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South Carolina weighs captive 'fast-track'

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COLUMBIA, S.C.--Captive regulators in South Carolina are taking steps to further the state's position as a captive insurance company powerhouse.

One change being explored is a "fast-track" captive application process, said Jeff Kehler, program manager of the Alternative Risk Transfer Services division of the South Carolina Department of Insurance in Columbia.

Under such a system, applications for single-parent captives filed by outside managers, who must meet accreditation standards set by the state's captive regulators, could be processed within roughly 10 business days--about twice as fast as now, Mr. Kehler said.

Another change, Mr. Kehler said, would significantly expand the number of captive regulatory staff in the ARTS division's Charleston, S.C., office.

Other efforts include finding ways to reduce the time and expense associated with captive financial examinations, and providing more written guidance so sponsors know what regulators expect if sponsors want to change their captive business plan. Expanded promotion efforts also are being considered, such as speaking at conferences to promote South Carolina as an attractive place to domicile a captive.

State regulators say the efforts come as South Carolina, whose captive law is only seven years old, is poised to overtake Hawaii later this year as the nation's second-largest domicile. Currently, South Carolina has 153 captives and Hawaii has 163.

But recent captive growth in South Carolina far outstrips that of Hawaii. Last year, South Carolina licensed 29 captives and Hawaii licensed eight. So far this year, South Carolina has licensed 13 captives compared with three in Hawaii. In recent years, Hawaii has faced stiff competition from emerging domiciles such as Arizona and Nevada to win new captives with parents in the western United States.

Captive managers welcome the proposed changes, especially rapid review of captive applications from managers meeting accreditation standards, which still would have to be ironed out.

"Managers are quasi-regulators and if they are doing a good job," applications from accredited managers should be considered on an expedited basis, said Robert Johnson, a managing director and head of Marsh Management Services Inc. in Charleston, the state's largest captive manager that oversees 55 captives in South Carolina.

Captive sponsors and managers attribute South Carolina's growth to an attractive law and its approach to regulation.

"Our experience is that the regulation is both flexible and responsible," said Rick Hamilton, president of CXS Insurance Co. in Charleston, the insurance subsidiary of transportation giant CSX Corp. in Jacksonville, Fla.

CSX moved its captive to South Carolina from Vermont about three years ago, driven by a desire for the captive to be closer to its corporate headquarters as well as South Carolina's slightly lower cost structure, he said.

"Corporations want flexible regulation, but they also want strong regulation," said Paul Newton, senior vp with USA Risk Group of South Carolina Inc. in Charleston, which manages 35 captives in the state.

Mr. Kehler, the South Carolina captive regulator, said he tells captive sponsors, "We want to be your partner and help you get the most out of your captive. But we will watch over you with reasonable and prudent regulation. We will be tough, but fair and flexible."