State Announced Updates To Captive Insurance Law
On May 20, 2024, Governor Scott signed legislation into law improving several sections of the Vermont captive insurance statute. Yearly the Vermont Captive Insurance Association (VCIA) works with the Vermont Department of Financial Regulation (DFR) to propose updates to captive insurance statutes based on industry feedback. Bill H. 659 clarifies the law in multiple instances to improve the process and consistency of regulatory practices, to address unnecessary redundancies, and to better align requirements with the captive marketplace.
“Vermont has a strong foundation of regulators and service providers who work together to ensure our state is as supportive as possible for Vermont’s captive insurance companies,” said Governor Phil Scott. “The passage of the yearly captive bill is always an important action to further improve the quality of our regulation.”
Highlights of this year’s bill include adding explicit language allowing for conversions of captive insurance companies into protected cells, amending current language for parametric contracts to allow for different parametric contract structures, lowering minimum statutory requirements for agency-type captive insurance companies to better align with the captive insurance marketplace, and statutory redundancies were addressed pertaining to confidentiality requirements.
Section 4 amends §6004(a)(4) minimum capital for an agency captive from $500,000 to $250,000. Since the initial passage of the agency captive statutes in 2017, Vermont has gained significant experience regulating this type of captive insurance entity. A lower minimum capital will compare more consistently with the current captive insurance marketplace, without lowering expectations of captive insurance companies.
Regulatory monitoring practices indicate the financial health and solvency of a captive insurance company, and the appropriate amount of capital needed for each capital based on individual circumstances. In evaluating this change, DFR determined it does not present a risk to solvency, since §6004(b) states “The Commissioner may prescribe additional capital and surplus based upon the type, volume, and nature of insurance business transacted.”
“Captive insurance companies are regulated based on their individual risk profile and our robust regulatory team is skilled at understanding appropriate capital to match the unique risk,” said Bigglestone. “Because of this we realized it wasn’t necessary to have a high arbitrary starting point for these companies.”
In the 2022 legislative session, section 6002(a) was amended to allow captive insurance companies to enter into parametric contracts for transferring risks. Parametric contracts have been a useful tool for companies in the face of increased natural disasters, for example. Since that time, examples of parametric contracts, under state laws, have demonstrated parametric contracts can be structured as insurance contracts; therefore, corrections were made to not be overly prohibitive. The DFR has the necessary regulatory processes and procedures to determine how a parametric contract should be classified and accounted for, when presented for approval by the Commissioner.
“The industry in Vermont knows that the regulators and the legislature are open to discussing new ideas and open to feedback,” said Kevin Mead, President, VCIA. “It’s one of the central reasons why companies choose Vermont to license their captive insurance company in.”
“This process is essential for Vermont to proactively address inefficiencies in its statutes without compromising on quality regulation,” said Brittany Nevins, Captive Insurance Economic Development Director, Vermont Department of Economic Development. “This annual process ensures that Vermont is continuing to regulate captive insurance companies as best as possible.”
