So far in 2020, the North Carolina Department of Insurance (NCDOI) has licensed 15 captive insurers and approved 16 new protected cells or series. Of the 15 captive insurers licensed, one-fifth of those were redomestications from offshore domiciles. The remainder are new captive formations.

Of North Carolina’s licensed captive insurers, approximately 24 percent were redomestications while approximately 76 percent were new formations. Of the redomestications, approximately 82 percent came from offshore while the remainder came from other US domiciles.

Based on preliminary discussions with captive insurance service providers and potential owners, we expect more redomestications to North Carolina will take place before the end of the year, primarily from offshore domiciles. Additionally, the interest in new captive formations appears greater than it was this time last year.

We expect a busy year-end application season and anticipate a number of licence applications and cell/series business plans will be received before the end of the year.

The majority of states have enacted captive insurance laws, but the states that are the most appealing to captives owners are those that have made a long-term commitment and provided resources for the proper regulation of licensed captives, have established and maintain modern captive insurance laws, and finally, welcome the industry to their state.

It is important for captives owners to consider which domicile provides the best environment for their captive insurers to meet their risk management needs.

When seeking a captive domicile, factors such as the domicile’s captive laws and regulations, regulatory environment and approach, and availability of captive service providers are important to consider.

Captive laws and regulations differ from state to state. The captive owner, along with its service providers, will want to gain an understanding of the types and structures of captive insurers that can be licensed as well as the coverages that may be issued by captive insurers in a state to determine whether the laws of that state will provide the desired environment for a captive insurer.

Regulatory costs vary by state. It is important for the captive owner to consider the fees, premium taxes and other expenses the captive will be required to pay to the state of domicile. Some states have a fee for most every regulatory filing. Some states use consultants to assist in the regulation of captive insurers and then pass the costs of those consultants on to the captive insurers. The captive owner should evaluate all the regulatory costs during the domicile selection process.

The regulatory environment and approach differ from state to state. It is recommended that the captive owner determine if the state has a dedicated captive regulatory team that is experienced in the regulation of captive insurers, whether the staff has sufficient funding to meet its regulatory responsibilities, if the captive regulatory staff is responsive and available, if the state’s leadership and the Commissioner of Insurance support the captive programme and if the captive owner is satisfied with the overall approach of the regulator.

After considering all these factors, we are pleased that business owners are deciding that North Carolina is a great home for their captive insurers.

The differences between the captive domiciles relative to their regulatory costs, regulatory framework and regulatory approach are factors that lead a captive owner to select one domicile over another as there are distinct differences between domiciles in these areas.

The fee and tax structures as well as other costs that may be passed on to a captive insurer vary between the states. A North Carolina licensed captive insurer receives the benefit of low regulatory costs. The NCDOI charges no fees whatsoever—no application fees, no business plan change fee and no renewal or annual filing fees. There is one exception: a special purpose financial captive insurer must pay an application filing fee.

The fees and taxes paid to the state of North Carolina are limited to premium taxes paid to the NC Department of Revenue and nominal fees paid to the NC Secretary of State’s Office for corporate filings.

The NCDOI has a dedicated team of professional, experienced analysts with in-house examiner and actuarial resources, but some states use consultants to assist the state’s regulators in meeting analysis and examination responsibilities. These costs are typically passed on to those states’ captive insurers. North Carolina’s low regulatory costs provides a favourable benefit to captives licensed in the state.

North Carolina’s captive laws are modern and provide the Commissioner with the appropriate level of discretion to regulate each captive insurer according to its unique risk profile. North Carolina’s laws provide for the formation of almost any type of captive insurer, as appropriate.

At the NCDOI, the regulation of licensed captive insurers is our primary responsibility, and we have a team of in-house experienced professionals to handle that responsibility. Appropriate, prudent regulation by the state of domicile is important. Also important is the regulator’s approach, which should be one of consistency so that industry can develop expectations regarding the regulatory environment.

At times there are concerns by industry that a change in the position of Commissioner of Insurance or the state’s Governor or other leadership could lead to upheaval in the state’s captives industry. North Carolina is now entering its eighth year of operation, and since the enactment of the captive laws, the state has experienced changes in these leadership positions and the political parties represented in those positions. However, the captive regulatory environment of North Carolina has remained consistent.

One other facet of regulation that sets North Carolina apart is Commissioner Mike Causey’s and the NCDOI’s mission of customer service to the industry. This means the NCDOI’s professional regulatory team is responsive, assessable and available to the industry. Applications and other filings are processed promptly.

The NCDOI’s approach to regulation is one of partnership with the industry. The regulatory team works through issues that arise with applicants seeking licensure. If issues warrant denial of the application, those issues are discussed with the applicant to determine if there are alternative ways to bring the captive into compliance with North Carolina laws.

The captives industry provides two major benefits to North Carolina. First, the industry provides an alternative for business owners to manage their risks. Second, the industry makes a positive impact upon the economy of North Carolina.

The ability to form and operate captive insurers provides business owners a tool to insure risks for which they have no coverage, to insure gaps in their commercial coverage, to access the reinsurance market and potentially reduce insurance costs, or to obtain coverage that they previously obtained from the marketplace. This provides business owners with more risk management options.

Captive insurers licensed in North Carolina favourably impact the state’s economy by paying premium taxes and paying nominal fees to the NC Secretary of State’s Office for formations and annual corporate reporting. A greater impact comes from captive insurers using service providers, some of which are in our state, generating revenue and jobs at those businesses.

Finally, captive insurers, their owners and insureds and their service providers travel to North Carolina for events, such as the annual conference of the North Carolina Captive Insurance Association and for the captive insurers’ board meetings. This generates business revenue and jobs at hotels and recreational facilities in North Carolina.

Yes, and also due to the hardening commercial market. This year some business owners have been disheartened to learn that their business interruption policies will not pay for losses they incurred because of COVID-19. Others are concerned about the difficulties they are experiencing in obtaining the desired coverage at a reasonable price from the commercial market.

For these reasons and others, more business owners are considering using a captive insurer that can provide an insurance programme tailored for their specific needs, which is very appealing.