A N     A C T

RELATING TO INSURANCE

Introduced By: Senators Irons, Bates and Blais

Date Introduced : February 9, 1999

It is enacted by the General Assembly as follows:

SECTION 1. Title 27 of the General Laws entitled "Insurance" is hereby amended by adding thereto the following chapter:

{ADD 27-64-1. Short title. -- ADD} {ADD This chapter may be cited as the "Protected Cell Companies Act." ADD}

{ADD 27-64-2. Purpose. -- ADD} {ADD The purpose of this Act is to facilitate economy and efficiency in funding the insurance obligations of domestic companies through insurance securitization, and to promote generally the securitization of insurance obligations for the purpose of increasing the sources and availability of capital and the stability of underwriting results of domestic companies. ADD}

{ADD 27-64-3. Definitions. -- ADD} {ADD As used in this chapter: ADD}

{ADD (a) "Commissioner" means the director of the department of business regulation of the state of Rhode Island. ADD}

{ADD (b) "Company" means protected cell company. ADD}

{ADD (c) "Domestic company" means an insurance or reinsurance company domiciled in the state or a captive insurance or reinsurance company domiciled in the state. ADD}

{ADD (d) "General account" means the assets and liabilities of a protected cell company other than protected cell assets and protected cell liabilities. ADD}

{ADD (e) "Insurance securitization" means the entering into of securities or other financial transactions with investors directly or indirectly by a domestic company, where repayment of principal and/or interest to investors pursuant to the transaction terms is contingent upon the occurrence or nonoccurrence of an event with respect to which the domestic company is exposed to loss under policies or contracts of insurance or reinsurance it has issued. Insurance securitization instruments include, but are not limited to, catastrophe bonds, exchange traded futures and options and over-the-counter traded options and swaps. ADD}

{ADD (f) "Market value" means (1) as to cash and letters of credit, the amount thereof; and (2) as to a security as of any date, the price for the security on that date obtained from a generally recognized source or the most recent quotation from such a source, or to the extent no generally recognized sources exists, the price for the security as determined in good faith by the parties to the transaction, plus accrued but unpaid income thereon to the extent not included in the price as of that date. ADD}

{ADD (g) "Protected cell" means an identified pool of assets and liabilities of a domestic company segregated and insulated by means of this Act from the remainder of the company's assets and liabilities. ADD}

{ADD (h) "Protected cell account" means a specifically identified bank or custodial account established by a protected cell company for the purpose of physically segregating the protected cell assets of one protected cell from the protected cell assets of other protected cells and from the assets of the protected cell company's general account. ADD}

{ADD (i) "Protected cell assets" means all assets identified with and attributable to a specific protected cell of a protected cell company, including assets physically segregated in a protected cell account. ADD}

{ADD (j) "Protected cell company" means a domestic company which has one or more protected cells. ADD}

{ADD (k) "Protected cell liabilities" means all liabilities identified with and attributable to a specific protected cell of a protected cell company. Protected cell liabilities include liabilities representing the insurance obligations of the protected cell as well as obligations of the protected cell arising out of any insurance securitization or reinsurance transactions of the protected cell. ADD}

{ADD (l) "Receiver" means the commissioner, where the commissioner is acting as a rehabilitator, liquidator, or administrative supervisor of a company, or any person appointed to carry out an order of rehabilitation or liquidation of a company. ADD}

{ADD 27-64-4. Establishment of protected cells. -- ADD} {ADD (a) A domestic company may, with the prior written approval by the commissioner of a plan of operation submitted by the domestic company with respect to each protected cell, establish one or more protected cells. Upon the written approval by the commissioner of the plan of operation, which shall include, but not be limited to, the specific business and investment objectives of the protected cell, the company may, in accordance with the approved plan of operations attribute to the protected cell amounts both reflective of insurance obligations with respect to its insurance business and assets to fund such obligations. Each protected cell of a protected cell company shall have its own distinct name or designation, which shall include the words "protected cell." The company shall transfer all physical assets attributable to each protected cell to one or more separately established and identified protected cell accounts, bearing the name or designation of that protected cell. Protected cell assets shall be held in such protected cell accounts for the purpose of satisfying the obligations of that protected cell. ADD}

{ADD (b) All sales, exchanges, transfers, or other attributions of assets or liabilities between a protected cell and the general account or between other protected cells shall be in accordance with the plan of operation approved by the commissioner or shall be otherwise approved by the commissioner. Unless otherwise approved by the commissioner, no sale, exchange, transfer, or other attribution of assets or liabilities may be made by a company between any of its protected cells or between the company's general account and one or more of its protected cells unless, in the case of an attribution to a protected cell, the attribution is made solely to establish the protected cell or, in the case of an attribution from a protected cell to the company's general account the attribution is made solely to support the company's insurance obligations which are the subject of the business of the protected cell. Any sale, exchange, transfer or other attribution of assets and liabilities between a general account and a protected cell or between protected cells shall be in cash or readily marketable securities with established market values unless otherwise approved in advance in writing by the commissioner. ADD}

{ADD (c) The creation of a protected cell does not create, in respect of that protected cell, a legal person separate from the company. Amounts attributed to a protected cell under this Act, including assets transferred to a protected cell account, are owned by the company and the company may not be, nor hold itself out to be, a trustee with respect to those protected cell assets or that protected cell account. Notwithstanding the foregoing, the company may allow for a security interest to attach to protected cell assets or a protected cell account when in favor of a creditor of the protected cell and otherwise allowed under applicable law. ADD}

{ADD (d) Nothing in this Act shall be construed to prohibit the company from contracting with or arranging for an investment advisor, commodity trading advisor, or other third party to manage the protected cell assets of a protected cell, provided that all remuneration, expenses, and other compensation of the third party advisor or manager be payable from the protected cell assets of that protected cell and not from the protected cell assets of other protected cells or the assets of the company's general account. Any such contract shall clearly reference the protected cell or cells for which the contract has been arranged and shall contain a nonrecourse provision in favor of the company that prohibits the contracting party from seeking recourse against, or attaching, the assets of the general account, or the assets of another protected cell, to satisfy the obligations of any one or more protected cells which are the subject of such contract. ADD}

{ADD (e) Any domestic insurance company which is a protected cell company shall establish such administrative and accounting procedures as are necessary to properly identify the one or more protected cells of the company and the protected cell assets and protected cell liabilities attributable thereto. It shall be the duty of the directors of a protected cell company to (1) keep protected cell assets and protected cell liabilities separate and separately identifiable from the assets and liabilities of the company's general account and (2) to keep protected cell assets and protected cell liabilities attributable to one protected cell separated and separately identifiable from protected cell assets and protected cell liabilities attributable to other protected cells. Notwithstanding the foregoing, and subject to the provisions of section 27-64-10 of this Act, the remedy of tracing shall be applicable to protected cell assets when commingled with protected cell assets of other protected cells or the assets of the company's general account. ADD}

{ADD 27-64-5. Use and operation of protected cells. -- ADD} {ADD (a) Unless otherwise approved by the commissioner, the company shall, when establishing a protected cell, allocate to each protected cell assets with a value at least equal to the reserves and other insurance liabilities attributed to that protected cell. The protected cell assets of any protected cell may not be charged with liabilities arising out of any other business the company may conduct. All contracts or other documentation reflecting the obligations of a protected cell to the general account shall clearly indicate that only the assets of the protected cell are available for the obligations of the protected cell. ADD}

