BURLINGTON, Vt.—With its steady stream of new formations and flexible approach to regulation, Vermont continues to cement its position as the nation's largest captive domicile.

Through early August, the state licensed 18 new captives, putting it on track for 2007 to be another solid year of incorporations. Vermont had 37 captive formations in 2006.

With 562 captives, Vermont is not only the biggest domestic domicile, it also is the third largest in the world, trailing only Bermuda and the Cayman Islands. Still, Vermont officials recognize that the state faces competition from other domiciles.

"There is more competition, but we welcome that. We believe we can compete with the quality of our regulation (and) our longstanding reputation," Gov. James Douglas said at a news briefing at the Vermont Captive Insurance Assn.'s annual conference held in Burlington August 7-9.

To help retain existing captives and attract new ones, Vermont is committed to making changes to state captive laws to meet the changing needs of the captive industry, Gov. Douglas said.

Among other changes this year, Vermont last month revised a statute to allow for the formation of special purpose financial captive insurance companies, to facilitate securitization transactions using reinsurance captives and other risk financing structures.

Since its launch as a captive domicile in 1981, the captive sector has become a valuable part of Vermont's economy, producing close to $23 million in premium tax income for the state in 2006—almost the same amount generated last year through the state lottery.

"It's an important part of our fiscal base," said Gov. Douglas, also noting that the industry provides nearly 1,500 jobs in the state and fits into a strategy going forward for Vermont to attract "clean" or environmentally friendly businesses.

Of the Fortune 100 largest companies, 42 have Vermont captives and 19 of the 30 companies making up the Dow Jones Industrial Average sponsor captives in the Green Mountain State, state officials say.

In all, state officials estimate that Vermont captives generate about $11.5 billion in premiums per year.