North Carolina navigates captive demand

Lori Gorman from the North Carolina Department of Insurance provides a guide to what the past year has been like for the Tar Heel State.

“We are seeing an increasing trend in captives offering medical stop-loss coverages.” Lori Gorman

What has the past year been like for North Carolina’s captive market in terms of growth?

The hardening of the commercial market continues to accelerate interest in the captive industry. More smaller-to-midsize companies are turning to captives to address their risk management needs. As a result, North Carolina’s captive insurance programme is experiencing steady growth. We have licensed more than a dozen captive insurers and expect the number of licensed captive insurers and approved cells to accelerate during the fourth quarter of 2024.

What legislation has been passed in North Carolina to encourage captive growth?

We understand that continuous review of North Carolina’s Captive Insurance Act is necessary to ensure our law remains current and relevant to meet the evolving needs of the captive insurance industry. To this end, legislators passed, and Governor Roy Cooper signed, Session Law 2024-29, Captive Insurance Amendments, into law effective July 2, making North Carolina an even more attractive domicile for captive insurers.

This legislation includes a premium tax holiday for previously formed captive insurers re-domesticating to North Carolina for the year in which these companies re-domesticate and the subsequent year. This allows captive insurers a full two years to relocate to North Carolina and receive a two-year premium tax holiday.

It also lowers the retaliatory tax rate to 1.85 percent from 5 percent, enhancing North Carolina’s appeal for risk retention groups (RRGs) while clarifying that RRGs will also be responsible for examination every five years in accordance with NAIC accreditation requirements.

What trends have you seen for captives in North Carolina over the past year?

In recent months, North Carolina has experienced growth in the form of established captives offering increased coverages and in new captive and cell formations. We are seeing an increasing trend in captives offering medical stop-loss coverages as well as expansion of property insurance being offered as captives participate in more layers throughout an insured’s insurance tower.

There is strong continued interest in cyber coverages by captive owners. Hardening property markets have led to creative captive solutions such as using captives to access the less costly reinsurance markets and to write tailored coverages for risks not readily available in the commercial market.

During this inflationary period, established North Carolina captives and their owners have found value in the surplus generated in their captive programmes and have used the surplus in various ways, such as increasing captive retention, issuing dividends or loans, as well as for providing additional lines of coverage.

What challenges do you see ahead in 2025?

With more states enacting captive insurance legislation, selecting a captive domicile is an important decision for business owners when considering forming a captive insurer. As evidenced by our current ranking as the third-largest US domicile, North Carolina’s captive insurance programme offers flexible regulation in a business-friendly environment that many captive owners have chosen to call home.

Our goal for 2025 is to continue as a leading captive domicile by meeting the risk management needs of businesses in the captive industry. North Carolina’s Captive Insurance Act provides Commissioner Mike Causey with much discretion in regulating captive insurers according to their own unique risk profiles.

Our programme offers low-cost formation and operation of captive insurers. This means that the North Carolina Department of Insurance charges no administrative or filing fees and we think prospective captive owners will find our premium tax rates competitive with those of other domiciles.

Other than for RRGs, there is no routine examination schedule for captive insurers. We instead rely on yearly audited financial statements to determine that captives are operating in accordance with their approved business plans. North Carolina’s low regulatory costs provide a favourable benefit to captives licensed in the state.

With these strong attributes and a consistent regulatory approach, we are confident that North Carolina is well-positioned to meet upcoming challenges facing the captive industry in 2025.

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

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