CONNECTICUT

CONNECTICUT CAPTIVES: LEADING THE WORLD

Two centuries of insurance experience, plus a strong work ethic and ambitious plans for further innovation, are helping to make Connecticut a superhero among captive domiciles. The Connecticut Captive Insurance Division reports.

“Key to Connecticut’s captive insurance excellence is the fact that the state has everything that captives need to thrive.” FENHUA LIU, CONNECTICUT INSURANCE DEPARTMENT

In 1810, Connecticut founded its first US insurance company in Hartford, Connecticut. With more than two centuries of experience under its belt, the state has worked non-stop to maintain its strong and well-earned reputation as the insurance capital of the world.

Although Connecticut’s 200-year insurance expertise has few rivals in the US, its journey towards becoming a world-class captive domicile has a more recent beginning. The 2008 Public Act “An Act Concerning Captive Insurance Companies” established the Connecticut captive insurance industry, coming into effect from January 1, 2009.

Over the next 13 years, Connecticut refused to sit on its laurels, working non-stop to develop its captive expertise, improve its offering and become a center for innovation in captive formation and thinking.

In 2011, the domicile introduced new types of captive licenses (sponsored, branch and special purpose financial). The following year, important captive legislation was passed, making necessary and timely technical changes to the insurance statutes.

Fast-forward to 2014: Connecticut streamlined re-domestications, significantly expanded the types of coverage written by branch captives and introduced a discretionary authority to allow captives to take credit for reinsurance that was not otherwise eligible.

Public Act 17-198 followed in 2017, allowing discretion on capital and paid-in surplus. The act also established dormant captives and reduced the minimum surplus requirement for sponsored captives.

One year later, legislators authorized agency captives, subject to specific conditions. The agency captive must insure only against commercial policy risks placed by or through one of its owners or controllers, and maintain at least $500,000 in unimpaired paid-in capital and surplus.

Innovation is at the core of the insurance capital and its captive business. In 2018 when Connecticut homeowners were struggling with crumbling concrete foundations due to contamination from pyrrhotite, the state formed the Connecticut Foundation Solutions Indemnity Company, a captive that has led efforts to replace foundations destroyed by the crumbling concrete crisis.

In addition, Connecticut’s work to offer excellent captive regulatory services and expand its reputation as a domestic captive domicile has delivered strong growth.

The past two years have seen exponential growth in the captive arena. In 2021, Connecticut licensed 13 new captives, a 59 percent increase on the previous year. In 2020, the captive division recorded a 35 percent increase in licenses.

Today, Connecticut has 35 captives, with 11 of these being owned by Fortune 500 companies. The captive numbers sit within the larger insurance landscape. Approximately 1,500 insurance companies write over $40 billion in premiums in Connecticut and are available to captives for fronting, reinsuring and professional services.

Connecticut has managed to attract captives originally domiciled offshore. While many offshore captives were formed before Connecticut passed its captive insurance legislation, evolving rules have meant that certain captives and coverages, such as employee benefits and federal-sponsored terrorism coverages, need to be provided onshore.

Eight large captives have re-domesticated from offshore, or other domiciles, to Connecticut in recent years.

“Innovation is at the core of the insurance capital and its captive business.”

The state’s superpowers

“Key to Connecticut’s captive insurance excellence is the fact that the state has everything that captives need to thrive,” said Fenhua Liu, assistant deputy commissioner, Captive Insurance Division, Connecticut Insurance Department.

Connecticut’s law allows all types of captives, and the insurance commissioner has the appropriate level of discretion to regulate captives according to their unique risk profiles.

Even where captive or service-provider applications do not comply with the domicile’s captive insurance laws, regulators outline their reasons and suggest realistic solutions.

The Insurance Department has modernized the captive application process and shortened the turnaround time for all requests. Connecticut now makes quick decisions and processes requests efficiently using a principled and risk-based regulatory approach.

Its dedicated team of in-house career examiners, accountants, actuaries, and attorneys fully understand complex captive structures.

Regulators with decades of experience provide consistent, responsive, and customer-focused services to the captive industry. The Insurance Department avoids using outside consultants, thereby saving captive owners money and time.

Captives can also save money with respect to fees. Connecticut has no fees beyond a one-time $800 application fee, a $375 annual licensing fee, and nominal fees paid to the Connecticut Secretary of the State’s office for corporate filings.

Connecticut offers the first-year premium tax credit of $7,500 for all captives. Its premium tax rates are like those of most other top US domiciles, for example a captive writing premium of $30 million for direct, or $142 million for assumed will pay about $100,000 premium tax.

Since regulatory fees are low with $7,500 first year tax credits, and the Insurance Department avoids using outside consultants for license application review and examinations, overall captive insurance costs are very competitive.

Finally, the captive insurance division is working hard on its outreach initiative, as it seeks to expand Connecticut’s presence and reputation as a domestic captive domicile.

With the support of the Connecticut Captive Insurance Association and the Connecticut Society of CPAs in developing an outreach plan, the Insurance Department and the National Network of Accountants conduct education outreach to accountants on the benefits of captive insurance for their business clients.

In 2021, the concerted efforts of the department and Connecticut Insurance and Financial Services, the National Network of Accountants, the Connecticut Captive Insurance Association, AdvanceCT, and the Department of Economic and Community Development, along with captive service providers and captive owners, all helped to expand Connecticut’s presence and reputation as a top captive domicile.

Looking to the future, the captive division is planning even more collaboration to educate industry stakeholders on benefit of forming a captive need and the many options Connecticut has to offer.

According to Connecticut Insurance Department commissioner Andrew N. Mais: “As the insurance capital of the world, Connecticut is the only state with a great location, modern captive laws, low fees, and responsive and experienced regulators and service providers for the captive insurance industry to grow.”

For more information visit Connecticut Captive Insurance Division: portal.ct.gov/CID/Financial-Division/ Captive-Insurance/Captive-Insurance-Division

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Image Credit: Shutterstock / MIHAI ANDRITOIU

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