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Tennessee Captive Market Continues Surge, 20th Participant Licensed

Source: BestWeek - Thomas Harman

Posted on 23 Jul 2013 by Neilson

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Tennessee CaptivesTennessee's Department of Commerce and Insurance has licensed its 20th captive insurer, continuing a dramatic tenfold increase since initial reform legislation passed in 2011.

Tennessee was among the first states to allow captive insurers when it passed legislation in 1978. In 2011, that legislation was overhauled to make Tennessee a more desirable on-shore captive domicile and to form a captive insurance office within the DCI. The 2011 reform bill gave captives the ability to write workers' compensation policies directly and gave the insurance commissioner authority to waive a state requirement that captives sell workers' compensation to self-insured entities.

Currently, the state allows for more types of captives than other U.S. domiciles and allows insurers to establish workers compensation captives, a part of the law that makes Tennessee unique. On June 7, Gov. Bill Haslam signed another bill into law that improves the states accessibility to captives.

Captive Insurance Director Michael Corbett told Bests News Service that in 2011, there were two existing captives on the books when the captives department was created. Corbett, upon being hired, made a commitment to adding three more by June 2013, but 11 new ones formed by the end of 2012 and seven more halfway through 2013.

I think a lot of our success has been about getting the word out there so that people understand the legislation correctly, Corbett said. You must keep your legislation current and address the needs of your business community or you will fail.

A recent key change as part of the June reform bill has been to cut the protective cell capital and surplus requirement in half to $250,000. Corbett said the jump in captives cuts across lines for those seeking to form captives. He said there are some protective cells, there is a risk retention group and several pure captives.

Corbett said Insurance Commissioner Julie Mix McPeak co-chair of a National Association of Insurance Commissioners task force examining the question of principles-based reserving for life insurers with an eye toward addressing some states' concerns about captives and special purpose vehicles has helped put together a staff to meet the needs of Tennessee's market. The remainder of 2013 looks especially bright, and we look forward to announcing the next 20 [captives], Corbett said in a statement.

Corbett said the concerns about certain life insurance captives and special purpose vehicles that the NAIC is trying to address by instituting principles-based reserving are in many respects mutually exclusive issues for the bulk of the captive market. He said McPeak does not share concerns raised by New York state Department of Financial Services that such captives represent shadow insurance, Corbett said. The AXXX and XXX captives used by life insurers that NAIC is attempting to address are such a small piece of the market that the subjects are almost two different items, he said.

Texas and North Carolina lawmakers recently passed legislation making them the latest captive domiciles, with Vermont being far and away the leading domestic domicile. David Provost, deputy commissioner, captive insurance in the Vermont Department of Financial Regulation, said ultimately every state would become a captive domicile, but was not overly concerned about Vermont losing business, since some captives forming in their home states that have more recently become captive domiciles are still keeping reinsurance vehicles in Vermont (Bests News Service, July 17, 2013).

But Corbett has a slightly different view of how captive markets will evolve. There are 30-plus states active in the captive market, Corbett said. I believe there are going to be only a few left standing for the long-term. I'm virtually certain Tennessee is committed to being one of those few.