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Delaware aims to become a powerhouse captive domicile

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Delaware aims to become a powerhouse captive domicile

WILMINGTON, Del.—Delaware is taking steps that state officials and others say they believe will help it become a captive insurance company powerhouse.

The first step occurred last year when state legislators passed a measure--assembled through a major collaborative public-private sector effort--overhauling the state's more than 20-year-old captive law.

That measure, intended to make Delaware more competitive with other domiciles, significantly cut premium taxes, especially for new, smaller captives, set a ceiling on the maximum taxes paid by large captives and granted an additional tax break to captives with big staffs in the state.

Now, more steps are being taken. A captive trade group--the Delaware Captive Insurance Assn.--was launched earlier this year to promote the industry and to act as a liaison between the industry and state legislators and regulators.

Additionally, the Delaware Department of Insurance recently hired Bill White, the former highly regarded director of the District of Columbia captive division, as the first administrator of its captive unit. Mr. White, in turn, is now building a captive regulatory staff.

With those accomplishments, on top of its longtime strength as the home of a huge financial services industry, Delaware now is to promoting itself as a domicile eager to grow.

"We have set our sights on reaching out to new customers and establishing Delaware as a premier location for captive insurance companies," Delaware Gov. Ruth Ann Minner said earlier this month at the inaugural fall conference of the Delaware Captive Insurance Assn. in Wilmington.

That pro-captive appeal by Gov. Minner and other state officials at the DCIA conference is a sharp contrast to what had been long-term state indifference to the captive industry.

"For 20 years, there was a lack of commitment in the captive arena," said David Ripsom, president of Nuclear Electric Insurance Ltd., the big nuclear power industry captive that is the largest of the six captives currently domiciled in Delaware with annual net premium volume of about $215 million.

Even worse, state officials sometimes took actions that put it into the position of appearing to be anti-captive. In the early 1980s, for example, David Elliott, then commissioner of the Delaware's Insurance Department, tried to block one of the nation's first risk retention groups from operating in the state. Mr. Elliott argued that the coverage the RRG was writing was not, under Delaware law, considered to be product liability insurance--at the time the only coverage RRGs could provide to policyholders-owners.

The RRG sued and ultimately won a federal court ruling that its coverage was considered product liability under federal law, and that federal law pre-empted any state definition.

Today, though, the state's highest elected official has pledged that she and other officials will work to make Delaware a state-of-the-art captive domicile.

"You can rely on Delaware Insurance Commissioner Matt Denn, our General Assembly and me to keep Delaware's laws and regulatory environment one step ahead of the competition--just as we do with our banking and trust and corporate laws," Gov. Minner said.

"We will make the same commitment to the captive industry that we offer to our corporate clientele--an attractive professional workforce; a favorable legal environment; a convenient location in the heart of the Northeast Corridor; and a friendly, quick and reasonable regulatory and tax environment," Gov. Minner said.

New captive sponsors say they are impressed with fast action by state captive regulators. "The state did an exceptional job. The application process and working with the insurance department was phenomenal," said Kent Lisenby, president of MAKE Transportation Insurance Inc., a Risk Retention Group, which earlier this year became the first captive licensed since the state revamped its captive law.

MAKE writes commercial auto insurance for four trucking companies and is expected to have a first year premium flow of about $2.5 million, Mr. Lisenby said.