Vermont Okays Securitized Deals For Captives

Vermont officials announced that Republican Gov. James Douglas has signed legislation into law allowing securitized transactions by captive insurers.

The signing ceremony took place before more than one hundred members of Vermont's captive insurance community. Vermont is the largest captive domicile in the United States.

Securitization using a reinsurance captive, it was explained, permits companies to optimize their balance sheet by transferring certain risks to the capital markets.

According to the state's Department of Economic Development, growth in this area has been driven by life insurance companies seeking a way to finance life insurance reserves.

“Securitizations are set to grow over the next few years, and with our new legislation we feel Vermont will be an attractive jurisdiction for these types of transactions,” said Leonard D. Crouse, Vermont's deputy commissioner of captive insurance.

According to Mr. Crouse, the new legislation will give an option to life insurance companies seeking to comply with Life Insurance Regulation XXX and Actuarial Guideline XXXVIII by utilizing securitization. Vermont began licensing captive insurance companies in 1981 and recently licensed its 800th captive entity.

“This new legislation should put Vermont at the forefront of securitized transactions,” said Gov. Douglas. “It is another example of innovation in our captive industry.”

Dan Towle, director of financial services for the Vermont Department of Economic Development, said: “In addition to the growth of securitized transactions, we are also seeing an increase in professional liability coverage for physicians and hospital groups. Vermont currently has nearly 100 captives writing medical malpractice coverage, with approximately $1.6 billion in gross written premium last year.”

Vermont is the second-largest captive domicile in the world, in terms of gross written premium, with $11.55 billion in 2006.