Deluged Captive Domiciles More Selective
By Caroline McDonald
NU Online News Service, Oct. 31, 10:16 a.m. EST?Facing a deluge of applications for proposed captive operations, states that license them are being more selective in what they approve, according to a regulator for a rapidly growing U.S. domicile.
Richard Marshall, captive insurance administrator for the Phoenix-based Arizona Department of Insurance, said he has had no difficulty weeding out early organizations that most likely won't make the cut.
"We've got them coming in and kicking the tires, but we discourage people pretty quickly [who won't qualify]," he said.
And business is heating up everywhere, "particularly in the eastern states," he said, which are "probably getting overwhelmed. So they're weeding out the guys who are just dipping their toes in the water."
Mr. Marshall said he imagines that other domiciles also "are even getting choosier in what they're accepting, based on the activity. They just can't afford to take everything that walks in the door and keep their fingers crossed. "There are no more cheap suits," he said.
He added that because of the hard market, rising rates and some coverage scarcities, captive administrators, who during the soft market courted organizations interested in setting up a captive, are now charging for their expenses and advice. "There are no more free lunches."
Arizona, he said, which had its captive legislation go into effect on July 1, licensed its second captive on Oct. 24. "We doubled up?from one to two," he said. "And we're on the bubble with number three." Both licensed captives are single-parent captives, he explained.
The captive most recently approved is a privately held telephone company. Another waiting in the wings is a one-owner hospital group, he said.
"We are seeing quite a bit of activity," he added. Last week, like most weeks recently, he consulted with three organizations, each looking to form a single-parent captive.
A trend he is now seeing, he added, is that, "those who are serious [about forming a captive] move pretty quickly." This is driven by policy renewal dates, he explained.
Mr. Marshall said he recently had a call from an organization whose renewal date is Feb. 1, 2003. He said the captive manager advised the client, "If you want the captive done by the time your policy comes up for renewal, you'd better start moving right now."
Mr. Marshall said Arizona has formed a task force to review existing captive laws and make recommendations for the legislature in January.
"We're just looking to make it more comparable to other domiciles," he said. "Both offshore and onshore."
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