While Arkansas is a small captive domicile with 12 captives at the end of 2020, it has enjoyed significant growth in recent years, with state regulators and others expecting that growth to continue.
That optimism is based on several factors, including an attractive captive statute.
For example, the maximum annual premium tax is capped at $100,000, while the minimum capital and surplus requirement for single-parent captives is just $250,000.
"This is a low-cost, easy-to-do-business state," said former Arkansas Insurance Commissioner Allen Kerr in Little Rock.
Another attraction: highly available and experienced state captive regulators.
"There is a very stable and experienced regulatory staff," added Victoria Fimea, senior vice president, legal counsel, and head of the regulatory department for North America for Artex Risk Solutions in Mesa, Arizona.
Captive regulators say their goal is to be available to current and prospective captive sponsors, as well as to captive managers.
"We are very open and very accessible," Mr. Kerr said.
At the same time, Arkansas legislators have done their part to enhance the appeal of the state, whose original captive statute was passed in 2001, as a captive domicile.
For example, in 2017, Arkansas legislators passed a measure to allow captives to go into dormant status and then, when the parent company believes it makes sense, to resume operations.
The appeal of that approach is that is that it eliminates the time and expense that would be incurred if a parent folded a captive and then later decided, because, for example, of deteriorating conditions in the traditional market, that it once again needed a captive. Instead of setting up a new captive, an organization could simply and quickly take its captive out of dormancy.
In addition, a dormant captive only has to maintain capital and surplus of $25,000 and is exempt from premium taxes.
"Forming and licensing a captive insurance company is an arduous task and this allows a captive insurance company the option to pause operation without the burden of going back through the licensing process," stated Zachary T. Steadman and Jeffrey H. Thomas in a July 11, 2017, blog post titled "Act 370 Improves Captive Insurance Law in Arkansas" appearing on the website of Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C., a Little Rock law firm, commenting at the time Arkansas lawmakers approved legislation authorizing captive dormancy.
In addition, in 2019, Arkansas lawmakers approved legislation that gives captives more time, if they meet a condition, to file the annual reports on their financial condition. While the regular filing date remains March 1, captives can have additional time to file if they request more time and that request is approved by the state insurance commissioner.
Arkansas' captive statute sets low captive premium tax rates. For example, the tax rate on direct written premiums up to $20 million is 0.025 percent, while a 0.150 percent tax is assessed on the next $20 million of direct premiums and 0.050 percent tax is set on premiums exceeding $40 million, with a maximum annual tax of $100,000.
Captive growth lies ahead, Arkansas regulators and others predict.
Over the next few years, Arkansas will be a "go-to state for captives," Mr. Kerr said.