{ADD (b) Unless otherwise approved by the commissioner, assets attributed to a protected cell must be valued at their market value on the date of valuation, or if there is no readily available market, then as provided in the contract or the rules or other written agreement applicable to the protected cell. ADD}

{ADD (c) The income, gains and losses, realized or unrealized, from protected cell assets and protected cell liabilities must be credited to or charged against the protected cell without regard to other income, gains, or losses of the company, including income, gains, or losses of other protected cells. Amounts attributed to any protected cell and accumulations thereon may be invested and reinvested at the discretion of the company and the investments in any protected cell or cells may not be taken into account in applying the investment limitations otherwise applicable to the investments of the company, subject to any restrictions that may be imposed by the commissioner in accordance with section 27-64-12 of this chapter. ADD}

{ADD (d) As permitted by the commissioner, a protected cell company may, in respect of any of its protected cells, engage in fully funded indemnity triggered and/or fully funded index triggered insurance securitization or reinsurance transactions to support the protected cell liabilities attributable to the protected cell. An insurance securitization or reinsurance transaction which is not fully funded is prohibited. A protected cell may pay interest or other consideration on any outstanding debt or other obligation attributable to that protected cell, and nothing in this section shall be construed or interpreted to prevent a protected cell from entering into a swap agreement or other transaction that has the effect of guaranteeing such interest or other consideration. ADD}

{ADD (e) In all cases where a protected cell engages in an insurance securitization or reinsurance transaction, the financial instrument or reinsurance agreement effecting such securitization or transaction shall contain provisions identifying the protected cell to which the securitization or transaction will be attributed. In addition, the financial instrument or reinsurance agreement shall clearly disclose that the assets of that protected cell are only available to pay the obligations of that protected cell. Notwithstanding the foregoing, and subject to the provisions of this Act and any other applicable law, rule or regulation, the failure to include such language in the financial instrument or reinsurance agreement shall not be used as the sole basis by creditors, reinsurers or other claimants to circumvent the provisions of this Act. ADD}

{ADD (f) At the cessation of business of a protected cell, and in absence of any placement under administrative supervision or order of rehabilitation or liquidation attributable to that protected cell or the protected cell company, the protected cell company shall voluntarily wind up the protected cell in accordance with a plan approved by the commissioner. ADD}

{ADD 27-64-6. Reach of creditors and other claimants. -- ADD} {ADD (a) Protected cell assets shall only be available to the creditors of the company who are creditors in respect of that protected cell and shall thereby be entitled, in conformity with the provisions of this Act, to have recourse to the protected cell assets attributable to that protected cell, and shall be absolutely protected from the creditors of the company who are not creditors in respect of that protected cell and, who accordingly, shall not be entitled to have recourse to the protected cell assets attributable to that protected cell. Creditors of a protected cell shall not be entitled to have recourse against the protected cell assets of other protected cells or the assets of the company's general account. ADD}

{ADD (b) Where an obligation of a protected cell company to a person arises from a transaction, or is otherwise imposed, in respect of a particular protected cell, (1) that obligation of the company shall extend only to, and the person shall, in respect of that obligation, be entitled to have recourse only to the protected cell assets attributable to that protected cell, and (2) that obligation of the company shall not extend to, and that person shall not, in respect of that obligation, be entitled to have recourse to the protected cell assets of any other protected cell or the assets of the company's general account. ADD}

{ADD (c) Where an obligation of a protected cell company relates solely to the general account, the obligation of the company shall extend only to, and that creditor shall, in respect of that obligation, be entitled to have recourse only to the company's general account. ADD}

{ADD (d) A protected cell shall only be authorized to assume an insurance obligation directly from another protected cell or the company's general account and under no circumstances shall a protected cell be authorized to issue insurance policies or contracts directly to policyholders or have any obligation to the policyholders of the company's general account. Under no circumstances shall the activities and obligations of a protected cell be subject to the provisions of chapters 27-34, 27-34.1 and 27-34.3 of the general laws and protected cells shall not be assessed by or otherwise be required to contribute to any guaranty fund or guaranty association in the state. Nothing in this section shall affect the activities or obligations of a company's general account. ADD}

{ADD (e) In no event shall the establishment of one or more protected cells alone constitute or be deemed to be a fraudulent conveyance, an intent by the company to defraud creditors or the carrying out of business by the company for any other fraudulent purpose. ADD}

{ADD 27-64-7. Rehabilitation and liquidation of protected cell companies. -- ADD} {ADD (a) Notwithstanding any contrary provision in this title, the rules and regulations promulgated thereunder, or any other applicable law or regulation, upon placement under administrative supervision or any order of rehabilitation or liquidation of a domestic company that is a protected cell company, the receiver shall be bound to deal with the company's assets and liabilities including protected cell assets and protected cell liabilities in accordance with the requirements set forth in this act. ADD}

{ADD (b) With respect to amounts recoverable under any insurance securitization or reinsurance transaction entered into or outstanding in any protected cell of a protected cell company the amount recoverable by the receiver shall not be reduced or diminished as a result of the placement under administrative supervision or entry of an order of rehabilitation or liquidation with respect to the protected cell company or any of its protected cells, notwithstanding any provisions to the contrary in the financial instrument governing such insurance securitization or reinsurance transaction. ADD}

{ADD 27-64-8. Rehabilitation and liquidation of protected cells. -- ADD} {ADD (a) If in relation to one or more protected cells of a protected cell company, the commissioner is satisfied that the protected cell assets attributable to that protected cell are insufficient to discharge the claims of creditors or other claimants with respect to that protected cell, the commissioner may place under administrative supervision or apply for an order of rehabilitation or liquidation with respect to that protected cell. In carrying out the administrative supervision, rehabilitation, or liquidation of a protected cell, the receiver shall follow generally the provisions of chapters 27-1, 27-12.2 and 27-14.1-14.4, of the general laws, as applicable, and any rules and regulations promulgated thereunder, except that at all times the receiver shall be bound to deal with the protected cell assets and protected cell liabilities in accordance with the requirements of this act. ADD}

{ADD (b) An order of rehabilitation may not be requested or made with respect to any protected cell of a protected cell company if a receiver has been appointed to act in respect of a protected cell company; however the commissioner may still apply for an order of liquidation with respect to that protected cell. Any prior order of rehabilitation with respect to a protected cell shall cease to be of effect upon an order of rehabilitation with respect to the protected cell company, without prejudice, however, to the prior acts of the receiver or it agents. ADD}

{ADD (c) An order of rehabilitation or liquidation may not be requested or made with respect to any protected cell of a protected cell company if a liquidator has been appointed to act in respect of the protected cell company. Any prior order of rehabilitation or liquidation with respect to a protected cell shall cease to be of effect upon an order of liquidation with respect to the protected cell company, without prejudice, however, to the prior acts of the receiver or its agent. ADD}

{ADD (d) During any period of rehabilitation, or upon an order of liquidation, with respect to a protected cell, the directors of the protected cell company shall cease in respect of the business of, and the protected cell assets and protected cell liabilities attributable to the protected cell, which is the subject of such rehabilitation or liquidation. ADD}

