North Carolina Department of Insurance
2023 marks the 10th anniversary of the 2013 Captive Insurance Act. John Savage talks to Lori Gorman of the North Carolina Department of Insurance to see what other factors have contributed to continued growth in the state
2023 will mark the 10th anniversary of the 2013 Captive Insurance Act. Over the past 10 years, what have been the most significant amendments to the North Carolina Captive Insurance Companies Act?
The North Carolina Captive Insurance Company Act was signed into law by Governor Pat McCrory on 19 June 2013, after unanimously passing both the House and Senate in the North Carolina General Assembly.
Since then, state lawmakers have been responsive to suggestions to amend the captive statute. Legislative changes approved by lawmakers in 2014, 2015, 2016 and 2018 include the addition of special purpose captive insurance provisions and licensing provisions. It also decreed protected cell captives (PCCs) to form incorporated and unincorporated cells.
The legislative changes have also exempted captives from an in-state board meeting requirement, if the captive uses at least two North Carolina service providers — giving the state insurance commissioner authority to determine the amount of capital and surplus needed for protected cell captives and special-purpose captives.
It also provides the commissioner authority to declare that a captive insurer is an inactive captive insurance company, with further authority to exempt inactive captives from premium taxes and filing and reporting requirements.
The most recent legislative change in 2022 provided for a two-year premium tax holiday for captive insurers re-domesticating to North Carolina.
What factors have contributed to the continued growth of the captive insurance industry in North Carolina?
Our modern captive insurance law has been an important factor to the growth of the captive industry in our state. North Carolina’s Captive Insurance Act provides the commissioner with discretion to regulate captive insurers in a business-friendly environment and allows for low-cost formation and operation of captive insurers.
Our in-house staff of accountants and actuaries are accessible and responsive with a focus on customer services.
There is no doubt that the popularity of PCCs has remained unwavering in 2022. What is driving their growth?
The North Carolina Department of Insurance approved more than 100 cell captives in 2022. We anticipate the trend of new cell formations to carry through into 2023.
Business owners exploring the opportunity of forming a captive have been attracted to the unique and cost-effective solution to risk management provided by a cell formation.
What are the requirements for using a PCC and who is eligible to use it?
Small and mid-sized companies may be interested in forming a cell due to the generally lower initial capital requirements and operating costs. This structure can be used as a cost savings method and to fill gaps in coverage, while creating value for businesses that maintain strong loss prevention programmes.
What steps is the Department of Insurance taking to ensure that captive insurance companies are properly regulated and well-managed?
North Carolina offers a large selection of captive managers that are approved by the North Carolina Department of Insurance (NCDOI) to manage the state’s licensed captive insurers. As regulators, we rely on these captive managers for initial vetting of their new clients and carrying out the day-to-day operations of the captive insurer, while ensuring compliance including reporting any deviations from approved business plans.
The NCDOI, which is made up of credentialed accounting professionals, is also responsible for the ongoing financial oversight of licensed captive insurers. We conduct annual reviews as well as ‘review and approve’ special filings such as loans, dividends and changes in business plans.
Have there been any new regulations or legislative changes that have impacted the captive insurance market in North Carolina? How do North Carolina’s laws and regulations surrounding captive insurance compare to other states?
Our laws compare favourably to those enacted in other domiciles and we recognise that legislative changes are necessary, so that the North Carolina Captive Insurance Act remains relevant to accommodate the insurance needs of the industry and to attract new business to North Carolina.
We benefit from a strong partnership with the North Carolina Captive Insurance Association which has recently proposed legislation to extend the premium tax holiday for those previously-formed captive insurers re-domesticating to North Carolina, and to make changes to the retaliatory tax provisions applicable to risk retention groups doing business in our state.
How has the hardening insurance market affected the captive insurance industry in North Carolina?
In 2022, there was an increase in the number of captive formations in North Carolina.
The hardening market (especially in the property and casualty sector) and investment volatility have propelled an interest from businesses to leverage captives as a solution to their risk management needs.
We expect this interest to extend into 2023 as captive insurers can be utilised as an attractive alternative to the traditional insurance market for controlling costs and to provide customisation of coverages.
What trends have you noticed in the North Carolina captive insurance market over the past 12 months? How do you see these trends developing in the next two to three years?
We have recently seen an uptick in captives writing medical stop loss, tenant liability and various cyber security coverages.
We anticipate that we will continue to see an interest in cyber and an increasing use of captives for some employee benefits plans as risk management solutions — particularly given the current market.
