 
organized as a stock corporation or 50% of the membership interests of a pure captive 
insurance company organized as a nonprofit corporation. 
Sec. 8. 24-A MRSA §6701, sub-§l1, .as enacted by PL 1997, c. 435, §1, IS 
amended to read: 
11. Pure captive insurance company. "Pure captive insurance company" means 
any company' that insures risks of its parent, and affiliated companies or controlled 
unaffiliated businesses, but does not inc}ude those insurers that ,othef\vise qualif)r for a 
certificate of authority as an insurer. "Pure captive insurance company" includes, with 
respect to operations in this State unless otherwise restricted by the superintendent; a 
branch captive insurance company. 
Sec. 9. 24-A MRSA §6702, as amended by PL 1997, c. 583, §§1 to 3, is further 
amended to read: 
. 
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§6702. Licensing; authority 
1. Authority. A captive insurance company may not engage in the business of 
insurance in this State unless the company: 
A. 
Obtains a license from the superintendent authorizing the company to do 
insurance business in this State; 
B. Holds at least one meeting of its board of directors, or other governing body, each 
year in this State. For pure captive insurance companies and pure nonprofit captive 
insurance companies, the annual in-state meeting requirement may be satisfied by a 
teleconferenced or videoconferenced meeting ifat least one Maine resident member 
of the board of directors, or other governing body, participates in the meeting from 
this State; 
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C. Maintains its principal place of business in this State; and 
D. Appoints a resident agent to accept service of process and to otherwise act on its 
behalf in this State. 
2. Charter and bylaws. In order to receive a license, a captive insurance company 
must file with the superintendent a certified copy of its charter and bylaws, a statement 
under oath of its presi~ent and secretary showing its financial condition and any other 
statements or documents required by the superintendent. 
3. Information required. In addition to the information required by subsection 2, 
an applicant captive insurance company must file with the superintendent evidence onhe 
. following: 
A. The amount and liquidity of its assets relative to the risks to be assumed; 
B. The adequacy of the expertise, experience and character of the person or persons. 
who will manage it; 
. 
C. The overall soundness of its plan of operation; 
D. 
The adequacy of the loss prevention programs of its parent or member 
organizations, as applicable; 
E. The character, reputation, financial standing and purposes of the incorporators; 
F. 
The character, reputation, financial responsibility, insurance experience and 
business qualifications of the officers and directors; and 
G. 
Any other factors detenmned relevant by the superintendent in ascertaining 
whether the proposed captive insurance company will be able to meet its policy 
obligations .. 
4. License. If the superintendent is satisfied that the documents and statements filed 
by the captive insurance company under subsections 2 and 3 comply with this chapter, 
the superintendent may grant a license authorizing it to do insurance business. A captive 
insurance company shall comply with all applicable federal and state laws relating to the 
risks insured pursuant to the license granted by the superintendent. 
5. Fees. A captive insurance company shall pay filing, issuance, annual continuation 
and reinstatement fees as provided for domestic insurers pursuant to section 601, 
subsection 1. . 
(i~ Activities. A captive insurance company may engage in the business of the 
.. follo'i'ling types of insurance: 
A. Cas,!lalty insurance as dermed by section 707, excluding the direet writing of 
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workers.' compensation insurance. ';Yorkers' eompensation risks may be reinsured by 
a captive insurer only as provided in section 6711; 
B. Marine and transportation insurance as defIned by section 708, subsection 1; 
C. Marine orotection and indemnity insuranee. as dermed by section 708. subsection 
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D. Wet marine and transportation insurance as defined by r;;ection 708, subsection 2; 
E. Property insurance as dermed by seetion 705; 
F. Surety insUrance as described in section 706: 
G. Title insurance as defined by seetion 709; 
H. Reinsurance of credit life insuranee and credit health insurance, as defined by 
section 2853. to the extent nrovided in section 6711: 
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I. Reinsurance of life insurance as defined by section 702, annuities as defined by 
section 703 and health insurance as defined by section 704 written in connection with 
the employee benefit plan or plans of the single or association parent of a captive 
insurer to the extent provided in section 6711; and 
1. Financial guaranty insurance as defined in section 709 A. 
7. 
Permitted activities. 
