34 Tex. Admin. Code § 3.827 - Captive Insurance Companies

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Affiliate--A subsidiary or holding company that, directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, a captive insurance company. The term includes a parent entity that controls a captive insurance company.

(2) Captive insurance company--A company that holds a certificate of authority issued by the Texas Department of Insurance under Insurance Code, Chapter 964, and that insures only the operational risks of its affiliates or the risks of a controlled unaffiliated business.

(3) Control--To direct, or cause the direction of, the management and policies of an entity, other than the power that results from an official position with, or corporate office held in, the entity. The power may be possessed directly or indirectly by any means, including through the ownership of voting securities or by contract, other than a commercial contract for goods or non-management services.

(4) Controlled unaffiliated business--A person that:

(A) is not an affiliate;

(B) has an existing contractual relationship with an affiliate under which the affiliate bears operational risk; and

(C) whose risk is managed by a captive insurance company under criteria established by the Commissioner of Insurance pursuant to Insurance Code, § 964.066, relating to Standards for Risk Management of Controlled Unaffiliated Business.

(5) Gross premiums--For purposes of the maintenance tax implemented by this section, this term has the meaning assigned by paragraph (9) of this subsection, defining the term taxable premium receipts.

(6) Home office--The location from which the officers or directors of a business entity provide direction, control, and coordination, and where the executive officers hold meetings and make high-level decisions.

(7) Operational risks--Any potential financial loss of an affiliate, except for a loss arising from an insurance policy issued by a captive or insurance affiliate.

(8) Person--This term has the meaning assigned by Government Code, § 311.005.

(9) Taxable premium receipts--The total amount of gross premiums, membership fees, assessments, dues, revenues, and other considerations for insurance written by the captive insurance company in a calendar year, with no deduction for premiums paid for reinsurance to another authorized insurer. Taxable premium receipts do not include returned premiums, dividends paid to policyholders, or premiums excluded by another law of this state.

(b) Taxes imposed on a captive insurance company.

(1) Premium tax.

(A) The premium tax rate is one-half of one percent.

(B) Each year, the minimum aggregate amount of premium tax to be paid by a captive insurance company is $7,500, and the maximum aggregate amount of premium tax to be paid is $200,000.

(C) The premium tax due is based on the correctly reported taxable premium receipts on any kind of insurance written by the captive on operational risks for an affiliate or risks for a controlled unaffiliated business, on each kind of property or risk, without regard to the location of the property or risk that is being insured.

(D) For information about allowable premium tax credits, refer to subsection (c) of this section.

(2) Maintenance tax. The maintenance tax due is based on the correctly reported gross premium from writing insurance on risks located in this state, as applicable to the individual lines of business written, on operational risks for an affiliate or a controlled unaffiliated business. The rates for each line of business are determined by the Texas Department of Insurance and may vary each year. In the case of an indemnity policy that reimburses the insured for losses paid, the location of the risk or exposure insured is the location of the insured's home office.

(3) Other taxes. A captive insurance company's premium receipts subject to taxation under Insurance Code, Chapters 223A and 964 are not subject to any other taxes, surcharges, or other regulatory assessments or fees under the Insurance Code.

(4) Postponement or waiver of taxes or fees. The Commissioner of Insurance may postpone or waive, in whole or in part, any fees or taxes under the Insurance Code for a period not to exceed two years for any foreign or alien captive insurance company that transfers its state of domicile to this state. The amount of any premium tax waiver is computed on the net premium tax due after application of any available premium tax credits for examination expenses. To claim such premium tax or maintenance tax postponement or waiver under this paragraph, the captive insurance company shall submit with its premium tax or maintenance tax report the written letter or other documentation received from the Commissioner of Insurance or an authorized representative of the Texas Department of Insurance granting such waiver or postponement for the applicable tax year.

(c) Premium tax credit for examination expenses. A captive insurance company is entitled to a premium tax credit against the preliminary tax calculation in an amount equal to the allowable examination expenses paid to, and as determined by, the Texas Department of Insurance during the calendar year for which the tax is due. Credit is not allowed for fees paid to another state or paid in a different tax year. Any portion of the credit that exceeds the amount of taxes calculated for the year in which the examination expense is incurred may not be carried forward to a subsequent tax year.

(d) Due date and prepayments of tax. Captive insurance companies are subject to the provisions of § 3.809 of this title (relating to Due Dates, Penalty and Interest, and Overpayments). Section 3.809 of this title also addresses prepayments of premium tax.

(e) Failure to pay taxes. A captive insurance company that fails to pay all taxes imposed under Insurance Code, Chapters 223A and 964 is subject to Insurance Code, § 203.002(b) and Tax Code, Title 2, Subtitles A and B. The comptroller shall institute such collection actions against a delinquent captive insurance company as the comptroller considers appropriate.

Notes

34 Tex. Admin. Code § 3.827

Adopted by Texas Register, Volume 40, Number 07, February 13, 2015, TexReg 706, eff. 2/18/2015