An expanding landscape

The past year has seen significant changes to the US captive domicile landscape. A majority of states facilitate the establishment of captives and more than half of these now allow the creation of cell captives of one kind or another. Here we summarise significant recent changes that further heighten the growing cause of onshore US captive domiciles.

April 2008

Captive numbers are on the rise and, at the same time, captive insurance is being taken seriously by US law-makers. In fact, a high proportion of states with existing captive legislation have officially updated their corresponding statute books in the past year, whilst two have captive bills lined up for the first time in this year’s legislative session.

This year, Utah’s Captive Insurance Companies Act Amendments Bill for instance provides for the creation of a special purpose financial captive (SPFC) by adding a new chapter to the Utah Captive Insurance Companies Act. The amendment authorises the organisation and operation of a SPFC in Utah to facilitate risk securitisations and other risk-financing structures.

The most recent state to join the list of domiciles is Missouri, while waiting in the wings is Michigan. Its 2008 Senate Bill 1062 has every reason to pass now that the IRS threat has abated, adding yet more wealth to the existing states.

Vermont, of course, remains the leading captive domicile with 567 licences granted—400 more than nearest contender, Hawaii. Vermont honed its legislation last year with a new provision for special purpose financialcaptives, while Hawaiiestablishedin the same year a $200,000 maximum premium tax.

The first Japanese-owned captive came to Hawaii in 2000. The state now has 15 Japanese captives—or almost 10 percent of its current licences. Seven of these are owned by a US-based Japanese company, while eight are owned directly by Japanese companies and thus are non-US taxpayers.

Louisiana shows great promise with its 2008 Bill SB-150 which, if passed, would regulate the formation and operation of domestic captives within the state. Similarly, Connecticut (currently not a captive domicile) has legislation pending in the current session that would take the total number of states able legitimately to accommodate captives clearly into the majority.

The proposed measure is designed to expand insurance opportunities in the state and could have a positive impact on employee benefits and state revenues in the future. “This legislation creates a terrific opportunity for the State of Connecticut in the area of captive insurance companies and economic development,” says Senator Crisco, co-chair of the state’s Insurance and Real Estate Committee. “I believe this legislation would put Connecticut in the forefront of not only adopting captive insurance companies, but in the near future, employee benefits could be a potentialcaptiveinsurance market. I would hope that Connecticut as the insurance state would be ready for that new economic opportunity.”

Montana clarified its captive law in 2007, accommodating captive reinsurers to operate within risk retention groups (RRGs).
In DC, the Special Purpose Financial Captive Authorisation Act of 2006 authorised the formation of captive insurers to facilitate insurance securitisations. The Captive Insurance Company Amendment Act of 2006 amended the 2004 act to enhance the formation and regulation of protected cell captives.

In Arizona, there is a bill this year (HB 2081) that primarily addresses the permitted activities of branch captives.

Meanwhile in Delaware, 2007 legislation has added a subchapter to accommodate special purpose financial captives. Special purpose financial captive insurance companies are specialised captive insurers typically designed to act as special reinsurance vehicles for life or property and casualty insurers, whereby insurance business transferred to such special purpose captive insurance companies can be funded through capital markets offerings.

Meanwhile, some of the most recent entrants to the captive sector are also demonstrably the most progressive. Utah, for example, which only passed its captive Insurance Act five years ago, now has almost 100 captive licences, almost two-thirds the number of Hawaii, the second-largest US captive domicile, which passed Act 253 in 1986, establishing the island as a captive domicile.

US Captive Domicile Round-Up - Click to view (PDF format)