SD Codified L § 58-46-27 (2021)
2021 South Dakota Codified Laws|Title 58 - Insurance|Chapter 46 - Captive Insurance Companies|Section 58-46-27 - Sponsored captive insurance may establish protected cells--Conditions.

58-46-27. Sponsored captive insurance may establish protected cells--Conditions.A sponsored captive insurance company may establish and maintain one or more protected cells to insure risks of one or more participants, subject to the following conditions:(1)The owner of a sponsored captive insurance company is limited to its participants and sponsors;(2)The assets of each protected cell shall be held in a separate account or fund and accounted for separately on the books and records of the sponsored captive insurance company to reflect the financial condition and results of operations of such protected cell, net income or loss of such protected cell, dividends or other distributions to participants of such protected cell, and such other factors regarding such protected cell as may be provided in the applicable participant contract or required by the director;(3)The assets of a protected cell are not chargeable or accessible for the liabilities of any other protected cell, unless that cell is specifically reinsuring the risk or a portion of the risk in another cell or, unless otherwise agreed in the applicable participant contract, of the sponsored captive insurance company generally;(4)No sale, exchange, transfer of assets, dividend or other distribution, may be made with respect to a protected cell by such sponsored captive insurance company without the consent of the participants of each affected protected cell;(5)No sale, exchange, or transfer of assets, or other distribution (other than a payment or dividend to a participant or sponsor in accordance with the applicable participant contract, resulting in no less than one hundred five percent of capital to expected losses in any particular plan year), may be made with respect to a protected cell to a sponsor or a participant without the director's approval;(6)Each sponsored captive insurance company shall annually file with the director such financial reports as the director may require, which shall include accounting statements detailing the financial experience of each protected cell;(7)Each sponsored captive insurance company shall notify the director in writing promptly and in any event within ten business days of any protected cell that is insolvent or otherwise unable to meet its claim or expense obligations. The director may suspend or revoke the certificate of authority of the sponsored captive insurance company for failure to comply with this subdivision, and may suspend or revoke the sponsored captive insurance company's ability to maintain the protected cell if the cell is insolvent or otherwise unable to meet its claim or expense obligations;(8)No participant contract may take effect without the director's prior written approval, and the addition of each new protected cell and withdrawal of any participant or termination of any existing protected cell shall constitute a change in the plan of operation of the sponsored captive insurance company requiring the director's prior written approval; and(9)The business written by a sponsored captive insurance company, with respect to each protected cell, shall be:(a)Fronted by an insurance company licensed under the laws of this state or any other state;(b)Reinsured by a reinsurer authorized or approved by this state or any other state; (c)Secured by a trust fund in this state for the benefit of policyholders and claimants or funded by an irrevocable letter of credit or other arrangement that is acceptable to the director. The amount of security provided may be no less than the reserves associated with those liabilities which 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 such protected cell. The director may require the sponsored captive insurance company to increase the funding of any security arrangement established under this subdivision. If the form of security is a letter of credit, the letter of credit shall be established, issued, or confirmed by a financial institution chartered by or licensed or otherwise authorized to do banking business in this state, or by any other financial institution approved by the director. A trust fund maintained pursuant to this subdivision shall be established in a form and upon such terms approved by the director; or(d)Any combination of these. Source: SL 2013, ch 257, §23.