Senatecommittee substitutemakes the following changes to the 2nd edition.

Deletes all the provisions of new GS 58-10-455, which set out the premium tax rates for captive insurance companies and established the Captive Insurance Regulatory Fund. Instead, provides that a captive insurance company is taxed in accordance with Article 8B of GS Chapter 105. Makes a conforming change, deleting subsection (c) of proposed GS 58-10-485, which required any monetary penalties collected under this section to be deposited into the Captive Insurance Regulatory Fund created in GS 58-10-455(f). Amends GS 105-228.3 to add captive insurance company as defined in GS 58-10-340 to the list of definitions that apply in Article 8B, Taxes Upon Insurance Companies, in GS Chapter 105.

Enacts new GS 105-228.4A in Article 8B of GS Chapter 105 to provide for the levy of taxes on captive insurance companies. Excludes a captive insurance company subject to the tax levied under this section from the franchise or income taxes imposed by Articles 3 and 4 of this Chapter and from the regulatory charge imposed by GS 58-6-25. Provides that the tax on captive insurance companies is collected and administered in the same manner as the gross premiums tax imposed under GS 105-228.5, except as otherwise provided in this section. Also provides that the definitions in new GS 58-10-340 apply in this section. Provides criteria for determining the tax base for a captive insurance company doing business in this state. Specifies the tax rate to be applied to gross premiums collected on reinsurance contracts issued by a captive insurance company under new GS 58-10-445. Also specifies the rate of tax on reinsurance andother insurance contracts issued by a captive insurance company. Establishes the parameters of total tax liability under this section and provides that two or more captive insurance companies commonly owned and controlled are taxed as a single captive insurance company under this section. Amends GS 105-228.5(g) to exempt captive insurance companies that are taxed under GS 105-228.4A from the provisions of GS 105-228.5 regarding taxes measured by gross premiums.

Amends GS 58-6-25 to exempt a captive insurance company from the insurance regulatory charge imposed by this section. Amends subsection (d) of this section to include expensesin regulatingand promoting the state's captive insurance industry as reimbursable to the General Fund from money credited to the Insurance Regulatory Fund.

Renumbers the remaining sections of the act as needed.

Enacts new Part 9 (Captive Insurance Companies) in Article 10 of GS Chapter 58. Defines a captive insurance company as any pure captive insurance company, association captive insurance company, industrial insured captive insurance company, risk retention  group, protected cell captive insurance company, incorporated cell captive insurance company, or special purpose financial captive insurance company formed or licensed under the new part.

Provides that any captive insurance company, when permitted by its organizational documents, may apply to the Commissioner of Insurance (Commissioner) for a license to do any and all insurance comprised in GS 58-7-15(1) through (16) and (19), provided that (1) no pure captive insurance company shall insure risks others than those of its parent and affiliated companies or a controlled unaffiliated business or businesses; (2) no association captive insurance company shall insure any risks other than those of its association, those of the member organizations of its association, and those of a member organization's affiliated companies; (3) no industrial insured captive insurance company shall insure any risks other than those of the industrial insureds that comprise the industrial insured group, those of their affiliated companies, and those of the controlled unaffiliated business of an industrial insured or its affiliated companies; (4) no risk retention group shall insure any risks other than those of its members and owners; (5) no captive insurance company shall provide personal motor vehicle or homeowner's insurance company; (6) no captive insurance company shall accept or cede reinsurance except as provided in GS 58-10-445 and GS 58-10-605; (7) no captive insurance company shall provide accident and health insurance on a direct basis; (8) no captive insurance company shall provide workers' compensation and employer's liability insurance on a direct basis; and (9) no captive insurance company shall provide life insurance or annuities on a direct basis. Prohibits a captive insurance company from transacting insurance business in the state unless (1) it obtains a license; (2) its board of directors or committee of managers, or subscribers' advisory committee holds at least one meeting each year in the state; (3) it maintains its principal place of business in the state; (4) it appoints a registered agent to accept service of process and to otherwise act on its behalf in the state, provided that whenever such agent cannot, with reasonable diligence, be found at the registered office of the company, the Commissioner must be an agent of such company upon whom any process, notice, or demand may be served and such service must be in in accordance with GS 58-16-30. Specifies seven requirements to be meet in order to receive a license to issue insurance policies as a captive insurance company, including submitting organizational documents; filing a plan of operation and submitting for approval a description of the coverages, deductibles, coverage limits, and rates, together with any additional required information. Sets out the process by which a captive insurance company can amend its organizational documents and the descriptions of deductibles, rates and related information. Makes licensing information confidential and sets out instances where the information may be made public. Requires the Commissioner to grant a license if the Commissioner is satisfied with the filed documents and statements.

