As North Carolina’s captive market continues to flourish, Tom Adams and Debbie Walker discuss the state’s important captive bill amendments and the upcoming in-person captive conference
After licensing 47 new captive insurance companies and 126 cells and series in 2020, North Carolina’s captive insurance market continues to flourish.
At the end of last year, North Carolina was home to a total of 795 risk-bearing captive insurance entities under the regulation of the North Carolina Department of Insurance (NCDOI), composed of 250 captive insurance companies and 545 cells and series.
Out of the 250 captives, 185 were pure captive insurers, 36 were protected cell captive insurers, seven were risk retention groups (RRG) and 22 were special purpose captive insurers.
The growth of the state’s captive market is also continuing into 2021, with those in the industry expecting it to be another favourable year for the programme.
Commenting on the expected growth, Debbie Walker, senior deputy commissioner, captive insurance companies division, NCDOI, says: “During 2020, we noticed that more business owners were making the decision to participate in cell or series structures as opposed to forming their own standalone captives — that trend is continuing into 2021. We are also seeing the growth of standalone captives again.”
So far this year, North Carolina has licensed six captive insurance companies, including five pure captives and one RRG.
Walker states: “The new captives are providing traditional property and casualty lines of coverage to their insureds, which are from varying industries such as manufacturing, construction, education, and healthcare. The insureds of these captives are located within the US.”
To date, North Carolina has also issued approval for 29 new cells or series. Similar to the standalone captive insurers, the new cells are providing property and casualty types of coverages, according to the senior deputy commissioner.
“Some of the cells are providing medical stop-loss coverage. Insureds of the cells and series are from all types of industries such as healthcare, transportation, finance, construction, and farming,” Walker says.
In addition to the growth of captive insurance companies in the state, it is also seeing an increase in the number of captive insurance service providers operating in the state and growth of the businesses of those providers that were already in North Carolina.
Tom Adams, president of the North Carolina Captive Insurance Association (NCCIA), notes that there is growth in interest in the captive concept, growth in interest in the domicile and growth in applications and approvals for so early in the year.
“This is good news as our strategy is for the captive sector to be an economic development engine for the state. North Carolina has excelled in meeting that goal,” Adams says.
Growth within the state’s captive market has been driven by the hardening commercial market, leading business owners to search for alternatives, such as captive insurance, to manage their risks for more reasonable prices.
Captives are being utilised to fill gaps in coverage or to replace a portion or all of the certain coverages obtained previously from the commercial market. They are also being utilised to provide coverage for the high deductibles not covered by the commercial policies.
Walker says: “We have seen business owners, who were already utilising captive insurers, benefit this past year from coverages provided by their captives such as business interruption, loss of key customer, and loss of key supplier, which covered losses due to the pandemic, providing some relief to business owners.”
She explains that more mature captives during the last year have, in some cases, helped their owners by distributing dividends or extending loans to provide funds in order to keep the owner’s businesses afloat during the pandemic.
Existing captives showed amazing flexibility during the pandemic, according to Adams, who says that in a number of instances captives were able to provide business interruption, loss of supplier and customer coverage that were not likely anticipated at the time of their formation.
“Flexibility has turned out to be a key reason to form a captive as a result of the pandemic experience,” Adams highlights.
Captive bill amendments
In March this year, North Carolina introduced a captive bill for the 2021 legislative session which included two proposed changes affecting the premium tax paid by captive insurers.
The legislation is found in Senate Bill 347, which passed the Senate by a unanimous vote.
According to Walker, the bill has crossed over to the House where it will move through various committees and hopefully will become law later this summer.
Senate Bill 347 contains numerous technical changes, which are proposed primarily to clarify the captive laws already in place.
The bill proposes an amendment to the premium tax law to subject special purpose captive insurance companies with a series LLC structure to the same premium tax requirements as those for protected cell captive insurance companies.
One of the most important legislative proposals this year is to incentivise captive insurance companies domiciled elsewhere to redomesticate to North Carolina prior to 31 December 2022.
The proposal is to waive the premium tax requirement for the year an insurer redomesticates to North Carolina as well as the year following its redomestication.
Walker states: “It is anticipated that this legislation will entice businesses that are interested in redomesticating to North Carolina to move forward with the redomestication in the immediate future, prior to 31 December 2022. This will ultimately bring more premium tax revenues to the state, as well as grow the business revenues of service providers operating in the state.”
Coming together again, in-person
One of the most significant opportunities this year is the in-person NCCIA conference that will be held between 29 August and 1 September in Durham, North Carolina at the Washington Duke Inn.
Although there have been a handful of in-person captive conferences since the start of the COVID-19 pandemic, Adams highlights: “This is the largest domicile to hold an in-person event in two years — that is a big deal!”
“If a service provider has been thinking about looking into the state, this is the event to attend,” he adds.
The conference kicks off with a deep dive into the CIC vs. IRS decision, including how it happened and what is next.
The panel will feature Sean King, CIC president, Adam Weber, who represented CIC at the Supreme Court, and Kevin Doherty, who wrote the amicus brief on behalf of the Coalition of Captive Associations, the Captive Insurance Companies Association and the Self-Insurance Institute of America.
Adams notes: “This is the first time a programme has been presented by the principals on this topic. You cannot miss it.”
The conference will also host an overview of NCDOI with Walker and Michelle Osborne, deputy commissioner. Adams explains during the panel, attendees will be able to learn the details of how the implementation of the pending redomestication legislation will occur.
Finally, the conference welcomes a special programme exclusively for captive owners. “Registration for this part of the programme is exceeding expectations. There are other great panels on topics like the office of the future and cyber crime to name two,” Adams states.
In addition to conference planning, the NCCIA is said to have worked hard on two fronts.
These two objectives were to see that the captive industry was able to survive and thrive in the pandemic, and that North Carolina continues to be a welcoming place for the industry.
“We were successful in that, as demonstrated by our growth in captives during the year and the introduction of the current legislation that lights a new path forward with redomestications,” he states.
He explains that the association stayed in close contact with its membership through outreach by the NCCIA board of directors. Adams highlights: “In particular, our chairman at the time, Lea Riddle, spent countless hours promoting the association and being available to the association staff.”
“We are in a good solid financial position and looking forward to the future.”
Captive forecast
Over the next 12 months, it is anticipated that the captive sector will grow much like it did in 2020.
Discussing the growth, Walker says: “We expect new captives to be formed that will provide insurance to insureds of all sizes — large and small — from diverse industries.”
She also suggests the growth of cells and series will continue to outpace the growth of standalone captive formations with the use of protected cell or series LLC captives being a “viable part” of the North Carolina captive insurance programme.
“We expect to see these captives providing property and casualty coverages and medical stop-loss coverages,” Walker adds.
