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Corporate Regulation and Governance in Captives

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Delve into captive insurance governance matters including board attributes, board structure, and board accountability. With 30 years of insurance experience from the auditing, regulatory, and management side, Derick White, managing director of corporate governance and regulation for Strategic Risk Solutions, offers key insights into captive board governance.

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Captive Legislation Changes Proposed in Vermont

Vermont State House 600x300
January 24, 2017

The Vermont Legislature will be considering a number of changes to its captive legislation this year. The bulk of the Vermont 2017 Captive Legislation proposal changes being considered in Vermont House Bill 85 (H.85) enable the formation of captives that are owned by insurance agencies or brokerages. These are generally called “agency-owned captives” or “producer-owned captives,” but they are called “agency captive insurance companies” in the bill. The following are some of the more noteworthy items being proposed in H.85.

  • Agency captive insurance companies are defined and given specific requirements.

    • Agency-owned captives can only insure commercial policies placed by or through the agency that owns or indirectly controls it.

    • The Vermont Insurance Commissioner is authorized to require the use of an authorized or approved reinsurer, a licensed fronting carrier, or security via a trust fund or letter of credit.

    • Not less than $500,000 minimum capital is required.

    • The same legal investment requirements as those of association captives and risk retention groups (RRGs) are established.

    • The agency captive insurance company is required to disclose to the policyholders any limitations, rights, and obligations it has as a result of its affiliation with the agency or brokerage.

  • Newly licensed captives are provided with a nonrefundable premium tax credit to $5,000 for the first 2 taxable years. Currently, the law provides a $7,500 premium tax credit for the first taxable year.

  • RRGs are able to request that the Commissioner waive the requirement that their independent auditor rotate the lead audit partner not longer than 5 consecutive fiscal years. The Commissioner is permitted to consider the following when considering a waiver request.

    • The number and expertise of the independent auditor’s partners

    • The number of insurance clients the independent auditor has

    • The premium volume of the RRG

    • The number of jurisdictions in which the RRG resides

Following are other legislative changes that will effect captive operations.

  • The alternative type of accounting that can be used to include statutory accounting principles or international financial reporting standards are broadened.

  • Statutory accounting principles are defined to mean the accounting principles codified by the National Association of Insurance Commissioners.

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