A bill that authorises captive insurance companies to underwrite, reinsure, or assume catastrophic property and casualty risks passes the Hawaii State Legislature's Senate unanimously and advances to the House, despite opposition from the state's insurance regulator and structural concerns raised by the captive insurance industry.
Senate Bill 2950 (SB 2950), introduced by Senators McKelvey, Chang, and Fukunaga, passes the full Senate 25-0 on 10 March in its amended form, SB 2950 SD1, and is referred to the House Committee on Consumer Protection and Commerce. The bill adds a new part to Hawaii's captive insurance statute under Chapter 431, Article 19 of the Hawaii Revised Statutes.
According to the bill text, the measure defines catastrophic property and casualty risk broadly, covering natural disasters including hurricanes, earthquakes, tsunamis, floods, wildfires, and volcanic activity, as well as related business interruption losses, excess and layered liability exposures, and reinsurance or retrocessional coverage. Authorisation applies only to commercial, industrial, institutional, governmental, and nonprofit risks. Personal lines insurance is excluded unless expressly approved by the Insurance Commissioner.
The bill's legislative findings point to Hawaii's geographic isolation, concentration of risk, and exposure to natural catastrophes as factors that periodically result in reduced underwriting capacity, increased premiums, and the withdrawal of insurers from the state. The legislature cites New Jersey's captive insurance law as a precedent, noting that insurers which had previously indicated an intent to reduce or exit that state's property and casualty market reconsidered following adoption of a captive insurance framework.
However, the Department of Commerce and Consumer Affairs (DCCA) formally opposes the bill. In testimony before the Senate Committee on Commerce and Consumer Protection, Insurance Commissioner Scott K. Saiki states that "captive companies are established to self-insure and manage the risks of their parent company and affiliates, not advance public interest objectives."
In the department's testimony, Saiki argues that the bill "expands the captive insurer's role to provide coverage for the public, blurring the established distinction between captive insurers and admitted commercial carriers." He notes that captive companies are not subject to regulations covering consumer protection, rate oversight, and market availability requirements that apply to commercial insurers, and that the bill does not address this gap.
The DCCA also warns that allowing captives to take on a public-facing role could require captive companies to be included in the National Association of Insurance Commissioners (NAIC) Accreditation Program, from which captive insurers are currently exempt. On the New Jersey comparison, the department states it "is not aware of other states that permit captive insurers to provide the type of coverage in the manner contemplated by this bill."
The Hawaii Captive Insurance Council (HCIC), the nonprofit trade association representing Hawaii's captive insurance industry, submits comments raising structural concerns. In testimony to the committee, HCIC president Paul Shimomoto notes that Hawaii's captive statute "is built on a foundational principle that captive insurers insure the risks of their parent companies and affiliated entities within a defined corporate family."
According to Shimomoto, SB 2950 shifts the focus from a relationship-based standard, centred on affiliation and control, to a risk- or entity-based standard. The HCIC states that terms such as "commercial," "institutional," or "nonprofit" describe the nature of an entity but do not establish whether the insured is affiliated with or integrated into the captive sponsor's enterprise. The HCIC says this "represents a significant departure from the statutory architecture of HRS Chapter 431:19," and notes that the bill introduces concepts that are not fully integrated with, and may not be consistent with, the existing statutory framework.
The HCIC offers to work with members of the committee and other stakeholders to explore approaches that achieve similar policy objectives while remaining aligned with the established captive insurance framework.
The Senate committee, chaired by Senator Jarrett Keohokalole, advances the bill with an amended effective date of 1 July 2050, a placeholder intended to encourage further discussion. In its committee report, the committee acknowledges the state's unique challenges maintaining a stable insurance market and says the measure would expand coverage options, encourage insurer retention, and stabilise the property and casualty market.
Under SB 2950 SD1, captive insurers underwriting catastrophic risks must maintain capital and surplus in amounts determined by the commissioner, who may require catastrophe modelling, stress testing, and independent actuarial opinions. Enhanced reporting on exposure levels, aggregate catastrophic risk, reinsurance arrangements, and financial condition is also required. Premiums written under the new authorisation are subject to the standard captive premium tax, with no additional surcharge for covering catastrophic risks.
