KRS 304.49-040: Financial security requirements.

(1) No captive insurer shall be issued a certificate of authority unless it shall possess

and thereafter maintain unimpaired paid-in capital and surplus of:

(a) In the case of a pure captive insurer, not less than two hundred fifty thousand

dollars ($250,000);

(b) In the case of a consortium, sponsored, agency, or an industrial insured

captive insurer, not less than five hundred thousand dollars ($500,000); and

(c) In the case of a special purpose captive insurer, not less than two hundred fifty

thousand dollar s ($250,000), or another amount determined by the

commissioner.

(2) Notwithstanding the requirements of subsection (1) of this section, no captive

insurer organized as a reciprocal insurer under KRS 304.49-010 to 304.49-230 shall

be issued a certificate of authority unless it shall possess and thereafter maintain

free surplus of not less than five hundred thousand dollars ($500,000).

(3) The commissioner may prescribe additional capital and surplus based upon the type,

volume, and nature of insurance business transacted.

(4) Capital and surplus shall be in the form of cash, an irrevocable letter of credit issued

by a bank approved by the commissioner and chartered by the Commonwealth of

Kentucky or a member bank of the Federal Reserve System, a surplus note

approved by the commissioner, or other assets as may be approved by the

commissioner. A surplus note shall not be used for the initial minimum capital and

surplus of a non-mutual captive insurer.

(5) In the case of a branch captive insurer, as security for the payment of liabilities

attributable to the branch operations, the commissioner shall require that a separate

trust fund, funded by an irrevocable letter of credit or other acceptable asset, be

established and maintained in the United States for the be nefit of United States

policyholders and United States ceding insurers under insurance policies issued or

reinsurance contracts issued or assumed, by the branch captive insurer through its

branch operations. The amount of this security may be no less than the capital and

surplus required in this section and the reserves on the insurance policies or the

reinsurance contracts, including reserves for losses, allocated loss adjustment

expenses, incurred but not reported losses, and unearned premiums with regard to

business written through the branch operations; provided, however, the

commissioner may permit a branch captive insurer that is required to post security

for loss reserves on branch business by its reinsurer to reduce the funds in the trust

account required by this section by the same amount so long as the security remains

posted with the reinsurer. If the form of security selected is a letter of credit, the

letter of credit must be established by, or issued or confirmed by, a bank chartered

in Kentucky or a member bank of the Federal Reserve System.