CAPTIVE REPORT: U.S. ROUNDUP: SMALL U.S. DOMICILES SHOW LITTLE CHANGE

HERE IS A REPORT ON SMALLER U.S. CAPTIVE DOMICILES:

TENNESSEE

Tennessee at year-end 1996 had 10 captive insurers, one fewer than the previous year.

NLC Mutual Insurance Co., an excess property and casualty insurance captive owned by the National League of Cities, moved to Vermont.

The Tennessee Captive Insurance Company Act of 1978 did not change last year. Under the law, single-parent captives need at least $750,000 in capital and surplus, and group captives need at least $1 million.

The minimum gross premium volume requirement is $500,000 for single-parent captives and $1 million for group captives.

Annual fees are $5,000 for single-parent captives and $10,000 for group captives. Tennessee-domiciled risk retention groups with out-of-state members must pay a $10,000 regulatory fee. Tennessee requires captive insurers to pay a one-time certificate of authority fee of $500 upon formation.

For more information, contact Bill Hosea, director of financial affairs, Department of Commerce and Insurance, 500 James Robertson Parkway, Nashville, Tenn. 37243-1135; 615-741-1692; fax: 615-532-2788.

-By Deborah

Shalowitz Cowans

Georgia

Georgia at year-end 1996 had 10 captives, up from seven the previous year.

Four new captives were formed in Georgia last year, and one went into runoff.

The captive insurer in runoff, Ambulance Provider Assn. of Georgia Mutual Captive Insurance Co., was in operation less than a year.

The four new association captives are: Georgia Restaurant Mutual Captive Insurance Co., for restaurant owners; Georgia Specialty Contractors Mutual Captive Insurance Co., for building contractors; Home Builders Mutual Captive Insurance Co., for home builders; and Southeast Employers Mutual Captive Insurance Co., for roofers.

Also, Commerce Mutual Captive Insurance Co., a retailers association captive, is converting to a traditional property and casualty insurance company, according to an official in the state's insurance department.

Georgia's captive insurance law has not changed recently.

To qualify for membership in a captive in Georgia, a company must pay at least $25,000 for insurance in addition to meeting one of these criteria: 25 employees, $5 million in gross sales or $3 million in assets.

Georgia requires captives to have capital and surplus of at least $500,000, while the premium tax is based on the amount of assets invested in Georgia.

For more information, contact Amanda Jamison, Department of Insurance regulatory services, 604 West Tower, 2 Martin Luther King Jr. Drive, Atlanta, Ga. 30334; 404-656-2074; fax: 404-656-0874.

By Deborah

Shalowitz Cowans

U.S. Virgin Islands

Regulators in the U.S. Virgin Islands hope to pass legislation this year to make captive insurer formation in the domicile more user-friendly.

Only seven captive insurers are domiciled in the U.S. Virgin Islands, a net gain of one since year-end 1995.

A majority of those are funding employee benefit plans, which is the primary reason companies have set up captive insurance companies here.

Due to the territory's regulatory status as a "state," U.S. employers can fund employee benefit programs for U.S. employees through U.S.V.I.-domiciled captives and still comply with the Employee Retirement Income Security Act. ERISA prohibits U.S. companies from funding benefit plans via non-U.S. domiciled captive insurers.

But growth has been stymied because of conflicts between 1994 U.S.V.I. legislation and U.S. Labor Department guidelines.

Not only does the law prohibit rent-a-captives and association captives for groups that have not existed for at least one year, it also allows captives to fund benefits only if 50% or more of premiums come from the captive's owner.

Conversely, the DOL generally allows employers to fund employee benefit risks through a domestic captive insurer only if the parent supplies no more than half of the captive's premiums.

U.S.V.I. captives in conflict with the Labor Department have been addressed on a case-by-case basis, said Gwendolyn Hall Brady, director of the Division of Banking and Insurance in St. Thomas.

Ms. Brady replaced Margery Resnick, who resigned in March 1996 after serving only one year as director.

It is the goal of Lieutenant Gov. Kenneth Mapp, who is ultimately in charge of insurance supervision, to pass "user friendly" legislation "so companies can come in and not encounter any conflict with federal guidelines," Ms. Brady said.

But with no developed financial infrastructure in the domicile, the U.S.V.I. "at this point and time, doesn't measure up" to other domiciles like Bermuda, said Thomas Comer, chief operating officer and executive vp of Aon Risk Resources, which oversees Aon's U.S.V.I. operations, one of three captive managers in the domicile.

However, "in defense of the Virgin Islands, the government is just getting back on its feet (after Hurricane Marilyn) and taking an active role in marketing captive legislation," he said.

"We want to make every effort to increase the number of captives doing business in the U.S.V.I.," Ms. Brady said.

