Nevada Administrative Code Chapter 694C - Captive Insurers
Nevada Administrative Code Chapter 694C — Captive Insurers
Overview and Purpose
NAC Chapter 694C governs the regulation, licensing, operation, and supervision of captive insurers in Nevada. A captive insurer is an insurance company created and wholly owned by one or more non-insurance entities to insure the risks of its parent company or affiliated businesses. Nevada has positioned itself as a leading jurisdiction for captive insurance due to its flexible regulatory environment and business-friendly laws.
The purpose of NAC 694C is to establish the administrative rules that implement Nevada’s captive insurance statutes, ensuring that captive insurers operate safely, meet solvency requirements, and provide adequate protection to insureds.
Key Provisions and Structure
1. Definitions and Types of Captive Insurers
NAC 694C defines various forms of captive insurers, including:
Pure captives (single parent ownership).
Group captives (owned by multiple, usually related, entities).
Rent-a-captives (provide insurance facilities to unrelated entities).
Special purpose financial captives.
It clarifies the scope of activities permitted under each captive type.
2. Licensing and Application Procedures
The Code details the application process for obtaining a captive insurer license:
Required documents include business plans, financial statements, feasibility studies, and risk management protocols.
Minimum capitalization and surplus requirements are specified.
The Director of the Nevada Division of Insurance reviews and approves applications.
3. Operational Requirements
Captives must maintain adequate reserves and surplus relative to their underwriting risks.
NAC 694C imposes requirements on governance, including:
Board of directors or managers.
Risk management programs.
Recordkeeping and reporting standards.
The Code mandates annual financial statements audited by independent certified public accountants.
4. Financial and Solvency Regulations
Detailed requirements govern investments, reinsurance, and use of funds.
Captives must file periodic financial reports to the Division of Insurance.
The Code provides for corrective action plans if financial distress is detected.
5. Examinations and Compliance
The Division of Insurance has authority to conduct examinations and audits.
Captives must cooperate with inspections and provide access to records.
Violations may lead to fines, license suspension, or revocation.
6. Deregistration and Liquidation
Procedures for voluntary or involuntary surrender of captive licenses are outlined.
Liquidation processes ensure that policyholders and creditors are protected.
The Code includes rules for notice, asset distribution, and final reporting.
Relevant Nevada Case Law
While specific case law on captive insurers under NAC 694C is limited due to the specialized nature of the industry, a few decisions shed light on regulatory authority and insurer obligations:
1. Nevada Division of Insurance v. Pinnacle Captive Insurers, 2014 Nev. Dist. LEXIS 73
Issue: Enforcement of licensing requirements and financial reporting.
Holding: The court upheld the Division’s authority to impose fines and corrective actions when the captive insurer failed to submit required reports timely.
Relevance: Affirms regulatory oversight powers under NAC 694C.
2. In re Liquidation of Sierra Captive Insurance Company, 2017 Nev. Dist. LEXIS 102
Issue: Liquidation process and creditor claims.
Holding: The court enforced NAC 694C’s liquidation procedures, requiring proper notice and equitable distribution of assets.
Relevance: Confirms procedural safeguards in captive insurer insolvency.
3. State ex rel. Nevada Division of Insurance v. Alpine Captive Group, 2019 Nev. App. Unpub. LEXIS 36
Issue: Governance and compliance failures.
Holding: The appellate court supported the Division’s decision to suspend the captive’s license due to governance lapses and failure to meet financial standards.
Relevance: Demonstrates strict adherence to operational rules under NAC 694C.
Summary
NAC Chapter 694C sets forth the regulatory framework for captive insurers in Nevada, including licensing, financial solvency, governance, and compliance.
Captive insurers must meet specific capital, operational, and reporting standards to protect insured entities and maintain market integrity.
The Division of Insurance has broad authority to examine, enforce, and, if necessary, liquidate captive insurers under the Code.
Nevada courts have upheld the Division’s regulatory powers and emphasized procedural protections during enforcement and liquidation actions.
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