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HELENA, Mont.--Legislation on its way to the Montana governor would slash capitalization requirements for protected cell captive insurance companies as the state looks to continue its steady growth as a captive domicile.
The measure, supported by the Montana insurance and captive regulators, is the first change to the state's 2001 captive statute since legislators in 2005 capped the maximum annual premium tax paid by a captive at $100,000.
Under the latest bill, S.B. 161, the capitalization requirements for protected cell captives would be reduced by 50% to $500,000, while a new and lower capitalization requirement of $250,000 would be established for protected cell captives with 10 or fewer homogenous cells.
Additionally, capitalization requirements would be cut by 50% for captives that reinsure admitted insurers issuing policies. For example, the minimum capitalization requirement for a single-parent or pure reinsurance captive would be $125,000, while the minimum capitalization requirement for an association captive that reinsures an admitted insurer would be $375,000.
Other provisions in the legislation would give captive sponsors significant flexibility in how they legally organize their captives. For example, a captive could be set up as, among other things, a corporation, a limited liability company, a partnership or "other legal entity formed by an organizational document."
In addition, the measure would allow pure and branch captives to fund a parent's employee benefit risks, assuming the arrangement is approved by the U.S. Department of Labor.
The measure also would make clear that captive records filed with state regulators are confidential, as well as allocate 5% of premium taxes paid by captives to a state fund used to promote the Montana captive industry.
Passage of the legislation, which state captive managers say is needed to keep Montana competitive with other domiciles, comes as Montana licensed a record number of captives in 2006, with captive regulators expecting to top that record in 2007.
Last year, Montana regulators licensed eight captives, bringing its 2006 year-end total to 21. Five more captives have been licensed so far in 2007 and several applications are pending.
"I would hope for 10 to 12 captives to be licensed this year and that would be our best year ever," said John Huth, captive insurance coordinator for the Montana State Auditors Office in Helena.
Mr. Huth and others attribute Montana's captive growth to a solid captive law and a responsive captive regulatory unit.
"They are so responsive and get back to you very quickly," said Brenda Olson, president of ORG Captive Management in Big Fork, Mont.
"Regulators are very talented and have a pro-business attitude," said John Jones, president and shareholder of the law firm Moulton, Bellingham, Longo & Mather P.C. in Billings.
The parents of Montana's captives are based across the United States, Mr. Huth said.
According to Ms. Olson, one captive domiciled in the state is sponsored by a foreign company--a Canadian manufacturer.
The legislation, which Gov. Brian Schweitzer is expected to sign within the next few days, would go into effect on Oct. 1.