Arizona's Democrat Gov. Janet Napolitano signed legislation thisweek that substantially revises the state's captive insurance lawand permits employee benefits branch captives.

The legislation (HB 2294, Captive Insurer Amendments) developedand recommended by the Arizona Captive Insurance Association,passed the Arizona Legislature on a unanimous vote.

The amendments will be effective 90 days after the legislativesession adjourns, according to the AzCIA.

The new legislation brings Arizona in line with other leadingdomestic domiciles, said Richard P. Marshall, a director of theAzCia, and also president and chief executive officer of NBISCaptive Management Services Inc. in Atlanta.

Mr. Marshall told National Underwriter that while most of thelegislation involves cleanup language, the biggest change is thatthe new law will allow the establishment of branch captives toprovide employee benefits.

He said a captive domiciled in Bermuda, for example, could nowset up a branch captive in Arizona to write employee benefits. Mostimportantly, that captive would only be subject to a renewallicense fee of $5,500 because Arizona has no premium taxrequirements.

"No other domicile is that attractive financially," he said.

Other notable features of the legislation:

o New provisions defining "deductible reimbursement" business,and clarifying that deductible reimbursement business is permittedon a direct basis.

o A redefinition of "industry group captive insurer" toeliminate group member eligibility requirements of a third-partyinsurance consultant and a threshold amount of annual premiumexpenditure, and substitute a simple homogenous risk standard.

o A provision allowing group captives (except risk retentiongroups) to cover "controlled unaffiliated business."

o The elimination of remaining restrictions against writingcommercial motor vehicle business on a direct basis.

o The end of an Arizona residency requirement for captivemanagers, and a requirement that captive managers do business at anArizona location.

o A reduction in the minimum capital requirement for a protectedcell captive from $1 million to $500,000.

o A provision allowing any surplus note interest rate approvedby the director.

o Language allowing a reinsurance captive to securitize its riskportfolio through contracts that allow the purchase of interests ona nonrecourse basis.

o Permission for pure captives to be formed as an LLC.

o Provision for group captives to have as few as threedirectors, and up to as many directors as it has members (inaddition to outside directors).

o Coordinates the effective date of corporate redomestication toArizona and the effective date of the new Arizona certificate ofauthority.

o Clarifies that audit reports are due within six months afterthe end of the captive's fiscal year.

o Clarifies the requirement for prior approval of changes tocaptive business plans.

o Clarifies the confidential treatment of all informationrelated to captive insurers, except for name, type, date licensed,license status and business of owners (does not apply to RRGs).

o Specifically authorizes the director to expend monies in thecaptive insurance regulatory and supervision fund to pay the costsof administering the captive insurance law and to promote thestate's captive insurance industry pursuant to the guidelines thatshe adopts.