Arkansas Code of 1987 (2023) › Title 23 - PUBLIC UTILITIES AND REGULATED INDUSTRIES (§§ 23-1-101 — 23-119-105) › Subtitle 3 - INSURANCE (§§ 23-60-101 — 23-103-417) › Chapter 63 - INSURANCE COMPANIES GENERALLY (§§ 23-63-101 — 23-63-2010) › Subchapter 16 - LICENSING AND REGULATION OF CAPTIVE INSURERS (§§ 23-63-1601 — 23-63-1624) › Section 23-63-1620 - Sponsored captive insurance company - Requirements

(a)
One (1) or more sponsors may form a sponsored captive insurance company under this subchapter.
(b)
(1)
A sponsor of a sponsored captive insurance company may be any person approved by the Insurance Commissioner, in his or her discretion, based on a determination that the approval of the person as a sponsor is consistent with the purposes of this section.
(2)
In evaluating the qualifications of a proposed sponsor, the commissioner shall consider:
(A)
The type and structure of the proposed sponsor entity;
(B)
The experience in financial operations of the proposed sponsor entity;
(C)
The financial stability and strength of the proposed sponsor entity;
(D)
The business reputation of the proposed sponsor entity; and
(E)
Other facts the commissioner deems relevant.
(c)
In addition to the information required by §
23-63-1602
, each applicant-sponsored captive insurance company shall file with the commissioner the following:
(1)
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 commissioner, and how it will report the experience to the commissioner;
(2)
A statement acknowledging that all financial records of the sponsored captive insurance company, including records pertaining to any protected cells, shall be made available for inspection or examination by the commissioner or his or her designee;
(3)
All contracts or sample contracts between the sponsored captive insurance company and any participants; and
(4)
Evidence that expenses shall be allocated to each protected cell in a fair and equitable manner.
(d)
In his or her discretion, the commissioner may require that the business written by a sponsored captive insurance company, with respect to each protected cell, be:
(1)
Fronted by an insurance company licensed under the laws of any state;
(2)
Reinsured by a reinsurer authorized or approved by the commissioner; or
(3)
(A)
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 commissioner.
(B)
The commissioner may require the sponsored captive insurance company to increase the funding of any security arrangement established under subdivision (d)(3)(A) of this section.
(C)
If the form of security is a letter of credit, the letter of credit shall be issued or confirmed by a bank approved by the commissioner.
(D)
A trust maintained under subdivision (d)(3)(A) of this section shall be established in a form and upon the terms approved by the commissioner.
(e)
A risk retention group shall not be either a sponsor or a participant of a sponsored captive insurance company.
(f)
A sponsored captive insurance company formed or licensed under this subchapter may establish and maintain one (1) or more protected cells to insure risks of one (1) or more participants, subject to the following conditions:
(1)
The shareholders of a sponsored captive insurance company must be limited to its participants and sponsors;
(2)
Each protected cell must be accounted for separately on the books and records of the sponsored captive insurance company to reflect the financial condition, results of operations of the protected cell, net income or loss, dividends or other distributions to participants, and other factors provided for in the participant contract or required by the commissioner;
(3)
The assets of a protected cell must not be chargeable with liabilities arising out of any other insurance business the sponsored captive insurance company may conduct;
(4)
No sale, exchange, or other transfer of assets may be made by the sponsored captive insurance company between or among any of its protected cells without the consent of the protected cells;
(5)
(A)
No sale, exchange, transfer of assets, dividend, or distribution may be made from a protected cell to a sponsor or participant without the commissioner's approval.
(B)
In no event may the commissioner's approval be given if the sale, exchange, transfer, dividend, or distribution would result in insolvency or impairment with respect to a protected cell;
(6)
(A)
All attributions of assets and liabilities to the protected cells and the general account shall be according to the plan of operation approved by the commissioner.
(B)
Other attribution of assets or liabilities shall not be made by a sponsored captive insurance company between its general account and a protected cell or between protected cells.
(C)
The sponsored captive insurance company shall attribute all insurance obligations, assets, and liabilities relating to a reinsurance contract entered into with respect to a protected cell to the protected cell.
