Captive Roundup: Activity Heats UpIn Montana, D.C., Ga.

There has been a flurry of activity on the captive frontrecently, spurred on by the hardening of the commercial insurancemarket.

Montanas recent move to allow captive insurers to locate in thestate will bear fruit by the end of the year with approval for thefirst licensee, a state official revealed. John Huth, state captivemanager, said a grant of the first such license should go throughby Christmas.

Captive legislation that passed in the spring allowed captiveformations as of June 2001. Now a Montana company domiciled inVermont plans to re-domicile to Montana as the states firstcaptive, according to Mr. Huth.

The new captive is ALPS Re, an insurer for the Missoula,Mont.-based Attorneys Liability Protection Society.

Another organization, a rural hospital association, is waitingin the wings, he added. Mr. Huth said the states legislation issimilar to that of Vermont, except that Montana does not allowcaptives to provide workers compensation insurance.

Mr. Huth said the state is serious about establishing itself asa successful domicile. It offers a streamlined approval process oftwo to three weeks and also is home to a newly-formed captivemanagement company–Big Sky Captive Management, established sixweeks ago in Missoula.

Montana has other attractions as well, he explained. “Montanahas an allure,” he said. “Ive received numerous calls from peopleback East who have talked captives to me for a couple of minutes,and talked hunting for about 40 minutes.”

One such organization with a captive in Bermuda, he added, saidthat “if I could form another captive in Montana, I could have theboard meeting in October and I could go hunting.”

Mr. Huth added that, “Were not trying to steal companies fromVermont; were just trying to appeal to companies west of theMississippi as location becomes a factor.”

The captive industry is very attractive to Montana, which hesaid “ranks 50th in the nation in wages.” The average full-timeposition in the insurance industry paid $46,000 a year in 1998, hesaid, which in Montana “would be a decent job.” Those positionsinclude business manager, legal and paralegal support, andaccounting staff.

Industry in Montana now centers around agriculture and timber,he explained. Establishing the state as a captive domicile “willbring a new, clean industry. All you need is a computer and theInternet,” he said.

Meanwhile, a Georgia captive association hopes to take advantageof the hardening market and a renewed interest in captives tosecure legislation reducing the states insurance premium tax andexpanding the types of captives allowed in the state.

Kevin Doherty, president of the Atlanta-based Georgia CaptiveAssociation and a partner with the law firm of Gladstone, Doherty& Associates in Atlanta, said he and several associationmembers have met with legislators, and in September met with JosephYoung, the governors legislative director, from whom he said theyreceived “a very warm reception.”

Mr. Young, he said, “was very open to expanding the role ofcaptives in the state of Georgia. The governor also gave hissupport, verbally. Now its up to us to actually put some proposalsin front of them.”

The group hopes to have a proposal prepared in time for the newlegislative session in January, he said.

Mr. Young responded to National Underwriter that, “Weare always very strong in business development and weve had anumber of discussions about how to encourage the insuranceindustry.” He continued that, “We will look at any tool that willhelp bring business to Georgia. If this is a tool that will help doit, thats something we feel strongly that we should take a lookat.”

Georgia, he said, has had a lot of captive business “gooverseas, as well as to Vermont, and South Carolina is trying toget some.” Atlanta, he added, “is a convenient location for doingthis kind of business. Well take a look at what they have andevaluate it and go from there.”

Mr. Doherty said he hopes to see one and possibly twolegislative changes adopted. For one, he would like to see thescope of captives in Georgia expanded “beyond property-casualty,”and “hopefully into areas like employee benefits.” He also wouldreduce the states premium tax, which affects “not only captives butall insurance companies” in the state.

At present the tax can be as high as 4.75 percent or as low as 3percent on a Georgia-based risk, he explained, “so fornon-Georgia-based risk there is zero premium tax.” New legislationwould attract local companies as well as organizations whosebusiness includes Georgia, he said.

“We dont want to get too complicated,” he said. “The concern isthat if it gets too complicated, nothing will get through.”

The state has licensed 17 captives since its captive legislationwas enacted in 1989, Mr. Doherty said. “Most [Georgia captives]exist to write workers compensation directly,” noted Mr. Doherty,who resides in Nashville, Tenn. “Georgia is the only state whereyou can do that.”

Mr. Doherty said he expects to have “three or four captiveslicensed by the first of March. It depends on what people do withthe self-insurance funds,” which he said have gone dormant and arelikely to be activated. He expects to see “some of those convertedto captives.”

“The balls in our court right now,” he said. “Joe [Young] hasbasically given us the green light. The association just formed alegislative committee to do this and were hoping to get back withthem in the next month or so.”

In addition, associations and corporations operating captiveinsurers in Washington, D.C., now will have a captive associationformed specifically to serve their needs.

The Captive Insurance Council of the District of Columbia, anot-for-profit organization, “will almost mirror the South CarolinaCaptive Association,” said Richard Goff, president of Towson,Md.-based MIMS International Ltd., an insurance broker-programadministrator. “I think they have done a wonderful job in promotingthat domicile. If we can do that in D.C., weve got a home run.”

The District of Columbia, he added, “is a wonderful domicile forthe association marketplace and that is our main focus.”

The first board member for the new group was Edgar Armstrong,vice president of ASAE Services Inc., which includes insuranceoperations and is a wholly owned subsidiary of the American Societyof Association Executives, also based in Washington, D.C. ASAE hasa captive domiciled in Vermont, he added.

The associations first meeting is scheduled to take place March6-8, 2002, at the annual legislative meeting of the Santa Ana,Calif.-based Self Insurance Institute Of America.

Mr. Goff said that rather than competing with other captiveassociations, such as the Captive Insurance Companies Associationand the Vermont Captive Insurance Association, CIC-DC will provide“a niche in the captive market.”

Carl Modecki, president of the Minneapolis-based CICA, said heis not concerned about the presence of another captive association.In fact, he said, “it doesnt bother us at all.” Mr. Modecki saidCICA has agreed to allow other captive association members,including CIC-DC and VCIA, to attend its conference at the CICAmembers rate and is taking steps to create an open dialogue amongcaptive associations.

Mr. Modecki also said CICA is inviting captive associations tohave their official board or association meeting at the next CICAconference in Tucson, Ariz., on March 3-5, 2002. “VCIA did thatlast year and is scheduled to do it again this year,” he said.

“The market will say whether they are viable or not,” heexplained. “What they need right now in Virginia as well as whattheyre trying to do elsewhere is to get a critical mass of folksinterested in captives in that jurisdiction.”

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, December 10, 2001.Copyright 2001 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.

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