1 January 1970USA analysis

Missouri: the captive domicile close to home

The record pace of growth in the Missouri captive insurance industry continued in 2011, the third consecutive year for record premium levels. Based on the level of activity already this year, it’s likely that 2012 will be another record year, both for the number of captive licences issued and for premium written by Missouri captives.

Missouri offers an excellent domicile option for centrally located US companies. Our location at the geographic and population centres of the US puts us right in the heart of America. Captive owners gain efficiency and reduce costs by keeping their captives close to home in Missouri. Missouri is a stable Midwestern domicile with a solid captive law that offers many benefits to our owners. Our captive section is staffed with regulators that are dedicated solely to captive insurance and understand the differences between captives and commercial insurers. You’ll find our commonsense approach and Midwestern work ethic conducive to the success of your captive.

Missouri is a great place to do business. Captive insurance fits well with the business-friendly environment in our state. The benefits are important for owners and the state and I encourage everyone to take a closer look at Missouri’s programme to see if it may be the right one for your captive.

Since Missouri became a captive domicile in 2007, several states have updated their captive laws or enacted new legislation. This trend seems to have intensified since the beginning of the recession. Even as the economy improves, states still struggle to find ways to increase revenue and generate new jobs. Missouri’s law was passed prior to the financial crisis and was possible because of collaboration between Midwestern businesses and state government. These businesses wanted the benefits of captive insurance without the hassle of operating in a distant location. They are finding that it’s easier to get things done when they have access to local regulators who have similar backgrounds and speak their own language.

Missouri’s captive programme has had five years to develop and has enjoyed support from administrations representing both political parties. We’ve been through the most recent Internal Revenue Service challenge of captives, the credit crisis and recession and an extended soft market cycle. Despite these challenges, a multibillion dollar captive industry has grown in our state. A major reason for our success has been the commitment from the beginning to provide resources when needed for the captive programme. Captive owners have so many more options than they did just 10 years ago. Domiciles that can prove they can provide highly responsive, quality programmes with solid regulation can expect to see new formations and redomestications from companies located in their region.

There were eight additional captives licensed in Missouri during 2011, bringing total active captives to 19. The most significant activity last year involved the redomestication of existing captives or the formation of affiliated captives to write direct Missouri homestate business. Companies are finding advantages in having a captive that is authorised to conduct insurance business in their home state. Three captives have been added through May 2012 and it’s likely that another eight to 10 captives may be licensed by the end of 2012.

So far in 2012, there have been two new formations: one involved the merger of an alien captive into a Missouri captive; the other a branch captive licensing. Two redomestications were expected in June and others possible later in the year, as well as several new formations in various stages of development. It’s quite possible we could reach 30 or more captives by the end of the year.

There is a good mix of captives by type, with 13 pure captives, seven special-purpose life reinsurance captives, one association and one branch captive. There is also an industrial insured captive in development. Most owners are from Missouri and other Midwestern states, but there are also a few companies from the East Coast. The owners range in size from small privately-held companies to publicly traded international insurers and Fortune 500 companies. They represent numerous industries including insurance, transportation, distribution, construction, manufacturing, energy and health care. The most popular lines of coverage include life reinsurance, workers’ compensation and other deductible programmes, Terrorism Risk Insurance Act coverage, credit and medical stop-loss, as well as numerous property and liability coverages. Many also offer unique coverage that is tailored specifically for the individual owner’s needs, and a few are starting to discuss employee benefits.

The growth in numbers has been nice, but the level of premium written by Missouri captives is truly world class. In 2011, captives in Missouri wrote $1.8 billion in premium; this was the third consecutive year in excess of $1 billion and it is likely to top $2 billion this year. Missouri has two of the largest US-based life reinsurance companies domiciled here and has experienced reinsurance professionals on staff. As a result, several large commercial life insurers have formed reinsurance captives in Missouri. In addition to the life captives there are also a number of large, mid-sized and smaller property and casualty captives licensed in Missouri.

We have a balance between very large captives that write over $100 million, those that write between $10 and $25 million and those that write $2 million or less in premium. Because the annual fees are always deductible from premium tax, most of the smaller captives will never pay premium tax. Missouri has proved to be an attractive location for captives of all sizes and types and for all sorts of businesses and we encourage solid companies with sound plans to apply.

As the number of captives has grown in Missouri, so has the number of service providers approved to do business in our state. In 2011, 30 additional service providers were added, increasing the number to more than 80. That number could top 100 by the end of 2012. A listing of approved service providers and attorneys experienced with captives can be found on the captive pages of our website at http://insurance.mo.gov/captive

Currently, more than 45 percent of these service providers are located within Missouri, creating work for Missourians. Unlike some domiciles, Missouri does allow non-resident service providers. This gives our captive owners more options today and will allow for more offices to be opened in Missouri tomorrow as the client base for service providers continues to grow. It’s important that our domicile provides what our owners need to be successful while keeping an eye on the successful long-term growth of our programme.

The Missouri Captive Insurance Association (MOCIA) has been a vital part of the success of our domicile as well as the increase in the number of service providers. David Dimit, the executive director, and Michael Mead, the president, have done well in attracting membership not only from Missouri but from 13 other states as well.

In January 2012 the association sponsored a captive educational seminar for members of the Missouri House of Representatives which was well received. On June 20, MOCIA hosted its annual members’ meeting at Bellerive Country Club in St Louis. It was attended by 54 captive professionals from seven states. All the training at this one-day event was conducted by association members and Missouri-based captive professionals. John Huff, insurance director, was the keynote speaker and voiced his support for the role of captive insurance in Missouri. John Rehagen, captive programme manager, provided a domicile update.

Presenters on the topic of captive uses included representatives from MR Mead & Co, Peabody Energy, Express Scripts and ING Americas. The process to form a captive was explained by representatives from Lockton Companies and Bryan Cave LLP. Tax implications for captives were discussed by experts from Conner Ash, LLP, Brown Smith & Wallace, LLP and GPW Actuarial Services. It was a great opportunity for education and networking. More educational and networking events are anticipated throughout the year.

MOCIA is also a joint sponsor of the Western Region Captive Insurance Conference, along with the Arizona and Utah associations. Combining the resources of these three associations ensures that this is a well attended and high quality captive event. Contact David Dimit at (314) 420-1908 or visit the MOCIA website at http://mocaptive.com to learn more.

Missouri has developed a captive programme that is providing a substantial benefit to the state and the variety of companies that do business here. Missouri is experienced and is in the right location to capitalise on the trend of captive formations happening closer to home. With abundant resources and the support of the captive industry, Missouri is continuing on its path to become the go-to domicile for the Midwest.

John Rehagen is captive programme manager at the Missouri Department of Insurance, Financial Institutions and Professional Registration. He can be contacted at: (573) 522-2563 or john.rehagen@insurance.mo.gov o. You can also visit the Missouri Department of Insurance web page at www.insurance.mo.gov/captive