A captive insurance company, when pennitted by its 
. articles of association or charter, may apply to the superintendent for a license to provide 
any insurance described in subsection 6 this Title, including annuities, except that: 
A. A pure captive insurance company may not insure or reinsure any risks other than 
those of its parent and affiliated companies or controlled unaffiliated businesses; 
B. An association captive insurance company may not insure or .reinsure any risks 
other than those of the. member organizations of its. association and thdr af~liated 
companies; 
C. An industrial insured captive insurance company may not insure or reinsure any 
risks other than those of the industrial insureds that· comprise the industrial insured 
group and their affiliated companies; 
D.A captive insurance company may not provide personal motor vehicle or 
homeowner's insurance coverage or any component thereof; ana 
E. 
A captive insurance company may not accept or cede reinsurance except as 
provided in section 67117; and 
F. A captive insurance company may not provide workers' compensation insurance 
except for reinsurance of workers' compensation risk as permitted in section 6711. 
8. Certificate of good standing. Prior to its organization or incorporation with the 
Secretary of State, the organizers or incorporators of a captive insurance company shall 
petition the superintendent to issue a certificate stating the superintendent's finding that. 
the establishment and continued existence of the proposed captive insurance company, 
however organized, will promote the general good of the State. In making such a finding, 
the superintendent shall consider: 
A. The character, reputation,· financial standing and purpose of the organizers or 
incorporators; 
B. 
The character, reputation, financial responsibility, insurance experience and 
business qualifications of the officers and directors of the proposed captive insurance 
company; and 
C. Ally other relevant information determined by the superintendent. 
Any certificate issued by the superintendent pursuant to this subsection must be filed with 
the Secretary of State to be recorded with the articles of incorporation of the captive 
insurance company. 
Sec. 10. 24-A MRSA §6704, as enacted by PL 1997, c. 435, §1, is amended to 
read: 
. 
§6704. Minimum capital and surplus 
1. 
Minimum capital and surplus. 
A pure captive insurance company, an 
association captive insurance company incorporated as a stock insurer or an industrial 
insured captive insurance company incorporated as a stock insurer may not be issued a 
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license unless the company has and maintains unimpaired paid-in capital and surplus of: 
A. 
In the case of a pure captive insurance company, not less than $100.000 
$250,000; 
B. In the case of im association captive insurance company incorporated as a stock 
insurer, not less than $400,000 $750,000; aM 
C. In the case of an industrial insured captive insurance company incorporated as a 
stock insurer, not less-than $200,000: $500,000; 
D. In the case of a sponsored captive insurance company, not less than $500,000; 
and 
E. In the case of a risk retention grOUp, not less than $1,000,000. 
The superintendent may prescribe additional capital based upon the type, volume and 
nature of insurance business transacted. 
2. Letter of credit. The required capital may be in the form of cash, an irrevocable 
letter of credit issued by a bank chartered in this State or a member baltic of the Federal 
Reserve System or any other security approved by the superintendent. 
.. Dividends. A captive insurance company may not pay a dividend out of or make 
any other distribution with respect to capital and surplus in excess of the limitations under 
section 222 without the prior approval of the superintendent. Approval of an ongoing 
plan for the payment of dividends or other distributions must be conditioned upon' the 
retention, at the time of each payment, of capital and surplus in excess of amounts 
specified by, or determined in accordance with formulas approved by, the superintendent. 
-Notwithstanding the provisions of Title 13-B or 13-C, a captive insurance company 
organized under the provisions of either Title may make such distributions as are in 
conformity with its purposes with the prior approval of the superintendent. 
Sec. 11. 24-A MRSA §6705, as enacted by PL 1997, c. 435, § 1, is repealed. 
Sec. 12. 24-A MRSA §6706, as corrected by RR 2001, c. 2, Pt. B, §45 and 
affected by §58, is amended to read: -
§6706. Formation of captive insurance companies in this State 
1. Pure captive insurance company. A pure captive insurance company must be 
incorporated: 
A. As a stock insurer with capital divided into shares and held by the stockholders; 
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B. As a nonprofit corporation whose votes of membership interest are held by a 
parent organization formed under a nonprofit law or by such nonprofit Darent and its 
affiliated comDames. corporation with one or more members; or 
C. As a manager-managed limited liability company. 
2. 
Association captive insurance company. 
