As one of the fastest growing captive insurance domiciles, Alabama has been a strong proponent of captives since passing its first captive legislation in 2006. Barney Dixon puts the state’s captive insurance in focus
In recent years, Alabama’s stellar business climate, low cost of living, and continued friendly approach towards captive insurance has given the state the ability to grow its captive industry significantly.
As of February 2022, there are nearly 80 captives of varying types domiciled in Alabama, and, according to the Alabama Captive Insurance Association (ACIA), the domicile has established itself as a “respected jurisdiction with a willingness to work with prospective and licensed captive companies”.
Alabama’s unanimous support for captives
In May last year, Alabama passed yet another captive insurance bill, sponsored by ACIA. This new legislation, which passed the Alabama House Chamber at the House of Representatives on 1 April with a 94-0 vote, permits the creation of new captive formation types, while also lowering the minimum capital requirement to US$100,000 for pure and protected cell captives. This sort of transformational legislation has allowed the state to stay at the forefront of captive insurance in recent years. Just last year alone, there were five new pure captives domiciled in Alabama, bringing the grand total of pure captives to 33.
The ACIA has been at the forefront of this captive-friendly agenda. Last year, when the ACIA-sponsored bill passed, the association said it had “pushed forward an ambitious agenda with one of the most comprehensive and aggressive captive laws in the country”.
“ACIA advocated for the modernisation of the Alabama Captive Act that was previously amended in 2016, so that the updated law would promote economic development within the state, as well as adding flexibility and innovation to the captive industry in Alabama.”
“This continues ACIA’s streak of receiving unanimous support for all of its legislative efforts since its founding in 2006.”
The bill introduces agency, reinsurance, and special purpose financial captive structures, offering captive owners the freedom of a captive structure that can be tailored to their specific needs. Captives in Alabama are now able to pool risks written in alien or foreign jurisdictions, while removing the requirement of maintaining a principal place of business in Alabama.
According to the ACIA, this will open the door for exceptional growth in Alabama in the coming years. Norman Chandler, ACIA
president, says: “We are excited for industry-first innovation in reinsurance and branch captives. We have taken a wholesale review of these types of captives and tried to bring them into the modern age with this legislation.”
Ben Richardson, director of external affairs at ACIA, added that the opportunities for captives in Alabama are “endless”.
He states: “Alabama boasts a very supportive and forward-thinking department and association that work in lockstep to promote the best environment for the captive and alternative risk industry.”
“The legislation allows for Alabama to be on the cutting-edge as a highly competitive domicile within the captive industry, while maintaining significant financial benefits afforded by a business-friendly state.
“The new legislation makes Alabama a highly competitive domicile as there is a new element of versatility in selecting a captive structure that best suits the needs of captive owners, all while maintaining low costs and a very simple redomestication process. For captive owners and managers looking for a bespoke captive structure with a favourable business environment, Alabama is the place for you.”
The past four years in Alabama have seen a proliferation of risk retention groups (RRGs). The number domiciled grew to 17 this year, with eight added in 2021. This trend is expected to continue into 2023, but Alabama is also seeing a general spike in interest to form new captives.
According to Steve Wells, director of programme management at Arsenal RMI, there is “no shortage of businesses that have the capital and desire to take advantage of the captive model […] captive opportunities continue to come to us from all over the country on a regular basis.”
Wells adds: “There has been a steady rise in the number of captives, captive cell, and RRGs over the past several years. I believe Alabama has been the fastest growing captive domicile for several years.”
Changing hands in the DoI
Despite this steady growth, there have been some shifts in Alabama’s department of insurance that could spell a change in approach to captives. On 1 July 2022, Mark Fowler was appointed as acting commissioner of the Alabama department of insurance, following the retirement of former commissioner Jim Ridling in June 2022.
According to the Alabama department of insurance, Fowler will lead the department in fulfilling its mission to serve the people of Alabama by regulating the insurance industry, providing consumer protection, and promoting market stability.
Fowler joined the insurance department in 2013 and worked as the deputy commissioner. In this role he served as the liaison to the Alabama legislature, and was the point of contact for various outside entities, including industry associations. During his time in this role, the department enacted more than 34 bills and assisted in enacting several industry sponsored bills supported by the department. During his tenure, Fowler has been a regular speaker and attendee at the ACIA’s annual conference.
As Alabama’s longest serving insurance commissioner, Ridling was a key relationship for the ACIA and for the development of captive insurance in the domicile. The captive industry in Alabama benefits from its relationships with the government and elected officials, and Ridling previously said that the “partnership and cooperation with both entities allows Alabama to boast one of the best environments for captives and the alternative risk industry.”
Ridling was described by Alabama governor Kay Ivey as keeping “stability” within the agency, while also bringing “fresh ideas to ensure our state was offering our people the best.”
Along with these changes at the department of insurance, Alabama’s chief captive regulator, Sean Duke, has also left his role after 24 years.
Wells says he does not see the domicile shifting away from its captive friendly reputation, despite the change in commissioner.
He says: “While there have been some retirements in the Alabama Department of Insurance, the acting commissioner and the entire department has made a concrete effort to continue working closely with captives. The department realises captives are good for business and good for the state.”
“2022 will be a transition year for Alabama. With a new acting commissioner and several new key management personnel and staff, everyone is working hard and doing a good job of getting up to speed.”
A question of talent
Alabama, like all captive domiciles, is facing the ongoing talent crisis. As captive experts retire and the industry grows, it is becoming more difficult to fill empty and new roles with talented people. Wells says “finding quality, young candidates to fill our ever-growing staffing needs” is a challenge.
He adds: “The insurance industry is not the sexiest field to enter. Nobody grows up going ‘I want to be a captive manager or captive underwriter!’”
To combat this, the ACIA, in collaboration with Arsenal and Troy University, launched its Risky Business internship programme in January 2020.
According to the ACIA, Risky Business is the first multi-entity programme in Alabama to offer internships to risk management and insurance students. The programme is designed to expose students to the captive insurance and alternative risk management segments of the market, to encourage them to pursue a career in the industry.
During the programme, interns work with two or three different ACIA member companies on a five-week rotation. It provides undergraduate and graduate students potential opportunities in risk management and insurance, by exposing them to the daily operations of several different service providers.
Wells noted that the programme “has had great success in attracting quality candidates.”
Since its launch it has seen a 100 per cent employment rate for all graduating seniors who have completed the programme, a number of whom were employed by ACIA member businesses. The programme has been endorsed by the Alabama Property and Casualty Adjusters Association and the Alabama department of insurance.
Dr. Courtney Baggett, programme director of risk management and insurance at Troy University, says the programme has provided students with valuable professional opportunities, which have resulted in full-time positions.
She adds: “We are thankful for the investment made by the ACIA and Arsenal alongside Dr. Edward Pappanastos, associate chair of the department of risk management and data analytics at Troy, to student success within our RMI programme.”
The future is bulletproof
With a continuing positive working environment for captives in Alabama, only good things are in store.
Despite changes at the department of insurance, it is likely that Alabama’s government and legislature will continue to maintain a positive relationship with the captive industry and promote mutual benefit for the domicile.
ACIA’s promotion of captive opportunities within Alabama will allow the industry to continue to flourish, while its work on attracting talent to the industry will help it to maintain the industry’s steady growth in Alabama.
In the words of Alabama’s recently departed chief captive regulator, Sean Duke, Alabama’s accomplishments are a “product of the hard work and dedication of the [department of insurance’s] captive staff and the ACIA.
“The combination of the two has produced a reasonable and responsive regulatory environment that continues to attract companies.”
