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

There has been a flurry of activity on the captive front recently, spurred on by the hardening of the commercial insurance market.

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

Captive legislation that passed in the spring allowed captive formations as of June 2001. Now a Montana company domiciled in Vermont plans to re-domicile to Montana as the states first captive, 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 waiting in the wings, he added. Mr. Huth said the states legislation is similar to that of Vermont, except that Montana does not allow captives to provide workers compensation insurance.

Mr. Huth said the state is serious about establishing itself as a successful domicile. It offers a streamlined approval process of two to three weeks and also is home to a newly-formed captive management company–Big Sky Captive Management, established six weeks ago in Missoula.

Montana has other attractions as well, he explained. “Montana has an allure,” he said. “Ive received numerous calls from people back 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, said that “if I could form another captive in Montana, I could have the board meeting in October and I could go hunting.”

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

The captive industry is very attractive to Montana, which he said “ranks 50th in the nation in wages.” The average full-time position in the insurance industry paid $46,000 a year in 1998, he said, which in Montana “would be a decent job.” Those positions include business manager, legal and paralegal support, and accounting staff.

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

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

Kevin Doherty, president of the Atlanta-based Georgia Captive Association and a partner with the law firm of Gladstone, Doherty & Associates in Atlanta, said he and several association members have met with legislators, and in September met with Joseph Young, the governors legislative director, from whom he said they received “a very warm reception.”

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

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

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

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

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

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

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

The state has licensed 17 captives since its captive legislation was 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 where you can do that.”

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

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

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

The Captive Insurance Council of the District of Columbia, a not-for-profit organization, “will almost mirror the South Carolina Captive Association,” said Richard Goff, president of Towson, Md.-based MIMS International Ltd., an insurance broker-program administrator. “I think they have done a wonderful job in promoting that domicile. If we can do that in D.C., weve got a home run.”

The District of Columbia, he added, “is a wonderful domicile for the 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 insurance operations and is a wholly owned subsidiary of the American Society of Association Executives, also based in Washington, D.C. ASAE has a captive domiciled in Vermont, he added.

The associations first meeting is scheduled to take place March 6-8, 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 captive associations, such as the Captive Insurance Companies Association and the Vermont Captive Insurance Association, CIC-DC will provide “a niche in the captive market.”

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

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

“The market will say whether they are viable or not,” he explained. “What they need right now in Virginia as well as what theyre trying to do elsewhere is to get a critical mass of folks interested 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 serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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Captive Roundup: Activity Heats Up In Montana, D.C., Ga.

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