Texas legislature passes bill allowing captives in the state

The Texas Legislature has passed a bill allowing the formation of pure captive insurance companies in the state.

The measure sent to Gov. Rick Perry on May 25 provides that licensed Texas captives may insure only the operational risks of the parent company and its affiliates and the risks of controlled unaffiliated businesses.

Gov. Perry is expected to sign the measure into law or allow it to automatically become law.

Texas captives also would be allowed to reinsure coverage of affiliates' or controlled unaffiliated businesses' operational risks that the captive would be allowed to insure directly, as well as employee benefits offered by affiliates, required liability insurance and workers compensation and employers liability coverage.

The legislation sets the captive premium tax at 0.5% with an annual minimum tax of $7,500 and an annual maximum of $200,000.

To be licensed, captives' affiliates would be required to have “significant operations” in Texas, according to the bill. Texas captives' boards would be required to meet at least once a year in the state.

“We think it will bring some economic development here and a lot of captives may redomesticate to the state,” said Kimberly A. Yelkin, executive partner in the Austin office and leader of the government affairs practice group of law firm Gardere Wynne Sewell L.L.P.

Ms. Yelkin said her firm helped draft the Texas captive law on behalf of its client, Dallas-based AT&T Inc., and she expects other major businesses to be interested in the Texas captive domicile.

“A lot of large corporations will be taking advantage of this,” she said.