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Colorado considering ways to attract more captives

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DENVER--The nation's first captive domicile may update its law to revive its appeal to captive sponsors.

In 1972, Colorado became the first U.S. state to enact legislation to allow the formation of captive insurers, giving employers and other organizations interested in setting up captives an alternative to going offshore.

At its peak in the late 1970s, Colorado had more than two dozen captives. But its popularity subsequently withered, in part, because other states enacted more attractive captive laws. In particular, Vermont overtook Colorado as the largest domestic domicile within a few years of the 1981 passage of its captive legislation.

Additionally, captive managers said, the early interest of Colorado insurance regulators in fostering the state as a captive domicile waned, and regulators over time became indifferent and even hostile to the captive concept.

Those changes did not go unnoticed by both Colorado captive owners and potential sponsors. Some parents relocated their captives to other domiciles, and Colorado largely moved off risk managers' radar screens as a captive domicile.

At the end of 2006, Colorado had just eight captives.

Now Colorado insurance regulators, whose interest has been triggered by economic benefits captives have brought to other states, are exploring what steps they need to take to revive the state as an attractive place to domicile a captive.

"We are at the preliminary stages," said Marcy Morrison, commissioner of the Colorado Insurance Division in Denver. Among other things, state insurance officials are talking to captive regulators in successful domiciles to learn what has driven captive growth.

With an updated law and a pro-captive regulatory attitude, Colorado, could again attract captives, predicts Michael Murphy, senior managing director with brokerage and risk management consultant Beecher Carlson in Denver.