Front-Free WC Captive Is First In Kentucky

By Caroline McDonald

A group that moved from offshore to become Kentuckys first captive insurer found the state attractive because it lacks a fronting requirement, the captives manager said.

The association captive, named the Automobile Dealers Management Insurance Co., licensed in December 2002, is an association captive for both the Greater Louisville Automobile Dealers Association and the Kentucky Automobile Dealers Association.

Stewart Ferguson, executive vice president with Underwriters Safety and Claims, the management company of the captive, explained that the association previously had a captive in the Cayman Islands, established in 1979.

But “when the market got hard, and with all the fronting markets going away, we would have had to go out of business,” he explained.

Fortunately, he said, a law existed on the books in Kentucky that allowed the captive to do direct writing for businesses located in the state. The captive was moved to Kentucky, he said, where state law is set up so that no fronting company was required.

“It's great because there are so few front markets available,” Mr. Ferguson said. “So we've got several million dollars in surplus in there and we would have had to go out of business had it not been for this way of doing it.”

Mr. Ferguson said the captive writes workers' compensation and has the ability to do direct writing, issue its own policies, and also do reinsurance for 70 association members, all auto dealers in Kentucky.

He said the auto associations' members are “thrilled” about the new captive. “Having all their members go out into the market, as hard as it is right now, would be terrible for them,” he said.

Mr. Ferguson said he knew about the law, which existed before the states captive domicile law became effective in July 2001, because he is involved in legislative affairs in Kentucky.

Kentucky has big plans for the domicile and intends to market its services and stay on top of industry trends so that it will prosper.

“Frankly I think it was fairly forward thinking to pass legislation that will allow Kentucky to offer our companies and associations the same options that other states are making available” for alternative markets, said Janie A. Miller, state insurance commissioner in Frankfort, Ky.

Ms. Miller said the state's long-term plans are to “facilitate and foster the [captive] environment. It takes quite a bit in terms of professional capability to support your captive law,” she said.

The department is working with the state's economic development cabinet to make businesses in the state aware of the captive regulations. “So when they are talking with interest in either expanding their operations or moving their operations to other states, we think the captive insurer law allows us to provide them an additional option,” she said.

Describing the new legislation, Russell Coy, counsel for the Department of Insurance, said, “If you're familiar with Vermont, you've got Kentucky.” He added, “There will probably be some minor tweaking of the statutes.”

Reproduced from National Underwriter Edition, June 16, 2003. Copyright 2003 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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Front-Free WC Captive Is First In Kentucky

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