Two Significant Pieces of Insurance Legislation Passed During the 83rd Texas Legislative Session and How They Will Impact Businesses in Texas
Two pieces of insurance legislation, passed during the 83rd Texas Legislative Session, are of great significance to businesses in Texas. SB 1332 relates to classifying business as small and large employers for health insurance purposes, and SB 734 relates to the creation of captive insurance companies in Texas.
Senate Bill 1332
Senate Bill 1332 amends Texas law to allow the inclusion of part-time employees to classify businesses as large or small employers. The bill allows the definitions to be based on total number of employees instead of the previous “eligible” employees, which were those who worked at least 30 hours per week. This will bring the state in line with federal definitions regarding how businesses are sized for the Affordable Care Act. The change in law applies only to health benefit plans delivered, issued for delivery, or renewed on or after January 1, 2014. It is important to note that under federal law, as of January 2014, small employers will be classified as one to 100 employees, but according to TDI, because Texas specified that small employers would be kept to 50 and under, small employers will remain up to 50 employees in Texas, with large employers at 51 employees and above.
Senate Bill 734
Senate Bill 734 adds Chapter 964 to the Insurance Code and permits the formation of a captive insurance carrier in Texas. The chapter will define the forms of business organization under which a captive can operate, the minimum qualifications for its board of directors, and the features of the captive’s certificate of formation.
A domestic captive insurance company will apply for a certificate of authority from the Texas Department of Insurance (TDI) and pay a $1500 application fee. It will be required to have significant operations in Texas, hold at least one meeting of its board of directors in Texas each year, and maintain its principal office and records in Texas. A foreign captive may also transfer its domicile to Texas upon approval of the TDI.
A captive insurance company is authorized to insure only the operational property and casualty risks of the company’s affiliates and risks of a controlled unaffiliated business and provide reinsurance to an insurer covering those risks of the captive’s affiliates or of a controlled unaffiliated business that the captive may insure directly. Such reinsurance may include an affiliate’s employee benefit plan, liability insurance or workers’ compensation insurance, but not life insurance. The new law requires the captive to provide notice to the TDI of any reinsurance it provides. A captive insurance company may not issue life, workers’ compensation, personal lines or health insurance, except to insure employee benefits that are subject to ERISA.
Captives will be required to maintain reserves sufficient to pay all losses for which it could be liable, plus any expenses from the settlement of those losses. A captive is required to maintain capital and surplus of at least $250,000 or a higher amount as determined by the TDI. The insurer would use GAAP accounting, except that a captive insurance company that is required to hold a certificate of authority under another jurisdiction’s insurance laws shall use statutory accounting principles. A captive may enter into affiliated transactions subject to TDI approval. The captive would not be allowed to participate in any insolvency funds or pools in Texas.
Captives will be subject to a tax rate of one-half of one percent on the taxable premium receipts and other forms of revenue from written insurance policies in a calendar year. The annual minimum tax for a captive is $7,500 and the annual maximum tax is $200,000. A captive would not be subject to other taxes or fees, including the franchise tax, except for insurance maintenance taxes on the direct premiums on individual lines of business written by the captive in this state.