2005 Arizona Revised Statutes - Revised Statutes §20-1098.01  Licensing; authority

A. If allowed by its articles of incorporation, bylaws or other organizational document, a captive insurer may apply to the director for a license to transact any insurance, except that:

1. A pure captive insurer shall not insure risks other than the risks of its affiliates or controlled unaffiliated business.

2. A group captive insurer shall not insure risks other than the risks of its group members and the members' affiliates.

3. An agency captive insurer shall not:

(a) Insure any risks other than those placed by or through its owners.

(b) Insure life or disability insurance risks.

4. A protected cell captive insurer shall not insure any risks other than those of its participants.

5. In addition to any other applicable restrictions, a captive insurer shall not insure any of the following types of insurance business:

(a) Hospital service corporations, medical service corporations, dental service corporations, optometric service corporations or hospital, medical, dental and optometric service corporations as defined in section 20-822.

(b) Health care services organizations as defined in section 20-1051.

(c) Prepaid dental plan organizations as defined in section 20-1001.

(d) Prepaid legal insurance contracts as defined in section 20-1097.

(e) Business of title insurance as defined in section 20-1562.

(f) Personal motor vehicle or homeowner's insurance coverage or any component of that insurance coverage.

(g) Commercial motor vehicle insurance policies unless the insured affiliate qualifies as a self-insurer pursuant to section 28-4007 or substantially similar self-insurance requirements of another state.

(h) Mortgage guaranty insurance as defined in section 20-1541.

(i) Workers' compensation or employers' liability insurance policies except in connection with a self-insurance program as prescribed in subsections B and C of this section.

6. Nothing in paragraphs 1 through 5 of this subsection prohibits a captive insurer from accepting reinsurance. A captive insurer shall not accept or cede reinsurance except as provided in section 20-1098.11.

7. A captive insurer that writes life insurance or disability insurance shall comply with all applicable state and federal laws.

B. A pure captive insurer may provide direct coverage of workers' compensation in this state if the workers' compensation coverage is provided under a self-insurance program approved by the industrial commission of Arizona under section 23-961. A captive insurance program authorized by section 23-961 is subject to and shall comply with all requirements of title 23, chapter 6, applicable to self-insurance.

C. A pure captive insurer may provide direct coverage of workers' compensation or employers' liability insurance in another state in connection with a self-insurance program that is qualified as a self-insurance program under the applicable state or federal law, as determined by the agency or other entity that has jurisdiction over the self-insurance program.

D. A captive insurer shall not transact insurance business in this state unless:

1. It first obtains from the director a license authorizing it to transact captive insurance business in this state.

2. Its board of directors or, for reciprocal insurers, its subscribers' advisory committee, holds at least one meeting each year in this state.

3. It maintains its principal place of business in this state.

4. It appoints a resident statutory agent to accept service of process and to otherwise act on its behalf in this state and files the appointment with the director. In the case of a captive insurer formed as a corporation or reciprocal insurer, if the statutory agent cannot with reasonable diligence be found at the registered office of the captive insurer, the director is an agent of the captive insurer on whom any process, notice or demand may be served.

E. Before receiving a license, a captive insurer shall file with the director the following:

1. If formed as a corporation, a certified copy of its articles of incorporation, bylaws or other organizational document, a statement under oath of its president and secretary showing its financial condition and any other statement or document required by the director.

2. If formed as a reciprocal insurer, a certified copy of the power of attorney of its attorney-in-fact, a certified copy of its subscribers' agreement, a statement under oath of its attorney-in-fact showing its financial condition and any other statement or document required by the director.

F. In addition to the information required by subsection E of this section each applicant captive insurer shall file with the director evidence of all of the following:

1. The amount and liquidity of its assets relative to the risks to be assumed.

2. The adequacy of the expertise, experience and character of the person or persons who will manage the captive insurer.

3. The overall soundness of its plan of operation.

4. The adequacy of the loss prevention programs of its insureds.

5. The engagement of a competent manager that resides in this state.

6. The establishment of business relationships with any accountants, banks, attorneys and other professionals that are acceptable to the department.

7. The ability of the captive insurer's owners to pay claims to third parties if the captive insurer is unable to pay those claims.

8. Other factors deemed relevant by the director in ascertaining whether the proposed captive insurer will be able to meet its policy obligations.

G. In addition to the information required by subsections E and F of this section, if the applicant is seeking authority as a protected cell captive insurer, the applicant shall file:

1. A business plan that demonstrates, in a manner acceptable to the director, how the applicant will account for the loss and expense experience of each protected cell and report that information to the director.

2. A statement acknowledging that all financial records of the protected cell captive insurer, including records pertaining to protected cells, shall be available for inspection or examination by the director or the director's designee.

3. Its form for all participant contracts.

4. Evidence that the protected cell captive insurer will allocate expenses fairly and equitably to each protected cell.

H. A captive insurer shall notify the director within thirty days of any material change in the information filed pursuant to this section.

I. Notwithstanding title 39, chapter 1, information submitted pursuant to this section is confidential and the director and the director's employees and agents shall not provide the information to any other person without the written consent of the captive insurer, except that:

1. This section does not apply to the department's use of information submitted by a captive insurer for any regulatory purpose, disciplinary action or hearing.

2. The director shall provide information submitted by a captive insurer that is required by a subpoena issued in connection with an administrative, civil or criminal investigation by a government agency.

3. The information may be discoverable by a party in a civil action or contested case to which the captive insurer that submitted the information is a party, if the party seeking to discover the information demonstrates all of the following:

(a) The information sought is relevant to and necessary for the furtherance of the action or case.

(b) The information sought is unavailable from other nonconfidential sources.

(c) A subpoena issued by a judicial or administrative officer of competent jurisdiction has been submitted to the director.

4. The director may disclose the information to a public official that has jurisdiction over the regulation of insurance in another state if the public official agrees in writing to maintain the confidentiality of the information and the laws of the state in which the public official serves allow or require the information to be and remain confidential.

5. The director may provide the information to the industrial commission. The industrial commission shall maintain the confidentiality of the information in accordance with this subsection.

J. A captive insurer shall pay to the director a nonrefundable fee for the issuance and renewal of a captive insurance license pursuant to section 20-167. The captive insurer shall pay the renewal fee when the captive insurer files the annual report prescribed in section 20-1098.07.

K. If the director is satisfied that the documents and statements that the captive insurer has filed comply with this article, the director may grant the captive insurer a license that authorizes the captive insurer to transact insurance business in this state. If the plan of operation includes the reinsurance of workers' compensation or employers' liability risks resident, located or to be performed in this state, the director may provide the industrial commission with an opportunity to review the plan of operation and advise the director as to its soundness.

L. The director shall approve or deny an application for a license to transact captive insurance business within thirty days after the director deems the application complete.