{ADD (e) In the event that a petition for an order of rehabilitation or liquidation of a protected cell is challenged, prior to the entry or denial of such order, the directors of the protected cell company shall cease in respect of the business of, and the protected cell assets and protected cell liabilities attributable to, the protected cell which is the subject of such petition and the commissioner shall carry out the business of the protected cell until such order has been entered or denied. In the event such order is denied, the commissioner shall immediately return possession and control of such protected cell to the directors of the protected cell company. ADD}

{ADD (f) No resolution for the voluntary winding up of a protected cell company with any protected cell which has been placed under administrative supervision or is the subject of an order of rehabilitation or liquidation shall be effective without permission of the commissioner and, in the case of rehabilitation or liquidation, the court supervising such rehabilitation or liquidation. ADD}

{ADD 27-64-9. Remuneration of receivers. -- ADD} {ADD (a) With respect to orders of rehabilitation or liquidation directed at a protected cell company, the remuneration, expenses, and other compensation of the receiver shall be payable from the assets of the company's general account, in accordance with the priority of distribution set forth in sections 27-14.3-46 and 27-14.4-22 of the general laws. ADD}

{ADD (b) With respect to orders of rehabilitation or liquidation directed at a protected cell, the remuneration, expenses, and other compensation of the receiver shall be payable from the protected cell assets attributable to that protected cell. In the case where more than one protected cell is the subject of the order, the receiver shall account for remuneration, expenses, and other compensation separately for each protected cell in accordance with actual time and expenses attributable to the rehabilitation or liquidation of each respective protected cell. ADD}

{ADD (c) With respect to orders of rehabilitation or liquidation directed at a protected cell company during a pending rehabilitation or liquidation of one or more protected cells, the remuneration, expenses, and other compensation of the receiver of the protected cells shall be satisfied from the protected cell assets of such protected cell or cells in accordance with the provisions of subsection (b) above, and the remuneration, expenses, and other compensation of the receiver of the protected cell company shall be satisfied from the assets of the company's general account. ADD}

{ADD 27-64-10. Penalties. -- ADD} {ADD Any person violating the provisions of this act shall be subject to any and all enforcement procedures either currently employed or subsequently promulgated by the commissioner including, but not limited to, the imposition of fines, sanctions, or civil penalties, or an order to cease and desist from the establishment of additional protected cells. In no event shall the commissioner have the authority to cease the business of an existing protected cell, except by placement under administrative supervision or by order of rehabilitation or liquidation in accordance with the provisions of this act. ADD}

{ADD 27-64-11. No transaction of insurance business. -- ADD} {ADD No insurance securitization or reinsurance transaction affected under the provisions of this act shall be deemed to be an insurance policy or contract of insurance or otherwise constitute the transaction of an insurance business in the state for the purposes of chapter 27-16 of the general laws and no investor in an insurance securitization or reinsurance transaction shall, by sole means of such investment, be required to be licensed as an insurance company in this state. ADD}

{ADD 27-64-12. Rules. -- ADD} {ADD The commissioner may promulgate reasonable rules and regulations as may be necessary to effectuate the purposes of this chapter. ADD}

SECTION 2. Section 27-1.1-1 of the General Laws in Chapter 27-1.1 entitled "Credit for Reinsurance Act" is hereby amended to read as follows:

27-1.1-1. Credit allowed a domestic ceding insurer. -- (a) Credit for reinsurance shall be allowed a domestic insurer as either an asset or a deduction from liability on account of reinsurance ceded only when the reinsurer meets the requirements of subsection (b), (c), (d), (e), or (f). If meeting the requirements of subsection (d) or (e), the requirements of subsection (g) of this section must also be met.

(b) Credit shall be allowed when the reinsurance is ceded to an assuming insurer which is licensed to transact insurance or reinsurance in this state.

(c) (1) Credit shall be allowed when the reinsurance is ceded to an assuming insurer which is accredited as a reinsurer in this state. An accredited reinsurer is one which:

(i) Files with the commissioner evidence of its submission to this state's jurisdiction;

(ii) Submits to this state's authority to examine its books and records;

(iii) Is licensed to transact insurance or reinsurance in at least one state, or in the case of a United States branch of an alien assuming insurer is entered through and licensed to transact insurance or reinsurance in at least one state; and

(iv) Files annually with the commissioner a copy of its annual statement filed with the insurance department of its state of domicile and a copy of its most recent audited financial statement, and either:

(A) Maintains a surplus as regards policyholders in an amount which is not less than twenty million dollars ($20,000,000) and whose accreditation has not been denied by the commissioner within ninety (90) days of its submission; or

(B) Maintains a surplus as regards policyholders in an amount less than twenty million dollars ($20,000,000) and whose accreditation has been approved by the commissioner;

(2) No credit shall be allowed a domestic ceding insurer if the assuming insurers' accreditation has been revoked by the commissioner after notice and hearing.

(d) (1) Credit shall be allowed when the reinsurance is ceded to an assuming insurer which is domiciled and licensed in, or in the case of a United States branch of an alien assuming insurer is entered through, a state which employs standards regarding credit for reinsurance substantially similar to those applicable under this statute, and the assuming insurer or U.S. branch of an alien assuming insurer:

(i) Maintains a surplus as regards policyholders in an amount not less than twenty million dollars ($20,000,000); and

(ii) Submits to the authority of this state to examine its books and records;

(2) Provided, however, that the requirement of subsection (d)(1)(i) does not apply to reinsurance ceded and assumed pursuant to pooling arrangements among insurers in the same holding company system.

(e) (1) Credit shall be allowed when the reinsurance is ceded to an assuming insurer which maintains a trust fund in a qualified United States financial institution, as defined in section 27-1.1-3(b), for the payment of the valid claims of its United States policyholders and ceding insurers, and their assigns and successors in interest. The assuming insurer shall report annually to the commissioner information substantially the same as that required to be reported on the national association of insurance commissioners annual statement form by licensed insurers to enable the commissioner to determine the sufficiency of the trust fund. In the case of a single assuming insurer, the trust shall consist of a trusted account representative of the assuming insurer's liabilities attributable to business written in the United States and, in addition, the assuming insurer shall maintain a trusted surplus of not less than twenty million dollars ($20,000,000). In the case of a group including incorporated and/or individual unincorporated underwriters, the trust shall consist of a trusted account representative of the group's liabilities attributable to business written in the United States and, in addition, the group shall maintain a trusted surplus of which one hundred million dollars ($100,000,000) shall be held jointly for the benefit of United States ceding insurers of any member of the group; the incorporated members of the group shall not be engaged in any business other than underwriting as a member of the group and shall be subject to the same level of solvency regulation and control by the groups domiciliary regulator as are the unincorporated members; and the group shall make available to the commissioner an annual certification of the solvency of each underwriter by the group's domiciliary regulator and its independent public accountants;

(2) In the case of a group of incorporated insurers under common administration which: complies with the filing requirements contained in subsection (e)(1), has continuously transacted an insurance business outside the United States for at least three (3) years immediately prior to making application for accreditation, submits to this state's authority to examine its books and records and bears the expenses of the examination, and has aggregate policyholders' surplus of ten billion dollars ($10,000,000,000), the trust shall be in an amount equal to the group's several liabilities attributable to business ceded by United States ceding insurers to any member of the group pursuant to reinsurance contracts issued in the name of the group; plus the group shall maintain a joint trusted surplus of which one hundred million dollars ($100,000,000) shall be held jointly for the benefit of United States ceding insurers of any member of the group as additional security for any liabilities, and each member of the group shall make available to the commissioner an annual certification of the member's solvency by the member's domiciliary regulator and its independent public accountant;

