Vermont Business Magazine AMBest, in a new report, believes an updated captive insurance law in Vermont, which allows for the inclusion of agency captives, makes the nation's largest captive domicile even more attractive for potential formations.A newBest’s Briefing, “New Vermont Law Aims to Attract and Retain Captives,” states that the signing of House Bill 85 in Vermont into law, and its inclusion of agency captives, highlights the push by the insurance industry in recent years to get closer to the insureds.
Many agents have deep-rooted relationships with profitable books of business. The agency captive will allow them to continue to control that relationship through working with a primary carrier, while sharing in the risk by participating in the fortunes of the business written.
Governor Phil Scott signed the legislation May 2. The law intends to strengthen Vermont’s captive legislation in a variety of areas, including accounting principles, governance standards, and expanded dormancy qualifications, along with the addition of agency captives.
“In what has become an annual tradition, these improvements to our captive legislation illustrate Vermont’s ongoing commitment to the captive insurance industry which has been an economic boon for the state,” said Scott said at the time. “This bill will help to further advance Vermont’s reputation as the ‘Gold Standard’ for domiciles and will provide greater flexibility and clarity going forward for our companies.”
The law added agency captives to the types of captives that can be formed in Vermont. An agency captive is a reinsurance company controlled by an insurance agency or brokerage. Through a reinsurance agreement with a traditional insurer, the agency captive receives a share of the premiums written, and is obligated to pay its share of claims. Agency captives creates a long-term relationship between the agency and the insured, where interests are aligned: risk appetite, selection, pricing, loss control, claims management, etc.
A summary of the other changes in the law include the following:
Accounting Principles– Allows, without special permission, the three bases of accounting commonly used by Vermont captives: US GAAP, NAIC Statutory Accounting Principles (SAP), and International Financial Reporting Standards (IFRS).
Expand Dormant Captives to All Captive Types- Dormant status is expanded to ALL captive types in Vermont, which allows companies to stay in Vermont at a very low cost, ready to be reactivated when and if the need arises.
Incorporated Protected Cells Naming Conventions– Both the captive law and corporations law required specific terminology, and both were being enforced simultaneously. The captive law requires an incorporated cell to include “Incorporated cell” or “IC” in its name, the same way the corporation law requires “corporation”, “Incorporated”, or “Inc. The new law lets the captive statute determine the naming convention.The inclusion of “Incorporated cell” or “IC” in the name of each incorporated cell is sufficient to identify the business entity.
Risk Retention Group Governance Standards- The new law provides for relief from auditor partner rotation requirements under the same circumstances and with the same considerations as other current captive and traditional insurance regulations require, to eliminate conflicting provisions in statute and regulation.
Captive insurance is a regulated form of self-insurance that has existed since the 1960s, and has been a part of the Vermont insurance industry since 1981 when Vermont passed the Special Insurer Act.
Captive insurance companies are formed by companies or groups of companies as a form of alternative insurance to better manage their own risk. Captives are typically used for corporate lines of insurance such as property, general liability, products liability, or professional liability.
To access bill, CLICK HERE. To access the full copy of this briefing, please visitwww3.ambest.com/bestweek/purchase.asp?record_code=262363.
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Source: OLDWICK, N.J.--(BUSINESS WIRE)--AMBest Rating Services, Inc 6.5.2017. For more information, visitwww.ambest.com.