An association captive insurance 
company or an industrial insured captive insurance company may be incornorated: 
A. As Incorporated as a stock insurer with its capital divided into .shares and held by 
the stockholders; or 
B. As a mutual insurer without capital stock, the governing body of which must be 
elected by the member organizations of its association,.~ 
C. Organized as a reciprocal insurer in accordance with this Title; or 
D. Organized as a manager-managed limited liability company. 
3. 
Incorporators. 
A captive insurance company may not have fewer than 3 
incorporators, and at least 2 incorporators or 3 organizers of whom at least one must be 
residents a resident of this State. If the captive insurance company is a limited liability 
company, at least one manager must be a resident of this State. 
4. Applicability of chapter 47. To the extent not inconsistent with this chapter, a 
captive insurance company is subject to the procedures applicable to domestic insurers 
pursuant to chapter 47 except that, if the surviving entity after a merger, consolidation, 
conversion or mutualization is a captive insurance company, a captive insurance company 
is subject to this chapter. 
With respect to mergers, qonsolidations, conversions and 
mutualizations, the superintendent, in the superintendent's discretion, may 'i'laive any 
oublic hearine: reauirement.~ 
A. Waive any public hearing requirement; 
B. Permit an alien insurer as a party to a merger as long as the requirements for a 
merger between a captive insurance company and a foreign insurer apply. For the 
purposes of this paragraph, an alien insurer must be treated as a foreign insurer and 
the jurisdiction of the alien insurer is considered a state; or 
C. Approve the conversion of a captive insurance company organized as a stock 
insurer to a nonprofit corporation with one or more members. 
5. Issuance of stock. +he If the capital stock of a captive insurance company 
incorporated as a stock insurer may not be i§ issued at less than par value, stock may not 
be issued at less than par value. 
. 6. Board of directors. At If fonned as a corporation, at least one of the members of 
the board of directors of a captive insurance company incorporated in tIllS State must be a 
resident of this State. If formed as a reciprocal insurer, at least one of the members of the 
subscriber's advisory COmnll ttee must be a resident of this State. If organized as a limited 
liability company, at least one manager must be a resident of this State. 
7. Captive insurance company. A captive insurance company formed under this 
chapter, except for a pure nonprofit captive insurance company, has the privileges granted 
by and is subject to Title 13-C and this chapter. In the event of conflict between Title 
13-C and this chapter, this chapter controls. 
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8. Pure nonprofit captive insurance company. A pure nonprofit captive insurance 
company formed under this chapter has the privileges granted by and is subject to Title 
13-B and this chapter. In the event of conflict between Title 13-B and this chapter, this 
chapter controls. 
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9. Quorum. If formed as a corporation, the articles of incorporation or bylaws of a 
captive insurance company may authorize a quorum of its board of directors to consist -of 
no fewer than 1/3 of the fixed or prescribed number of directors determined under Title 
13-B or 13-C. If formed as a reciprocal insurer, the subscribers' agreement or other 
organizing document may authorize a quorum of its subscribers' advisory committee to 
consist of no fewer than 1/3 of the number of its members: 
Sec. 13. 24-A MRSA §6708, sub-§3 is enacted to read: 
3. 
Examinations. 
At least once in 3 years, and whenever the' superintendent 
determines it to be prudent, the superintendent shall personally, or by some competent 
person appointed by. the superintendent, visit each captive insurance company and 
thoroughlyinspectand examine its affairs to ascertain its financial condition, its ability to . 
fulfill its obligations and whether it has complied with the provisions of this chapter. The 
superintendent may enlarge the 3-year period to 5 years; as long as the captive insurance 
company is subject to a comprehensive annual' audit during the period of a scope 
satisfactory to the superintendent· by . independent auditors approved by the 
superintendent. The expenses and charges of the examination must be paid to the State by 
the company or companies examined. 
Sec. 14. 24-A MRSA §6709, sub-§I,,s, as enacted by PL 1997, c. 435, §1, is 
. amended to read: 
B. Failure to meet the requirements of section 6704 or 6705; 
Sec. 15. 24-A MRSA §6709, sub-§I, ~, as enacted by PL 1997, c. 435, §1, is 
amended to read: 
. D. Failure to comply with the provisions of the company's charter or bylaws or other 
organizational document; 
Sec. 16. 24-A MRSA §6710, as enacted by PL 1997, c. 435, §1, is amended to 
read: 
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§6710. Legal investments . 
