Verizon Sets Up Captive Insurer in N.J.; State Now Has 4 Captives

May 8, 2012

New Jersey officials announced this week that the state approved a captive insurance company for telecommunications services giant Verizon Communications Inc.

The new captive, called Exchange Indemnity Company New Jersey (EICNJ), is a subsidiary of Verizon and the first captive insurer approved in New Jersey this year, and there are more companies with “applications in the pipeline,” according to state officials.

Last year, the department of banking and insurance approved three captives, after the state’s Captive Insurers Act was enacted in Feb. 2011.

“I am very pleased that Verizon has acted to take advantage of the Christie Administration’s efforts to promote development in all sectors of the economy,” said Ken Kobylowski, acting commissioner for New Jersey’s department of banking and insurance.

“This is another example of a business friendly New Jersey. Businesses can now insure their New Jersey risk in New Jersey. Our captive law is creating new opportunities for business creation that will in turn help already established firms grow.”

The firm, headquartered in Morristown, N.J., will provide liability insurance deductible coverage for various Verizon subsidiaries. Verizon is a major employer in the Garden State. It employs thousands of New Jersey-based employees and provides landline, broadband, video services, cell phone and other wireless services to New Jersey residents. The company will use EICNJ to help stabilize and control its insurance costs, improve coverage availability and improve its cash flow.

The new captive is itself a unit of Exchange Indemnity Company. It is one of Vermont’s largest captive insurance firms.

The other three captive insurers approved since New Jersey enacted its captive law are:

• Ports Insurance Company Inc. (PIC), which provides Longshoreman and Harbor Workers insurance to its parent, Ports America, the largest terminal operator and stevedore in the United States, operating in more than 80 locations at 42 ports. PIC also provides deductible reimbursement insurance for Ports America’s commercially purchased insurance.

• Sequoia Insurance Company, which is an industrial captive formed to write liability coverage for Bayonne Medical Center and Hoboken University Medical Center, both owned by HUMC Holdco.

• Prudential New Jersey Captive Insurance Company (NJCAP), which manages risk in a portion of Prudential Insurance Company of America’s life insurance and annuity policies. NJCAP was the first captive approved in New Jersey.

“This is what new business development looks like,” said Kobylowski. “There are more companies with applications in the pipeline. Expect to see New Jersey employers create more captive insurers in New Jersey this year thanks to Gov. Christie’s foresight in signing the captive insurance law.”

Captive insurance companies are established with the specific objective of financing risks emanating from their parent groups. Before Gov. Chris Christie signed P.L.2011, C.25 into law, New Jersey did not allow captive insurance firms to be established. This prompted major New Jersey employers to establish captive insurers in other states and countries. Without this law, companies would continue to go to other jurisdictions to form their captives, Kobylowski noted.

Captives allow businesses to gain greater control of the organization’s ability to identify, manage and finance insurable risks. The potential advantages include: greater control in risk management and claim activities, paying lower premiums, federal tax savings, tailoring coverage to their specific needs, and direct access to reinsurers.

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