NU Online News Service, May 28, 1:15 p.m. EDT
Vermont Gov. Jim Douglas signed legislation into law yesterday, designed to give the state a leg-up in the heated competition between captive insurance domiciles–both onshore and offshore.
The omnibus banking and insurance legislation, which includes provisions for the regulation and expansion of the Vermont captive insurance industry, would streamline the redomestication process for offshore captives wishing to relocate in Vermont.
Gov. Douglas signed the measure, S.42, in a ceremony in Burlington, Vt.
“While many of our domestic competitors have reduced their commitment to promoting and regulating captives, Vermont is continuing to invest in this valuable sector of our economy,” Gov. Douglas said.
He added that his administration remains “committed to keeping Vermont the ‘Gold Standard’ of captive domiciles.”
He praised the legislation as an important step in maintaining Vermont’s position as the largest captive insurance domicile in the United States and the second largest in the world in terms of gross written premium.
“As our state tackles budget and revenue challenges, my administration continues to recognize how critical the captive insurance industry is to Vermont and the need to continue investing in our infrastructure and innovating in our regulation,” he said.
Redomestications are becoming more important to the U.S. captive industry. In 2008, redomestications amounted to close to one-third of the number of captive formations in the domicile of Kentucky. According to CaptiveStats LLC, in Califon, N.J.
Out of 76 active companies, 20–or 27 percent–were redomesticated in Kentucky: 14 from the British Virgin Islands, three from South Carolina, one from Cayman, one from Washington D.C. and one from Nevis.
Vermont reported it licensed 14 captives in 2008 with no redomestications.
Key provisions of the captive legislation include:
? Accommodating the needs of Vermont captives owned by international parent companies by allowing captive companies to use the same financial accounting methods used by their foreign parent. It also streamlines the corporate reorganization of a foreign captive company into a Vermont captive company.
? Creation of a “premium tax holiday” for new captive firms licensed in Vermont after the legislation takes effect and until Dec. 31, 2010, by providing a $7,500 credit.
? An increase in funding for Vermont’s regulatory operations, which are paid for through premium taxes that captive firms pay to the state. Under the bill the Captive Division’s allocation increases from 10 percent to 11 percent of premium tax receipts.
Captive insurance is regulated by the Captive Division of the Department of Banking, Insurance, Securities and Health Care Administration (BISHCA). A captive insurer is a company that is owned or controlled by its policyholders, enhancing the company’s ability to control its own insurance costs.
Through captives, business owners have access to broader, less expensive insurance markets and can retain financial control and manage risks by underwriting their own insurance rather than paying premiums to third-party insurers.
BISHCA Commissioner Paulette Thabault said, “Part of Vermont’s success in regulating captive insurers comes down to partnerships involving captive owners, the Vermont Captive Insurance Association, our captive management infrastructure in Vermont, and our highly knowledgeable team in state government.”
Gov. Douglas noted that the captive insurance industry provides more than 1,400 full and part-time jobs in the state.
Other provisions of S.42 include:
? A simplification of paperwork required by the more than 150,000 individuals and firms licensed by BISHCA by eliminating the requirement that tax and child support “certificates of good standing” be sent to the vast majority of these licensees who work and reside out of state.
? A provision to streamline and give predictability to the annual assessment on banks, credit unions and other financial institutions by notifying the institutions only once of an anticipated assessment, and by timing the notice so that it is provided well in advance of the institution’s budget year.
? Un-appealed disciplinary orders of the commissioner will be able to be enforced in Vermont Superior Court without the time and expense of filing a formal legal complaint.