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J. Michael Low, Esq.
(480) 429-4874


Twenty-four U.S. states have adopted captive insurance programs providing alternative risk mechanisms to attract American businesses. [1] Arizona enacted its captive statutory scheme in 2001. [2] The Arizona Department of Insurance (ADOI or Department), through its Captive Insurance Division, currently licenses 117 captive insurers, including subsidiaries of manufacturers, health care companies, finance and insurance groups, construction companies and other business entities. This article will provide an overview of the requirements of the Arizona captive law and discuss some of the unique features of that law that has attracted major business enterprises to form captive insurers in the state.

Arizona permits the licensing of six different types of captive insurers: pure captives, association or industry group captives, risk retention groups (RRGs), agency captives, protected cell captives, and pure reinsurance captives. [3]

  • Pure captives only insure the risk of affiliates or controlled unaffiliated business.
  • Controlled unaffiliated business means an individual or business that is not affiliated with the captive, who has a contractual relationship with an affiliate of the captive providing coverage or reinsurance and whose risk management services are controlled by an affiliate of the captive providing coverage or reinsurance.
  • An association or industry group captive is an association that has been in existence for at least one year, organized for a purpose other than obtaining or providing insurance for its members and is under the direct or indirect voting control of the association.
  • A group captive is a risk retention group, an industry group captive insurer, or an association captive insurer. An industry group requires two or more businesses or person to be engaged in the same or similar business activity common to their business, trade, produce, services, premises or operation and is completely under the direct or indirect voting control of the industry group.
  • A protected cell captive insurer is an entity that insures risks of participants through participant contracts and segregates liability under a contract through one or more protected cells.
  • Risk retention groups are treated as captive insurers in Arizona, if they are organized under the Liability Risk Retention Act of 1986, 15 U.S.C. §§ 3901 and 3902, and subject to the provisions of risk retention law. [4]

I. Captive Insurance Division

The Captive Insurance Division is a separate unit within the Financial Affairs Division of the ADOI. The Assistant Director of the ADOI, Financial Division, is Kurt Regner. The Captive Insurance Division, which reports to Mr. Regner, is headed up by Vince Gosz, Chief Analyst, and includes Rae Hughes, Captive Analyst, and Maidene Scheiner, Administrative Assistant. [5]

A captive insurance fund is established to fund the administration of the captive program and consists of monies deposited relating to the fees paid for the issuance of a captive insurance license and upon the annual renewal of same. [6]

II. Forming an Arizona Captive Insurer

The ADOI requires a pre-application submission, including a business plan, a proposed governance structure, the name of the actuary who will be performing the feasibility study and a list of the proposed service providers, including the captive manager. The Department may or may not request an in-person meeting following the review of the pre-application materials; however, a face-to-face meeting is generally recommended. [7]

When the application is submitted, it must include an initial license fee of $1,000, an examiner’s revolving fund deposit of $100, a charter document filing fee of $75 and articles of incorporation with a filing fee of $60 payable to the Arizona Corporation Commission. The application also must include original biographical affidavits for all officers and directors. Fingerprinting is not required. Bylaws, consistent with both Arizona General Corporate Law and the Captive Statutes, should also be filed and should include at least one Board of Directors’ meeting in Arizona annually, as well as the identification of a principal place of business in Arizona. [8] The latter can be the office of the captive manager, the attorney, or the statutory agent.

The minimum capital surplus requirements are as follows:

  • pure captive — $250,000
  • group captive insurer — $500,000
  • agency captive insurer — $500,000
  • protected cell captive insurer — $500,000
  • reciprocal insurer — $500,000
  • pure or group reinsurers — only one-half of the above amounts. [9]

It should be noted that the Department does have the authority to require additional capital and surplus based upon the volume of premium and the nature of the insurance coverage provided. [10]

Officers and directors are required to provide Conflict of Interest Statements, which should be updated annually thereafter. [11]

An actuarial feasibility study is required to accompany the application and must be prepared on the actuary’s letterhead and signed by him or her. It should track the Business Plan and assume the risks, coverages, and retentions the captive will write directly, cede, or assume. It should also provide 3-5 years of the loss history specific to the risk insured and identify the methodology used in the preparation of the feasibility study, including confidence levels and worst and best-case scenarios. [12]