Allows the Commissioner to contract with consultants and other professionals in completing the application process and other regulatory activities. Allows for an organizational investigation or exam before licensing an applicant. Requires the company to submit information about the company's manager before licensing. Sets out regulations concerning the company's name. Prohibits issuing a license unless the captive insurance company possesses and maintaining unimpaired paid-in capital and surplus in specified amounts. Requires the company to get approval from the Commissioner before paying a dividend or other distribution from capital or surplus.

Allows a pure captive insurance company to be incorporated as a stock insurer with its capital divided into shares and held by the stockholders, as a nonprofit corporation with one or more members, or as a manager-managed limited liability company. Specifies types of incorporation and organization that may be considered an association captive insurance company, an industrial insured captive insurance company, or a risk retention group.  Sets out further requirements for the formation of captive insurance companies, including requirements for mergers, consolidations, conversions, mutualizations, acquisitions, redomestications, or other similar transactions of captive insurance companies.

Sets out regulations concerning the activities of directors, and requires captive insurance companies to report within 30 days after any change in its executive officers or directors.

Requires the adoption and filing of conflict of interest statements.  Requires prior approval before making a material change in the company's field business plan. Requires authorization to act as a managing general agent, producer, or reinsurance intermediary for captive business.

Provides that captive insurance companies are not required to make any annual report except for the specified reports. Requires all captive insurance companies to have an annual audit and file the audited financial report with the Commissioner before June 30.   Sets out provisions for variances and exceptions to the audit requirement.  Delineates items that must be included in the audit report.

Requires a licensed captive insurance company to report information concerning the independent certified public accountant retained to conduct the annual audit, within 60 days.  Sets out reporting requirements for instances when the company  has material misstated its financial condition.  Sets out further requirements concerning the accountant's work papers and regulation the lead audit partner (the partner having primary responsibility for the audit).

Establishes requirements for additional security when the Commissioner deems that the captive insurance company's financial condition warrants additional security.

Allows the Commissioner to visit a captive insurance company and inspect and examine its affairs to ascertain its financial condition, its ability to fulfill its obligations, and whether it has complied with the Part. Sets out further requirements for the examination and makes related reports and information confidential.

Allows for the suspension or revocation of a license if the company has committed one of seven described violations or if they company has failed to commence business within two years of licensure, has failed to carry on business in or from the state, or the company has requested the suspension or revocation, and the suspension or revocation is in the public's and policyholders' best interest.

Requires association captive insurance companies and risk retention groups to comply with investment requirements contained in specified statutes. Sets out further requirements concerning restrictions on allowable investments, making loans or investments in parent company or affiliates, and holding an interest in qualified headquarters property.

Allows captive insurance companies to provide reinsurance. Provides that insurance by a captive insurance company of any workers' compensation or accident and health-qualified self-insurance plan will only be in the form of reinsurance. Provides further regulation of reinsurance.

Prohibits captive insurance companies from being required to join a rating organization and from being allowed to join or contribute financially to any plan, pool, association, or guaranty or insolvency fund in the state.

Requires each captive insurance company to pay taxes to the Department of Revenue, in an amount calculated based on set percentages; also sets the amount to be paid for assumed reinsurance premiums.  Sets the minimum aggregate tax at $5,000 and the annual maximum aggregate tax at $100,000. Provides guidelines for the aggregate minimum and maximums for protected cell captive insurance companies and specified special purpose financial captives. Creates the Captive Insurance Regulatory Fund to receive appropriations to cover the costs of staff and other expenses incurred in regulating captive insurance companies and promoting the state's captive insurance industry.

Provides for the adoption of rules by the Commissioner, including establishing standards concerning risk management.

Allows specified governmental entities to expend public funds to purchase capital stock in a captive insurance company or to provide guaranty capital in a mutual captive insurance company.

Specifies penalties for violations. Requires monetary penalties to be deposited into the Captive Insurance Regulatory Fund.

