Reasonable and responsible

North Carolina is a leading captive insurer domicile for several reasons.

The state’s captive insurance laws are modern and relevant, providing for the types and structures of captive insurers needed by business owners to manage their risks. The laws provide an appropriate level of discretion that enables the Commissioner to regulate each captive insurer according to its unique risk profile.

The North Carolina Department of Insurance (NCDOI) and the state’s captive insurance industry, including the North Carolina Captive Insurance Association (NCCIA), continuously evaluate the laws and propose changes as necessary to meet the needs of the captives industry as it grows and develops.

North Carolina provides for a low regulatory cost for the formation and operation of captive insurance companies. For instance, no fees are paid to the NCDOI for its regulation of captive insurers (with the exception of a special purpose financial captive insurer application fee). This means no other application fees, business plan change filing fees, annual reporting fees, renewal fees, etc, are charged by the NCDOI.

The only amounts paid to North Carolina are annual premium taxes, with rates that are competitive with other domiciles, and nominal corporate record filing fees.

The NCDOI maintains an in-house professional team of analysts and actuaries that handles the responsibilities of licensing and regulation of captive insurance companies. These team members are credentialled, knowledgeable and experienced in the regulation of captive insurance companies.

This means our regulatory responsibilities are handled internally as opposed to hiring regulatory consultants, whose fees have to be passed onto the captive insurers—another cost saving. This team, under the ultimate direction of Commissioner Mike Causey, takes a pro-business yet reasonable and responsible approach to the regulation of captive insurers.

The NCDOI’s regulation of captive insurers incorporates a mission of outstanding customer service. The captives regulatory team is responsive, available, and accessible to the industry and the public. Additionally, the team evaluates and provides decisions on filings that require NCDOI approval in a timely manner. While the NCDOI is the regulator of captive insurers licensed by the state, wherever possible, the NCDOI strives to partner with the industry as appropriate to meet the needs of the insureds.

If a proposal is deemed unacceptable by the NCDOI, then the team works with the captive owner and its service providers to determine if there is an alternate solution.

These features of the North Carolina captive insurance programme have set the state apart from other captive insurer domiciles.

Of the total captive insurers licensed in the state today, slightly over 20 percent of them have redomesticated to North Carolina from other jurisdictions. We expect this trend to continue, and if the proposed premium tax incentive is passed by the General Assembly this summer, we expect even more captive insurers to move to our state.

The NCDOI has always streamlined the redomestication application process as much as possible. For instance, for a captive insurer that has a current business plan, biographical affidavits, and other required application information on file with their current regulator, North Carolina allows that information to be submitted in the redomestication application. If business plan changes will occur upon redomestication, supplemental information explaining those changes may be provided in the application.

Additionally, the NCDOI has an online filing system whereby the redomestication applications may be easily electronically entered, saved and ultimately filed with the NCDOI. The system provides an efficient, confidential means of application submission.

North Carolina’s portfolio of captive insurers is growing and diversifying. Much of the growth in the captives industry today is from the formation of captive insurers by small to medium-sized businesses, and North Carolina’s industry is growing due to those businesses. Also, as North Carolina has become a trusted captive domicile, it has gained the attention of larger businesses.

The industries represented by businesses forming captive insurers are a diverse group. Some primary industries insured by North Carolina licensed captive insurers are information technology, financial, construction, healthcare, and transportation.

Medical stop loss is a coverage of growth in the state’s captive insurance industry. As in 2019 when Berkeley selected North Carolina as the domicile of its onshore medical stop loss structure, this past year BevCap Management publicised the formation of its new onshore captive option in North Carolina for medical stop loss.

During 2020 and 2021, as a result of the rising costs of insurance and the decrease in insurance availability, we have seen business owners using captive insurers in different ways to reduce their dependence on the commercial market for coverages such as auto liability, workers’ compensation, professional liability and general liability.

Some have used captives to obtain coverage for higher deductibles on their commercial programmes; to address difference in conditions and gaps in their commercial coverages; or as a replacement for some or all of their commercial coverage. Some are using captives to access the reinsurance markets for the coverage or pricing they desire. Tenant liability is another coverage of growth in the state.

The increase in the number of cells and series of protected cell and series captives is an important trend that is occurring. Many business owners have opted to obtain their captive insurance through a cell or series rather than forming standalone captive insurance companies.

We are seeing these cells and series used by all sizes and types of companies with varying risk management needs.

The pandemic, in addition to the hardening commercial market, has caused more business owners to consider the benefits of using a captive insurer to obtain coverage that they are unable to get from the commercial market for a reasonable price.

Business owners are seeking to use captive insurance companies to address business risks that they never considered previously, such as risks related to unexpected events. After experiencing losses of suppliers, customers, key employees, etc, because of the pandemic, more business owners are considering captive insurers to address risks.

During this last 18 months we have seen an increase in requests for NCDOI approval by captive insurers to issue loans, dividends, and distributions. The increase appears to have been driven by the negative impact of the pandemic on the captives’ owners, insureds, and affiliates.

Some businesses experienced cash flow needs due to pressures placed on their operations, such as mandated closures, limited hours of operations, supply shortages, staffing issues due to illnesses and other impacts from the COVID-19 pandemic. Some captive owners found it beneficial to use excess capital from their captives to address their businesses cash flow needs.

The department understood these needs and granted approval of these requests whenever appropriate and as timely as possible, following an evaluation to determine if the terms were reasonable and the captive insurers would remain sufficiently funded to meet their future obligations and maintain compliance with the laws.

It seems more captive owners benefited not only from the insurance coverage they obtained from their captive insurer, but also through the reallocation of excess capital from their captive insurers.