Captive Domicile Update: Vermont

This article is provided by Strategic Risk Services. Contact details for the company can be found at the end of this article.

There is increasing competition for captive business with more than half of the U.S. States now having captive laws on their books. However Vermont continues to lead the industry in new captive formations. In 2003 Vermont had a net increase of 64 captives or 20 more than its closest global competitor, the Cayman Islands. 2004 is on pace to be another very good year, although not at the 2003 levels. Vermont has surpassed the 700 mark having licensed 27 new captives year-to-date, heading into the historically very busy fourth quarter.

Regulatory Environment

The Vermont State Government and Regulatory Authorities have re-affirmed their dedication to the captive industry by taking several actions recently:  Vermont has amended its Statute to allow captives to form as Limited Liability Companies. This new provision could be beneficial in a number of situations, including where the captive's parent is not a tax payer or where the captive is not deemed an insurance company for tax purposes.

The captive division now has 24 people dedicated to captive regulation, having added and promoted staff to meet the requirements of the significant growth seen in 2002 and 2003. It has also received budget approval to add two more examiners in 2005.

Vermont and the VCIA have continued to be leaders on the legislative front, speaking up in favor of continued state regulation of risk retention groups and expansion of the Risk Retention Act. They have also been vocal in defending the benefits and operations of captives with the U.S. Treasury with regards to TRIA and the U.S. Department of Housing and Urban Development.

The State of Vermont also presented a $50,000 donation to the newly created International Center for Captive Insurance Education (I.C.C.I.E.).

Why Vermont?

Vermont is a mature captive domicile and offers several advantages to prospective captive owners:

Experience and Reputation: Vermont's experience and reputation is unmatched by any other onshore domicile.
Dedicated Staff: To date, Vermont remains the only onshore domicile with a truly independent and self-sufficient Captive Division. Len Crouse was elevated to the level of Deputy Commissioner in 2003. 

Infrastructure: With twelve captive management firms, several legal and accounting firms, banks, investment managers, and consultants with offices in Vermont, the domicile offers a very strong infrastructure dedicated to the captive industry. Unlike Bermuda (Insurance and Reinsurance Market) and the Cayman Islands (Banking and Investments), the infrastructure in place was built for the sole purpose of serving the captive industry.

Employee Benefits: After the creation of the EXPRO approval process by the DOL, there is a greater demand to use captives for insuring ERISA benefits. To date all captives insuring ERISA benefits have done so in Vermont.

Stability: The captive business is an important source of revenue for Vermont. Captives are now contributing as much in premium tax revenues to the State as commercial insurers. This despite the fact that the premium tax rate for captives is five times less than the rates for commercial insurers. Successive administrations in Vermont have committed to the captive industry to ensure the continuance and growth of this important revenue stream. As the industry grows the State's commitment to it is only likely to increase.

Looking Ahead

Competition from newer domiciles such as South Carolina, D.C. and Arizona, has provided Vermont with the incentive to further promote its captive legislation while remaining true to its roots of strong regulation. For example, the Captive Department has recently launched its newsletter "Captive Comments" to keep the industry aware of the latest changes in the domicile. It remains to be seen if the newer domiciles will maintain their commitment to the captive industry. Vermont has already demonstrated this commitment and we believe it will continue to prosper in both the short and long-term.

Vermont Captive Fact Sheet Applicable Legislation : Title 8 Statutes Annotated Chapters 141 and 142, along with supporting regulations. Number of Captives 701 licensed as of 9/23/04 Capitalization and Solvency Requirements : Pure Captive - $250,000 minimum capital and surplus Industrial Insured Captive - $250,000 minimum capital and surplus : Sponsored Captive - $500,000 minimum capital and surplus Association Captive $750,000 minimum capital and surplus ? Risk Retention Group - $1,000,000 minimum capital and surplus Premium Taxes $0m - $20m 0.380% Direct Tax Rate $20m - $40m 0.285% Direct Tax Rate $40m - $60m 0.190% Direct Tax Rate Above $60m 0.072% Direct Tax Rate $0m - $20m 0.214% Assumed Tax Rate $20m - $40m 0.143% Assumed Tax Rate $40m - $60m 0.048% Assumed Tax Rate Above $60m 0.024% Assumed Tax Rate Local Representation Requirement  Captive Manager must be based in Vermont and approved by the Insurance Department  Principal place of business in the state must be maintained  At least one incorporator must be a resident of Vermont  At least one Board Member must be a resident of Vermont  One meeting per year must be held in Vermont Regulatory Fees Application Filing and Review Fee - $3,400 Annual License Fee - $300 Examination Fee (every 3-5 years) : Varies by Captive

About SRS SRS provides underwriting, management and wholesale brokerage services in the alternative insurance market. They design, implement, manage and grow captive and ART programs on behalf of corporations, groups and insurance companies. SRS is an approved manager of captive insurance companies in Arizona, Bermuda, Cayman Islands, South Carolina & Vermont. Through a wholly owned subsidiary SRS is also licensed as an insurance broker in Bermuda. For more information on SRS, visit them at www.strategicrisks.com. Contact: info@strategicrisks.com, Tel: 781 487 9800