MINIMUM CAPITAL & SURPLUS AND STATUTORY DEPOSITS AND WHO THEY PROTECT By: Ann Monaco Warren, Esq. 573.634.2522 With the spotlight on the financial integrity and solvency of corporations in the U.S. by the media, by Federal and State governmental regulators, by consumer groups, and by investors, this is a good time to look at the minimum capital & surplus and statutory deposit requirements for insurance companies. If you are seeking to form an insurance company, this article should be of interest to you. If you or your holding company group wishes to purchase a shell insurance company or to purchase a court cleaned insurance company for sale by a state deputy receiver, this article may be of interest to you. If you or your employer own or control an insurance company, this article should also be of interest to you. In order for an insurance company to commence business or underwrite and maintain an insurance business, it must maintain a paid in capital and/or surplus consistent with the statutory guidelines established by the various states and the District of Columbia. What is Capital and Surplus? The capital of a stock insurance company is most commonly associated with the cash value of its issued and outstanding common stock. Surplus is considered to be the excess of a stock company's admitted assets over the aggregate or sum of the company's capital plus its liabilities. For mutuals, reciprocals and Lloyds, the surplus of the company represents the excess of its funds over and above its liabilities. Minimum capital and surplus amounts are statutorily set out establishing minimum amounts by line or class of authority granted under the certificate of authority issued by the Director or Commissioner of Insurance. These requirements apply to domestic, foreign and alien insurers. Typically, beyond the minimum requirements, which apply ordinarily to a single line or class of authority, the capital and surplus requirements increase correspondingly to any increase in authority of multiple (two or more) lines of authority. The Chart Please refer to the chart accompanying this article entitled "Minimum Capital and Surplus for a Domestic or Foreign Stock, Mutual, or Reciprocal Property and Casualty Insurance Company" ("the Chart"). Even though the Chart is exclusively devoted to property and casualty companies, a majority of the statutory citations listed on the Chart also include a breakdown by line of authority for both property and casualty, as well as life insurance companies. The information contained in the Chart is subject to change and must be viewed as a guide rather than as an expectancy. A minority of jurisdictions provide capital and surplus requirements based solely upon the nature of the company's status as a legal entity; i.e., stock, reciprocal, mutual or Lloyds. Beyond The Chart The Chart can be a useful tool for beginning your research with a goal to full compliance with the statutory capital and surplus requirements in jurisdictions where an insurer is engaged in or plans to become engaged in the business of insurance as a domestic, foreign, or alien insurer. The amounts for a company's capital and surplus can also be affected by, and are subject to, risk-based capital ("RBC") calculations, and by the amount of premium actually written. These statutes may allow for a determination by the director or commissioner to establish a basis for the minimum capital and surplus different from the statutory minimum amounts. In most instances, these regulator established requirements will be higher than as set forth as minimum amounts in the statutes. Statutory Deposits As with the requirements for capital and surplus for an insurance company, in Missouri, as well as other jurisdictions, the amount to be placed on deposit is determined by the type of insurance company and the business
it writes. Missouri domestic stock insurers writing business other than life insurance are required to deposit an amount equal to the minimum capital required to write the lines of business intended to be transacted or actually being transacted. A majority of the other jurisdictions have this same requirement. The required deposit in Missouri for a mutual insurer or reciprocal shall be an amount equal to the amount required of a stock company transacting the same kinds of business, with a limitation that the deposit for a mutual shall not exceed the amount of the insurer's policyholder's surplus. Missouri domestic stock or mutual life insurance companies are required to transfer to and deposit with the director the minimum capital required for a life insurance company doing business in Missouri. Additional deposits are required of life companies in Missouri in order that the net value of securities on deposit will always be equal to the actual net value of the policies and annuity bonds. Foreign insurance companies are also required to make deposits in the same manner as domestics. In lieu of such deposits, foreign insurers, with few exceptions, are permitted to file a certified copy of a Certificate of Deposit issued by the company's domiciliary regulator evidencing the company's deposit in its domiciliary state of an amount of securities at least equal to that required by the state issuing the foreign certificate of authority. The director or commissioner may require additional deposits and reserves for the protection of the policyholders. Judgments and Deposits The cash and securities on deposit with the director or commissioner of insurance are placed for the benefit and protection of the policyholders, the insurer, its shareholders, creditors, and the insurance buying public. Such deposits are maintained subject to the joint control of the director and the insurance company. As long as the company remains solvent, the Missouri Director of Insurance is required to permit the insurer to collect and receive the interest or dividends on its securities deposited. In Missouri, the deposits may be withdrawn and applied to the debts and liabilities of the insurer if the insurer relinquishes its right to do business. Additionally, if a Missouri insurer has a judgment rendered against it and an execution has been issued upon a judgment partly or wholly unsatisfied, the director may be ordered to pay the judgment from the deposit. If the Missouri domestic insurer is believed by the director to be insolvent and will not be able to replace the securities to be withdrawn upon the judgment, the execution shall be stayed pending the determination of the solvency of the company. In Missouri, if the securities have been withdrawn upon the deposit of a solvent insurer, the insurer has ten days to redeposit securities of like kind and value with the director. With the exception of this execution process in Missouri, the Missouri Director of Insurance is not subject to garnishment, attachment, or any other process or order with respect to said deposited securities. Summary An insurance company may not transact or maintain an insurance business in the fifty states or the District of Columbia without meeting the minimum capital and surplus requirements established by statutes in the various jurisdictions. The Chart accompanying this article sets out the relevant statutes establishing the minimum capital and surplus requirements for property and casualty lines of authority. The Chart serves as a guide and is subject to change. The minimum amounts for the statutory deposits required by all jurisdictions are tied to the minimum capital and surplus requirements in the vast majority of jurisdictions. The deposits may be subject to judgment and execution in Missouri. Solvency of the insurer is a key factor in the director's authority to maintain or distribute the cash or securities held on deposit. Solvency of the insurer, liquidity, RBC calculations and amounts of actual premium can cause the director or commissioner to require deposits greater than the minimum statutory amounts. All of these requirements are established to protect the insurer, its shareholders, creditors, and the insurance buying public.