(3) The trust shall be established in a form approved by the commissioner. The trust instrument shall provide that contested claims shall be valid and enforceable upon the final order of any court of competent jurisdiction in the United States. The trust shall vest legal title to its assets in the trustees of the trust for its United States policyholders and ceding insurers, and their assigns and successors in interest. The trust and the assuming insurer shall be subject to examination as determined by the commissioner. The trust described herein must remain in effect for as long as the assuming insurer shall have outstanding obligations due under the reinsurance agreements subject to the trust;

(4) No later than February 28 of each year the trustees of the trust shall report to the commissioner in writing setting forth the balance of the trust and listing the trust's investments at the preceding year end and shall certify the date of termination of the trust, if so planned, or certify that the trust shall not expire prior to the next following December 31;

(f) {ADD (1) ADD} Credit shall be allowed when the reinsurance is ceded to an assuming insurer not meeting the requirements of subsections (b), (c), (d), or (e), but only with respect to the insurance of risks located in jurisdictions where the reinsurance is required by applicable law or regulation of that jurisdiction {DEL . DEL} {ADD ; or ADD}

{ADD (2) Credit may be allowed, at the discretion of the commissioner, when reinsurance is ceded to a protected cell of a protected cell company organized under the Protected Cell Companies Act of this Title 27 in the form of an attribution of assets, insurance liablilities and exposures from the general account of the protected cell company as required by sections 27-64-4 and 27-64-5 of the general laws. ADD}

(g) (1) If the assuming insurer is not licensed or accredited to transact insurance or reinsurance in this state, the credit permitted by subsections (d) and (e) shall not be allowed unless the assuming insurer agrees in the reinsurance agreements:

(i) That in the event of the failure of the assuming insurer to perform its obligations under the terms of the reinsurance agreement, the assuming insurer, at the request of the ceding insurer, shall submit to the jurisdiction of any court of competent jurisdiction in any state of the United States, will comply with all requirements necessary to give the court jurisdiction, and will abide by the final decision of the court or of any appellate court in the event of an appeal; and

(ii) To designate the commissioner or a designated attorney as its true and lawful attorney upon whom may be served any lawful process in any action, suit, or proceeding instituted by or on behalf of the ceding company;

(2) This subsection is not intended to conflict with or override the obligation of the parties to a reinsurance agreement to arbitrate their disputes, if an obligation is created in the agreement.

SECTION 3. Section 27-12.2-2 of the General Laws in Chapter 27-12.2 entitled "Administrative Supervision Act" is hereby amended to read as follows:

27-12.2-2. Applicability. -- The provisions of this chapter shall apply to all domestic insurers {ADD , including protected cell companies organized under the Protected Cell Companies Act of this title 27, and any of its protected cells established thereto, to the extent not inconsistent with the provisions of such act, ADD} and any other insurer doing business in this state whose state of domicile has asked the commissioner to apply the provisions of this chapter as regards the insurer.

SECTION 4. Section 27-14.1-2 of the General Laws in Chapter 27-14.1 entitled "Administrative Supervision" is hereby amended to read as follows:

27-14.1-2. Applicability. -- The provisions of this chapter shall apply to:

(1) All domestic insurers {ADD , including a protected cell company organized under the Protected Cell Companies Act of this title 27, and any of its protected cells established thereto, to the extent not inconsistent with the provisions of such act ADD}; and

(2) Any other insurer doing business in this state whose state of domicile has asked the commissioner to apply the provisions of this chapter as regards that insurer.

SECTION 5. Section 27-14.3-2 of the General Laws in Chapter 27-14.3 entitled "Insurers' Rehabilitation and Liquidation Act" is hereby amended to read as follows:

27-14.3-2. Applicability. -- The proceedings authorized by this chapter may be applied to:

(1) All insurers who are doing, or have done, an insurance business in this state, {ADD including a protected cell company organized under the Protected Cell Companies Act of this title 27, and any of its protected cells established thereto, to the extent not inconsistent with the provisions of such act, ADD} and against whom claims arising from that business may exist now or in the future;

(2) All insurers who purport to do an insurance business in this state {ADD , including a protected cell company organized under the Protected Cell Companies Act of this title 27, and any of its protected cells established thereto, to the extent not inconsistent with the provisions of such act ADD};

(3) All insurers who have insureds resident in this state;

(4) All other persons organized or in the process of organizing with the intent to do an insurance business in this state {ADD , including a protected cell company organized under the Protected Cell Companies Act of this title 27, and any of its protected cells established thereto, to the extent not inconsistent with the provisions of such act ADD};

(5) All nonprofit service plans and all fraternal benefit societies and beneficial societies;

(6) All title insurance companies;

(7) All prepaid health care delivery plans; and

(8) All nonprofit health service corporations, nonprofit hospital service corporations, nonprofit medical service corporations, nonprofit dental service corporations, nonprofit optometric service corporations, nonprofit legal service corporations, health maintenance organizations, and risk retention groups pursuant to chapters 19, 20, 20.1, 20.2, 20.3, 41, and 46 of title 27.

SECTION 6. Section 27-14.4-2 of the General Laws in Chapter 27-14.4 entitled "Uniform Insurers Liquidation Act" is hereby amended to read as follows:

27-14.4-2. Definitions. -- For the purposes of this chapter:

(1) "Ancillary state" means any state other than a domiciliary state;

(2) "Delinquency proceeding" means any proceeding commenced against an insurer for the purpose of liquidating, rehabilitating, reorganizing, or conserving that insurer;

(3) "Domiciliary state" means the state in which an insurer is incorporated or organized, or, in the case of an insurer incorporated or organized in a foreign country, the state in which that insurer, having become authorized to do business in that state, has, at the commencement of delinquency proceedings, the largest amount of its assets held in trust and assets held on deposit for the benefit of its policyholders or policyholders and creditors in the United States; and any foreign insurer is deemed to be domiciled in that state;

(4) "Foreign country" means territory not in any state;

(5) "General assets" means all property, real, personal, or otherwise, not specifically mortgaged, pledged, deposited, or otherwise encumbered for the security or benefit of specified persons or a limited class or classes of persons, and as to specifically encumbered property the term includes all property or its proceeds in excess of the amount necessary to discharge the sum or sums secured thereby. Assets held in trust and assets held on deposit for the security or benefit of all policyholders, or all policyholders and creditors in the United States, shall be deemed general assets; provided that general assets shall not mean unearned premiums due or owed the insurer by the policyholder, agent or broker at the time an insolvency or liquidation is declared by a court of competent jurisdiction, nor shall general assets mean unearned premiums held in trust or held on deposit by the agent, broker, or insurer;

(6) "Insurer" means any person, firm, corporation, association, or aggregation of persons doing an insurance business and subject to the insurance supervisory authority of, or to liquidation, rehabilitation, reorganization, or conservation by, the department of business regulation of this state, or the equivalent insurance supervisory official of another state {ADD , including a protected cell company organized under the Protected Cell Companies Act of this title 27, and any of its protected cells established thereto, to the extent not inconsistent with the provisions of chapter 27-64 ADD};

(7) "Preferred claim" means any claim with respect to which the law of a state or of the United States accords priority of payment from the general assets of the insurer;

(8) "Receiver" means receiver, liquidator, rehabilitator, or conservator as the context may require;

(9) "Reciprocal state" means any state other than this state in which in substance and effect the provisions of this chapter are in force, including the provisions requiring that the director of business regulation is the receiver of a delinquent insurer;

(10) "Secured claim" means any claim secured by mortgage, trust, deed, pledge, deposit as security, escrow, or otherwise, but not including special deposit claims or claims against general assets. The term also includes claims which more than four (4) months prior to the commencement of delinquency proceedings in the state of the insurer's domicile have become liens upon specific assets by reason of judicial process;

(11) "Special deposit claim" means any claim secured by a deposit made pursuant to statute for the security or benefit of a limited class or classes of persons, but not including any general assets; and

(12) "State" means any state of the United States, and also the District of Columbia and Puerto Rico.

