Montana cuts captive capitalization requirements

HELENA, Mont.--Legislation signed into law last week by Montana Gov. Brian Schweitzer will slash capitalization requirements for both protected cell captive insurance companies and for reinsurance captives.

Under the new law, which takes effect Oct. 1, the capitalization requirements for protected cell captives will be reduced by 50% to $500,000, while a new and lower capitalization requirement of $250,000 will be established for protected cell captives with 10 or fewer homogenous cells.

Additionally, capitalization requirements will be cut by 50% for captives that reinsure admitted insurers issuing policies.

Other provisions in the legislation will give captive sponsors significant flexibility in how they legally organize their captives. For example, a captive could be set up as a corporation, a limited liability company, a partnership or "other legal entity formed by an organizational document."

In addition, the measure will 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.

Currently, Montana has 26 captives, up from 21 at year-end 2006. State regulators expect to license between 10 and 12 captives this year in the rapidly growing domicile.