Tennessee revises captives regime in bid to maintain market growth

Tennessee has approved updates to its captive insurance statute that it believes provide a strong incentive to captives to domicile in the state, as it seeks to keep up the momentum that saw strong growth in the captive sector in 2020.

The changes to the captive regime include authorising parametric insurance coverage and reducing the statutory capital needed by protected cell captive insurers to commence operations from $250,000 to $100,000.

The latest modernisations to Tennessee’s captive laws were approved by Tennessee Governor Bill Lee.

Belinda Fortman, captive insurance section director at the Tennessee Department of Commerce and Insurance (TDCI), said the changes provide a strong incentive for captive owners to choose Tennessee as their captive domicile.

“By reducing the minimum capital and surplus needed to start protected cell captive insurance companies, Tennessee is sending a strong message that we value companies’ freedom to invest their money to obtain the highest return on investment possible, rather than allocate money in excess of what is needed to support the potential risk of insurance losses in their captive,” said Fortman.

According to TDCI, captive premiums in the state volume topped $1.6 billion in 2020, while the number of active captives in Tennessee increased to 146, setting new records. It means there are over 750 risk-bearing entities in the state.

Fortman said: “Through the first five months of 2021,Tennessee has averaged 10 new captive formations a month, which is an impressive pace that we hope to see continue. The growth of the captive insurance industry in Tennessee that we are seeing today is a byproduct of years of focused teamwork and the far-reaching vision of Tennessee’s leaders.”

Kevin Doherty, president of the Tennessee Captive Insurance Association (TCIA), welcomed the changes. “The TCIA supports the reduction in the minimum capital for protected cell captives to $100,000 and believes this will help to spur significant growth in cell captives in Tennessee,” he said.

The TCIA also believes it is significant that Tennessee is leading the way now in permitting captives to offer parametric insurance that can offer innovative ways to cover large numbers of insureds in natural disasters or other similar events.”