Tennessee continues to surpass expectations in terms of year-on-year captive growth, according to Kevin Doherty of Nelson Mullins Riley & Scarborough
Since Tennessee governor Bill Haslam changed the captive legislation in the state five years ago, how has the captive insurance market developed?
The growth has been dramatic lately. It’s like a snowball, and it seems that we are doubling the numbers of captives each year, as well as the number of investments, the amount of premium and the number of employees at the department. It started out slowly in 2011 and 2012, but gained steam, and now it’s rolling downhill gaining momentum. I expect quite a lot of further growth in the future.
Did the legislation changes earlier this year strengthen the market?
Yes, many companies have taken advantage of the tax-free holidays in the new law that grant premium and self-procurement tax forgiveness for companies moving their captives to Tennessee. And I think more will take advantage of it. In particular, we have had a number of major companies and captives based in Tennessee that have moved their captives to Tennessee at least in part for these reasons.
How many captives have you licensed this year so far, and how many do you project for the end of 2016?
In total there are approximately 140 captives, with around 300 cells, so there are an estimated 450 risk-bearing entities. We have continued to surpass our expectations, and every year there are more captives and cells than we anticipate.
What types of captives are popular in Tennessee? Do you see many redomestications?
Protected cell captives, both incorporated and unincorporated, are very popular in Tennessee. In addition, Tennessee corporate law allows for series limited liability companies, and many have used this option in connection with the incorporate protected cell structure.
We also have seen a lot of pure, or single owner, captives, particularly among the larger public companies, and we’re actually starting to see some association captives and risk retention groups as well. It’s a pretty broad focus, and Tennessee is welcoming to all types of captives.
We also have seen several redomestications, and I am working on a handful right now. We have had redomestications from Vermont, Delaware, the Cayman Islands, Georgia and South Carolina, most of them being Tennessee companies that previously had captives elsewhere and wanted to bring them home.
But we have also seen some captive redomestications from non-Tennessee companies.
What is Tennessee’s view on self-procurement taxes?
We just enacted, in 2016, a tax holiday for self-procurement tax that would forgive any previously due self-procurement tax for any captive that forms or moves to Tennessee by 2018. This is significant because Tennessee clarified its self-procurement tax law in 2015, and this new law has motivated several Tennessee-based companies to put their captives in Tennessee.
Once the tax holiday finishes, what will stop captives leaving Tennessee? What is keeping them there?
As always, for any domicile, captive owners need to be confident that the state is committed to the captive insurance industry, that they have the ability to understand and properly regulate captives, and that the other prerequisites to a successful domicile are present. In particular, I always like to talk about the ‘three-legged stool’ of a captive domicile (remembering that the three-legged stool is the strongest of chairs).
Every successful domicile must have and maintain: a strong executive branch, which includes the governor, the insurance commissioner, and the captive division; a flexible and knowledgeable legislature that is willing to consistently make updates to the law to keep it competitive; and a robust private sector that provides the necessary expertise to keep the wheels of the captive insurance industry moving, including captive managers, actuaries, accountants, banks and attorneys.
Tennessee today has a very strong three-legged stool, and we are all working as hard as we can to keep it that way.