SECTION 7. Section 27-16-1.2 of the General Laws in Chapter 27-16 entitled "Unauthorized Insurance Business" is hereby amended to read as follows:

27-16-1.2. Certificate of compliance -- Exceptions. -- (a) It shall be unlawful for any insurer to transact insurance business in this state as set forth in subsection (b) without a certificate of compliance from the commissioner; provided, however, that this section shall not apply to:

(1) The lawful transaction of surplus lines insurance;

(2) The lawful transaction of reinsurance by insurers;

(3) Transactions in this state involving a policy lawfully solicited, written, and delivered outside of this state covering only subjects of insurance not resident, located, or expressly to be performed in this state at the time of issuance, and which transactions are subsequent to the issuance of the policy;

(4) Attorneys acting in the ordinary relation of attorney and client in the adjustment of claims or losses;

(5) Transactions in this state involving group life and group sickness and accident or blanket sickness and accident insurance or group annuities where the master policy of the groups was lawfully issued and delivered in and pursuant to the laws of a state in which the insurer was authorized to do an insurance business, to a group organized for purposes other than the procurement of insurance, and where the policyholder is domiciled or otherwise has a bona fide situs;

(6) Transactions in this state involving any policy of insurance or annuity contract issued prior to May 15, 1973;

(7) Transactions in this state relative to a policy issued outside of this state involving insurance on vessels, craft, or hulls, cargoes, marine protection, and indemnity or other risk, including strikes and war risks commonly insured under ocean or wet marine forms of policy;

(8) Transactions in this state involving contracts of insurance issued to one or more industrial insureds. An industrial insured is defined as an insured:

(i) Which procures the insurance of any risk by the use of the services of a full time employee acting as insurance manager or buyer or the services of a regularly and continuously retained qualified insurance consultant;

(ii) Whose aggregate annual premiums on all risks excluding workers' compensation and group total at least twenty-five thousand dollars ($25,000); and

(iii) Which has at least twenty-five (25) full-time employees; and

(9) (i) Transactions in this state involving life insurance, health insurance, or annuities provided to educational or religious or charitable institutions organized and operated without profit to any private shareholder or individual for the benefit of the institutions and individuals engaged in the service of the institutions;

(ii) But this exemption shall be conditional upon the company complying with the following requirements:

(A) Payment of an annual registration fee of five hundred dollars ($500);

(B) Filing a copy of any policy or contract form, including annuities issued to any Rhode Island residents with the commissioner of insurance. Effective January 1, 1997, each policy and contract form, including annuities, shall contain (on its front and declaration page) in at least twelve (12) point type the following notice:

NOTICE TO RHODE ISLAND RESIDENTS

THIS CONTRACT HAS BEEN PLACED WITH AN INSURER NOT LICENSED TO DO BUSINESS IN THE STATE OF RHODE ISLAND BUT ELIGIBLE AS AN UNLICENSED REGISTERED INSURER PURSUANT TO THE UNAUTHORIZED BUSINESS STATUTE. THE INSURER IS NOT A MEMBER OF THE RHODE ISLAND LIFE AND HEALTH GUARANTY ASSOCIATION. SHOULD THE INSURER BECOME INSOLVENT, THE PROTECTION AND BENEFITS OF THE ASSOCIATION ARE NOT AVAILABLE.

(C) Filing a copy of its annual statement, prepared pursuant to the laws of its state of domicile, as well as such other financial material as may be requested by the commissioner; and further,

(D) Provided the company agrees to appoint the commissioner of insurance, and his or her successors in office, as its attorney to receive service of legal process issued against it in Rhode Island. The appointment is to be irrevocable and to bind the commissioner, and any successors in interest, and to remain in effect as long as there is in force in this state any contract issued by the company or any obligations arising therefrom.

(10) Rental car companies and their employees principally engaged in the rental of motor vehicles and which offer in connection with and incidental to the rental of motor vehicles various optional insurance coverages during the term of the rental, which shall be no more than forty-five (45) days.

{ADD (11) Transactions that are insurance securitizations or reinsurance transactions entered into by a protected cell of a protected cell company organized under the Protected Cell Companies Act of this title 27, as those terms are defined or utilized in such act. ADD}

(b) Any of the following acts in this state effected by mail or otherwise, by or on behalf of an insurer, is deemed to constitute the transaction of an insurance business in this state. The venue of an act committed by mail is at the point where the matter transmitted by mail is delivered and takes effect. Unless otherwise indicated, the term "insurer," as used in this section, includes all corporations, associations, partnerships, and individuals engaged as principals in the business of insurance and also includes interinsurance exchanges and mutual benefit societies:

(1) The making or proposing to make, as an insurer an insurance contract;

(2) The making of or proposing to make, as guarantor or surety, any contract of guaranty or suretyship as a vocation and not merely incidental to any other legitimate business or activity of the guarantor or surety;

(3) The taking or receiving of any application for insurance;

(4) The receiving or collection of any premium, commission, membership fees, assessments, dues, or other consideration for an insurance or any part thereof;

(5) The issuance or delivery of contracts of insurance to residents of this state or to persons authorized to do business in this state;

(6) Directly or indirectly acting as an agent or insurance producer for or otherwise representing or aiding on behalf of another any person or insurer in the solicitation, negotiation, procurement, or effectuation of insurance or renewals thereof or in the dissemination of information as to coverage or rates, forwarding of applications, delivery of policies or contracts, inspection of risks, fixing of rates or investigation or adjustment of claims or losses, or in the transaction of matters subsequent to effectuation of the contract and arising out of it, or in any other manner representing or assisting a person or insurer in the transaction of insurance with respect to subjects of insurance, resident, located, or to be performed in this state. The provisions of this subsection shall not operate to prohibit full time salaried employees of a corporate insured from acting in the capacity of an insurance manager or buyer in placing insurance in behalf of the employer;

(7) The transaction of any kind of insurance business specifically recognized as transacting an insurance business within the meaning of the statutes relating to insurance; or

(8) The transacting or proposing to transact any insurance business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of the statutes.

