Jennifer Haskell, director of regulatory compliance at Risk Services Companies and president of the Alabama Alternative Risk Alliance, details how industry and regulatory collaboration has shaped proposed revisions to the state’s Captive Insurers Act.
Jennifer Haskell is Director of Regulatory Compliance at Risk Services Companies, where she advises captive insurers and risk retention groups on multi-state regulatory compliance. She also serves as President of the Alabama Alternative Risk Alliance. A former state insurance regulator and financial examiner, she brings a regulator’s perspective to governance, compliance, and risk management.
The Alabama Alternative Risk Alliance (ALARA) has been working with the Alabama Department of Insurance over the past several weeks to review and refine proposed revisions to Alabama’s Captive Insurers Act.
Many of our recommendations were incorporated into the latest draft revision, which passed the full Alabama House of Representatives on 9 March.
Reflecting ongoing dialogue between the Department and industry stakeholders on strengthening Alabama’s captive regulatory framework, the bill also received Senate committee approval on 10 March and is expected to get a second reading in the Senate on Tuesday, 17 March. At that point, the bill will be one step away from Alabama Governor Kay Ivey.
The Department has been receptive to industry input during the process, with the goal of ensuring the statute remains aligned with national regulatory standards while balancing appropriate regulatory protections and maintaining Alabama’s competitiveness as a captive domicile.
ALARA appreciates the Department’s willingness to engage with industry stakeholders and thoughtfully consider the feedback that has been provided. The revisions made thus far reflect a constructive dialogue and a shared goal of strengthening Alabama’s captive insurance framework.
Most issues raised during the review process were addressed in the House Insurance Committee. During House floor debate, legislators adopted an amendment requested by ALARA addressing a technical concern regarding the interaction between the statutory definition of the audited financial statement and federal filing requirements applicable to risk retention groups. This amendment resolved a significant issue identified during the industry’s review of the bill.
The RRG disclosure risk
Under the federal Liability Risk Retention Act, 15 U.S.C. §3902(d)(3), risk retention groups (RRGs) must file their annual financial statement certified by an independent public accountant with each state in which they are registered to do business. Because RRGs operate across multiple states, the definition of what constitutes an audited financial statement carries important regulatory implications.
RRGs operate under a unique federal framework established by the Liability Risk Retention Act, which allows them to write liability coverage nationwide while being primarily regulated by a single domiciliary state. As a result, whatever the domiciliary state defines as the RRG’s audited financial statement effectively becomes the document that must be filed with every state in which the RRG does business.
ALARA has noted that defining the audited financial statement directly in statute may be unnecessary because the components of the audited financial report are already addressed in regulation and are consistent with the NAIC Model Audit Rule (Model 205).
Those regulatory requirements include the requirement to file the Communication of Internal Control Related Matters Noted in an Audit and the Accountant’s Letter of Qualifications with the Alabama Department of Insurance as the domiciliary regulator.
However, if the statute does include such a definition, careful drafting is required to avoid unintended consequences.
The version of HB 415 approved by the House Insurance Committee retained the same definition of the ‘audited statement of a captive insurer’s financial condition’ contained in the original proposed amendment.
If Alabama were to define this to include the Communication of Internal Control Related Matters Noted in an Audit and the Accountant’s Letter of Qualifications, those documents could unintentionally become part of the financial statement that must be distributed to every state where the RRG does business.
This creates a potential issue because the communication of internal control matters may include a Report on Significant Deficiencies in Internal Controls, which is traditionally considered confidential communication between the auditor and the company’s board, but is also required to be filed with the domiciliary Commissioner.
Documents filed confidentially with a domiciliary regulator are subject to established regulatory confidentiality protections.
However, if those documents were incorporated into the audited financial statement, they could effectively be required to be distributed to every state in which the RRG is registered.
The concern is therefore one of statutory drafting rather than regulatory policy, as both the Department and industry participants recognise the importance of maintaining appropriate regulatory oversight while preserving the confidentiality framework established under the NAIC audit rules.
Importantly, the industry does not object to filing these documents with the Alabama Department of Insurance. That requirement already exists under the NAIC Model Audit Rule (Model 205) and under Alabama’s own regulations (Rules 482-1-141 and 482-1-138) applicable to captive RRGs and captives, respectively.
The concern is simply including them within the statutory definition of what constitutes the audited financial statement. While this may appear to be a small drafting distinction, the implications for the more than 30 RRGs domiciled in Alabama could be significant.
The amendment requested by ALARA adopted by the full House removes these documents from the statutory definition while leaving the existing regulatory filing requirements intact.