A pure captive insurance company is not subj ect to the any restrictions on allowable 
investments including those provided under chapter 13, except that a pure captive 
insurance company may petition the superintendent for approval of investments that are 
notsDecified in this Title may prohibit or limit any investment that threatens the solvency 
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or liquidity of such insurance company. A pure captive insurance company may not 
make a loan to or investments in its parent or affiliated companies without the prior 
written approval of the superintendent. A loan of any minimum capital and surplus funds 
,required by section 6704 'is prohibited. 
Except as otherwise authorized by the 
superintendent, association captive insurance companies and industrial insured captive 
insurance companies' are subject to the restrictions on allowable investments provided 
under chapter 13. 
With respect to investments of 'association captive insurance 
companies, the superintendent may approve the use of alternative methods of valuation 
and rating. 
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Sec. 17. 24-A MRSA §6711,sub-§1, as enacted by PL 1997, c. 435, §1, IS 
amended to read: 
1. Reinsurance. A captive insurance company may provide reinsurance on risks 
ceded by any other insurer; hO'i'lever, the ceding ofinsuraI1ce by a domestic insurer may 
be done onlv Dursuant to section 731 B to the extent permitted by section 6702. 
Sec. 18. 24-A MRSA §671l, sub .. .§2, as enacted by PL 1997, c. 435, § 1, IS 
amended to read: 
2. Credit for reserves. A captive insurance company may take credit for reserves 
on risks the ~einsurance of risks or portions of Iisks ceded to a reinsurer, eJwept that a in 
accordance with this Title. A captive insurance company may not cede risks or take 
credit for the reinsurance of risks or portions of risk without the approval of the 
superintendent, except for business written outside the United States by an alien captIve 
insurance company. 
Sec. 19. 24-A MRSA §6711, sub-§4, as enacted by PL 1997, c. 435, § 1, IS 
amended to read: 
4. Reinsurance of workers' compensation risks. A captive insurance company 
may, with the approval of the superintendent, reinsure workers' compensation risks of a 
qualified self insured plan of its parent and affiliated companies to the extent that these 
risks are insured by under a statutory workers' compensation policy issued by a licensed 
insurer or under a qualified self-insured plan. The superintendent may require that all or 
part of any assumed self-insured risk be retroceded to an insurance company that meets 
the standards for acceptance of reinsurance of workers' compensation self-insurance .. 
Sec. 20. 24-A MRSA §6721 is enacted to read: 
§6721. Rules for controlled unaffiliated business' 
The superintendent may adopt niles establishing standards to ensure that a parent or 
affiliated company is able to exercise control of the risk management function of any 
controlled unaffiliated business to be insured by a pure captive insurance company. In the 
absence of any niles, the superintendent may approve the coverage of such risks by a pure 
captive insurance company upon request. Any niles adopted by the superintendent 
pursuant to this section are routine technica1.nIles as described in Title 5, chapter 375, 
subchapter 2-A. 
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Sec. 21. 24-A MRSA §6722 is enacted to read: 
§6722. Conversion to or merger with reciprocal insurer 
1. Authority for conversion or merger. A captive insurarice company, association 
captive insurance company or industrial insured captive insurance company formed as a 
stock or mutual insurer may convert to or merge with a reciprocal insurer with the 
approval of the superintendent in accordance with a plan of operation and with the 
requirements of this section. Any plan for conversion or merger must provide a fair and 
equitable mechanism for purchasing, retiring or otherwise extinguishing the interests of 
stockholders and policyholders of a stock insurer and the interests of members and 
policyholders of a mutual insurer, including a fair and equitable provision for the rights 
and remedies of dissenting stockholders, members or policyholders. 
2. Conversion .. The superintendent may not approve a plan of conversion unless the 
plan: 
A. Provides notice of the opportunity to request a hearing to directors, officers, 
stockholders, members and policyholders of the captive insurance company. If no . 
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request for a hearing is received; the superintendent is not required to hold a hearing 
in the superintendent's discretion; 
B. Provides a fair and equitable plan for the conversion of stockholder, member or 
policyholder interests into subscriber interests in the resulting reciprocal insurer in a 
substantially proportionate manner to the corresponding interest in the stock or 
mutual insurer except that the resulting reciprocal insurer is not precluded from 
applying underwriting criteria that may affect ongoing ownership interests; 
C. In the case of a stock insurer, has been approved by a majority of voting shares 
represented in person or by proxy at a duly called regular or special meeting at which 
a quorum is present; and 
D. In the case of a mutual insurer, has been approved by a majority of the voting 
interests of policyholders represented in person or by proxy at a duly called regular or 
speciaL meeting at which a quorum is present. 
