Texas has passed a law allowing for the formation of purecaptive insurance companies within the state.

Companies doing business in the state are now authorized toself-insure, or provide reinsurance for, its own and itsaffiliate's operational risks such as employee benefit plans,liability insurance and worker's compensation insurance.

The new law allows for companies to open its own carriers in thestate, but does not permit the formation of independent captiveinsurance carriers in Texas. However, the Texas Department ofInsurance (TDI) may approve foreign captives to transfer domicilesto the state on a case-by-case basis.

In an analysis of the bill, the state's House wrote, "CSSB 734would create a healthier business climate for corporations thathave or would like to have a domestic captive insurance company.When a Texas-based corporation must form its captive in anotherstate, in incurs additional expenses and administrative burdens.For example, other states often require captives to engage locallybased management companies, hold a minimum number of board meetingswithin their first jurisdiction each year, and appoint a localresident to the board."

In order to obtain a certificate of authority from the TDI, thepure captive must have significant operations and keep itsprincipal office and records in Texas, and hold at least one boardof directors meeting in the state each year.

Captives will be taxed on half of one percent of a captive'spremium receipts and other forms of revenue from its annualinsurance policies. The maximum tax would be half of one percent ona captive's taxable premium receipts and other forms of revenuefrom annual insurance policies. The annual minimum captive tax isset $7,500 and the annual maximum tax is $200,000.

The captive will have to maintain a capital and surplus of atleast $250,000 in order to operate.

"Allowing domestic captives to form in Texas would attract newbusiness to the state and would help retain existing Texascompanies. In addition to lowered taxes for re-domesticated firms,the bill would attract high paying jobs, including attorneys,accountants, actuaries, and their support personnel. It would alsoresult in new revenue for the state through the insurance premiumtax," said the House analysis.

Texas captives would not be allowed to participate in anyinsolvency pools or funds in the state.