The Connecticut Department of Insurance (DOI) has drafted a proposal on an act concerning captive insurance companies for the 2021 session.
The Connecticut Captive Insurance Association (CCIA) revealed in February 2020 that the state Governor Ned Lamont proposed to amend the current captive insurance statutes by introducing Senate Bill No. 339.
The proposed legislation was set to help expand and grow the captive insurance industry in Connecticut. Governor Lamont included a projected $7.5 million in new revenue for the state general fund in fiscal year 2021 to 2022.
It would provide a “positive incentive” for captive insurance companies insuring risks in Connecticut, and for those domiciled in other jurisdictions, to return and open new foreign branch captive insurance companies and begin paying premium taxes in the state.
However, due to the ongoing COVID-19, the bill was pushed back and has now been drafted for the 2021 session.
The new proposal includes nine amendments.
The 2021 bill will amend the definition of ‘branch captive insurance company’ to include foreign captives; ‘association’ to delete time requirement; ‘controlled unaffiliated business’ to add sponsored captive insurers.
In addition, it will add ‘foreign captive insurance company’ and ‘participant’ to include any controlled unaffiliated business.
The bill will also establish a three-year look-back and waiver of penalties on outstanding liabilities for Connecticut insureds.
The look-back and waiver of penalties will focus on those that have not paid the independently procured insurance premium tax; who establish a branch captive in Connecticut or redomicile a foreign or alien captive to Connecticut no later than 1 July 2022; and those that pay all taxes and interest due and outstanding for taxable periods ending on or after 1 July 2018 but before 1 July 2021 no later than 45 days after the Connecticut branch captive is established or the foreign or alien captive is redomiciled to the state.
In addition, it will make technical changes regarding foreign branch captives.
The bill will lower capital and surplus requirements for pure captives, association captives, industrial insured captives, sponsored captives, special purpose financial captives, agency captives and branch captives.
However, it gives authority to the state’s commissioner to impose a higher level of capital and surplus if necessary, to meet policy obligations and adds provisions regarding branch captive assets.
Technical changes will see references added to foreign captives as well as revisions to language governing reports for alien or foreign branch captives.
The proposed legislation also requires financial examinations to take place at least once every five years instead of every three years.
For pure captives, the bill permits the commissioner to waive the necessity to examine the insurer every five years.
It will also see technical changes to the commissioner’s authority to adopt regulations.
Another amendment includes the renewal period for a certificate of dormancy, which will move from every two years to every five years.
Finally, the amount of capital and surplus a dormant captive insurer must maintain will be lowered and it will correct a technical error in the due date of a dormant insurer’s annual financial report.
Commenting on the legislation, Fenhua Liu, director, captive division at the DOI, says: “The Connecticut DOI supports the growth of captives as it can be an important part of businesses’ risk management strategy, especially now, as they struggle with the issues surrounding COVID 19.”
She adds: “This bill, if passed, would make Connecticut more business friendly and a more attractive domicile state to companies contemplating the formation of a captive insurance company. This proposal includes various changes to Connecticut’s captive insurance laws to allow businesses to more effectively manage risks and also remove barriers to establishing captives in Connecticut.”
