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Life Health > Health Insurance > Your Practice

Florida Latest State to Domicile Captives with Formation Law

By Elizabeth D. Festa

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Florida has become about the 30th state that has passed or enhanced legislation to attract U.S. domiciled captive insurers, at least tabulated with a Captive Insurance Companies Association (CICA) map and an NAIC state-by-state chart.

Governor Rick Scott signed legislation that adds to existing provisions by further setting standards for the formation, incorporation, coverage, capital, surplus, reporting and reinsurance of captive insurers.

The law becomes effective July 1. 2012.

Under existing law, the state legislature had already created provisions authorizing the creation of U.S. domiciled captive insurers by establishing operational criteria and standards. House Bill 1101 augments these provisions, first and foremost with a provision for captives’ formation in the state.

“We welcome captive insurers to Florida’s insurance marketplace,” said Kevin McCarty, Florida’s insurance commissioner and current NAIC president. “The new law will encourage the formation of new captive insurers, which will promote increased investment in our insurance marketplace. I thank Governor Scott for signing this bill and the Florida Legislature for passing this important piece of legislation.”

Under the Florida law, captives must only pay an annual fee of $1,000, obtain a Florida insurance license, hold one board meeting a year in the state and maintain its principal place of business in this state.

There are also financial and other business requirements to ensure adequate reserves and solvency, and of course, they pay taxes in the state unless there is no such provision.

Captives have been a growing business for states in the past 10 or so years.

Vermont, one of the original states in the captive business, has a specific tax provision for premiums collected while Tennessee has a flat rate of 1% on the gross amount of all premiums collected. In South Dakota, each captive insurer shall pay a tax of 25% on gross premiums collected during the preceding year ending on 12/31, according to a state chart provided by the NAIC chart.

The Florida law citation has a 1.75% taxation rate on gross premium receipts.

Some jurisdictions, like the District of Columbia, have taxes based on an amount, for instance “two hundred fifty thousandths of 1% on the first $25 million of its net direct premiums; and then one hundred fifty thousandths of 1% on the next $25 million of its net direct premiums and so forth, with tax minimums of $7,500 for the year to  $15,000 for the year and not to exceed $100,000 in any given year, depending on the type of captive it is.”

Captives must maintain minimum unimpaired capital in many instances of about $100,000 and at least that much in surplus, with some states going more than twice or five times as high in both capital and surplus, depending on the type of captive involved. For example, an association captive insurer incorporated as a mutual requires higher unencumbered surplus, review of the NAIC chart reveals.

In Florida, a captive insurer may not be issued a license unless it possesses and thereafter maintains unimpaired paid-in capital of at least $100,000 if it is a pure captive, and $200,000 if an industrial insured captive insurance company incorporated as a stock insurer. A pure captive insurance company must possess and maintain at least $250,000 in unrestricted net assets under the law.

Also, a special purpose captive insurance company in Florida will have an amount to be determined by the state insurance office after giving due consideration to the company’s business plan, feasibility study, and pro forma financial statements and projections, including the nature of the risks to be insured.

House Bill 1101 provides stipulations for the creation of a variety of captives from pure captives, industrial insured captives, to captive reinsurance companies.

It permits captive insurance companies to provide all insurance under the Florida Insurance Code, except for workers’ compensation and employer’s liability, life, health, personal motor vehicle, and personal residential property insurance. 

For example, the 2011 winner for outstanding captive was awarded by CICA to The National Catholic Risk Retention Group, Inc. and the year before that to Verizon’s primary insurance captive.

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