Captive insurance companies in Texas may soon be able to participate in risk pooling arrangements and take credit for reinsurance risk under legislation recently passed by the state legislature. S.B. 667 received unanimous support from Texas legislators and now awaits Gov. Greg Abbott's (R) signature. Once signed, the bill would become effective immediately.
The amendments to Texas’ captive insurance laws would “expand the capacity to domicile single parent captives to a greater portion of Texas business and industry,” according to a press release from the Texas Captive Insurance Association (TxCIA) available at Captive.com.
The bill, S.B. 667 would authorize Texas-domiciled captives to accept or cede risks, or take credit for reserves on risks ceded to, a captive reinsurance pool or to an affiliated captive insurance company. In order to participate in a pool, the captive may have to provide the Texas Department of Insurance (TDI) with evidence that the reinsurance pool is composed only of other captive insurance companies and that the pool would be able to meet its financial obligations. The TDI would also have to approve a captive's participation in the pool.
Additionally, the bill would authorize Texas captives to issue dividends or distributions to its equity interest holders, in addition to policyholders.
S.B. 667 is the first piece of legislation to amend Texas's captive insurance laws since they were enacted in June 2013.
Prior to 2013, Texas businesses that wanted to utilize captive insurance had to form a captive in a location other than Texas, and those businesses were subject to a 4.85 percent tax on gross premiums, called a self-procurement tax, paid to the out-of-state captive.
After passage of Texas's captive-enabling legislation, S.B. 734, in 2013, a company can now form a captive in-state, or re-domicile an existing captive to Texas, and the captive is subject to a 0.5 percent tax on its taxable premium receipts for the calendar year instead of the 4.85 percent self-procurement tax. However, a company that chooses to continue using an out-of-state captive remains subject to the self-procurement tax.
The TxCIA plans to pursue other changes to the state’s captive laws. Issues that may be addressed include credit for reinsurance for risks ceded to non-admitted reinsurers, allowing the TDI to incorporate captives instead of the Texas Secretary of State, and authorization for reciprocal structures for captives within the same economic family, as well as modifications to investment provisions in Texas’ captive laws. However, changes will have to wait until the state legislature reconvenes in 2017 (the legislature meets every two years).
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Will this legislation make Texas a more competitive captive domicile?
For more information about state tax issues, sign up for a free trial of the Bloomberg BNA Premier State Tax Library.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)