While many good bills often fall victim to the waning 140-day clock of any Texas legislative session, S.B. 734 is one measure that withstood the test of time during the recent 83rd Session. This business-friendly insurance bill survived, thanks to the support of several Fortune 500 companies seeking to form captive insurers in Texas.
A captive insurer, or "captive," is a subsidiary that a parent company organizes to insure the risks of the parent or its affiliate. Essentially a form of self-insurance, captives began proliferating the U.S. insurance market in the 1950s when traditional lines of insurance became either too expensive or hard-to-come-by. The term "captive" was coined to emphasize that the subsidiary must be "held captive" by the parent — prohibiting it from undertaking third-party risk.
Prior to the passage of S.B. 734, effective Sept. 1, 2013, Texas did not have a captives law. Thus, any Texas-based company currently utilizing a captive domiciles its captive in another captives-friendly jurisdiction, and then operates in Texas by paying premium taxes charged to unauthorized insurers.