(c) The failure of an insurer transacting insurance business in this state to obtain a certificate of compliance shall not impair the validity of any act or contract of the insurer and shall not prevent the insurer from defending any action at law or suit in equity in any court of this state, but no insurer transacting insurance business in this state without a certificate of authority shall be permitted to maintain an action in any court of this state to enforce any right, claim, or demand arising out of the transaction of insurance business until the insurer shall have obtained a certificate of authority.

(d) In the event of the failure of any unauthorized insurer to pay any claim or loss within the provisions of the insurance contract, any person who assisted or in any manner aided directly or indirectly in the procurement of the insurance contract shall be liable to the insured for the full amount of the claim or loss in the manner provided by the provisions of the insurance contract.

SECTION 8. Section 27-34-3 of the General Laws in Chapter 27-34 entitled "Rhode Island Insurers' Insolvency Fund" is hereby amended to read as follows:

27-34-3. Scope. -- This chapter shall apply to all kinds of direct insurance, but shall not be applicable to the following:

(1) Life, annuity, health, or disability insurance;

(2) Mortgage guaranty, financial guaranty or other forms of insurance offering protection against investment risks;

(3) Fidelity or surety bonds, or any other bonding obligations;

(4) Credit insurance;

(5) Insurance of warranties or service contracts;

(6) Title insurance;

(7) Ocean marine insurance, except that portion of the marine protection and indemnity insurance covering liability of the insured for personal injury, illness, or death to employees and insurance covering pleasure craft;

(8) Commercial lines excess liability insurance; {DEL and DEL}

(9) Any transaction or combination of transactions between a person, including affiliates of the person, and an insurer, including affiliates of the insurer, which involves the transfer of investment or credit risk unaccompanied by transfer of insurance risk {DEL . DEL} {ADD ; and ADD}

{ADD (10) Any transaction or combination of transactions between a protected cell and the general account or another protected cell of a protected cell company organized under the Protected Cell Companies Act of this title 27, as those terms are defined in such act. ADD}

SECTION 9. Section 27-34.1-3 of the General Laws in Chapter 27-34.1 entitled "Rhode Island Life and Health Insurance Guaranty Association Act" is hereby amended to read as follows:

27-34.1-3. Applicability. -- (a) This chapter shall provide coverage under the policies and contracts specified in subsection (b) to:

(1) Persons who, regardless of where they reside, except nonresident certificate holders under group policies or contracts, are the beneficiaries, assignees, or payees of the persons covered under subsection (a)(2); and

(2) Persons who are owners of the policies or contracts or are insureds or annuitants under the policies or contracts and who are:

(i) Residents of this state; or

(ii) Are not residents but are covered if all of the following conditions are met:

(A) The states in which they reside have associations similar to the associations created by this chapter;

(B) They are not eligible for coverage by that association;

(C) The insurers which issued the policies or contracts never held a license in those states; and

(D) The insurers are domiciled in this state.

(b) This chapter shall apply to direct life insurance policies, health insurance policies, annuity contracts, and supplemental to life and health insurance policies and annuity contracts issued by persons licensed to transact insurance in this state at any time.

(c) This chapter shall not apply to:

(1) That portion or part of a variable life insurance or variable annuity contract not guaranteed by an insurer;

(2) That portion or part of any policy or contract under which the risk is borne by the policyholder; or

(3) Any policy or contract or part thereof assumed by the insolvent insurer under a contract of reinsurance, other than reinsurance for which assumption certificates have been insured, or any policy or contract by a nonprofit hospital or medical service corporation or health maintenance organization {DEL . DEL} {ADD ; or ADD}

{ADD (4) Any transaction or combination of transactions between a protected cell and the general account or another protected cell of a protected cell company organized under the Protected Cell Companies Act of this title 27, as those terms are defined in such act. ADD}

SECTION 10. Section 27-34.3-3 of the General Laws in Chapter 27-34.3 entitled "Rhode Island Life and Health Insurance Guaranty Association Act" is hereby amended to read as follows:

27-34.3-3. Coverage and limitations. -- (a) This chapter shall provide coverage for the policies and contracts specified in subsection (b):

(1) To persons who, regardless of where they reside (except for non-resident certificate holders under group policies or contracts), are the beneficiaries, assignees or payees of the persons covered under paragraph (2), and

(2) To persons who are owners of or certificate holders under such policies or contracts; or, in the case of unallocated annuity contracts, to the persons who are the contract holders, and who:

(i) Are residents of this state, or

(ii) Are not residents, but only under all of the following conditions:

(A) The insurers which issued the policies or contracts are domiciled in this state;

(B) The insurers never held a license or certificate of authority in the states in which the persons reside;

(C) The states have associations similar to the association created by this chapter; and

(D) Such persons are not eligible for coverage by these associations.

(b) (1) This chapter shall provide coverage to the persons specified in subsection (a) for direct, non-group life, health, annuity and supplemental policies or contracts, for certificates under direct group policies and contracts, and for unallocated annuity contracts issued by member insurers, except as limited by this chapter. Annuity contracts and certificates under group annuity contracts include but are not limited to guaranteed investment contracts, deposit administration contracts, unallocated funding agreements, allocated funding agreements, structured settlement agreements, lottery contracts and any immediate or deferred annuity contracts.

(2) This chapter shall not provide coverage for:

(i) Any portion of a policy or contract not guaranteed by the insurer, or under which the risk is borne by the policy or contract holder;

(ii) Any policy or contract of reinsurance, unless assumption certificates have been issued;

(iii) Any portion of a policy or contract to the extent that the rate of interest on which it is based:

(A) Averaged over the period of four (4) years prior to the date on which the association becomes obligated with respect to the policy or contract, exceeds a rate of interest determined by subtracting two (2) percentage points from Moody's corporate bond yield average averaged for that same four-year (4) period or for such lesser period if the policy or contract was issued less than four (4) years before the association became obligated; and

(B) On and after the date on which the association becomes obligated with respect to the policy or contract, exceeds the rate of interest determined by subtracting three (3) percentage points from Moody's corporate bond yield average as most recently available;

(iv) Any plan or program of an employer, association or similar entity to provide life, health or annuity benefits to its employees or members to the extent that the plan or program is self-funded or uninsured, including but not limited to benefits payable by an employer, association or similar entity under:

(A) A multiple employer welfare arrangement as defined in 29 U.S.C. section 1144;

(B) A minimum premium group insurance plan;

(C) A stop-loss group insurance plan; or

(D) An administrative services only contract;

(v) Any portion of a policy or contract to the extent that it provides dividends or experience rating credits, or provides that any fees or allowances be paid to any person, including the policy or contract holder, in connection with the service to or administration of the policy or contract;

(vi) Any policy or contract issued in this state by a member insurer at a time when it was not licensed or did not have a certificate of authority to issue the policy or contract in this state;

(vii) Any unallocated annuity contract issued to an employee benefit plan protected under the federal pension benefit guaranty corporation;

(viii) Any portion of any unallocated annuity contract which is not issued to or in connection with a specific employee, union or association of natural persons benefit plan or a government lottery; {DEL and DEL}

(ix) Any portion of a policy or contract to the extent that the assessments required by section 27-34.3-9 with respect to the policy or contract are preempted by federal or state law {DEL . DEL} {ADD ; and ADD}

{ADD (x) Any transaction or combination of transactions between a protected cell and the general account or another protected cell of a protected cell company organized under the Protected Cell Companies Act of this title 27, as those terms are defined in such act. ADD}

