Guam § 23106 - Formation of Captive Insurance Companies on Guam.

§ 23106. Formation of Captive Insurance Companies on Guam.

(a) A pure captive insurance company shall be incorporated as a stock

insurer with its capital divided into shares and held by the stockholders.

(b) A group captive insurance company or an industrial insured captive

insurance company may be incorporated:

(1) as a stock insurer with its capital divided into shares and held

by the stockholders; or

(2) as a mutual insurer without capital stock, the governing body

of which is elected by the member organizations of its group.

(c) A captive insurance company shall have not less than three (3)

incorporators of whom not less than one (1) shall be a resident of Guam.

(d) Before the Articles of Incorporation are transmitted to the Director,

the incorporators shall petition the Commissioner to issue a certificate

setting forth his findings that the establishment and maintenance of the

COL120106

proposed corporation will promote the general good of Guam In arriving at

such finding, the Commissioner shall consider:

(1) the character, reputation, financial standing and purpose of the

incorporators or attorney-in-fact;

(2) the character, reputation, financial responsibility, insurance

experience and business qualifications of the officers and directors;

(3) the amount and liquidity of its assets relative to the risks to be

assumed;

(4) the adequacy of the expertise, experience and character of the

persons who will manage the captive insurer;

(5) the overall soundness of its plan of operation;

(6) the adequacy of the loss prevention programs of its parent or

member organizations;

(7) the establishment of business relationships with banks and

services including, but not limited to, accountants, attorneys,

investment advisers, broker-dealers and other professionals that are

licensed to transact business in Guam; and

(8) such other aspects as the Commissioner shall deem advisable.

(e) The Articles of Incorporation, such certificate, and the organization

fee shall be transmitted to the Director, who shall thereupon record both the

Articles of Incorporation and the certificate.

(f) The capital stock of a captive insurance company incorporated as a

stock insurer shall be issued at not less than Ten Dollars ($10.00) par value.

(g) At least one (1) of the members of the Board of Directors of a

captive insurance company incorporated on Guam shall be a resident of

Guam.

(h) Captive insurance companies formed under the provisions of this

Chapter shall have the privileges and be subject to the provisions of the

General Corporation Law, as well as the applicable provisions contained in

this Chapter. In the event of conflict between the provisions of said General

Corporation Law and the provisions of this Chapter, the latter shall control.

(i) The Articles of Incorporation or bylaws of a captive insurance

company may authorize a quorum of a board of directors to consist of no

COL120106

fewer than the required majority of the board members as specified in the

Articles of Incorporation.

(j) Establishment of Protected Cells.

(1) A protected cell company may establish one (1) or more

protected cells with the prior written approval of the Commissioner of

a plan of operation or amendments thereto submitted by the protected

cell company with respect to each protected cell in connection with an

insurance securitization. Upon the written approval of the

Commissioner of the plan of operation, which shall include, but not be

limited to, the specific business objectives and investment guidelines

of the protected cell, the protected cell may, in accordance with the

approved plan of operation, attribute to the protected cell insurance

obligations with respect to its insurance business and obligations

relating to the insurance securitization and assets to fund the

obligations. A protected cell shall have its own distinct name or

designation, which shall include the words >protected cell=. The

protected cell company shall transfer all assets attributable to a

protected cell to one (1) or more separately established and identified

protected cell accounts bearing the name or designation of that

protected cell. Protected cell assets shall be held in the protected cell

accounts for the purpose of satisfying the obligations of that protected

cell.

(2) All attributions of assets and liabilities between a protected

cell and the general account shall be in accordance with the plan of

operation approved by the Commissioner. No other attribution of

assets or liabilities may be made by a protected cell company between

the protected cell company=s general account and its protected cells.

Any attribution of assets and liabilities between the general account

and a protected cell, or from investors in the form of principal on a

debt instrument issued by a protected cell company in connection with

a protected cell company securitization shall be in cash or in readily

marketable securities with established market values.