The superintendent shall approve a plan of conversion if the superintendent finds that the 
conversion will promote the general good of the State in conformity with this chapter. If 
the superintendent approves the plan, the superintendent shall amend the converting· 
insurer's certificate of authority to reflect conversion to a reciprocal insurer and issue the 
amended certificate of authority to the converting insurer's designated attorney. The 
conversion is effective upon the issuance of the amended certificate of authority by the. 
superintendent. Upon the conversion, the corporate existence of the converting insurer 
ceases and the resulting reciprocal insurer. shall notify the Secretary of State of the 
conversion. 
3. Merger. A plan of merger may not be approv~d by the superintendent unless the 
plan of merger satisfies the same requirements in subsection 2, paragraphs A to D. The 
superintendent may permit the formation, without surplus, of a captive insurance· 
company organized as a reciprocal insurer into which an existing captive insurance 
company may be merged for the purpose of facilitation of a transaction under this section 
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except that no more than one authorized insurance company may survive the merger. An 
alien insurer may be a party to a merger authorized under this section if the requirements 
of this Title for a merger between a domestic and foreign insurer are met. For the 
. purposes of this section, the alien insurer is treated as a foreign insurer and the 
jurisdiction of the alien insurer is considered· a state. 
4. Effect. A conversion or merger pursuant to this section has all of the effects of a 
conversion or merger approved pursuant to this Title to the extent that such effects are not 
inconsistent with the provisions of this chapter. 
Sec. 22. 24-A MRS A §6723 is enacted to read: 
§6723. Tax on ordinary income 
Notwithstanding any other provision of law, a captive insurance company formed 
under this chapter or pursuant to the laws of another state is subject to income taxation 
and is not subject to any tax on premium. 
Sec. 23. 24-A MRSA §6724 is enacted to read: 
§6724. Sponsored captive insurance companies 
1. Definitions. As used in this section, unless the context otherwise indicates, the 
following terms have the following meanings. 
A. "Participant" means an entity as described in subsection 6, and any affiliates 
thereof, that-are insured by a sponsored captive insurance company. 
B. "Participant contract" means a contract by which a sponsored captive insurance 
company insures the risks of a participant. 
C~ "Protected cell" means a separate account established by' a sponsored captive 
insurance company fonned or licensed under the provisions of this chapter in which 
assets are maintained for one or more participants in accordance with the terms of 
one or more participant contracts to fund the liability of the sponsored captive 
insurance company assumed on behalf of the participants as set forth in the 
participant contracts. 
D.' "Sponsor" means an entity that meets the requirements of subsection 5 and is 
approved by the superintendent to provide all or part of the capital and surplus 
required by applicable law and to organize arid operate a sponsored captive insurance 
company. 
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E. "Sponsored captive insurance company" means a captive insurance company: 
(1) In which the minimum capital and surplus required by applicable law IS 
provided by one or more sponsors; 
(2) That is fonned or licensed under the provisions of this chapter; 
(3) That insures the risks only of its participants through separate participant 
contracts; and 
(4) That funds its liability to each participant through one or more protected cells 
and segregates the assets of each protected cell from the assets' of other protected. 
. cells and from the assets of the sponsored captive insurance company's general" 
account. 
2. Formation. One or . more sponsors may form a sponsored captive insurance 
company under this chapter. In addition to the general provisions of this chapter, the 
provisions of this section apply to sponsored captive insurance companies. A sponsored 
captive insurance company must be incorporated as a stock insurer with its capital 
divided into shares and held by the stockholder, as a nonprofit corporation with one or 
more members or as a manager-managed limited liability company. 
3. Supplemental application materials. In addition to the information required by 
section 6702, each applicant· sponsored captive insurance compan.y shall file with the 
superintendent the following: 
A. Materials demonstrating how the applicant will account for the loss and expense 
experience of each protected cell at a level of detail found to be sufficient by the 
superintendent and how it will report the experience to the superintendent; 
B. A statement aclmowledging that all financial records of the sponsored captive 
insurance company, including records pertaining to any protected cells, will he made 
available for inspection or examination by the superintendent or the superintendent's 
designated agent; 
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C. 