(c) The benefits for which the association may become liable shall in no event exceed the lesser of:

(1) The contractual obligations for which the insurer is liable or would have been liable if it were not an impaired or insolvent insurer, or

(2) (i) With respect to any one life, regardless of the number of policies or contracts:

(A) Three hundred thousand dollars ($300,000) in life insurance death benefits, but not more than one hundred thousand dollars ($100,000) in net cash surrender and net cash withdrawal values for life insurance;

(B) One hundred thousand dollars ($100,000) in health insurance benefits, including any net cash surrender and net cash withdrawal values;

(C) One hundred thousand dollars ($100,000) in the present value of annuity benefits, including net cash surrender and net cash withdrawal values;

(ii) With respect to each individual participating in a governmental retirement plan established under Section 401, 403(b) or 457 of the U.S. Internal Revenue Code, 26 U.S.C. section 401, 403(b) or 457, covered by an unallocated annuity contract or the beneficiaries of each such individual if deceased, in the aggregate, one hundred thousand dollars ($100,000) in present value annuity benefits, including net cash surrender and net cash withdrawal values;

(iii) With respect to each payee covered by an annuity contract issued by an insurer to provide benefits pursuant to a structured settlement agreement, or beneficiary of each payee if deceased, one hundred thousand dollars ($100,000) in present value annuity benefits, in the aggregate, including net cash surrender and net cash withdrawal values;

Provided, however, that in no event shall the Association be liable to expend more than three hundred thousand dollars ($300,000) in the aggregate with respect to any one individual under paragraphs (2)(i), (2)(ii) and (2)(iii) above;

(iv) With respect to any one contract holder covered by any unallocated annuity contract not included in paragraph (2)(ii) above, five million dollars ($5,000,000) in benefits, irrespective of the number of such contracts held by that contract holder.

SECTION 11. Section 27-35-1 of the General Laws in Chapter 27-35 entitled "Insurance Holding Company Systems" is hereby amended to read as follows:

27-35-1. Definitions. -- (a) Affiliate. - An "affiliate" of, or person "affiliated" with, a specific person, is a person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, the person specified. {ADD An "affiliate" does not include a protected cell of a protected cell company organized under the Protected Cell Companies Act of this title 27. ADD}

(b) Commissioner. - The term "commissioner" shall mean the insurance commissioner, and any assistant to the insurance commissioner designated and authorized by him or her while acting under that designation.

(c) Control. - The term "control", including the terms "controlling," "controlled by" and "under common control with", means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or nonmanagement services, or otherwise, unless the power is the result of an official position with or corporate office held by the person. Control shall be presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, ten percent (10%) or more of the voting securities of any other person. This presumption may be rebutted by a showing made in the manner provided by section 27-35-3(i) that control does not exist in fact. The commissioner may determine, after furnishing all persons in interest notice and opportunity to be heard and making specific findings of fact to support that determination, that control exists in fact, notwithstanding the absence of a presumption to that effect.

(d) Insurance holding company system. - An "insurance holding company system" consists of two (2) or more affiliated persons, one or more of which is an insurer.

(e) Insurer. - The term "insurer" shall mean any person or persons or corporation, partnership or company authorized by the laws of this state to transact the business of insurance in this state, except that it shall not include agencies, authorities, or instrumentalities of the United States, its possessions and territories, the Commonwealth of Puerto Rico, the District of Columbia, or a state or political subdivision of a state.

(f) Person. - A "person" is an individual, corporation, partnership, association, joint stock company, trust, unincorporated organization, or any similar entity or any combination of the foregoing acting in concert, but shall not include any securities broker performing no more than the usual and customary broker's function.

(g) Securityholder. - A "securityholder" of a specified person is one who owns any security of the person, including common stock, preferred stock, debt obligations, and any other security convertible into or evidencing the right to acquire any of the foregoing.

(h) Subsidiary. - A "subsidiary" of a specified person is an affiliate controlled by the person directly, or indirectly through one or more intermediaries.

(i) Voting security. - The term "voting security" shall include any security convertible into or evidencing a right to acquire a voting security.

SECTION 12. Sections 27-43-1 and 27-43-2 of the General Laws in Chapter 27-43 entitled "Captive Insurance Companies" are hereby amended to read as follows:

27-43-1. Definitions. -- As used in this chapter, unless the context requires otherwise:

(1) "Affiliated company" means any corporation controlled by or an affiliate of a parent, an industrial insured, or a member organization by virtue of common ownership, control, operation, or management;

(2) "Association" means any association of individuals, corporations, partnerships, or associations that has a separate legal existence, the member organizations of which collectively:

(i) Own, control, or hold with power to vote all of the outstanding voting securities of an association captive insurance company incorporated as a stock insurance company; or

(ii) Have complete voting control over an association captive insurance company incorporated as a mutual insurance company;

(3) "Association captive insurance company" means any company that insures risks of the member organizations of the association, and their affiliated companies;

(4) "Captive insurance company" means any subsidiary captive insurance company, association captive insurance company, or industrial insured captive insurance company formed or licensed under the provisions of this chapter {ADD , including a captive insurance company that is organized as a protected cell company under the Protected Cell Companies Act of this title 27 ADD};

(5) "Commissioner" means the director of the department of business regulation;

(6) "Industrial insured" means an insured:

(i) Who procures the insurance of any risk or risks by use of the services of a full time employee acting as an insurance manager or buyer;

(ii) Whose aggregate annual premiums for insurance on all risks total at least twenty-five thousand dollars ($25,000); and

(iii) Who has at least twenty-five (25) full-time employees;

(7) "Industrial insured captive insurance company" means any company that insures risks of the industrial insureds that comprise the industrial insured group, and their affiliated companies;

(8) "Industrial insured group" means any group that meets either of the following criteria:

(i) Any group of industrial insureds that collectively (A) own, control, or hold with power to vote all of the outstanding voting securities of an industrial insured captive insurance company incorporated as a stock insurance company, or (B) have complete voting control over an industrial insured captive insurance company incorporated as a mutual insurance company; or

(ii) Any group which is created under 15 U.S.C. section 3901 et seq., as a corporation or other limited liability association;

(9) "Member organization" means any individual, corporation, partnership, or association that belongs to an association;

(10) "Parent" means a corporation, partnership, or individual that directly or indirectly owns, controls, or holds with power to vote more than fifty percent (50%) of the outstanding voting securities of a subsidiary captive insurance company;

(11) "Personal lines of insurance" means personal motor vehicle, homeowner's insurance coverage, health insurance, life insurance, worker's compensation, residential fire insurance, or any component thereof; and

(12) "Subsidiary captive insurance company" means any company that insures risks of its parent and affiliated companies.

27-43-2. Incorporation of captive insurance companies in this state. -- (a) A subsidiary captive insurance company shall be incorporated as a stock insurance company with its capital divided into shares and held by the stockholders.

(b) An association captive insurance company or an industrial insured captive insurance company may be {DEL incorporated DEL}:

(1) {DEL As DEL} {ADD Incorporated as ADD} a stock insurance company with its capital divided into shares and held by the stockholders; or

(2) {DEL As DEL} {ADD Incorporated as ADD} a mutual insurance company without capital stock, the governing body of which is elected by the member organizations of its association {DEL . DEL} {ADD ; or ADD}

{ADD (3) Organized as a reciprocal insurer in accordance with chapter 17 of this title. ADD}

(c) A captive insurance company {ADD which is formed as a corporation ADD} shall have not less than three (3) incorporators of whom not less than two (2) shall be residents of this state.