This means analyzing all U.S.V.I. legislation and regulations and determining if any changes need to be made, Ms. Brady said.

Under U.S.V.I.'s captive insurance company laws, single-parent captives must have $125,000 in capital and surplus; industrial insured groups of companies in the same industry must have $175,000 in capital and surplus; and associations must have $320,000 and must be in existence for more than one year.

Captives pay no local taxes. The annual licensing fee is $6,000, and there is a $1,000 initial application fee.

Captives must file an audited financial statement with regulators within 180 days of the close of the fiscal year.

For more information, contact the Division of Banking and Insurance, Kongens Gade No. 18, St. Thomas, U.S.V.I. 00802; 809-774-2991.

-By Sally Roberts

Delaware

The Mid-Atlantic's largest captive domicile remained home to seven captives, a population unchanged since July 1993.

The Delaware Captive Act of 1984 requires that single-owner captives have at least $100,000 in capital, while their association counterparts must have $400,000 in capital.

Captives also must pay a $300 annual registration fee.

For more information, contact Ruth Starnes at the Delaware Department of Insurance, P.O. Box 7007, Dover, Del., 19903; 302-739-4251.

Information packets are available for $25.

-Mark A. Hofmann

Illinois

Illinois' captive insurance company population dwindled to four in 1996.

Of the four, three are single-parent, while one is an association captive. That compares to three single-parent and five group captives a year earlier.

The chief reason for the decline was the passage of legislation in

1995 that group captives be regulated as traditional insurance companies, and that captives cannot be formed as risk retention groups. The legislation was designed to maintain Illinois' accreditation from the National Assn. of Insurance Commissioners.

The change, however, has taken its toll on the ranks of Illinois captive insurers.

One captive, Attorneys Liability Assurance Society, had already decided to redomicile as a risk retention group in Vermont.

Two other risk retention groups licensed as Illinois captives-AAOMS National Insurance Co., which provides professional liability coverage for oral surgeons and maxillofacial surgeons, and Assn. of Trial Lawyers Assurance-became risk retention groups domiciled in Illinois.

A fourth captive, Premiere Excess Insurance Co., was not affected by the change but already was in runoff, according to the Illinois Department of Insurance.

That left Baker Insurance Co., sponsored by Borg-Warner Security Corp. in Chicago; Illinois State Bar Assn. Mutual Insurance Co.; Northern Resources Assurance Inc., owned by petroleum giant Amoco Corp. in Chicago; and Rubicon Insurance Co., whose parent is Northwestern University in Evanston, Ill., as the state's only captives.

Advocates of Illinois as a captive domicile do not expect the number of captives to increase anytime soon.

"We're not optimistic that captives per se are going to be forming to any great extent in the state of Illinois," said Mike Levin, president of the Illinois Captive & Alternative Risk Financing Insurance Assn.

The group intends to promote other alternative risk financing vehicles, such as workers compensation pools and the Illinois Insurance Exchange, said Mr. Levin, a senior manager in Deloitte & Touche L.L.P.'s Chicago office.

The changes to the state's 1987 captive act did not change the underlying requirements for Illinois captives.

All captive insurers must have an initial capitalization of $2 million, although as much as 80% of the requirement can be met through letters of credit and up to 67% through contractual obligations.

Single-parent captives operate under no investment restrictions, while association captives must follow the same restrictions as licensed insurers.

Captive insurers are permitted to write commercial property/casualty business except for workers compensation, which they may reinsure.

For more information, contact Etta Mae Credi, Assistant Deputy Director, Illinois Insurance Department, 320 W. Washington, Springfield, Ill., 62767; 217-782-4515.

Mark A. Hofmann

Virginia

Although Virginia permits the formation of captive insurers, none has been formed.

For information on forming a captive in the state, contact Jim Ware, Bureau of Insurance, Licensing Section, State Corporation Commission, Commonwealth of Virginia, P.O. Box 1157, Richmond, Va. 23218; 804-371-9636; fax: 804-371-9873.

-By Deborah

Shalowitz Cowans

New York

New York Gov. George Pataki is preparing to make another run at establishing New York as a captive domicile.

An initial captive bill delivered to the state legislature last year died late in the session as lawmakers dealt with other issues, including workers compensation reform and the state budget (BI, March 31).

A new bill is expected to be released soon, and a spokesman for the New York Insurance Department, which drafted the bill, said it will be largely along the lines of last year's proposal.

The 1996 bill allowed for the formation of single parent captive insurers and stock or mutual group captive insurers by parent companies that had net worth or gross revenues exceeding $100 million.

It allowed captives to write most property/casualty risks but barred them from covering life/health risks or writing mandatory coverages such as workers comp and auto liability on a direct basis (BI, May 13, 1996).

Douglas McLeod