Arizona allows branches for captives outside U.S.

PHOENIX--Employers with captive insurance companies domiciled outside the United States could set up branch captives in Arizona to fund employee benefit risks under legislation signed last week by Gov. Janet Napolitano.

The branch captive concept is appealing to employers that want to fund benefit risks through captives, but want to continue to sponsor captives outside the United States. Labor Department rules stipulate that captives used to fund benefit risks of U.S. employees must be licensed in a domestic state.

Several major U.S. captive domiciles, including Vermont and Hawaii, now permit branch captives to fund benefit risks, and the Arizona legislation makes the state competitive with those other domiciles in the benefit funding arena.

AGL Resources Inc., an Atlanta-based natural gas distributor, was the most recent employer to set up a branch captive. It received final permission last year from the Department of Labor to fund certain benefit risks through the Hawaii branch of its British Virgin Islands-based captive.

Other provisions in the Arizona legislation allow captives to directly insure commercial motor vehicle risks; reduce to $500,000 from $1 million the minimum amount of capital and surplus a protected cell captive insurer must have to be licensed; and makes clear that a captive insurer must obtain the written approval of state regulators before implementing any material change in its plan of operations.