Stay Connected with Industry News, Emerging Risks

Caitlin Morgan through our blog and newsletter is committed to keeping our agency partners and insureds abreast of trends, emerging trends and developments as they relate to the segments we serve. We invite you to connect and engage with us.

North Carolina Considers Allowing Captive Insurers to Operate in the State

Posted on: May 28, 2013 by Caitlin Morgan

North Carolina Considers Allowing Captive Insurers to Operate in the State

North Carolina Considers Allowing Captive Insurers to Operate in the State

Captives in the U.S. are healthy and growing, with domestic domiciles housing over 2,000 captive insurance companies. Now North Carolina is considering allowing captive insurers to operate in the home of the Tar Heels. The Senate Insurance Commission last month moved a bill through that would make North Carolina the latest state to have an active captive insurance industry. The bill, sponsored by Republican Senators Wesley Meredith and Tom Apodaca, is now in the Senate Finance Committee.

North Carolina’s SB 476 bill would allow all types of captives to be established, including special-purpose financial captives SPFCs), protected cell captives and branch captives. What’s more, smaller companies could form an 831(b) captive, which is typically known as a micro-captive. An 831(b) captive is an insurance company whose premiums do not exceed $1.2 million per year and which elects to have those premiums exempted from taxation.

Today there are 30 states that have captive domiciles, including many of North Carolina’s neighbors: South Carolina, Virginia, Tennessee, Kentucky, Georgia, Florida and West Virginia. The Department of Insurance in North Carolina sees South Carolina as among the leading captive domiciles and views Tennessee’s new law that passed in 2011 as an attractive option for companies looking to form captives.

Captive solutions are being undertaken by a variety of companies, organizations and entities of all sizes, as the benefits are many:

  • Customized insurance programs for the parent company
  • Reduced risk management costs
  • Enhanced ability to establish the specific policies and procedures that work best for the company
  • More control over the time to process and pay claims, resulting in lower processing costs and improving claimant satisfaction
  • Greater flexibility in hard or soft markets, enabling the captive to retain more risk in the former or transfer more risk in the latter; this is especially important during fluctuating markets when prices either are firming up or are very competitive due to overcapacity
  • Reduced reliance on commercial insurance companies as the captive grows its own risk retention capacity
  • An opportunity to work with others for captive risk pooling
  • An opportunity for direct access to reinsurance markets
  • Investment opportunities via an opportunity to select the investment of premiums paid to the captive
  • Reduction of burdensome state-mandated self-insurance regulations
  • Potential tax advantages, due to tax-favored accumulation of underwriting and investment income, or tax deductions for premiums paid by the insured (tax laws vary considerably, so be sure to consult a tax attorney for specifics about these matters)

Caitlin-Morgan can help you discuss a captive insurance solution with your clients. Give us a call at 877.226.1027 to discuss the type of captive would fit your client’s needs.

Posted in: Captive Solutions