The gold standard

As one of the first US states to adopt captive insurance enabling legislation, Vermont has always been a forerunner in the industry. Over the years, the state has worked very hard to maintain its position as a domicile of choice, consistently updating its regulation and maintaining open communication with captive owners.

Vermont, much like the whole captive insurance industry, has matured since 1981. When we started, there were three other states with captive laws and, it’s safe to say, they weren’t particularly focused on pursuing captive formations.

If Vermont hadn’t passed captive legislation back in 1981 but decided to do so now, with 29 other domiciles, it would be very difficult.

For example, in 2013, Maryland was considering whether to become a captive domicile. A consultant who had been hired to research the point produced a report outlining the opportunities and challenges faced by the state should it choose enact captive legislation.

Of the challenges, the consultant noted that Maryland was surrounded by the successful domiciles of Delaware and the District of Colombia and that the state didn’t have enough businesses and insurers to present a significant opportunity for captive formations.

We would be in that same boat—we don’t have the business in Vermont to support a captive domicile. It would be very tough to do what we did in 1981 in today’s environment.

A few of us at the Captive Insurance Division have been here almost since the beginning, and many of the captive managers have staff with 30 years’ experience in Vermont captives. We have a long history of building expertise and consistent leadership, which has led us to be always successful and ready for the future.

It takes a lot of hard work to ensure Vermont stays current and focused on all our captive programmes. We license captives for risk management and risk financing purposes first, and expect them to follow the tax code.

We’ve worked very hard with businesses to create good, solvent captives—that’s what our regulation, captive managers, and captive owners focus on. The captive is there to solve a problem for the parent company or members and if it’s not solvent, it can’t do its job.

To ensure we remain on the cutting edge and to keep up with what the industry needs, we update our law every single year. It’s a very intentional effort.

As part of our annual process, we work with the Vermont Captive Insurance Association (VCIA) to determine what the industry would like to see in the law; we make sure our statutes and practices conform to applicable National Association of Insurance Commissioners accreditation requirements, and we come up with our own ideas, too. The end result is that we can bring the legislature a finished, agreed-upon proposal each year.

During the COVID-19 pandemic, we started the 2020 bill presentation in person, then completed our work with the legislature virtually. The 2021 bill was passed through a 100 percent virtual meeting process; both bills were a testament to the flexibility and adaptability of Vermont’s legislature.

In terms of updates to the law, sometimes we’ve undertaken big changes, from developing an entirely new kind of captive—the affiliated reinsurance captive—which is designed to provide onshore options for US insurance companies using Bermuda for their own reinsurance services, while other parts of the bills will consist of minor tweaks such as amending punctuation.

We’ve introduced dormant captives and started licensing special purpose captives.

In addition to ensuring our laws are current, we place a high priority on communication with captive owners.

From day one, when we have our first meeting, we let captive owners know that we want to hear from them often—when things are going well and when things are not.

Unlike traditional insurance regulation, where the focus is on the protection of consumers, in the captive world, the buyer and seller are one and the same, so the relationship with regulators and captives can look quite different.

For those looking to form captives in Vermont, the fact that all the approved captive managers have offices here is of great benefit. Some global captive managers have based their captive practices here, helping to make Vermont a centre of captive excellence.

The VCIA conceived the International Center for Captive Insurance Education, a comprehensive education programme for participants in the captive industry, back in 2001.

Our captive industry is a big point of pride in Vermont. It’s a unique circumstance—everyone is proud of the industry and wants to keep investing in it to ensure its success.