The Tennessee Department of Commerce and Insurance is to hold a rulemaking hearing on 20 October on proposed changes to the rules governing Tennessee captive insurance companies. The proposals touch every rule in chapter 0780-01-41, Tennessee Captive Insurance Companies, from purpose and authority through to a severability provision. For seven of the 20 rules, the only change is an updated statutory authority citation. The filing adds four new rules, replaces two existing rules in their entirety and repeals Appendix A, the Tennessee Captive Insurer Annual Report. None of the changes takes effect unless and until the rules are adopted. Among the new rules, captives would have to file an annual actuarial opinion on the reasonableness of their loss and loss expense reserves, by 30 June or within 180 days of the end of the fiscal year. For protected cell captives, the opinion would also identify any cell whose carried reserves the actuary considers inadequate or redundant. The certifying actuary would need the commissioner's approval, and the commissioner could waive the requirement for exceptional cause. A further new rule defines service providers. The definition covers captive managers, auditors, accountants, attorneys, actuaries and investment advisers, as well as those responsible for underwriting, rating, premium collection, claims and financial statements. The commissioner could reject or revoke approval of any service provider without a hearing, and a captive would have at least 30 days to obtain approval of a replacement. A captive that engages at least two such providers, has its principal place of business in Tennessee and appoints a registered agent in the state could apply to hold its annual meeting virtually. Captives would be examined at least once every three years. The commissioner could extend the cycle to five years where the captive is subject to comprehensive annual financial audits by an independent certified public accountant approved by the commissioner. The audited annual financial report would be filed by 30 June each year, or within 180 days of the end of the company's fiscal year. Annual reports would be prepared using generally accepted accounting principles. At least two executive officers and the captive manager would verify each report as true and correct by written oath. The OPTins system would be designated as the approved method for receiving premium tax forms and payments, subject to a convenience fee per filing. The commissioner could waive electronic payment case by case for good cause. Captives approved to use an alternative reporting date would pay estimated premium tax by 15 March. They could face penalties of up to US$1,000 where the amount paid falls below 80 per cent of the tax ultimately due. Captives already have to report their independent certified public accountant within 90 days and appoint from a list approved by the commissioner. The proposals would set out grounds on which the commissioner could reject a designated accountant, including fraud convictions, violations of insurance law and indemnification agreements relating to the audit. The commissioner could also require a replacement without a hearing, with at least 30 days allowed to appoint one. The commissioner could also conduct an informal visitation of a captive without a request from the company, where the current rule provides for one at the captive's request. A visitation could extend to the offices of the captive manager, accountant, owner or other service providers. Costs would fall to the captive unless the commissioner waives them. On captive managers, companies would report their designated manager before licensing, and the manager would apply to the commissioner for approval. Any change of manager would need approval in advance. The commissioner could reject, revoke approval of or require the removal of a manager or management firm on specified grounds. These include fraud convictions, insurance law violations and a pattern of failing to oversee a captive's operations, governance or financial reporting. A captive would have at least 30 days to obtain approval of a new manager. Applications would be deemed abandoned if not completed within six months of the initial materials being filed. The department would retain all fees, and any later request would require a fresh application. The commissioner could grant an extension for good cause if requested before the period expires. The commissioner could approve backdating a certificate of authority or approval to operate where the application review is completed within 45 days. That period runs from the filing of the organisational documents with the Secretary of State, or from submission of the application in the case of an unincorporated entity or cell. Where reviews run longer, applicants could elect an effective date within 30 to 45 days of the department completing its review. Backdating beyond that period would require extraordinary circumstances and the commissioner's written approval. Separately, captives would have 30 days, rather than 60, to file changes to information in their application that do not amount to a material change. The hearing takes place at 9am in conference room 1-B of the Davy Crockett Tower, 500 James Robertson Parkway, Nashville. For questions about the proposed rules or to submit comments, contact Virginia Smith at Virginia.Smith@tn.gov.