As a result, the Communication of Internal Control Related Matters Noted in an Audit and the Accountant’s Letter of Qualifications will continue to be filed with the Alabama Department of Insurance under existing rules, but will not be incorporated into the statutory definition of the audited financial statement. This preserves the Department’s oversight while avoiding unintended disclosure obligations for Alabama-domiciled RRGs.
Practical operability
ALARA’s review of the bill focused largely on ensuring that the statute preserves the practical operability of the captive framework while still strengthening the Department’s regulatory authority.
One example involved a provision requiring captives to make arrangements with a bank located in Alabama. Alabama law currently allows the Commissioner to approve deviations from this requirement where necessary for the convenient operation of the insurer.
The original language could have unintentionally limited that flexibility or created uncertainty about whether accounts would need to be physically maintained within the state.
ALARA recommended revising the language to allow arrangements with a bank chartered by the State of Alabama or a member bank of the Federal Reserve System and approved by the Commissioner.
This revision preserves regulatory oversight while maintaining operational flexibility, and the Department accepted this recommendation.
When House Bill 415 (HB 415) was considered on the House floor, legislators adopted an additional amendment revising the banking provision. As amended, the statute would require that a captive maintain a financial account with a bank or credit union that has a brick-and-mortar location in Alabama approved by the Commissioner, or with a veteran-related financial institution approved by the Commissioner.
From an operational standpoint, this requirement will likely function primarily as an administrative compliance step for many captives. While the provision ensures some connection to an Alabama-based financial institution, many captives already maintain banking relationships with national institutions that may not maintain physical branches in every state.
Other revisions focused on removing duplicative statutory language related to solvency standards that already appears elsewhere in the law, correcting terminology to align with NAIC model language, and clarifying certain operational provisions.
For example, the original amendment included a requirement for changes in a captive’s business plan to be filed for approval within 30 days after the change occurred. While this conceptually allowed operational flexibility, it raised practical concerns regarding how a company would unwind a change if the Department later determined it was not acceptable. ALARA recommended that approval be required prior to implementing the change, and this revision was accepted.
The original bill also proposed moving the due date for audited financial statements from 30 June to 1 June. ALARA recommended retaining the existing deadline established by rule, and the revised bill restores the 30 June filing date.
Another provision included language that appeared to require evaluation of the competence, reputation, and experience of a captive’s legal counsel as part of the formation requirements.
Because this section of the statute relates to the qualifications of incorporators, the language could have been interpreted to require a captive insurer to retain legal counsel before being permitted to form.
ALARA recommended removing this language from formation provisions to avoid that interpretation. The Department agreed to strike the language from the main captive section.
Overall, most of these recommendations were accepted and helped ensure that the revised statute strengthens regulatory tools without creating unnecessary operational complications.
The collaborative process
From ALARA’s perspective, the process has been constructive. The Department shared the proposed legislation with ALARA, and we provided initial feedback on several items shortly thereafter. As we conducted a deeper review, we submitted additional recommendations. While not every suggestion was adopted, the Department was receptive to many of the operational and technical points raised.
The issue regarding the definition of the audited financial statement is a good example of how this dialogue has functioned. After identifying the potential interaction with federal RRG requirements, ALARA provided additional analysis referencing the NAIC Model Audit Rule, NAIC filing instructions, and Alabama’s current regulations to explain the unintended consequences that could arise.
No legislation will ever satisfy every stakeholder completely. While not every recommendation submitted by ALARA was ultimately adopted, the Department gave careful consideration to the industry’s input. The House amendment addressing the statutory definition of the audited financial statement resolved the primary technical concern identified during the review process.
As the bill moves forward for consideration in the Senate, the remaining discussions are largely operational. Overall, the revisions will strengthen the Department’s regulatory tools, further stabilise Alabama captive statutory and regulatory structure and maintain the state’s competitiveness as a domicile.
More broadly, both ALARA and the Department recognise that there are additional topics worth exploring in the future. The Department has expressed a willingness to continue working with industry participants this summer to evaluate potential improvements to Alabama’s captive framework.
That type of good-faith dialogue between regulators and industry participants is ultimately what helps make a captive domicile successful and ensures that regulatory modernisation supports both strong oversight and a healthy, sustainable captive market.
The proposed revisions are part of Alabama’s broader efforts to continue developing and modernising its captive insurance framework as the state seeks to remain competitive with other established US captive domiciles.
With a House passed bill effectively addressing the statutory definition of the audited financial statement, the remaining discussions surrounding the bill are largely operational in nature as the legislation moves forward for consideration in the Senate.
About the ALARA
The Alabama Alternative Risk Alliance was recently formed to serve as a collaborative forum for captive owners, managers, and service providers to work alongside regulators in support of the continued development of Alabama’s captive insurance market, while respecting the appropriate separation between the association and the regulatory authority of the Alabama Department of Insurance.