(D)
The performance under the reinsurance contract and any tax benefits, losses, refunds, or credits allocated under a tax allocation agreement to which the sponsored captive insurance company is a party, including any payments made by or due to be made to the sponsored captive insurance company under the terms of the agreement, shall reflect the insurance obligations, assets, and liabilities relating to the reinsurance contract that are attributed to the protected cell;
(7)
A sponsored captive insurance company shall file annually all the financial reports the commissioner requires, which shall include without limitation accounting statements detailing the financial experience of each protected cell;
(8)
A sponsored captive insurance company shall notify the commissioner in writing within ten (10) business days of a protected cell that is insolvent or unable to meet its claim or expense obligations; and
(9)
(A)
No participant contract shall take effect without the commissioner's prior written approval.
(B)
The addition of each new protected cell and the withdrawal of any participant of any existing protected cell constitute a change in the business plan requiring the commissioner's prior written approval.
(g)
A protected cell of a sponsored captive insurance company may be formed as an incorporated protected cell subject to subsection (f) of this section and the following conditions:
(1)
(A)
Subject to the prior written approval of the sponsored captive insurance company and of the commissioner, an incorporated protected cell may enter into contracts and undertake obligations in its own name and for its own account.
(B)
In the case of a contract or obligation to which the sponsored captive insurance company is not a party, either in its own name and for its own account or on behalf of a protected cell, the counterparty to the contract or obligation does not have a right or recourse against the sponsored captive insurance company and its assets other than against assets properly attributable to the incorporated protected cell that is a party to the contract or obligation;
(2)
(A)
The articles of incorporation or articles of organization of an incorporated protected cell shall refer to the sponsored captive insurance company for which it is a protected cell and shall state that the protected cell is incorporated or organized for the limited purposes authorized by the sponsored captive insurance company's license.
(B)
A copy of the prior written approval of the commissioner to add the incorporated protected cell shall be attached to and filed with the articles of incorporation or the articles of organization; and
(3)
An incorporated protected cell shall have its own distinct name or designation, which shall include the words "Incorporated Cell" or the acronym "IC".
(h)
(1)
A protected cell of a sponsored captive insurance company may be converted into an incorporated protected cell subject to the following conditions:
(A)
Subject to the prior written approval of the commissioner, on application of the sponsor and with the prior consent of each participant of the affected protected cell or as otherwise permitted pursuant to a participation agreement, a sponsored captive insurance company may convert a protected cell into an incorporated protected cell without affecting the protected cell's assets, rights, benefits, obligations, and liabilities; and
(B)
The conversion shall be deemed:
(i)
For all purposes to be a continuation of the protected cell's existence together with all of its assets, rights, benefits, obligations, and liabilities, as an incorporated protected cell of the sponsored captive insurance company; and
(ii)
To occur without any transfer or assignment of assets, rights, benefits, obligations, or liabilities and without the creation of any reversionary interest in, or impairment of, assets, rights, benefits, obligations, and liabilities.
(i)
A protected cell of a sponsored captive insurance company may be sold, transferred, or assigned subject to the following conditions:
(1)
Subject to the prior written approval of the commissioner, on application of the sponsor and with the prior consent of each participant of the affected protected cell, or as otherwise permitted under a participation agreement, or with the consent of the affected incorporated protected cell, a sponsored captive insurance company may sell, transfer, assign, and otherwise convey a protected cell or incorporated protected cell together with all of the protected cell's assets, rights, benefits, obligations, and liabilities to a new or existing sponsored captive insurance company, under a plan of operation that is approved by the commissioner;
(2)
The sale, transfer, assignment, or conveyance is a continuation of the protected cell's existence together with all of its assets, rights, benefits, obligations, and liabilities, as a protected cell of the transferee; and
(3)
The sale, transfer, assignment, or conveyance shall not be construed to limit any rights or protections applicable to the transferred protected cell or incorporated protected cell and the transferor sponsored captive insurance company that existed immediately before the sale, transfer, assignment, or conveyance.
(j)
A protected cell of a sponsored captive insurance company may be converted to a new entity subject to the following conditions:
(1)
Subject to the prior written approval of the commissioner, on application of the sponsor and with the prior consent of each participant in the affected protected cells or as otherwise permitted under a participation agreement and the consent of each affected incorporated protected cell, a sponsored captive insurance company may convert one (1) or more protected cells or incorporated protected cells into a:
(A)
Single protected cell or incorporated protected cell;
(B)
New sponsored captive insurance company;
(C)
New pure captive insurance company;
(D)
New risk retention group;
(E)
New industrial insured captive insurance company; or
(F)
New association captive insurance company;
(2)
(A)
The conversion shall be subject to this section as well as to a plan of operation approved by the commissioner, without affecting any protected cell's or incorporated protected cell's assets, rights, benefits, obligations, and liabilities.