All contracts or sample contracts between the sponsored captive insurance 
company and any participants; and 
D. Evidence that expenses will be allocated to each protected cell in· a fair and· 
equitable marmer. 
4. Protected cells. A sponsored captive insurance company formed or licensed 
under the provisions of this chapter may establish and maintain one or more protected 
cells to insure risks of one or more participants, subject to the following conditions: 
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A. The shareholders of a sponsored captive insurance company must be limited to its 
.participants and sponsors, except that a sponsored captive insurance· company' may 
issue nonvoting securities to other persons on terms approved by the superintendent; 
B. Each participant contract must specify one or more protected cells as the sole 
. source of the participant's coverage and limit the losses of the participant to its pro 
rata share of the assets of the protected cell identified in the contract. If the sponsored 
captive insurance company enters into a contract involving more than one protected 
cell, the rights and obligations relating to each protected cell must be several rather 
than joint and the contract must make clear provisions for apportionment of the rights 
and obligations between protected cells; 
C. Each protected cell must be accounted for separately on the books and records of 
the sponsored captive insurance company to reflect the financial condition and results 
of operations of each . protected . cell, net income or loss, dividends or· other 
distributions to participants and such other factors as may be provided in the 
participant contract or required by the superintendent; 
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D. The assets of a protected cell may not be chargeable with liabilities arising out of 
any other insurance business the sponsored captive insurance company may conduct; 
E. A sale, exchange or other transfer of assets may not be made by a sponsored 
captive insurance company between or among any of its protected cells without the 
consent of the protected cells; 
.F. A sale, exchange, transfer of assets, dividend or distribution may not be made 
from a protected cell to a sponsor or participant without the superintendent's approval 
and in no event may approval be given if the sale, exchange, transfer, dividend or 
distribution would result in insolvency or impairment with respect to a protected cell; 
G. 
Each sponsored captive insurance company must annually file with the 
superintendent such financial reports as the superintendent requires. which must 
include, without limitation, accounting statements detailing the financial experience 
of each protected cells; 
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H. Each sponsored captive insurance company must notify the superintendent in 
writing within 10 business days of any protected cell that is insolvent or otherwise 
unable to meet its claim or expense obligations; 
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A participant contract may not take effect without the superintendent's prior 
written approvai, and the addition of each new protected cell and withdrawal of any 
participant or termination of any existing protected cell constitutes a change in the 
business plan requiring the superintendent's prior written approval; 
J. The business written by a sponsored captive insurance company, with respect to 
each protected cell, must be: 
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(1) Fronted by a properly licensed insurance company; 
(2) Reinsured by a reinsurer authorized oLapproved by the superintendent; or 
(3) Secured by a trust fund in the United States for the benefit of policyholders 
and claimants or funded by an irrevocable letter of credit or other arrangement 
that is acceptable to the superintendent. The amount of security provided must be 
no less than the reserves associated with those liabiliti'es that are neither fronted 
nor reinsured, including reserves for losses, allocated loss adjustment expenses,' 
incurred but not reported losses and unearned premiums for business written 
through the participant's protected cell. The superintendent may require the 
sponsored captive insurance company to increase the fundmg of any security 
arrangement established under this subparagraph. If the form of security is a' 
letter of credit, the letter of credit must be established, issued or confirmed bya 
bank chartered in this State or a member of the Federal Reserve System and 
established in a form and upon such terms approved by the superintendent; 
K. In any action or proceeding involving the potential for monetary recovery by or 
against a sponsored captive insurance company or for nonmonetary relief relating to a 
particular protected cell or cells, any process, pleading or order must name the 
specific protected cell or cells affected, including if applicable the general account; 
and 
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L. A sponsored captive insurance company shall notify the superintendent in writing· 
within 10 business days after the special purpose reinsurance vehicle or any protected 
cell becomes impaired or insolvent. 