The initial balance sheet of the proposed captive’s financial condition, signed by the president and secretary (both offices must be held by different individuals), is part of the application. It should specify the amount and source of the initial capitalization. [13]

The Department will approve the name of the captive and approve the form of Articles of Incorporation, which must then be filed with the Arizona Corporation Commission in order to formerly establish the corporate entity or limited liability company. [14]

Once an application is deemed complete, the Department has 30 days to review and approve the application. Recent past history indicates that most approvals occur 20-25days after the filing. [15]

It is common for the Department to issue a Conditions Addendum to the license, which addresses any specific requirements that the captive insurer must follow. Confirmation of the bank balance supporting the capitalization is required before the Certificate of Authority is issued. The effective date of the license will be the date it is formally signed by the Director or such later date as may be requested by the applicant. [16]

III. Key Ongoing Requirements

Annual Report. Non-RRG captives have to submit an Annual Report within 90 days after the captive insurer’s fiscal year, which includes a statement of the captive’s financial condition verified, under oath, by two of its executive officers. The captive may use generally accepted accounting principles (GAAP) in preparing its financial statements. However, the Director does reserve the right to require the use of statutory accounting principles (SAP) or modified GAAP principles based upon the type of insurance involved. [17]

Audited Financial Statement. The annual financial statement for each captive must be audited by an independent certified public accountant, with a copy filed with the Department, within 6 months of the captive’s fiscal year-end. Additionally, an actuarial opinion on the adequacy of the captive’s loss and loss expense reserves must accompany the annual financial statement. [18]

Exemption for Small Non-RRG Captives. An exemption for small captives, that write less than $1,000,000 of direct plus assumed written premium during any calendar year and have less than $1,000,000 direct and assumed loss and loss adjustment expense reserve as of yearend, from having to submit an actuarial opinion is automatically granted upon the submission of an affidavit under oath from an officer of the captive indicating that the $1,000,000 threshold for premiums and loss and loss adjustment reserves was not met. Additionally, if the captive fails to have direct premiums of $1,000,000 and less than 1,000 policyholders as of the end of the calendar year, it is also exempt from having to file an audited financial report. [19]

Business Plan Changes. All material changes in business plans shall be submitted for review and approval prior to making the change. [20]

Capital & Surplus Requirements. The captive must, at all times, possess and maintain minimum unimpaired paid-in capital and surplus in the amounts previously stated. Generally, a cash account, held by a qualified financial institution, pay an amount of the minimum capital surplus requirement suffices. The Department also accepts letters of credit issued by qualified financial institutions naming the Director as beneficiary in the amount of the capital and surplus requirements. [21]

Captive Manager. A captive must engage a captive manager doing business at a location in Arizona to maintain the captive’s books and records at a location in Arizona accessible to the Director. A change in captive manager is a material change and is subject to the Department’s prior approval. [22]

Dividends. The captive must obtain prior approval to pay any dividends prior to accruing or paying same. [23]

Confidentiality of All Filings. Arizona has a broad confidentiality provision that restricts the Department from providing information to any other person without the written consent of the captive. Exceptions to the confidentiality provision include using the information for the Department’s regulatory purpose, producing information pursuant to a subpoena and permitting production of information to a party to a civil action or contested case in which the captive is also a party subject to discovery. [24]

Investments. As part of the captive’s business plan, the captive must adopt an investment policy and file same as part of its business plan. A pure captive insurer is not subject to restrictions on allowable investments, except that the Director may prohibit or limit any investment that threatens the solvency of the pure captive insurer. Investment policies and practices of a group, agency, and protected cell captives must comply with both qualitative and quantitative limits for investments generally applicable to full legal reserve insurers. [25]

Affiliate Loans. Pure captives may make loans to one or more of its affiliates. Such loans are frequently characterized as “loan-backs.” The note must evidence the loan and the captive must obtain prior approval before funding any loans or investments in an affiliate entity. [26]

Reinsurance Agreements . All reinsurance agreements and material changes thereto must be filed with the Department as a change in the captive's business plan. Agreements with reinsurers that meet the Department’s accreditation or licensing standards require only the filing of a detailed term sheet of the reinsurance transaction. Agreements involving unauthorized reinsurers must be filed and approved by the Department before taking place. [27]

