Connecticut Modifies Captive Capital and Surplus Requirements

Connecticut lawmakers approved legislation earlier this month that lowers capital and surplus requirements for captive insurance companies but allows the state insurance commissioner to set a higher level of capital and surplus if it's considered necessary for a captive to meet its obligations.

For example, under prior law, the capital and surplus requirement for a pure or branch captive was $250,000. Under the legislation, H.B. 5506, which Connecticut Governor Ned Lamont has signed, the capital and surplus for those captives will be the greater of $50,000 or an amount the insurance commissioner feels is necessary.

In the case of association, industrial, or agency captives, the current $500,000 requirement is changed to the greater of $250,000 or the amount the insurance commissioner believes is necessary, while the $225,000 requirement for a sponsored captive is lowered to $75,000 or the amount the commissioner believes is necessary.

The measure also requires captive financial examinations every 5 years instead of every 3 years for pure and branch captives, while also giving the insurance commissioner authority to waive the 5-year examination.

In addition, the new law raises the renewal period for a certificate of dormancy to every 5 years, up from the prior 2-year requirement.

Connecticut captive regulators say the new law will increase the appeal of Connecticut as a captive domicile. "The new law provides reasonable solutions allowing the state to be more attractive as a domicile of choice and to better collaborate with captive owners and experienced services providers," said Fenhua Liu, assistant deputy commissioner and director of Connecticut's Insurance Department's Captive Insurance Division.

Connecticut is a major captive insurance domicile. At the end of 2021, 35 captives were licensed in Connecticut, up from 22 in 2020, while Connecticut captives' premium volume rose to $700.7 million in 2021, up from $590.0 million in 2020.