5. Qualification of sponsors. A sponsor of a sponsored captive insurance company 
must be an insurer licensed under the laws of any state, a reinsurer authorized or 
approved under the laws of any state, a captive insurance company formed or licensed 
under-this chapter, a broker-dealer licensed pursuant to the Maine Uniform Securities 
Act, a financial institution or financial institution holding company authorized under Title 
. 9-B, including any affiliate or subsidiary of such [mancial institution holding company, or 
any' other person approved by the superintendent in the exercise of the superintendent's 
discretion after [mding that the approval of a person as a sponsor is not inconsistent with 
the purposes of this chapter. A risk retention group authorized pursuant to chapter 72-A 
may not be either a sponsor or a: participant of a sponsored captive insurance company, 
6. Participants in sponsored captive insurance companies. The following may be 
participants in a sponsored captive insurance company: 
A. Associations, corporations, limited liability companies, partnerships, trusts and 
other business entities may be participants in any sponsored captive insurance 
company formed or licensed under this chapter; 
B, A sponsor may be a participant in a sponsored captive insurance company; 
C. 
A participant need not be a shareholder of the sponsored captive insurance 
company or any affiliate thereof; and 
D. A participant may insure only its own risks through a sponsored captive insurance 
company. 
7. Investments by sponsored captive insurance companies. Notwithstanding the 
provisions of subsection 5, the assets of 2 or more protected cells maybe combined for 
purposes of investment, and such a combination may not be construed as defeating the 
segregation of assets for accounting or other purposes. 
Sponsored captive insurance 
companies shall comply with the investment requirements contained in this Title, as 
applicable, except that compliance with such investment requirements must be waived for 
sponsored captive insurance companies to the extent that credit for reinsurance ceded to 
reinsurers is allowed pursuant to section 6711 or to the extent otherwise considered 
reasonable and appropriate by the superintendent. Section 6707 appiies to sponsored 
captive insurance companies except to the extent it is inconsistent with approved 
accounting standards in use by the company. Notwithstanding any other provision of this· 
Title, the superintendent may approve the use of alternative reliable methods of valuation 
. and rating. 
. 
8. Delinquency of sponsored captive insurance companies or protected cells. In 
the case of a sponsored captive insurance company, the provisions of section 6714 apply, 
except as otherwise provided in this subsection. 
. 
A. The insolvency. of one protected cell does not constitute the insolvency of any 
other protected cell or of the sponsored captive insurance company itself. The 
insolvency of a sponsored captive insurance company does not constitute the 
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insolvency of any of its solvent protected cells and is not a basis for the receivership 
orany solvent protected cell capable of independent operation. 
B. Notwithstanding the insolvency of the 'sponsored captive insurance company or of 
any other protected cell, the obligations attributed to any solvent protected cell must 
continue to be paid as they become due. 
C. The assets attributed to a protected cell may not be applied to the liabilities 
attributed to another protected cell or to the sponsored captive insurance company 
generally, except that: 
(1) If the insolvency of the sponsored captive insurance company renders a 
protected cell incapable of being managed independentlY, a receiver may, after 
consultation with the creditors of a protected celL contract for the management of 
the protected cell and charge to the protected cell a reasonable amount for those 
services; 
(2) A general liability of an insolvent sponsored captive insurance company may 
be apportioned equitably in whole or in part to one or more of its protected cells 
if the Superior Court determines that the liability arises out of the. operations of 
the protected cell or cells and that the interests of innocent creditors of the 
protected cell or cells are not unreasonably impaired; and 
(3) If assets or liabilities have been commingled, or have been· wrongfully 
transferred between protected cells or between a protected cell and the general 
account, the Superior Court shall trace the assets and attribute them to the proper 
accounts, giving due consideration to the terms of any relevant governing 
instrument or contract. . 
D. 
The plan of rehabilitation or liquidation of any sponsored captive insurance 
company must make reasonable provision for the continued openition of all solvent 
protected cells, which may involve the formation of one or more new sponsored 
captive insurance companies or the transfer of one or more protected cells. 
Sec. 24. 24-A MRSA §6725 is enacted to read: 
§672S: Branch captive insurance companies 
1. Definitions. As used in this section, unless the context otherwise indicates, the 
following terms have the foHowing meanings. 
A. "Alien captive insurance company" means an insurance company formed to write 
insurance business for its parents and affiliates and licensed pursuant to the laws of· 
an alien jurisdiction that imposes statutory or regulatory standards . in a form 
acceptable to the superintendent on companies transacting the business of insurance 
inthe alien jurisdiction. 
. 
