Find Legal Information

20-1098.01. Licensing; authority

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

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

2. A group captive insurer, other than a risk retention group, shall not insure risks other than the risks of its group members, its affiliates and controlled unaffiliated business. A risk retention group shall insure only the risks of its group members.

3. An agency captive insurer shall not:

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

(b) Directly insure life or disability insurance risks.

4. A protected cell captive insurer shall not insure any risks other than those prescribed in its participant contracts.

B. The following apply to the transaction of insurance by a captive insurer on a direct basis:

1. A captive insurer shall not directly 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) Mortgage guaranty insurance as defined in section 20-1541.

(h) Workers' compensation or employers' liability insurance policies except in connection with a self-insurance program as prescribed in this subsection.

2. A pure captive insurer shall not provide direct coverage of workers' compensation or employers' liability in this state unless the coverage is provided under a self-insurance program that is approved by the industrial commission of Arizona pursuant to section 23-961. A captive insurance program that is authorized by section 23-961 is subject to and shall comply with all requirements of title 23, chapter 6 that are applicable to self-insurance.

3. A pure captive insurer shall not provide direct coverage of workers' compensation or employers' liability insurance in another state unless the coverage is provided under 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.

4. This subsection does not prohibit a captive insurer from directly insuring deductible reimbursement risk.

5. This subsection does not prohibit a captive insurer from directly insuring employment practices liability risk.

C. A captive insurer shall not accept or cede reinsurance except as provided in section 20-1098.11.

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

E. A captive insurer shall:

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

2. Maintain its principal place of business in this state.

3. Appoint a resident statutory agent to accept service of process and to otherwise act on its behalf in this state and shall file 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.

F. Before receiving a license, an applicant for a captive insurer license shall file with the director the following:

1. If formed as a corporation, a certified copy of its articles of incorporation, articles of organization or other organizational document, a copy of its duly adopted bylaws or other governance rules, 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 copy of the power of attorney of its attorney-in-fact, a copy of its subscribers' agreement, a copy of its duly adopted bylaws or other governance rules, a statement under oath of its attorney-in-fact showing its financial condition and any other statement or document required by the director.

G. In addition to the information required by subsection F of this section, each applicant for a captive insurer license 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 directors and officers of 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 does business at a location 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 or members 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.

H. In addition to the information required by subsections F and G 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.

I. Before the issuance of a license, an applicant shall promptly notify the director of any material change in the information filed pursuant to this section.

J. An applicant for a captive insurer license shall pay to the director a nonrefundable fee for the issuance of a captive insurance license pursuant to section 20-167. The captive insurer shall pay the license renewal fee pursuant to section 20-167 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 applicant has filed comply with this article, the director may grant the applicant a captive insurer license that authorizes the captive insurer to transact captive insurance business in this state.

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.