North Carolina Looks to Grow Captive Insurance with Amended Law

July 11, 2014

North Carolina Insurance Commissioner Wayne Goodwin said North Carolina is now an even more attractive home for captive insurance companies with the enactment of a law allowing new captive types and providing some regulatory flexibility.

Changes to the N.C. Captive Insurance Act signed into law on July 7, 2014 will make North Carolina more competitive with other captive states, provide additional flexibility to the insurance commissioner in the regulation of captives, and allow for the formation of special purpose captives as designated by his department in North Carolina, according to Goodwin.

“The captive insurance market in North Carolina has been growing rapidly since the state became a captive domicile in late 2013,” said Goodwin. “I expect interest in captives to increase in the second half of 2014 with the improvements we’ve made to our captive legislation. Captive insurance provides businesses with new opportunities and benefits North Carolina’s economy.”

In October 2013, North Carolina joined 30 other states that have captive-enabling legislation. Since then the state has licensed nine captive insurance companies and approved 20 captive managers to work with North Carolina-licensed captives.

In February, The Pantry, Inc., based in Cary, N.C., formed Cellarium Insurance Co. Inc., a pure captive insurance company. This was the first captive insurer to become licensed in North Carolina in 2014 and the first in North Carolina to be owned by a publicly-traded corporation. As of March 13, 2014, The Pantry operated 1,537 convenience stores in 13 states, including its primary operating banner Kangaroo Express.

Cellarium Insurance Co. is managed by Beecher Carlson Insurance Services, LLC.

The legislative improvements will be discussed by N.C. Department of Insurance staff on August 26 at the first annual conference of the North Carolina Captive Insurance Association.

Captive insurance is a form of self-insurance in which an insurance company is formed to insure the risks of the parent company and its affiliates. Captives create jobs for those who form and perform services for the captive, and they generate premium tax revenues for the state or jurisdiction in which they are established.

The North Carolina Captive Insurance Act allows for the following types of captive insurance companies:

  • Pure Captive Insurance Company: Insures risks of its parent and affiliated companies or a controlled unaffiliated business or businesses.
  • Association Captive Insurance Company: Insures risks of the member organizations of an association, their affiliated companies and the risks of the association itself.
  • Industrial Insured Captive Insurance Company: Insures the risks of an industrial insured group and its affiliated and controlled unaffiliated businesses. An industrial insured is an insured that procures the insurance of any risk or risks by use of the services of a full-time employee acting as an insurance manager or buyer, whose aggregate annual premiums for insurance on all risks is at least $25,000 and who has at least 25 full-time employees.
  • Risk Retention Group: Formed pursuant to the Liability Risk Retention Act of 1986, 15 U.S.C. § 3901, et. seq. Risk retention groups are restricted to writing only liability coverage. A risk retention group, once licensed in one state, may operate nationwide provided it properly registers with all other states in which it proposes to solicit or write insurance.
  • Protected Cell Captive Insurance Company: Consists of a core and an indefinite number of cell entities which are kept segregated from each other. Each cell has dedicated assets and liabilities ascribed to it, and the assets of an individual cell cannot be used to meet the liabilities of any other cell. This type of captive is typically attractive to smaller organizations as an efficient and convenient risk management strategy as it allows them to insure their own risk without establishing their own captive insurance company.
  • Incorporated Cell Captive Insurance Company: Similar to a protected cell captive insurance company, except that it is organized as a legal entity separate from its incorporated cells, which are also organized as separate legal entities.
  • Special Purpose Financial Captive Insurance Company: Formed to reinsure the risk an affiliate or parent, usually a life insurance company. They issue reinsurance contracts to their parent or affiliate and then cede the risk to the capital markets by way of an insurance securitization.

Source: North Carolina Department of Insurance

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