B. "Branch business" means any insurance business transacted by a branch captive 
insurance company in this State. 
C. "Branch captive insurance company" means any alien captive insurance company 
licensed by the superintendent to transact the business of insurance in this State 
through a business unit with a principal place of business in this State. 
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D. "Branch operations" means any business operations of a br~ch captive insurance 
company in this State. 
2. Establishment of a branch captive insurance company. A branch captive 
insurance company may be established in this State in accordance with the provisions of 
this chapter to write in this State only insurance or reinsurance of the employee benefit 
business of its parent and affiliated companies that is subject to the provisions of the 
federal Employee Retirement Income Security Act of 1974, as amended. In addition to 
the general provisions of tl'.Js chapter, the provisions of this section apply to branch 
captive insurance companies. A branch captive insurance company inay not do any 
insurance business in this State- unless it maintains the principal place of business for its 
branch operations in this State. 
3. Security required. 
In the case of a branch captive insurance company, as 
security for the payment of liabilities attributable to the branch operations, the 
superintendent shall require that either a trust fund funded by assets acceptable to the 
superintendent or an irrevocable letter of credit be established and maintained in the 
United States for the benefit of United States policyholders and United States ceding 
insurers under insurance policies issued or reinsurance contracts issued or assumed by the 
branch captive insurance company through its branch operations. The amount of the 
security may be no less than the amount set forth in section 6704, subsection "1, paragraph 
A and the reserves on the insurance policies or reinsurance contracts, including reserves 
for losses, allocated loss adjustment expenses, incurred but not reported losses and 
unearned premiums with regard to business written through the branch operation, except 
that the superintendent may permit a branch captive insurance company that is required to 
post security for loss reserves on branch business by its reinsurer to reduce the funds in 
the trust account or the amount payable under the irrevocable letter of credit required by 
this subsection by the same amount as long as the security remains posted with the 
reinsurer. If the fonn of security selected is a letter of credit, the letter of credit must be 
established by, or issued or confinned by, a bank chartered in this State or a member bank 
of the Federal Reserve System. 
4. Certificate of general good. In the case of a captive insurance company licensed 
as a branch· captive insurance company, the alien captive insurance company shall 
petition the superintendent to issue a certificate setting forth the superintendent's finding 
that, after considering the character, reputation, financial responsibility, insurance 
experience and business qualifications of the officers- and directors of the alien captive 
insurance company, the licensing and maintenance of the branch operations will promote 
the general good of the State. The alien captive insurance company may register to do 
business in this State after the superintendent's certificate is issued. 
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5. 
Reports. 
Prior to March 1st of each year, or with the approval of the 
superintendent within 60 days after its fiscal year-end, a branch captive insurance 
company shall file with the superintendent a copy of all reports and staterrients required to 
be filed under the laws of the jurisdiction in which the alien captive insurance company is 
fonned, verified by oath of 2 of its executive officers. If the superintendent is satisfied 
that the annual report filed by the alien captive insurance company in its domiciliary 
jurisdiction provides adequate infonnation concerning the financial condition of the alien 
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captive insurance company, the superintendent may waive the requirement for 
completion of the captive annual statement for business written in the alien jurisdiction. 
6. Examination of branch captive insurance companies. The examination of a 
branch captive insurance company pursuant to section 6708 must be of the branch 
business and branch operations only, as long as the branch captive insurance company 
provides· annually to the superintendent a certificate of compliance, or its equivalent, 
issued by or filed with the . licensing authority of the jurisdiction in which the branch 
captive insurance company is formed and demonstrates to the superintendent's 
satisfaction that it is operating in sound financial condition in accordance with all 
applicable laws and regulations of that jurisdiction. As a condition of , licensure, the alien 
captive insurance company must grant authority to the superintendent for examination of 
the affairs of the alien captive insurance company in the jurisdiction in which the alien 
captive insurance company is formed. 
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7. Taxation of branch captive insurance companies. In the case of a branch 
captive insurance· company, the tax provided for in section 6723 applies only to the 
... branch business of the company. 
SUMMARY 
The bill makes changes to the State's laws regulating captive insurance companies to 
. encourage the formation of new captive insurance companies in the State. The changes 
in the bill are modeled after laws relating to captive insurance companies in Vermont, 
which has the highest number of captive insuranc.e companies in the United States.