(d) {ADD (1) In the case of a captive insurance company formed as a corporation, before ADD} {DEL Before DEL} the articles of association are transmitted to the secretary of state, the incorporators shall petition the commissioner to issue a certificate setting forth his or her finding that the establishment and maintenance of the proposed corporation will promote the general good of the state. In arriving at the finding, the commissioner shall consider:

{DEL (1) DEL} {ADD (A) ADD} The character, reputation, financial responsibility, insurance experience, and business qualifications of the incorporators and the proposed officers and directors;

{DEL (2) DEL} {ADD (B) ADD} The sources and availability of its capital; and

{DEL (3) DEL} {ADD (C) ADD} Other financial and business {DEL aspects DEL} {ADD matters ADD} that the commissioner deems advisable.

{ADD (2) In the case of a captive insurance company formed as a reciprocal insurer, the organizers shall petition the commissioner to issue a certificate setting forth the commissioner's finding that the establishment and maintenance of the proposed association will promote the general good of the state. In arriving at such a finding the commissioner shall consider: ADD}

{ADD (i) The character, reputation, financial responsibility, insurance experience, and business qualifications of the organizers and the attorney in fact; ADD}

{ADD (ii) The sources and availability of its capital; and ADD}

{ADD (iii) Other financial and business matters that the commissioner shall deem advisable. ADD}

(e) The articles of association, the certificate, and the organization fee shall be transmitted to the secretary of state, who shall thereupon record both the articles of incorporation and the certificate.

(f) The capital stock of a captive insurance company incorporated as a stock insurance company shall be issued at not less than par value, and all capital insurance companies shall have the minimum capital provided in section 27-43-4.

(g) {ADD (1) In the case of a captive insurance company formed as a corporation in this state, ADD} {DEL At DEL} {ADD at ADD} least one of the members of the board of directors of a captive insurance company incorporated in this state shall be a resident of this state.

{ADD (2) In the case of a captive insurance company formed as a reciprocal insurer in this state, at least one of the members of the subscribers' advisory committee shall be a resident of this state. ADD}

(h) Every captive insurance company {ADD referenced within this subsection ADD} {DEL incorporated hereunder DEL} shall have the powers contained in this chapter, and shall be subject to the provisions of this chapter, chapter 1 of this title, and chapter 1.1 of title 7; provided, that insofar as the provisions of this chapter are inconsistent with the provisions of chapter 1 of this title or chapter 1.1 of title 7, the provisions of this chapter shall be controlling.

{ADD (i) Captive insurance companies formed as corporations under the provisions of this chapter shall have the privileges and be subject to the provisions of the general corporation law as well as the applicable provisions contained in this chapter. In the event of conflict between the provisions of said general corporation law and the provisions of this chapter, the latter shall control. ADD}

{ADD (j) Captive insurance companies formed as reciprocal insurers under the provisions of this chapter shall have all the privileges and be subject to all the obligations imposed by chapter 17 of this title in addition to the applicable provisions of this chapter. In the event of a conflict between the provisions of chapter 17 and the provisions of this chapter, the latter shall control. However, to the extent that chapter 17 also subjects a reciprocal insurer to the other provisions of this title, such other provisions shall not be applicable to a reciprocal insurer formed under this chapter unless such provisions are expressly made applicable to such captive insurance companies by this chapter. ADD}

{ADD (k) The articles of incorporation or bylaws of a captive insurance company formed as a corporation may authorize a quorum of a board of directors to consist of no fewer than one third (1/3) of the fixed or a majority of the prescribed number of directors as determined by the charter or the bylaws of the corporation or by paragraph 34 of section 1.1 of title 7. ADD}

{ADD (l) The subscribers' agreement or other organizing document of a captive insurance company formed as a reciprocal insurer may authorize a quorum of a subscriber's advisory committee to consist of no less than one third (1/3) of the number of its members. ADD}

SECTION 13. Section 27-52-2 of the General Laws in Chapter 27-52 entitled "Reinsurance Intermediaries" is hereby amended to read as follows:

27-52-2. Definitions. -- As used in this chapter:

(1) "Actuary" means a person who is a member in good standing of the American academy of actuaries;

(2) "Controlling person" means any person, firm, association, or corporation who directly or indirectly has the power to direct or cause to be directed, the management, control, or activities of the reinsurance intermediary;

(3) "Insurer" means any person, firm, association, or corporation duly licensed in this state pursuant to the applicable provisions of the insurance law as an insurer;

(4) "Licensed producer" means an agent, broker, or reinsurance intermediary licensed pursuant to the applicable provisions of this title.

(5) "Qualified U.S. financial institutions", for the purposes of this chapter, means an institution that:

(i) Is organized or in the case of a U.S. office of a foreign banking organization licensed, under the laws of the United States or any state thereof;

(ii) Is regulated, supervised, and examined by U.S. federal or state authorities having regulatory authority over banks and trust companies; and

(iii) Has been determined by either the commissioner, or the securities valuation office of the national association of insurance commissioners, to meet such standards of financial condition and standing as are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the commissioner;

(6) "Reinsurance intermediary" means a reinsurance intermediary broker or a reinsurance intermediary-manager as these terms are defined in subsections (7) and (8) {ADD , but shall not mean an intermediary in an insurance securitization or reinsurance transaction with a protected cell established by a protected cell company organized under the Protected Cell Companies Act of this title 27, as those terms are defined or utilized in such act ADD};

(7) "Reinsurance intermediary broker" (RB) means any person, other than an officer or employee of the ceding insurer, firm, association, or corporation who solicits, negotiates, or places reinsurance cessions or retrocessions on behalf of a ceding insurer without the authority or power to bind reinsurance on behalf of the insurer;

(8) "Reinsurance intermediary manager" (RM) means any person, firm, association, or corporation who has authority to bind or manages all or part of the assumed reinsurance business of a reinsurer, including the management of a separate division, department, or underwriting office, and acts as an agent for the reinsurer which is known as a RM, manager, or other similar term. Notwithstanding the above, the following persons shall not be considered a RM, with respect to the reinsurer, for the purposes of this chapter:

(i) Any employee of the reinsurer;

(ii) A U.S. manager of the United States branch of an alien reinsurer;

(iii) An underwriting manager which, pursuant to contract, manages all the reinsurance operations of the reinsurer, is under common control with the reinsurer, subject to the Insurance Holding Company Systems Act, chapter 35 of this title, and whose compensation is not based on the volume of premiums written;

(iv) The manager of a group, association, pool, or organization of insurers which engage in joint underwriting or joint reinsurance and who are subject to examination by the insurance commissioner of the state in which the manager's principal business office is located;

(9) "Reinsurer" means any person, firm, association, or corporation duly licensed in this state pursuant to the applicable provisions of this title as an insurer with the authority to assume reinsurance; and

(10) "To be in violation" means that the reinsurance intermediary, insurer, or reinsurer for whom the reinsurance intermediary was acting failed to substantially comply with the provisions of this chapter.

SECTION 14. This act shall take effect upon passage.