(B)
The conversion is a continuation of each protected cell's or incorporated protected cell's existence together with all of its assets, rights, benefits, obligations, and liabilities, as a new protected cell or incorporated protected cell, a licensed sponsored captive insurance company, a pure captive insurance company, a risk retention group, an industrial insured captive insurance company, or an association captive insurance company, as applicable.
(C)
The conversion shall occur without any transfer or assignment of assets, rights, benefits, obligations, or liabilities and without the creation of any reversionary interest in, or impairment of, assets, rights, benefits, obligations, and liabilities; and
(3)
The conversion shall not be construed to limit any rights or protections applicable to any converted protected cell or incorporated protected cell and the sponsored captive insurance company, as applicable, that existed immediately before the date of the conversion.
(k)
(1)
Upon an order of supervision, rehabilitation, or liquidation of a sponsored captive insurance company, the receiver shall manage the assets and liabilities of the sponsored captive insurance company under this subsection.
(2)
In connection with the conservation, rehabilitation, or liquidation of a sponsored captive insurance company, the assets and liabilities of a protected cell shall at all times be kept separate from, and shall not be commingled with, those of other protected cells and the sponsored captive insurance company.
(3)
The assets of a protected cell shall not be used to pay any expenses or claims other than those attributable to the protected cell.
(4)
(A)
Unless the sponsor consents and the commissioner has granted prior written approval, the assets of the sponsored captive insurance company's general account shall not be used to pay any expenses or claims attributable solely to a protected cell of the sponsored captive insurance company.
(B)
If the assets of the sponsored captive insurance company's general account are used to pay expenses or claims attributable solely to a protected cell of the sponsored captive insurance company, the sponsor is not required to contribute additional capital and surplus to the sponsored captive insurance company's general account, notwithstanding the provisions of §§
23-63-1604
and
23-63-1605
.
(5)
A sponsored captive insurance company's capital and surplus shall at all times be available to pay any expenses of or claims against the sponsored captive insurance company.
(6)
In the event of the insolvency of a sponsored captive insurance company in which the commissioner determines that one (1) or more protected cells remain solvent, the commissioner may separate the protected cells from the sponsored captive insurance company and, on application of the sponsor, may allow for the conversion of the protected cells into one (1) or more new or existing sponsored captive insurance companies, or one (1) or more other captive insurance companies, under a plan of operation approved by the commissioner.
(l)
(1)
(A)
A creditor of a sponsored captive insurance company shall have recourse against the assets attributable to a protected cell only if it is a creditor of the protected cell.
(B)
A creditor of a protected cell shall not be entitled to recourse against the assets attributable to another protected cell or to the assets in the sponsored captive insurance company's general account.
(2)
When a sponsored captive insurance company has an obligation to a creditor arising from a transaction or otherwise imposed with respect to a protected cell, the obligation shall:
(A)
Extend only to the assets attributable to that protected cell, and the creditor shall be entitled to recourse only against the assets attributable to that protected cell; and
(B)
Not extend to the assets of another protected cell or to the assets in the sponsored captive insurance company's general account, and the creditor shall not be entitled to recourse against the assets attributable to another protected cell or to the assets of the sponsored captive insurance company's general account.
(3)
When an obligation of a sponsored captive insurance company relates solely to its general account, a creditor shall have recourse only against the assets in the general account.
(4)
The establishment of one (1) or more protected cells alone, and without more, shall not constitute or be deemed to be a fraudulent conveyance, an intent by the sponsored captive insurance company to defraud creditors, or the carrying out of business by the sponsored captive insurance company for any other fraudulent purpose.
(m)
It is the intent of the General Assembly under this section to provide sponsored captive insurance companies with the option to establish one (1) or more protected cells as a separate legal entity.
(n)
This section does not limit any rights or protections applicable to protected cells that are not established as separate legal entities.
Amended by Act 2023, No. 469,§ 6, eff. 8/1/2023.
Amended by Act 2021, No. 481,§ 1, eff. 7/28/2021.
Amended by Act 2019, No. 521,§ 14, eff. 7/24/2019.
Amended by Act 2017, No. 370,§ 9, eff. 8/1/2017.
Amended by Act 2017, No. 370,§ 8, eff. 8/1/2017.
Acts 2001, No. 1391, § 20.