Governor Phil Scott has signed House Bill 515 into law to update Vermont’s captive insurance statutes and eliminate inconsistencies.
The main feature of the new legislation enables captive insurance companies to enter into parametric risk transfer contracts.
Parametric contracts are becoming increasingly common as another form of protection for catastrophic events, whereby the contract pays a sum conditional on certain predefined, quantifiable triggers, rather than the actual losses incurred.
Therefore, parametric risk transfer contracts are seen as more favourable than traditional indemnity insurance as they are not subjected to a lengthy claims adjustment process.
On this note, deputy commissioner David Provost of the Vermont Department of Financial Regulation says: “Although purely parametric contracts are not considered insurance due in large part to that distinction, the contract is a useful risk management tool.”
He continues: “Organisations often use captives as a central repository for all types of risk management tools, not just insurance, so it will be helpful for companies to have explicit authority for their captive to enter into parametric contracts.”
Marcus Schmalbach, founder and CEO of RYSKEX, adds: “The symbiosis of capital markets and index-blockchain-based solutions is a great step into the future, and Vermont lives up to its pioneering role in the captive industry.”
Schmalbach recently spoke in a webinar on parametric risk transfer that was covered by Captive Insurance Times here. Alternatively, you can read one of our latest features on how parametric insurance can be implemented with captives to provide appropriate coverage for weather, pandemic and other forms of non-damage business interruption here.
The new Vermont legislation also addresses sponsored cell captives, in particular, by improving solvency procedures so that other cells are not impacted or limited in their authority in the event of an individual cell becoming insolvent, and by clarifying an inconsistency related to the treatment of affiliated business in sponsored cell companies.
The new legislation also simplifies reporting requirements with a more straightforward report for premium tax reconciliation on a fiscal year basis.
Governor Scott comments: “Vermont is always looking to improve its laws to better meet the needs of captive insurance companies, while improving the quality of our regulation. This year is a great example of that.”
Brittany Nevins, captive insurance economic development director, concludes: “These smaller changes, when added up year after year, make all the difference for captive insurance companies. Vermont continues to be proactive and ask, ‘what can we do to be better?’ This is central to our industry culture in our state.”