(3) The creation of a protected cell does not create, in respect of

that protected cell, a legal person separate from the protected cell

company. Amounts attributed to a protected cell under this Chapter,

including assets transferred to a protected cell account, are owned by

the protected cell company and the protected cell company may not be,

COL120106

nor hold itself out to be, a trustee with respect to those protected cell

assets of that protected cell account. Notwithstanding the foregoing,

the protected cell company may allow for a security interest to attach

to protected cell assets or a protected cell account when in favor of a

creditor of the protected cell and otherwise allowed under applicable

law.

(4) This Chapter shall not be construed to prohibit the protected

cell company from contracting with or arranging for an investment

advisor, commodity trading advisor, or other third party to manage the

protected cell assets of a protected cell, provided that all remuneration,

expenses and other compensation of the third party advisor or manager

are payable from the protected cell assets of that protected cell and not

from the protected cell assets of other protected cells or the assets of

the protected cell company=s general account.

(5) (i) A protected cell company shall establish administrative and

accounting procedures necessary to properly identify the one (1) or

more protected cells of the protected cell company and the protected

cell assets and protected cell liabilities attributable to the protected

cells. It shall be the duty of the directors of a protected cell company

to:

(A) keep protected cell assets and protected cell liabilities

separate and separately identifiable from the assets and liabilities

of the protected cell company=s general account; and

(B) keep protected cell assets and protected cell liabilities

attributable to one (1) protected cell separate and separately

identifiable from protected cell assets and protected cell liabilities

attributable to other protected cells.

(ii) Notwithstanding the foregoing, if this Section is violated, the

remedy of tracing shall be applicable to protected cell assets when

commingled with protected cell assets of other protected cells or the

assets of the protected cell company=s general account. The remedy of

tracing shall not be construed as an exclusive remedy.

(6) The protected cell company shall, when establishing a

protected cell, attribute to the protected cell assets with a value at least

equal to the reserves and other insurance liabilities attributed to that

protected cell.

COL120106

(k) Use and operation of protected cells.

(1) The protected cell assets of a protected cell may not be

charged with liabilities arising out of any other business the protected

cell company may conduct. All contracts or other documentation

reflecting protected cell liabilities shall clearly indicate that only the

protected cell assets are available for the satisfaction of those protected

cell liabilities.

(2) The income, gains and losses, realized or unrealized, from

protected cell assets and protected cell liabilities shall be credited to or

charged against the protected cell without regard to other income,

gains or losses of the protected cell company, including income, gains

or losses of other protected cells. Amounts attributed to any protected

cell and accumulations on the attributed amounts may be invested and

reinvested and the investments in a protected cell or cells shall not be

taken into account in applying the investment limitations otherwise

applicable to the investments of the protected cell company.

(3) Assets attributed to a protected cell shall be valued at their fair

value on the date of valuation.

(4) A protected cell company shall, in respect of any of its

protected cells, engage in fully funded indemnity triggered insurance

securitization to support in full the protected cell exposures attributable

to that protected cell. A protected cell company insurance

securitization that is non-indemnity triggered shall qualify as an

insurance securitization under the terms of this Chapter only after the

Commissioner, in accordance with the authority granted under Section

23114 of this Chapter, adopts regulations addressing the methods of

funding of the portion of the risk that is not indemnity based, account,

disclosure, risk based capital treatment, and assessing risks associated

with such securitizations. A protected cell company insurance

securitization that is not fully funded, whether indemnity triggered or

non-indemnity triggered, is prohibited. Protected cell assets may be

used to pay interest or other consideration on any outstanding debt or

other obligation attributable to that protected cell, and nothing in this

Subsection shall be construed or interpreted to prevent a protected cell

company from entering into a swap agreement or other transaction for

the account of the protected cell that has the effect of guaranteeing

interest or other consideration. In all protected cell company

COL120106

insurance securitizations, the contracts or other documentation

effecting the transaction shall contain provisions identifying the

protected cell to which the transaction will be attributed. In addition,

the contracts or other documentation shall clearly disclose that the

assets of that protected cell, and only those assets, are available to pay

the obligations of that protected cell. Notwithstanding the foregoing,

and subject to the provisions of this Chapter and any other applicable

law or regulation, the failure to include the language in the contracts or

other documentation shall not be used as the sole basis by creditors,

reinsurers or other claimants to circumvent the provisions of this

Chapter.

