Vermont Expands Cell-Captive Protection

David Provost, deputy commissioner of Vermont's Captive Insurance Division, tells NU that the option to incorporate cells "was something that potential sponsors and cell owners had requested. Since our structure didn't allow incorporated cells, some businesses that would have considered Vermont as a domicile were forced to go elsewhere. Even though incorporating the cell may add some extra steps and some complications, I saw no material difference from a regulatory perspective, so we supported the change."

While the intent is to give companies wishing to use this type of structure the ability to domicile in Vermont, he notes that some potential cell owners "have expressed concern that the contractual cell structure has not been tested—for that matter neither has the incorporated cell structure. But there is a mountain of corporate law out there that upholds the strength of the corporation itself, so an incorporated cell has that to rely on."

He adds, "We made it clear in the law that the provision for an incorporated cell in no way weakens the strength of a contractual cell.  There are many users who are quite satisfied with the current cell legislation; this is icing on the cake."

The bill also makes permanent the elimination of the first-year minimum tax of $7,500 for newly licensed captives.

Dan Towle, director of financial services for Vermont's Department of Economic Development, tells NU, "Business is booming. We've already had a number of meetings on incorporated protected cells."

He adds, "A number of companies setting up sponsored captives and looking to have protected cells—whether they be incorporated or not—are doing it with related entities or with customers, and they want to do it in a secure environment."

Vermont currently has 18 sponsored-cell captives with more than 100 individual cells.

Vermont is off to a strong start in 2011 with seven new captives in the first quarter, according to the State Department of Banking, Insurance, Securities and Health Care Administration.

Tennessee Open For Business

Legislation passed last month that will allow the formation of captive insurers in Tennessee as of July 1.

The state was the second domicile in the U.S. to have a captive law in the 1970s, after Colorado, but eventually discouraged formations. Currently there are only a handful of licensed captives in Tennessee.

The state's Department of Commerce & Insurance says it will begin taking applications from companies July 1.

Julie Mix McPeak, commissioner of the Tennessee Department of Commerce and Insurance in Nashville, Tenn., told NU in an e-mail: "We are happy that Gov. Haslam's captive insurance legislation passed. It will go a long way toward modernizing the law that Tennessee has used to regulate this segment of its insurance industry and will help produce a strong, vibrant marketplace within the state."

Now that the bill has passed, she adds, "the work of implementing it gets under way. Our next step is to promulgate rules to fortify our regulatory framework to be able to accept applications from companies by July 1."