Sets out requirements for captive insurance companies that reinsure life insurance policies.

Allows one or more sponsors for a protected cell captive insurance company, sets out requirements for establishing the protected cells, and delineates filing requirements. Allows associations, corporations, limited liability companies, partnerships, trusts, and other business entities to be participants in protected cell captive insurance companies. Allows sponsors to be participants in a protected cell captive insurance company, and provides that a participant does not need to be a shareholder of the protected cell captive insurance company. Provides that a participant shall insure only its own risks through a protected cell captive insurance company. Establishes provisions for combining the assets of protected cells.

Allows the establishment of a branch captive insurance company to write any insurance or reinsurance of the employee benefit business of its parent and affiliated companies that is subjected to the Employee Retirement Income Security Act of 1974, as amended, or any insurance or reinsurance allowed to be written by captive insurance companies. Sets out the requirements for licensure including security requirements.

Requires an alien captive insurance company seeking to be licensed as a branch captive insurance company to petition the Commissioner to issue a certificate stating the finding that the licensing and maintenance of the branch operations will provide the general good of the state. Requires the company to comply with all other state laws after issuance of a certificate of authorization. Establishes reporting requirements and allows for the examination of a branch captive insurance company.

Provides that special purpose financial captives (SPFCs) are provided only to facilitate the securitization of one or more risks as a means of accessing alternative sources of capital and achieving the benefits of securitization.  Limits creation of SPFCs for the limited purpose of entering into SPFC contracts and insurance securitization transactions and into related agreements to facilitate the accomplishment and execution of those transactions. Allows the Commissioner to exempt an SPFC from the Part regulation under the Part would be inappropriate given the nature of the risks to be insured. Allows an SPFC to apply to the Commissioner for a certificate of authority to transact insurance or reinsurance business. Provides that an SPFC will only insure or reinsure the risks of its counterparty. Sets out other application requirements and guidelines for transacting business. Allows an SPFC to be established as a stock corporation, limited liability company, mutual, partnership, or other form of approved organization. Sets out other organizational requirements. Requires an SPFC to initially possess and maintain minimum capital of no less than $250,000 and requires all of the initial capitalization to be in cash. Sets out authorized and prohibited activities. Provides for the establishment of protected cell accounts and sets out provisions applicable to the protected cell accounts. Allows an SPFC to issue securities and sets out related requirements. Allows an SPFC to enter into asset management agreements. Provides that an SPFC may reinsure only the risks of a ceding insurer pursuant to a reinsurance contract and prohibits issuing a contract of insurance or a contract for assumption of risk or indemnification of loss other than such reinsurance contract. Set out further provisions concerning reinsurance. Provides that no securities issued by an SPFC pursuant to an insurance securitization are to be considered to be insurance or reinsurance contracts. Requires the assets of an SPFC to be preserved and administered by or on behalf of the SPFC to satisfy the liabilities and obligations of the SPFC incident to the reinsurance contract, the insurance securitization, and other relate agreements. Specifies restrictions on investments that the SPFC is subject to. Prohibits an SPFC from declaring or paying dividends to its owners other than in accordance with the insurance securitization transaction agreement, and in no event will the dividends decrease the capital of the SPFC below $250,000. Sets out other requirements concerning dividends. Provides that material changes to the SPFC's plan of operation require prior approval from the Commissioner. Provides for the filing of an audit and statement of operation; also allows for an examination of books, records, documents, accounts, and vouchers. Prohibits an SPFC from conducting activities until a new or modified certificate of authority is issued, when the SPFC stops business following termination or cancellation of an SPFC contract and the redemption of any related securities issued in connection with the SPFC contract. Provides for the supervision, rehabilitation, or liquidation of SPFC.

Sets out specified provisions of GS Chapter 58 that are applicable to all captive insurance companies, in addition to the new Part.

Makes conforming changes to the following statutes: GS 58-22-15, GS 58-28-5, GS 58-47-95, and GS 97-190.

Provides that nothing in the act is to be construed to obligate the General Assembly to appropriate funds for the act. The act is effective July 1, 2013, if funds are appropriated for the 2013-15 fiscal biennium to provide the Department with regulatory staff and resources to license and regulate captive insurance companies. If funds are not appropriated, then the act does not become effective until July 1 of a year in which the General Assembly appropriate funds to implement the act.