(5) A protected cell company shall only be authorized to attribute

to a protected cell account the insurance obligations relating to the

protected cell company=s general account. Under no circumstances

shall a protected cell be authorized to issue insurance or reinsurance

contracts directly to policyholders or reinsureds or have any obligation

to the policyholders or reinsureds of the protected cell company=s

general account.

(6) At the cessation of business of a protected cell in accordance

with the plan approved by the Commissioner, the protected cell

company shall voluntarily close out the protected cell account.

(l) Reach of creditors and other claimants.

(1)(i) Protected cell assets shall only be available to the

creditors of the protected cell company that are creditors in

respect to that protected cell and shall thereby be entitled, in

conformity with the provisions of this Chapter, to have

recourse to the protected cell assets attributable to that

protected cell, and shall be absolutely protected from the

creditors of the protected cell company that are creditors in

respect of that protected cell and who, accordingly, shall not

be entitled to have recourse to the protected cell assets

attributable to that protected cell. Creditors, with respect to

a protected cell, shall not be entitled to have recourse against

the protected cell assets of other protected cells or the assets

of the protected cell company=s general account.

(ii) Protected cell assets shall only be available to

creditors of a protected cell company after all protected cell

COL120106

liabilities have been extinguished or otherwise provided for

in accordance with the plan of operation relating to that

protected cell.

(2) When an obligation of a protected cell company to a person

arises from a transaction, or is otherwise imposed, in respect of a

protected cell:

(i) that obligation of the protected cell company shall extend

only to the protected cell assets attributable to that protected cell,

and the person shall, with respect to that obligation, be entitled to

have recourse only to the protected cell assets attributable to that

protected cell; and

(ii) that obligation of the protected cell company shall not

extend to the protected cell assets of any other protected cell or

the assets of the protected cell company=s general account, and

that person shall not, with respect to that obligation, be entitled to

have recourse to the protected cell assets of any other protected

cell or the assets of the protected cell company=s general account.

(3) When an obligation of a protected cell company relates solely

to the general account, the obligation of the protected cell company

shall extend only to, and that creditor shall, with respect to that

obligation, be entitled to have recourse only to, the assets of that

protected cell company=s general account.

(4) The activities, assets, and obligation relating to a protected

cell are not subject to the provisions of any guaranty fund, and neither

a protected cell nor a protected cell company shall be assessed by or

otherwise be required to contribute to any guaranty fund or guaranty

association in Guam with respect to the activities, assets, or obligations

of a protected cell. Nothing in this Subsection shall affect the activities

or obligations of an insurer=s general account.

(5) In no event shall the establishment of one (1) or more

protected cells alone constitute or be deemed to be a fraudulent

conveyance, an intent by the protected cell company to defraud

creditors, or the carrying out of business by the protected cell company

for any other fraudulent purpose.

(m) Conservation, rehabilitation or liquidation of protected cell

companies.

COL120106

(1) Notwithstanding any contrary provision in the insurance code

of Guam, the regulations promulgated under the insurance code of

Guam, or any other applicable law or regulation, upon any order of

conservation, rehabilitation or liquidation of a protected cell company,

the receiver shall be bound to deal with the protected cell company=s

assets and liabilities, including protected cell assets and protected cell

liabilities, in accordance with the requirements set forth in this

Chapter.

(2) With respect to amounts recoverable under a protected cell

company insurance securitization, the amount recoverable by the

receiver shall not be reduced or diminished as a result of the entry of

an order of conservation, rehabilitation or liquidation with respect to

the protected cell company notwithstanding any provisions to the

contrary in the contracts or other documentation governing the

protected cell company insurance securitization.@