Captive insurance refers to a subsidiary corporation established to provide insurance to the parent company and its affiliates. A captive insurance company represents an option for many corporations and groups that want to take financial control and manage risks by underwriting their own insurance rather than paying premiums to third-party insurers. The advantages of going captive are:
Over 860 companies have already realized the advantages of captive insurance operations licensed in Vermont. In fact, for several years now, Vermont has ranked as the number one captive domicile in the United States and the number three-ranked domicile internationally.
Vermont’s success to date can be attributed to a combination of factors, not the least of which is the ongoing leadership of Vermont’s Governors, both past and present, and both houses of the State Legislature who continue to uphold Vermont’s longstanding tradition of providing solid support for this state’s captive industry. This fact ensures that as captive industry needs change, captive legislation in this state evolves and is further enhanced with timely and meaningful changes made to Vermont captive law.
Vermont continues to be recognized as a quality domicile by captive owners, brokers, regulators, and others in the industry due to its high level of professionalism. An ever-increasing number of companies are further recognizing Vermont as their captive insurance domicile of choice.
In 1981, Vermont realized the potential benefits of attracting captive insurance companies and passed legislation providing the appropriate regulatory and taxation environment. The objective of the legislation was to establish a business friendly climate for companies forming captive insurance operations in Vermont. The law permitted:
Over the succeeding years, many changes were made to Vermont captive law to both enhance it and to meet the evolving needs of the captive industry.
Numerous amendments were adopted through 2003, when the entire body of Vermont captive law was recodified to streamline pertinent amended statute and to make it more cohesive as well as a more easily accessible body of law. Recodified changes: adopted the Liability Risk Retention Act; permitted fiscal year reporting; added employee benefits and life and health to permitted lines of business, and, for the second time since captive law was adopted, allowed for a significant reduction in captive premium taxes. Other changes permitted reciprocal captives, gave pure captives the ability to insure controlled unaffiliated businesses, increased confidentiality of captive financial records, allowed branch captive formation, and, permitted sponsored captives and the licensing of branch offices of offshore captives.
More recent refinements to Vermont captive statute since the 2003 recodification:
Two “housekeeping” bills, one in 2008 and another in 2009, further fine-tuned various sections of captive statute. The 2008 bill created a more flexible approval process for the use of letters of credit for captive capitalization, set more appropriate financial security standards of the “attorney in fact” of a reciprocal captive company, streamlined the process for the merger or conversion of existing captives to preclude required filings of redundant or unnecessary information, and made additional improvements to the Special Purpose Financial Captive statutes.
While 2009 saw adoption of a premium tax credit for new captives formed in the latter half of 2009, and throughout 2010, the permitted use of International Financial Reporting Standards, and enhancements to the statutes governing sponsored captives.
Vermont will continue to strive to improve and enhance the captive insurance company operating environment through both its innovation and deep understanding of captive insurer risk transfer needs.