New Captive Insurance Formations Maintain Brisk Pace in 2022

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September 27, 2022 |

A graph with a red line and three gray lines on a tan gridlined chart with a globe in the background of the chart

With hard conditions in the traditional commercial insurance market continuing, captive insurance company formations remain very strong.

In Vermont, the largest US captive domicile with 645 captives, 30 new captives have been licensed so far in 2022, with more formations expected before the year closes.

"We expect more formations in the months ahead," said Sandy Bigglestone, Vermont's deputy commissioner of captive insurance in Montpelier. She added that hard conditions in the traditional market—a key driver of captive formations—are not likely to end anytime soon.

Other captive regulators agree with that assessment. With hard market conditions, "companies are reaching out of the traditional market," said Travis Wegkamp, captive insurance director with the Utah Insurance Department in Salt Lake City.

Already, Mr. Wegkamp noted, 31 new captives have been licensed this year in Utah, with 12 captive applications pending, adding that he expects the high number of captive formations in Utah to continue in 2023. Currently, Utah has 382 captives.

In Tennessee, 25 new captives and cell captives have been licensed so far this year, with 10 captives in the approval process, as well as a variety of cell captives.

A key factor in Tennessee's captive growth is the domicile's location, experts say. "First and foremost is the state of Tennessee itself. Our central location in the southeastern United States has long made Tennessee a desirable regional destination for business formation and relocation," said Kevin Walters, director of communications for the Tennessee Department of Commerce and Insurance in Nashville.

Additionally, Mr. Walters noted, legislative changes to Tennessee's captive statute, such as one in 2021 that revamped captives' ability to invest surplus money in approved securities to provide better investment returns, also has contributed to Tennessee’s growth as a captive insurance domicile.

Currently, Tennessee has 148 captives and 352 cell captives.

In South Carolina, captive formations also have been high this year. So far, 13 new captives have been licensed in 2022, with at least 20 formations expected by the end of the year, said Joe McDonald, director of captives for the South Carolina Department of Insurance in Charleston.

That growth in captive formations should continue, Mr. McDonald said, due to hard conditions in the traditional market.

Also driving South Carolina captive growth is the leadership and captive regulatory experience of South Carolina's captive division and the network of captive service providers "that call South Carolina their home," Mr. McDonald said.

Currently, South Carolina has 195 captives.

Captive formation growth has been strong in North Carolina. So far, 11 new captives have been licensed in 2022, with eight applications now pending.

"We are showing strong, steady growth," said Lori Gorman, deputy commissioner of the North Carolina Captive Insurance Division in Raleigh.

Legislation passed earlier by North Carolina lawmakers gives captives licensed in other domiciles an attractive incentive to redomesticate to North Carolina. Under that statute, captives that redomicile to North Carolina are exempted from premium taxes for the year that they redomicile and the following year.

"We hope captive managers make captive owners aware of this new incentive to redomesticate," Ms. Gorman said.

Currently, North Carolina has 267 captives.

In Montana, captive formations also continue to be strong. This year, 21 new captives have been licensed, with seven applications pending.

Looking ahead, "I think growth will continue as it has done in 2022," said Steve Matthews, captive insurance coordinator at the Montana Office of Securities and Insurance in Helena.

"We have a strong regulatory team and good relationships that we have developed over the years with the captive community," Mr. Matthews said.

September 27, 2022