Alabama Alaska Arizona Arkansas MINIMUM CAPITAL AND SURPLUS FOR A DOMESTIC OR FOREIGN STOCK, MUTUAL OR RECIPROCAL PROPERTY AND CASUALTY INSURANCE COMPANY STATE CAPITAL SURPLUS STATUTE Alabama Statutes Title 27-3-7 500,000 multiple lines 500,000 multiple lines Foreign casualty 600,000 property 600,000 casualty casualty Foreign 1 600,000 property 600,000 casualty Alaska Statutes Title 21.09.070 Arizona Statutes Title 20-210 Arkansas Code Title 23-63-205 California 2,600,000 2,600,000 California Code Title 700.05 Colorado included in capital Colorado Revised Statutes Title 10-3-201 Connecticut 500,000 liability Delaware District of Columbia 300,000 Domestic Stock Florida 500,000 liability liability 300,000 Domestic Stock 300,000 Domestic 400,000 Foreign or Alien Mutual or Reciprocal The greater of 5,000,000 or 10% of liabilities but not greater than 100,000,000 Connecticut Statutes Title 38a-72 Delaware Code Title 18 Del.C. 511 District of Columbia Code Title 31-2502.13 Florida Statutes Title 624.407 Georgia 1,500,000 1,500,000 Georgia Code Title 33-3-6 Hawaii Hawaii Statutes 431:3-205 Idaho Idaho Statutes Title 41-313 Illinois Illinois Statutes Ch. 215 ILCS 5/13 Indiana 1,250,000 Indiana Code IC27-1-6-15 Iowa 5,000,000 5,000,000 Iowa Statutes Title 515.8 Kansas 450,000 300,000 Kansas Statutes Ch. 40-901 Kentucky Foreign Mutual, Reciprocal or Lloyds Kentucky Statutes Ch. 304.3-120 Louisiana 650,000 liability 1,350,000 liability Louisiana Revised Statutes Title 22:71.1 Maine Foreign s Maine Revised Statutes Title 24-A M.R.S.A. 410 Maryland Maryland Code
Title 4-104 Ins. Massachusetts 1,600,000 combined capital and surplus General Laws of Massachusetts 175 48 Michigan 2 50,000 property 50,000 casualty Alien Co. Michigan Compiled Laws Ch. 500.408 Minnesota Minnesota Statutes Ch. 60A.07 Mississippi 400,000 600,000 Mississippi Code Title 83-19-13 Missouri 800,000 Montana 400,000 property Nebraska Nevada 500,000 800,000 1,600,000 400,000 property Missouri Revised Statutes Ch.379.010.2 Montana Statutes Title 33-2-109 Nebraska Revised Statutes Ch. 44-243 500,000 Nevada Statutes Foreign NRS 680A.120 New Hampshire 800,000 200,000 New Hampshire Statutes Ch. 401:4 New Jersey 750,000 New Jersey Statutes Title 17:17-6 New Mexico 500,000 500,000 New Mexico Statutes Ch. 59A-5-16 New York North Carolina 1,400,000 New York Consolidated Laws NY Ins. 4103 North Carolina General Statutes Ch. 58-7-75 North Dakota 500,000 500,000 North Dakota Statutes Title 26.1-05-04 Ohio Ohio Revised Codes Title 3929.01.1 Oklahoma 1,500,000 - combined capital and surplus Oklahoma Statutes Title 36-610 Oregon 2,500,000 - combined capital and surplus Oregon Statutes Ch. 731.554 Pennsylvania Rhode Island South Carolina 1, 1, South Dakota 50% of capital casualty 1, 1, 300,000 casualty Foreign Pennsylvania Statutes Title 40 P.S.F. 386 Rhode Island General Laws Title 27-1-37 South Carolina Code Title 38-9-10 South Dakota Statutes Title 58-6-23 Tennessee Mutual, Reciprocal or Lloyd Tennessee Code Title 56-2-114 Texas Texas Statutes Ch. 822.054 Utah Utah Statutes Title 31A-5-211 Vermont 3,000,000 Vermont Statutes Title 8 V.S.A. 3304 Virginia 3,000,000 Virginia Code
Washington 2, West Virginia Wisconsin Wyoming Title 38.2-1028 2, casualty casualty casualty Foreign (The information contained in this chart is subject to change and must be viewed as a guide.) Revised Code of Washington RCW 48.05.340 West Virginia Code Ch. 33-3-56 Wisconsin Statutes Ch. 611.19 Wyoming Statutes Title 26-3-108 3