CIT takes a look at Montana one of the largest domiciles west of the Mississippi—to find out what it is doing to distance itself from the competition
Following legislative acceptance at the federal level, Montana licensed its first captive insurance company in January of 2002. Since then, the number of captives in the state has grown to 68, insuring entities ranging from rural hospitals and fuel stations, to investment and construction firms.
The commitment of state regulators has helped to make the ‘Treasure State’ an attractive option for home-grown captives, with the 68 current captives bringing in a combined total of $2 million in premium taxes since captive legislation was signed in the state in 2001.
The captive insurance industry has brought other secondary benefits to the state. The amount of captives has facilitated a huge growth in professional service providers, and law firms, accountants and management companies have all been lured to the state as a result.
Montana has the fourth highest wage base in the US, giving the companies that operate there a distinct advantage over the competition.
New horizons
In 2011, Montana passed changes to the law that allow the creation of alternative captive structures, such as incorporated cells. The new law also lowered the minimum capitalisation requirement for association captives from $500,000, opening the option of captives up to a wider range of companies.
These changes are making people reconsider what Montana can contribute as a captive domicile.
Cell captives offer versatility, which is highly valued in the captive market. A cell captive is a separate legal entity, and so it is protected from the liabilities of other captives managed by the same umbrella organisation. Furthermore, they are, in theory, protected from any potential insolvency or legal claims made against its core cell, a valuable selling point in a competitive market, and this approach to captive insurance can appeal to smaller companies seeking alternative means of risk transfer.
In an attempt to ratify the firewall provided by such insurance arrangements, Montana recently became just the second state in the US to allow the formation of series LLC captives. This is something that other captive associations are actively trying to get through their legislatures.
Under series LLC, tax and auditing obligations are pooled between various protected cells, which allows them to have the same level of protection without the necessity for dedicated tax lawyers and accountants.
A potential concern with the use of a series LLC captive is the potential liability the structure could assume if a lawsuit was brought about in an outside jurisdiction. Whether or not they will be recognised as a separate entity in this case is, as yet, untested.
A good year
In 2012 alone, 34 new captive insurance entities were licensed in Montana. By comparison, the largest and most successful US captive domicile, Vermont, licensed 32 over the same period.
Vermont is a captive veteran, having passed legislation that allowed the formation of captives in 1981. Now it has reached 1000 captives, a milestone that it passed in October of this year.
Montana also shares the same advantage as every other US onshore captive domicile. As competition has increased, state level legislators are offering increasingly attractive terms to companies wishing to form captives locally. Formation costs are coming down, and tax structures are being simplified, which can only be a good thing for the industry in Montana.
This open-for-business attitude and a long-term approach to the state’s captive legislation will ensure a strong future for Montana as a captive domicile
