Focus on service, stability, growth

Tennessee's continued rise as a leading US captive insurance domicile had been built on responsive regulation, specialist expertise and a willingness to work closely with businesses throughout every stage of a captive's life cycle.

John Dunne (pictured), assistant director at the Tennessee Department of Commerce and Insurance’s insurance division, argued that customer service had remained one of the strongest differentiators between the state and competing domiciles.

He explained to Captive Review that Tennessee’s commitment to service had been central to its success, alongside its expertise with cell captives and the presence of designated captive staff focused exclusively on the sector.

Though Tennessee benefits from a competitive premium tax structure and legislation that prioritised business, Dunne suggested those advantages alone did not explain the state's growing appeal. Instead, he said regulators had consistently made themselves available to engage directly with captive managers, owners and advisers before companies committed to establishing a captive.

Officials encouraged conversations around a wide variety of captive structures and had been prepared to discuss possible alternatives if an initial proposal appeared unlikely to succeed. Rather than simply rejecting unsuitable applications, the department had sought to guide prospective owners towards workable solutions where possible.

Dunne explained that this collaborative approach had helped strengthen Tennessee's reputation within the captive community. He said the department’s willingness to have open discussions had been “what endears us to the captive community” and had helped keep the state “foremost in everybody's minds” when organisations evaluated domicile options.

“A willingness to have open discussions had been what endears (Tennessee) to the captive community.”

Evolution and establishment

The profile of companies establishing captives had also continued to evolve. According to Dunne, regulators had increasingly seen formations involving mid-market businesses and smaller organisations looking for more sophisticated approaches to financing risk. Rather than rely exclusively on traditional insurance arrangements, these companies had been using captives to diversify their overall risk management programmes.

Some businesses had continued writing coverage directly through their captive insurers, but the department had also identified growing use of fronting carriers, with risks subsequently being reinsured back into captive structures. That development reflected broader changes across commercial insurance markets as organisations sought additional flexibility while maintaining access to established insurance capacity.

Officials viewed this shift as evidence that captive insurance had become increasingly relevant beyond large multinational corporations. More companies had recognised that captive structures could provide practical solutions for managing rising insurance costs and increasingly complex risks.

The regulatory environment had also remained a major contributor to Tennessee's attractiveness.

Dunne explained that the state had maintained “strong and stable regulation” since the modernisation of its captive insurance legislation in 2011. While regulators had wanted companies “to be innovative”, they had also recognised the importance of preserving “the regulatory framework that's necessary” within a licensed insurance sector.

Rather than apply regulation in isolation, officials had prioritised communication with captive managers and prospective owners throughout the formation process. They had worked to ensure that all parties understood regulatory expectations before applications progressed, reducing uncertainty while helping identify potential issues at an early stage.

Dunne said the department had wanted to ensure “everyone’s on the same page”. Regulators had invested time in understanding each captive’s operating processes and had maintained close relationships with captive managers to resolve concerns before they developed into larger regulatory problems.

This collaborative oversight had allowed innovation to develop without compromising regulatory integrity. Officials believed maintaining open dialogue had strengthened relationships with industry participants while reinforcing confidence in Tennessee's supervisory framework.

Regulation and navigation

Legislative refinement had formed another important part of the state’s strategy. Dunne explained that Tennessee's captive laws and regulations had been updated regularly so they remained competitive with other major onshore domiciles while continuing to meet industry expectations. Several amendments introduced during 2024 had reflected that commitment.

Among the changes had been the formal introduction of agency captives as an available structure. The legislation had also allowed captive boards to hold annual meetings virtually, provided Tennessee-based service providers continued supporting the captive.

Additional amendments had enabled protected cell and agency captives to incorporate as stock insurers while requiring only a single incorporator. Regulators had also clarified the definition of a material business plan change, providing greater certainty for captive managers responsible for ongoing compliance.

