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Missouri captive bill awaits governor's OK

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JEFFERSON CITY, Mo.--Missouri could be the nation's next captive insurance domicile.

Legislation permitting captive formations was approved by the Missouri General Assembly last month and has been sent to Gov. Matt Blunt for his signature. Gov. Blunt has not yet said whether he will sign the bill, S.B. 215, though supporters are optimistic he will.

The measure, introduced by Sen. John Loudon, R-Chesterfield, mirrors captive statutes in other states, especially Vermont, the nation's largest captive domicile, with over 560 captives.

For example, the premium tax structure laid out in the legislation is identical to Vermont's. On direct written premiums, the tax would be 0.38% on the first $20 million in premiums, 0.285% on the next $20 million, 0.19% on the next $20 million and 0.072% on premiums exceeding $60 million.

Premium taxes for reinsurance also follow the Vermont model, with a tax of 0.214% on the first $20 million in premiums, 0.143% on the next $20 million, 0.048% on the next $20 million and 0.024% on reinsurance premiums exceeding $60 million.

The minimum annual premium tax would be $7,500, while the maximum annual premium tax--regardless of the volume of business funneled through a captive--would be $200,000.

Under the legislation, the minimum capital and surplus requirements for a single-parent captive would be $250,000 and $750,000 for an association captive.

Additionally, the Missouri measure, like captive statutes in several other states, would allow employers to set up branch captives. That feature is aimed at employers that want to fund employee benefit risks through captives, but want to continue to sponsor captives outside the United States. U.S. Department of Labor rules stipulate that captives used to fund employee benefit risks of U.S. employees must be licensed in a domestic state, among other things.

If the law is enacted, Missouri would join the growing number of states that have passed captive bills. Since 2000, nine jurisdictions have passed captive measures, with Alabama, which approved its measure last year, being the most recent.

Some of those recent state entrants have, in just a few years, seen their captive rosters quickly swell.

For example, South Carolina, which passed captive legislation in 2000, has in seven years become the nation's third-largest domicile with 146 captives at year-end 2006, while Utah, which has a 2003 captive law, saw its captive roster double between 2005 and 2006 to 30.

Missouri insurance department officials also say the state could attract a significant number of captives. Based on information it has received from "interested parties," the Missouri Department of Insurance, Financial Institutions & Professional Registration says at least 10 captives could be set up within one year of the legislation's enactment.

Central location attractive

One driver of any domicile's growth is geography, with corporations increasingly considering domiciles close to corporate headquarters for convenience, noted Nancy Gray, executive director-North America for Aon Insurance Managers in Burlington, Vt.

"Location is important," Ms. Gray said.

In fact, geography could drive captive growth in Missouri. While there are just over two dozen captive domiciles in the United States, a strong domicile has yet to emerge in the Midwest. For example, despite a big concentration of major employers, neighboring state Illinois has just three captives as the state has failed to update its 20-year-old captive law to make it more competitive with other domiciles, captive managers say.

In fact, one major Illinois-based heavy equipment manufacturer is considering setting up a captive in Missouri if the legislation is signed into law, sources say.

Whether Missouri develops into a major captive domicile will greatly depend on regulators' attitude and treatment of captives over the long-term, Ms. Gray said. For example, the earliest U.S. captive domiciles--Colorado and Tennessee--saw their captive rosters dwindle as captive regulators' interest in promoting the industry declined over the years.

Some states lacked the commitment to the captive industry, Ms. Gray said.

Sen. Loudon, the Missouri captive legislation's sponsor, said Missouri is a business-friendly state, with regulators having a reputation for being responsive.