Tennessee Gov. Bill Haslam is expected to sign a bill allowing the formation of new types of captive insurance companies in the state and guaranteeing funding for their regulation.
The state has been falling behind in the race for captives since it passed its first captive statute in 1978. From a high of 16 in 1990, the state now has four single parent captives.
The bill is modeled after the law in South Carolina, which began allowing captives in 2000 and has 160 to date, according to the Captive Insurance Companies Association.
The bill (HB 2007), passed 27-0 in the Senate and 97-0 in the House, allows for the formation of protected cell captives, branch captives and special-purpose financial captives. Firms or groups that have off-shore captives will be able to form branch captives in Tennessee, which would allow them to cover employee benefits in accordance with the federal ERISA law.
The measure also will allow formation of protected cell captives, a form of rent-a-captive in which an insurer provides employers access to captive facilities without the them needing to put up their own capital. Instead, they pay a fee and post collateral to cover losses. Protected cell companies further allow these so-called “renters” of a captive to protect their capital and surplus from other renters in the captive.
Captives will be allowed to offer employee benefits and workers compensation coverage to large self-insured companies and to offer excess workers compensation for other employers.
Under the bill, premium taxes paid by captives will range from a minimum of $5,000 to a maximum of $100,000 a year. The measure requires that each year, the first $100,000 of premium tax revenue collected by the state, plus 10 percent of any premium tax revenue collected in excess of $100,000, must be allocated to the regulation of captives; the remainder will be allocated to the state’s general fund. The insurance department is expected to hire additional staff for its captive department.
Topics Tennessee
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