Regulators stress governance and business purpose as key tests for captive applications

Captive regulators are placing greater emphasis on governance, board expertise and clearly defined business plans as captive owners seek to expand into emerging risks and more sophisticated structures. 

Speaking during a regulatory panel at the Captive Review USA Conference, regulators from Vermont, Arizona and Bermuda said the first step in assessing innovative captive proposals is understanding why the risk is being placed in a captive and whether the structure can support it. 

Christine Brown, deputy commissioner of captive insurance at the Vermont Department of Financial Regulation, said regulators want to understand the commercial challenges driving a proposal and whether the captive has sufficient financial backing to support new risks. 

“We’d like to have a conversation to understand why you’re thinking about this, what’s happening commercially, why you can’t get the coverage,” Brown said, adding that regulators also review whether there is adequate capital and risk margins built into pricing. 

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