Dunne said officials had always been “looking for ways to anticipate the needs of captives”. At the same time, they had continued balancing those developments with “our role in oversight of the companies”, recognising regulatory flexibility needed to be accompanied by effective supervision.

As insurance markets had become more challenging, Tennessee had also seen captives assume a wider role in helping businesses address emerging and difficult-to-insure risks.

Dunne said captive owners had increasingly used their companies to “navigate complex risks”, “custom-build coverages” and “fill gaps with the tightening commercial markets”.

He noted growing use of deductible reimbursement programmes while explaining some businesses had also employed their captives as a negotiating tool when purchasing commercial insurance. By retaining selected risks internally, organisations had often been able to secure more favourable terms from commercial insurers.

Cyber insurance and property risks had remained among the most common lines written through captives. More broadly, Dunne said captives had provided businesses with flexibility, allowing them to retain risk, manage market volatility and exercise greater control over their responses following insured events.

When discussing Tennessee’s competitive advantages over other domiciles, Dunne repeatedly returned to customer service. “It's our customer service and designated staff,” he said, describing responsiveness as one of the department's highest priorities.

That commitment had been supported by a dedicated team of ten analysts whose work focused solely on captive insurance regulation. Officials argued that this specialist structure had enabled businesses to communicate directly with experienced regulators throughout the formation process and across the full operational life of their captives.

He also highlighted practical advantages arising from Tennessee's location and regulatory processes. Its central position within the US had made travel relatively straightforward for many organisations, while the state’s examination regime had reduced regulatory costs.

Captive insurers had generally been examined every five years, provided they obtained annual audits from qualified certified public accountants. Because examinations had been conducted internally by Tennessee's own specialists, officials believed they had been more efficient and significantly less expensive than outsourced alternatives.

Michael Schulz, director of business development within the Insurance Division, expanded upon the department's emphasis on professional expertise.

He explained that every member of Tennessee’s captive team had completed the Associate in Captive Insurance qualification administered through the International Center for Captive Insurance Education.

“When you talk about dedicated professionals,” Schulz said, “there's a real dedication there to learning the business and the industry.”

That investment in education had reinforced Tennessee's broader strategy of combining technical expertise with responsive regulation. Rather than rely solely on statutory authority, officials had sought to ensure their staff possessed specialist knowledge of the increasingly sophisticated captive insurance marketplace.

Kevin Walters, director of communications, Tennessee Department of Commerce and Insurance also stressed that Tennessee's success had reflected sustained political commitment across multiple administrations rather than the work of regulators alone.

Legislative priorities

He noted that captive insurance had remained a priority under both previous governor Bill Haslam and current governor Bill Lee, with support extending across the Tennessee General Assembly as well as the Department of Commerce and Insurance.

According to Walters, the state’s progress had represented “a teamwork” involving legislators, governors and regulators working together to develop captive legislation. He added that businesses considering Tennessee had frequently remarked upon “a very supportive atmosphere for captives”.

That continuity had provided additional confidence for organisations making long-term domicile decisions, particularly because captive insurers are generally established with decades of operation in mind.

Looking ahead, officials said they expected captive insurance to assume an even greater role as commercial insurance markets continued hardening.

Dunne anticipated that captives would increasingly provide alternatives for companies seeking to manage evolving risks while controlling insurance costs. He expected to see more innovative coverages being developed, together with wider use of reinsurance as businesses adapted to changing market conditions.

He described captives as organisations specifically designed to provide security for private businesses while supporting flexible approaches to risk financing.

Finally, he reiterated that Tennessee's priorities had remained unchanged despite the market’s evolution.

The department had continued seeking to provide “a firm and fair regulatory structure” that allowed companies “to thrive”. Its business development strategy had focused on welcoming innovative businesses and remaining open to discussions around new captive concepts.

“We offer flexibility,” Dunne concluded, “along with the comfort of a well-regulated environment”, adding that this balance had represented what was really needed in the captive market.

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