AssociationWithoutFronting

August 05, 2014
From John Salisbury, President

The answer to the question is yes, if the captive is licensed in each state in which it writes business. You should be advised, however, that the licensing for a multi-lined company in various states can be a very expensive and lengthy process. For that reason, one route some companies pursue is to purchase an inactive insurer that is already licensed in the states where the captive wants to write business. This process also has some difficulties.

If consideration is given to purchasing a shell, it is recommended that legal counsel and actuarial assistance be retained that is experienced in insurance company operations and state licensing. One of the challenges is to be certain that there is an awareness of what, if any, outstanding liabilities exist in the licensed insurer that is being purchased.

I am aware of more than one captive that encountered difficulties when purchasing a so called "shell" insurer that was licensed in several states.