26 October 2022ArticleAnalysis

The time is right

“The state has become the fourth largest US captive domicile and the eighth largest global captive domicile.”

Jackie Obusek, NCDOI

North Carolina’s captive insurance programme shifted into a higher gear in June when the state’s general assembly and governor signed off on measures sought by insurance commissioner Mike Causey aimed at making the state’s programme more flexible and competitive.The action, which cleared both chambers of the General Assembly unanimously, provides for a waiver of premium taxes for the year in which a captive insurer re-domesticates to North Carolina plus the next year.This tax holiday aims to encourage captive insurance owners with captives formed before North Carolina passed its Captive Insurance Act in 2013 to move to the state. This could result in a significant cost savings to captive insurers moving to the state.In addition, the recently enacted captive changes would modify the audit exemption provision for captives. Captive insurers will now be able to request an exemption from an audit when the cost would pose a financial hardship. Such requests would be considered by the Commissioner on a case-by-case basis.Despite being a late entrant to the captives market, North Carolina has made a strong long-term commitment to the industry. From Commissioner Causey to the General Assembly to the North Carolina Captive Insurance Association, all are committed to making North Carolina a great home for captive insurance companies while providing support to the industry and risk management education to the public.The North Carolina Department of Insurance (NCDOI) is a regulator first, but also functions as a partner with industry to help captive owners successfully manage their risks.North Carolina continues to be consistently ranked as one of the best places in the US to do business. It is appropriate timing then that North Carolina is now a preferred choice of many business owners, along with their service providers, as the home for captive insurance companies.

In the eight years since North Carolina began its captive insurance programme, the state has become the fourth largest US captive domicile and the eighth largest global captive domicile. Interest in North Carolina’s captive insurance industry sparked quickly, with more business owners and managers choosing to form their captives in the state. This development has been fuelled by a number of key factors.North Carolina’s modern captive insurance laws have been crafted to address the current needs of the industry as well as provide flexibility, allowing for new captive structures and programmes as they arise in the future. This results in captive laws that provide the Commissioner with significant discretion to regulate each captive insurer according to its unique business plan and risk.Captive owners and their advisors have various factors to bear in mind when choosing between different domiciles. North Carolina believes it is important to keep the regulatory costs of a captive insurer’s formation and operation low, making it more feasible for a business owner to the use captive insurance as a risk management tool. The result is captive insurance laws that provide for reasonable capital requirements that take into consideration captive insurers’ different risk profiles and savings on regulatory costs in comparison with other jurisdictions.Accordingly, the NCDOI charges no fees: no licence application fees, no reporting fees, no renewal fees and no business plan change fees (with the exception of a special purpose financial captive insurer licence application fee). The only amounts paid by captive insurers to the state of North Carolina are immaterial fees paid to the North Carolina Secretary of State’s Office for the submission of certain corporate documents and premium taxes, which are competitive with those paid elsewhere.

Different strokes

The examination law for non-risk retention group (RRG) captive insurers in North Carolina is different from that of most other jurisdictions. Most jurisdictions conduct a regulatory examination of every captive insurer every three to five years. North Carolina law allows a targeted approach to examination of non-RRG captive insurers.Non-RRG captive insurers that are compliant with the captive laws, following their business plans and maintaining adequate liquidity and solvency, are not likely to be examined by the NCDOI. Instead, the NCDOI will rely on the independent audited financial statements and actuarial opinions that are provided to the NCDOI’s analysts annually.It is important to note that the NCDOI’s examinations of RRGs occur at least every five years and are conducted in accordance with National Association of Insurance Commissioners accreditation guidelines.Commissioner Causey has provided the Captive Insurance Companies Division with the resources needed to maintain a team of professional accountants, financial examiners and actuaries to regulate the state’s captive insurance industry. North Carolina is a competitive domicile largely due to this in-house professional team of regulators with a focus on customer service and a mission of prudent regulation.These team members are credentialled, knowledgeable and experienced in the regulation of captive insurance companies. Since actuarial and analysis work is handled internally by the NCDOI’s regulatory team, there are no outsourcing costs passed on to the captive insurers.

“It is our hope that captive managers will make captive owners aware of the opportunities.”

Lori Gorman, NCDOI

North Carolina’s portfolio of licensed captive insurers is expected to continue to expand in size and diversity. Captive insurers currently regulated by the NCDOI insure primarily property and casualty risks, with noted growth of licensed medical stop loss captives. Because most of the growth in the captive market today has been from the formation of captive insurers by small to medium-sized business, the growth of captives licensed by North Carolina for those businesses continues.This is why by the end of 2021, the state had licensed approximately 396 captive insurers and approved more than 875 cell and series business plans since the inception of the programme. The captive owners are from many different industries with the primary ones being manufacturing, IT, financial services, healthcare, construction, and transportation.The impact of the captives industry has been a positive one for the state. Since 2013, captive insurers have contributed nearly $200 million in positive economic impact to North Carolina, including premium tax revenue and payments to industry professionals.Captive managers and other service providers that are aware of the benefits of the state’s captive industry and actively participate by operating in the state and bringing their captive clients to North Carolina are important to the success of the programme.It is our hope that captive managers will make captive owners aware of the opportunities presented by the passage of the captive insurance law changes. The time is right for those who want to be a part of the North Carolina captive insurance programme to make the move to our great state.