Vermont Updates Its Captive Insurance Law Again

Vermont Governor Phil Scott has signed into law legislation updating certain sections of the state’s captive insurance statute including sections governing minimum capital requirements for agency captives and captives’ use of parametric contracts.

The new law (H. 659) adds 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, and lowering minimum statutory requirements for agency-type captive insurance companies to better align with the captive insurance marketplace.

It also addresses statutory redundancies pertaining to confidentiality requirements.

The state updates the law almost every year in coordination with the Vermont Captive Insurance Association (VCIA).

The minimum capital required for an agency captive is being reduced from $500,000 to $250,000. The state says this lower minimum capital will “compare more consistently with the current captive insurance marketplace.” In evaluating this change, the Department of Financial Regulation (DFR) said it determined a lower requirement does not present a risk to solvency.

“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 Sandy Bigglestone, deputy commissioner of the captive division. “Because of this we realized it wasn’t necessary to have a high arbitrary starting point for these companies.”

In 2022, the law was amended to allow captive insurance companies to enter into parametric contracts for transferring risks. The changes in the law are meant to make sure the captive rules are not overly prohibitive. The DFR says it is able determine how a parametric contract should be classified and accounted for, when presented for approval by the commissioner.

Topics Vermont