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On July 12, 2005, Governor Ruth Ann Minner signed into law the Delaware Revised Captive Insurance Company Act, which substantially rewrote Delaware’s captive insurance company law. The main objective of the new statute is to enhance Delaware’s appeal as a domicile for captive insurance companies. This goal is to be achieved primarily by: (1) building on Delaware’s stellar reputation for responsiveness to business needs; (2) regulating captive insurance companies in a rigorous but sensible fashion, consistently with their nature and purpose; and (3) providing flexibility to captive insurance companies. The new law creates unique opportunities especially for captive insurance companies and those who can benefit from utilizing them. The Delaware Revised Captive Insurance Company Act also fosters economic development in Delaware, by cultivating the growth of the captive insurance industry in the State.The new statute arises from a unique collaboration. The Offices of the Governor, the Secretary of State and the Insurance Commissioner of the State of Delaware, together with Delaware legislators and private sector groups (including existing Delaware captive insurance companies and other insurers, captive managers, banks, accountants, and lawyers), joined in a cooperative effort to update and improve Delaware’s captive insurance company statute. The result of this partnership is the Delaware Revised Captive Insurance Company Act.
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The most significant features of Delaware’s new captive insurance company law include:
- Flat, capped premium taxes: The new Delaware captive insurance company statute imposes premium taxes that compare quite favorably overall to those applicable in other leading onshore captive domiciles. Unlike the reverse-graduated premium tax scales applied in other jurisdictions, Delaware’s new law adopts a flat rate premium tax structure. This approach simplifies calculation of premium tax payable by a captive insurance company. Moreover, the tax rate applicable to captive insurance companies with modest premium receipts is relatively lower in Delaware than elsewhere (0.2% premium tax rate on direct premiums and 0.1% premium tax rate on assumed reinsurance premiums). In addition, the new statute imposes annual caps on premium tax payments (premium tax on direct premiums would be capped annually at $125,000, premium tax on assumed reinsurance premiums would be capped annually at $75,000, with aggregate annual premium taxes thereby capped at $200,000).
- Calibrated, responsible regulation: Delaware’s statute vests in the Delaware Insurance Commissioner regulatory authority designed to balance the need for responsible governmental supervision and oversight with the unique requirements and purposes of captive insurance companies. The Commissioner is vested with considerable regulatory flexibility and it is expected that the new law’s provision for funding of regulatory staff dedicated to captive insurance companies will foster a knowledgeable, nuanced, and responsive approach to the implementation of the Commissioner’s oversight function.
- Variety of captive types permitted: Delaware’s new captive insurance company statute permits licensing of a captive insurance company that falls into one of the following familiar categories:
One advantage of the new statute, however, is its recognition of an additional type of captive insurance company. If a prospective licensee is unable to obtain a certificate of authority as a traditional type of captive insurance company (e.g., as a consequence of its structure, the proposed insureds, or the nature of the risks to be insured, or for some other reason), the Delaware Insurance Commissioner is vested with the discretion to license the entity as a special purpose captive insurance company.
- Pure captive insurance company;
- Association captive insurance company;
- Industrial insured captive insurance company;
- Risk retention group (“RRG”);
- Sponsored captive insurance company (i.e., a “protected cell captive” or “rent-a captive”)
- Expanded entity choices: Under the new statute, Delaware provides more flexibility than any other onshore jurisdiction with respect to the legal form of organization that a captive insurance company may take. Depending on the particular type of captive insurance company involved, just about any domestic, foreign or alien corporation, limited liability company, partnership, limited partnership, statutory trust, reciprocal insurer or other entity could apply for a certificate of authority to act as a Delaware captive insurance company. This flexibility regarding choice of entity offers new planning opportunities in regard to management, operations, and other important matters.
USA Risk Group services Delaware clients through our Scottsdale, Arizona location.
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Delaware enjoys a reputation as the foremost United States jurisdiction for organizing a business. More than half of all U.S. publicly-traded companies and “Fortune 500” companies call Delaware their legal home. Delaware provides modern and flexible business laws, a sophisticated judiciary with a reputation for excellence and fairness, and a business-friendly state government. These traditional “Delaware advantages” provide significant benefits to any business entity, including a captive insurance company. Delaware’s new captive insurance law aims to build on this sturdy platform. Coupled with other factors such as knowledgeable and responsive state regulators dedicated exclusively to captive insurance companies, the new statute makes Delaware all the more attractive as a jurisdiction for organizing and operating a captive insurance company. An important feature of the Delaware Revised Captive Insurance Company Act is its provision for funding the Delaware Insurance Commissioner’s administration of the captive insurance company law. Captive insurance company premium tax payments and other revenues initially are to be devoted exclusively to supporting the Commissioner’s staffing and other requirements for appropriate regulatory attention to Delaware captives under the new statute. It is anticipated that this focus on providing sufficient resources for a dedicated captive insurance company group within the Insurance Commissioner’s office will foster experienced, knowledgeable, and responsive regulatory treatment of captive insurance companies in Delaware.
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Our Scottsdale, Arizona office is authorized to manage captives in Delaware and offers:
- An executive staff with experience in multiple domiciles, including Delaware, who have formed numerous captives and serve or have served on industry associations
- Strong relationships with Delaware regulators and service providers
- Strict internal controls over all our processes including disaster recovery and state of the art information technology
Marc J. Lapointe
Senior Vice President Business Development
USA Risk Group, Inc.
15615 N. 71st Street, Suite 103
Scottsdale, AZ 85254
Tel: 800/872-7475 x2260