Directors and Officers. There is no prior approval required to appoint or change a captive's officers and directors; however, before appointing a new officer or director, an original biographical affidavit must be filed with the Department. Captives must adopt policies to periodically update conflict of interest statements from officers and directors. [28]

Service Provider Contracts and Agreements . Written contracts are required for all service providers even if the provider isn’t an affiliated entity. The service agreements should be submitted for prior approvals to the Department at least 30 days prior to the agreement taking effect. All captive manager agreements, renewals and amendments, all related party or affiliate agreements, renewals and amendments, and material service provider agreements, renewal amendments fall into this category. [29]

IV. Benefits of an Arizona Captive

The Arizona captive insurance law offers the following benefits:

  • Unlike most captive jurisdictions, no premium tax is required to be paid by a captive insurer. After licensing, the only fee charged is an annual renewal fee for $5,500 payable to the ADOI. [30]
  • Small-company exemption from annual actuarial opinion and audit requirements are available. Essentially, captives with less than $1,000,000 in direct or assumed premium and $1,000,000 in loss reserves and loss expenses are exempt from providing annual actuarial opinions and independent financial audits. [31]
  • There is no regularly scheduled statutory examination for pure captives. While the Director reserves the right to conduct an examination at any time, from a practical standpoint, such examinations are rare and only triggered under extraordinary circumstances.
  • Arizona has a strong confidentiality law that protects all information filed with or made available to the ADOI. By statute, the Director can only identify the name of the captive insurer, the date of its licensing, the type of captive insurer, including the business or industry of the owners or member and the captive’s licensed status. Information may be discoverable by a party in a civil action in which the captive insurer has previously submitted information to such party and the Director is required to provide information other governmental agencies in connection with any civil or criminal investigation as may be required by a subpoena issued by such agency. [32]
  • Approval of the application for a captive license should take place within thirty days after submission of an application deemed complete. The average time for license review and approval is generally 25–30 days. [33]

V. Arizona’s Captive Program

The Arizona captive program has been in existence for over sixteen years. As of this writing, there are 117 licensed Arizona captive insurers, ranging from some of the largest and most technically complex financial entities in the United States to smaller niche entities that qualify for the small company exemptions. As a mature captive program, Arizona is ranked as the 10th largest captive jurisdiction in the United States. [34] Over the years, the program has seen a steady and consistent growth in the number of captives due to both the provisions of the captive law and the support of the ADOI. The expectation is that that trend will continue.


[1] Captive Insurance Domiciles,; Captive Domiciles/,

[2] Laws 2001, Ch. 327, § 10; A.R.S. § 20-1098 et seq.

[3] A.R.S. § 20-1098

[4] A.R.S. § 20-1098.01

[5] Arizona Dept. of Insurance Employee List and Organization Structure

[6] A.R.S. § 20-1098.19

[7] Reference Guide for all Arizona Captives, April 2017, Publication, Arizona Department of Insurance, p.1 (Reference Guide)

[8] Reference Guide, p. 2

[9] A.R.S. § 20-1098.03; Reference Guide, p. 2

[10] Reference Guide, p. 2

[11] Ibid.

[12] Ibid., pp. 2, 3

[13] Ibid., p. 3

[14] Ibid.

[15] A.R.S. § 20-1098.01(h); Interview

[16] Reference Guide, p. 4

[17] A.R.S. § 20-1098.07

[18] Ibid.

[19] Reference Guide, pp. 6, 7

[20] Ibid, p. 9

[21] A.R.S. § 20-1098.03

[22] A.R.S. §§ 20-1098.01(G)(5), 20-1098.16

[23] Reference Guide, p. 10

[24] A.R.S. § 20-1098.23, Reference Guide, p. 11

[25] A.R.S. § 20-1098.10, Reference Guide, p. 11

[26] A.R.S. § 20-1098.10(c), Reference Guide, p. 11

[27] A.R.S. § 20-1098.11, Reference Guide, p. 11

[28] Reference Guide, p. 12

[29] Ibid

[30] Arizona Dept. of Insurance Captive Division Fees, Aug. 31, 2017, Arizona Dept. website

[31] Reference Guide, pp. 6, 7

[32] A.R.S. § 20-1098.23

[33] Interview with Vince Gosz, Chief Captive Analyst, Arizona Captive Insurance Division, November

[34] Captive Insurance Domiciles,; Captive Domiciles/,