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Captive Domiciles Continue To Fine-Tune Their Captive Statutes

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March 21, 2018

Editor's Note: This article has been updated from its original version and now reflects Kansas legislation that was signed into law on April 12, 2018. 

Legislators in states with captive insurance company laws are continuing their drive to modify their states' captive insurance company statutes to stay competitive with other domiciles.

Vermont

Lawmakers in Vermont, whose 566 captives at year-end 2017 made it the largest US captive domicile, gave final approval this month to legislation, H. 694, that makes several changes to the state's 1981 captive law.

Vermont captives now generally will have until March 15 to pay their annual state premium taxes, compared to the end of February under prior law.

That change will not only give captives a little more time to pay the premium tax, but it will also allow them to coordinate their premium tax payments with the March 15 deadline for filing their annual financial reports to state regulators.

"It makes life a little easier for captives," said David Provost, Vermont's deputy commissioner of captive insurance in Montpelier, Vermont.

The measure also makes clear that reinsurance premium taxes do not apply on loss portfolio transfers to a captive of risk previously retained by the parent in a self-insurance arrangement.

Finally, the new law also makes a reporting change involving risk retention groups (RRGs).

Under Vermont's captive statute, a majority of an RRG's board of directors are required to be independent. The board has to make an annual determination on whether a director is independent, as well as maintain records of those determinations and, if requested by state regulators, provide a copy of determinations to Vermont's insurance commissioner. The new law will require the determinations to be automatically provided to the commissioner.

Delaware

In Delaware, whose 391 captives at the end of 2017 made it the third-largest domestic domicile, lawmakers currently are considering two measures to amend the state's captive law.

One of those measures, HB 289, which the Delaware House approved in January and is currently awaiting action in the state Senate, would give captives 6 more weeks—until April 15—to file annual statements and pay premium taxes.

"This is something that will be very welcomed by the captive industry. They will not be so rushed. We are trying to be responsive" to their needs, said Steve Kinion, director of Delaware's Bureau of Captive and Financial Insurance Products in Dover.

Under the other measure, HB 334, introduced earlier this month and now pending before the House Economic Development, Banking and Insurance Committee, the state insurance commissioner would be given authority to issue conditional certificates of authority to enable new captives to operate while their applications are being reviewed by regulators.

To gain conditional authority, captives would have to meet Delaware's minimum capital and surplus requirements and pay a $100 fee.

However, the insurance commissioner could revoke a captive's conditional certificate of authority if regulators find that the captive failed to meet Delaware's captive licensing requirements.

Hawaii

In Hawaii, another large domestic domicile with 230 captives in 2017, up from 208 the year before, two measures, HB 2347 and SB 2774, are pending that would give the state insurance commissioner additional authority to supervise or liquidate a captive rather than simply suspending or revoking its insurance license.

South Carolina

In another major domicile, South Carolina, which reported 172 captives at the end of last year, legislation, H 4675, unanimously approved by the House in February and now awaiting action in the state Senate, would allow captives, with the approval of state regulators, to make loans to their parent companies and affiliates, as well as allow regulators to reduce capitalization requirements for inactive captives.

"This is a good cleanup bill," said Bryan Hudson, president of the South Carolina Captive Insurance Association and a shareholder with accounting and consulting firm Bauknight Pietras & Stormer PC in Columbia, South Carolina.

And lawmakers in smaller domiciles, such as Kansas and Illinois, which together have only a handful of captives, also are taking action to amend their captive statutes.

Kansas

In Kansas, Gov. Jeff Colyer on April 12, 2018, signed SB 410 into law, raising the minimum capital and surplus requirements for single-parent captives to $200,000, up from the previous $100,000 requirement. The measure also allows captives to seek approval from the state insurance commissioner to insure risks of unaffiliated businesses—up to 5 percent of total written premiums.

Illinois

In Illinois, legislation, S 1286, which was approved last year by the state Senate and is now pending before the state House, would set new minimum capital and surplus requirements for captives, including $250,000 for single-parent captives, $500,000 for an industrial insured captive, and $750,000 for an association captive.

The measure also would allow captives to make loans to affiliated companies as well as pay dividends to equity holders.

"These are all very positive changes," said Mary Kay McCalla Martire, a partner with McDermott Will and Emery LLP in Chicago.

The legislation "is doing good things to bring captive business back to Illinois," said Adam Miholic, a consultant with Marsh Captive Solutions in Chicago.

Copyright © 2018, International Risk Management Institute, Inc.

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