While Connecticut is 20th in the nation in terms of the total number of licensed captives, it is third in the nation in terms of average premiums per captive. But what initiatives are in place to ensure this growth continues?
Closing 2020 with six new captives and zero closures, Connecticut reached a total of 22 captive insurance companies.
The Connecticut Insurance Department experienced a 35 per cent growth last year and was the top spot globally with the largest increase in captives formed.
Since June last year, ten new captive managers, eight new certified public accountants (CPA) and six new actuaries have applied and been approved to support Connecticut captives, according to Fenhua Liu, director of the captive division, Connecticut’s Department of Insurance.
Last year, the Connecticut Insurance Department partnered with accounting firms in the state to expand its presence in the captive insurance market.
The insurance department suggested that accounting firms are the “trusted advisor” to most mid-sized businesses, are “best positioned to assist in the education and communication of the benefits of captive insurance companies to these businesses”.
As part of the expansion plans, the state engaged The National Network of Accountants (NNA) and Private Insurance Management (PIM) to assist with the design and implementation of the programme.
Connecticut’s goal is to teach accounting firms the benefits of captives and how to identify clients within their practice areas that would be most likely to benefit from the concept.
The NNA, which has been training and providing educational resources for accounting firms across the US for nearly three decades, will be working closely with the state to ensure that Connecticut accounting firms are well prepared.
Paul Hyl, general counsel of NNA, notes that at the beginning of 2020, the Insurance Department expressed a strong commitment to increasing the awareness of captive insurance as a risk management and overall business tool for mid-market business in both Connecticut and the broader northeastern US.
This is all due to the Connecticut Insurance Commissioner Andrew Mais recent initiative to expand the state’s presence and reputation as a domestic captive domicile.
Speaking on opportunities created due to this initiative, Liu states that using a risk-based regulatory approach, the captive division significantly reduced the approval time for captive licensing, business plan changes, and risk retention groups and risk purchasing group registrations.
Liu explains: “Over the past year, the division conducted many outreach and educational programmes internationally and locally with captive managers, universities, and association groups. We also introduced insurtech startups to captive claim adjustments and the underwriting process,” Liu adds.
Due to the growth that Connecticut’s captive market received in 2020, that the state is becoming noticeable on the national map.
“We have started receiving inquiries from accounting firms and businesses all over the country about domiciling a captive in Connecticut,” Hyl adds.
While Connecticut is 20th in the nation in terms of the total number of captive licensed, it is third in the nation in terms of average premiums per captive.
Connecticut currently has ten fortune 500 companies with a captive, contributing $1.2 million in premium to state tax revenue.
“We have just licensed an additional Fortunate 500 captive and another application is currently under review,” Liu adds.
The Connecticut Department of Insurance also drafted a proposal on an act concerning captive insurance companies for the 2021 session. The proposed legislation is set to help expand and grow the captive insurance industry in Connecticut. If the bill is passed by the legislature, it will reduce barriers for captives redomiciled, or newly formed in Connecticut.
Hyl explains that the proposed captive legislation will help streamline Connecticut’s regulatory framework, making it more business-friendly, especially for mid-market companies.
“The bill also contains incentives for Connecticut companies to repatriate their captives from offshore and other domestic domiciles, which will only further strengthen the state’s economy and domicile status,” he continues.
“There were some logistical issues when the bill was in committee, but we expect it to be included in the final state’s budget or reconciliation bills to be approved.”
The bill is yet to pass and is still subject to amendments.
Crumbling foundations
Many homes in Connecticut were built using concrete made from stone aggregate mined from a quarry containing pyrrhotite, which resulted in cracks forming in the foundations of many of these structures, decades after they were constructed.
In total, 47 towns in Connecticut have been affected by the crumbling foundations’ crisis.
The Connecticut Foundations Solutions Indemnity Company (CFSIC), a non-profit captive insurance company, was set up in 2017 to distribute funding to fix the crumbling foundations in homes in the northeast side of the state.
On 10 January 2019, the CFSIC was launched, the captive administrators, the Crumbling Foundations Assistance Fund, set up to distribute the remediation funds to homeowners across the state, with $100 million available in annual $20 million instalments over the next five years.
The CFSIC had completed 150 foundation replacements by June last year.
According to the CFSIC $63,227,267 in claims have been paid out for replacing 305 foundations over the past 26 months.
“The crumbling foundations captive is perhaps what Connecticut has best been known for in the captive industry, hopefully, as we build on the success of 2020, we can change that dialogue and the industry will be talking about Connecticut’s rise among competitive captive domiciles,” says Hyl.
Building on last year’s growth
The insurance department has already received many inquiries from businesses of all sizes on how to leverage a captive to finance their risk reduction efforts, says Liu.
“Those conversations increased those company’s risk awareness as they learned how a captive can be part of future loss prevention,” she notes.
So far, 2021 has been a good year for Connecticut captive growth. Liu says: “The Department recently approved six new captives, and several existing Connecticut captives increased their limits and expanded their coverage.”
