Committed to the captives sector

North Carolina recognises the benefits of captive insurance in the challenging economic environment, with continued growth in formations, including cell structures, as well as increased use of existing captives, says Lori Gorman of the North Carolina Department of Insurance.

"Legislative changes may be necessary so that the law remains relevant and continues to attract businesses to the state." Lori Gorman

We would like to join Captive International as it celebrates 20 years of publishing captive insurance industry news.

Much has changed since 2004. Twenty years ago, North Carolina did not have a captive insurance programme. As the concept of captive insurance became more widely accepted, state and industry leaders recognised that captive insurance could be an important tool used by North Carolina businesses to meet their risk management needs.

Business leaders as well as state government leaders originally crafted our modern captive insurance law to address the insurance needs of North Carolina businesses and to create a positive economic impact to the state by attracting new businesses.

The North Carolina Captive Insurance Company Act was written to meet the needs of the industry. It provided flexibility for new captive structures and programmes as they arise. This foresight led to the creation of the state’s captive insurance laws which provide the North Carolina Commissioner of Insurance with much discretion to regulate captives according to each captive insurer’s unique risk profile.

The act was signed into law by then Governor Pat McCrory on June 19, 2013, after passing both chambers of the North Carolina General Assembly unanimously.

Our flexible law was originally written to allow the regulation of captive insurers in North Carolina to evolve while adapting to emerging trends and new structures. While our laws compare favourably to those enacted in other domiciles, with competitive premium tax rates, North Carolina has acknowledged that legislative changes may be necessary so that the law remains relevant and continues to attract businesses to the state.

This approach is reflected by legislative changes made in 2014, 2015, 2016 and 2018 to allow for special purpose captive insurance structures and provisional licensing guidelines. These updated provisions also allow protected cell captives to form both incorporated and unincorporated cell structures. Changes were made in 2022, resulting in a premium tax cap for certain series structures as well.

In just 10 years, the state has become a leading captive domicile, licensing more than 1,500 risk-bearing entities since inception of the programme after licensing three captives in its inaugural year. Captive owners along with their service providers select North Carolina as their preferred domicile primarily because the state has a business-friendly approach to regulation, offers a talented workforce and boasts a strong economy. With its scenic beaches, award-winning golf courses and picturesque mountains, North Carolina’s climate is inviting for both work and play.

Keys to success

Captive owners and their service providers have various reasons when choosing among different domiciles. Leaders who initially formed the captive insurance laws in North Carolina determined it was important to keep the regulatory costs low, making it more feasible for business owners of all sizes to employ 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 business plans and offer savings on regulatory costs compared to other jurisdictions.

The North Carolina Department of Insurance (NCDOI) continues to charge no fees—no licence application fees, no reporting fees, no renewal fees and no business plan change fees (with the exception of the special purpose financial captive insurer licence application fee). The only amounts paid by captive insurers to the state of North Carolina are small fees paid to the North Carolina Secretary of State’s Office to submit certain corporate documents and premium taxes at rates that are competitive with those paid elsewhere. These significant cost-saving measures ensure that North Carolina is an attractive domicile choice for captive formations.

The examination law in North Carolina is different from that in other jurisdictions. Most jurisdictions conduct a regulatory examination of every captive insurer every three to five years. However, North Carolina chooses to use its examination resources with a targeted approach, examining closely the books and records of insurers that have issues that cannot be resolved through communication and meetings between the NCDOI and the captive insurer.

Non-risk retention group 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. NCDOI’s examinations of risk retention groups do occur at least every five years and are conducted in accordance with National Association of Insurance Commissioners accreditation guidelines.

Expertise and teamwork

There is another key factor in North Carolina’s success as a captive domicile. The state’s leadership has provided the NCDOI with the resources needed to maintain an in-house team of professional accountants, financial examiners and actuaries to regulate the captive industry. Further, NCDOI has developed a user-friendly and interactive online filing system for use by the Captive Insurance Companies Division and approved captive managers. Once an application is submitted online, it is assigned to a captive analyst within the Division.

Division team members are accessible, knowledgeable and experienced in regulating captive insurance companies. Over the years, we have formed positive working relationships with many respected service providers in the industry. Since actuarial and analysis work is handled internally by the NCDOI, there are no outsourcing costs passed on to the captive insurers.

In today’s economic environment, inflation and the hardened property and casualty market are propelling widely increased interest in captive insurance as an effective risk management tool. As a result, the captive insurance industry is rapidly expanding as an alternative to traditional insurance. Captives are being leveraged to gain access to the less costly reinsurance markets and to customise policies for niche coverages.

As a prominent captive insurance domicile, North Carolina recognises the benefits of captive insurance in the challenging economic environment, with continued growth in formations, including cell structures, as well as increased use of existing captives, for risks such as cyber and property coverages with increased limits. We expect North Carolina’s captive insurance programme to continue to respond to the needs of industry with expansion to diverse industries and businesses of all sizes.

From Insurance Commissioner Mike Causey to the NC General Assembly to the NC Captive Insurance Association, all are committed to making North Carolina a great domicile for captive insurance. As a regulator, NCDOI is continuing its strong long-term commitment to the captives industry and seeks to partner with captive insurance owners leveraging the discretion provided for under our flexible laws to assist captive owners with their risk management needs. We are eager to see what the next decade will bring to the industry and North Carolina’s captive insurance programme.

To find out more visit: www.ncdoi.gov/insurance-industry/captive-insurance

Lori Gorman is deputy commissioner of the Captive Insurance Companies Division of the North Carolina Department of Insurance. She can be contacted at: lori.gorman@ncdoi.gov