Amendments to Vermont’s captive legislation recently signed into law could strengthen the state’s regulatory outlook for insurance companies.
Governor Peter Shumlin signed new legislation that was passed in the recently concluded session addressing sponsored captives and incorporated cells, association and pure captive account rules, branch and separate purpose financial captives, and captives and risk retention groups organised as reciprocals.
“These improvements in Vermont’s law may seem technical,” said Shumlin. “But taken as a whole they continue to advance Vermont’s standing as the ‘Gold Standard’ for domiciles and will provide greater flexibility and clarity going forward.”
Of sponsored captives and incorporated cells, the change now clarifies that, subject to prior written approval of the sponsored captive and the commissioner of the Vermont Department of Financial Regulation, an incorporated cell is entitled to enter into contracts and undertake obligations in its own name and for its own account.
Previously, Vermont authorised protected cells in a sponsored captive company to be separately incorporated. Users of the programme identified amendments needed to deal with current law requiring the sponsored captive to become a party to the insurance policy/reinsurance agreement, putting its core capital at risk even though the incorporated cell is a legal entity in its own right.
Another change is to separate accounts. An association or pure captive is now allowed to establish one or more separate accounts within the captive—similar to what is currently authorised for life insurance companies in the state, said a release from the Vermont commerce and community development agency.
The new law also authorises branch captives to insure the same risks as other captives, and requires the appointment of a Vermont principal representative as the designated link between the branch captive, the parent, and Vermont regulators.
Special purpose financial will now be treated similarly to other captives by authorising them to be consolidated under common ownership and control for purposes of calculating premium taxes. Their name has been changed to special purpose financial insurers.
Finally, captives and risk retention groups currently organised as reciprocals are held to the same capitalisation standards as any other form of captive insurer. As such, the limitations on a subscriber’s contingent assessment liability—specifically, the minimum contingent assessment liability—provided for was deemed unnecessary and has been eliminated.
A copy of the bill as passed with amendments can be found here
