New Captive Insurance Revisions Strengthen Tennessee’s Role As Domicile

Monday, April 20, 2015 | 02:29pm

NASHVILLE – Tennessee’s growing captive insurance industry will be further enhanced after the 109th General Assembly made revisions that broaden the state’s captive insurance laws.

Since 2011 when new captive regulations were enacted, more than 140 risk-bearing captive insurance entities have been established in Tennessee. The Tennessee Department of Commerce and Insurance (TDCI)’s Captive Insurance Section is responsible for regulating the state’s captive insurance industry. A captive insurance company represents an option for many corporations and groups that want to take financial control and manage risks by underwriting their own insurance rather than paying premiums to third-party insurers.

This year’s revisions are the second round of revisions to the Revised Tennessee Captive Insurance Act of 2011 and should further strengthen Tennessee’s burgeoning reputation as a first rate-domicile for captive insurance companies.

“The industry expects us to ensure that our captive legislation is up to date and serves the needs of the business community,” said Captive Insurance Section Director Michael Corbett. “Under the leadership of Governor Bill Haslam and TDCI Commissioner Julie Mix McPeak, Tennessee is committed to being a top-tier domicile for captives. The new legislation helps us fine tune an already robust and state-of-the-industry set of governing laws.”

The 2015 changes, which took effect with Gov. Haslam’s final approval of the bill on April 17, include a crucial revision that allows for the creation of workers compensation captives in Tennessee.

“Workers compensation can be a great fit in a captive for Tennessee-based employers,” Corbett said. “This legislation gives us the tools we need to make workers compensation captives a viable option for local employers. Getting workers compensation captives on line is an important part of our plan to build up to a critical mass of captive insurance company activity.”

The revised captive statute also allows captive insurance companies to use any type of limited liability company (LLC) structure, including series LLCs, which has been a popular form with protected cell companies. 

Additionally, the new legislation gives captive insurance companies greater flexibility in managing their investments. Reserve capital can now be held in cash or cash equivalents. Companies can file a statement of investment policy and are free to make investments in conformity to the investment policy, instead of specific restrictions on the type of investments where the surplus can be invested.

“The flexibility that Tennessee’s LLC laws allows in the formation of individual series is one significant reason why many companies choose Tennessee,” Corbett said. “We wanted to make sure that Tennessee protected cell captives took full advantage of this flexible business structure.” 

A protected cell captive allows one captive insurance company to create one or more “protected cells.”  Each cell is managed by the same board of directors but can issue its own insurance policies while its assets and liabilities are shielded from other cells.

The 2015 revisions also clarify accounting rules for risk retention groups, administrative fees and premium tax rules as well as management rules for LLCs. 

The 2015 captive legislation garnered support from longtime leaders in both houses of the General Assembly including Senate Majority Leader Sen. Mark Norris (R-Collierville), First Vice Chairman of the Senate Judiciary Committee Sen. Doug Overbey (R-Maryville), House Majority Leader Rep. Gerald McCormick (R-Chattanooga) and House Majority Caucus Chairman Rep. Glen Casada (R-Franklin). 

Tennessee Captive Insurance Association President Kevin Doherty hailed the legislation as an important sign that Tennessee is growing into a healthy and mature captive insurance domicile. 

“As in 2011 when the revised captive law was first enacted, and in 2013 when significant amendments were added, this year’s bill achieved wide, bipartisan support,” said Doherty. “Members of the Tennessee General Assembly understand how beneficial it is that Tennessee have a viable captive insurance program and what needs to be done to keep it strong.”