Previously in 2012, amendments were made to the captive law that included increasing the types of permitted captives, establishing a reinsurance premium tax requirement and establishing a first year $7,500 credit against first year premium taxes.
The Act updates the captive law as follows:
- Streamlining the procedure for redomesticating foreign captives to Connecticut by making the redomestication statute applicable to captives;
- Granting the Connecticut Insurance Commissioner the discretion to allow captives to take credit for the reinsurance of a risk or portion of risk ceded to reinsurers that is not otherwise eligible for credit for reinsurance purposes in Connecticut;
- Clarifying that the prohibition on providing private passenger motor vehicle or homeowners insurance coverage is limited to personal risk insurance, which is defined as homeowners, tenants, private passenger nonfleet automobile, mobile manufactured home and other property and casualty insurance for personal, family or household needs except workers' compensation insurance;
- Removing the restrictions on branch captives that limit their writings to insurance or reinsurance of the employee benefit business of its parent and affiliated companies that is subject to the Employee Retirement Income Security Act of 1974, as amended from time to time (ERISA);
- Narrowing the applicability of the Holding Company Act to captives formed as risk retention groups, and clarifying the sections of the Connecticut Insurance Code that apply to captives. The Connecticut Insurance Commissioner was granted the authority to require compliance, if not already applicable, with Connecticut’s holding company provisions for pure captives and industrial insured captives when (a)(i) the assets of a subsidiary of the captive are greater than 10% of the assets of the ultimate parent or (ii) an individual member’s ownership is greater than 10%, respectively, or (b) the captive is owned by an insurance holding company system, in both instances; and
- Updating the definitions of “licensed insurer” and “insurer” for purposes of the captive law to exclude any captive insurer except for a risk retention group.
Upon the passage of the Act, then Connecticut Insurance Commissioner Thomas B. Leonardi released a statement saying, “This legislation helps strengthen the state’s growing captive insurance industry. A proven risk management tool for businesses of all sizes and orientations, captive insurance companies allow employers to control their costs, reinvest in their business and grow their employment base.” Additionally, John C. Thomson, Program Manager for the Connecticut Insurance Department’s Captive Insurance Programs, stated:
The latest legislation was built on the solid foundation of what Connecticut policymakers established several years ago. Its passage is sending a strong message throughout the industry, signaling that Connecticut is responsive to the needs of this ever evolving industry. . . . The captive insurance environment in Connecticut is growing by being vibrant and responsive. More importantly however, businesses and organizations in this state who manage their strategies and capital through captive insurance vehicles, can attract and maintain a qualified and productive workforce, they can add jobs as they grow. This is the real impact and contribution to the Connecticut economy.
Connecticut is currently in the process of licensing its fifth captive.
In addition to advocating the changes made by the Act, Connecticut regulators have also increased their marketing efforts to attract captive business. An annual symposium, now in its third year, has been established that provides both networking and educational opportunities. This year’s symposium held sessions for those interested in learning about captive-related issues such as risk management, financial performance and cyber risk. Connecticut also holds a “Captive Insurance Day at the Capitol” to build awareness about the benefits of captive insurance that features informational and town hall style meetings with state legislators and regulators. While it remains to be seen how effective these efforts are at attracting new captives, both events drew strong interest and were well attended.
Edwards Wildman Palmer LLP, which merged with Locke Lord LLP effective January 10, 2015, represented Thomson Reuters and Stanley Black & Decker in the formation of Connecticut’s first two captive insurers. Locke Lord LLP serves as general counsel to the Connecticut Captive Insurance Association.