The second bill passed into law, H.466, capped premium taxes for captives at $200,000. Several large corporations were paying the state $300,000, he said. Eleven companies paid more than $200,000, he said.

“We've done this because these are the people who have been supporting our industry here for a long time,” Mr. Crouse said. “The large ones cause very few problems for us.”

Mr. Crouse continued that the hard market “opened everyone's eyes, because companies are putting more premiums in their programs. And more [captives] were reaching the higher tier.”

He said the domicile became concerned that organizations paying more than $300,000 in premium tax might consider redomiciling somewhere else.

“In Vermont there are other things more important than premium tax, such as jobs,” he said. “The residual value of having these companies here is unbelievable. We now have 460 active captives. We did 70 last year and we're right on track for this year.”

Molly P. Lambert, president of the Vermont Captive Insurance Association in Burlington, Vt., said the new legislation is “remarkable news, particularly given the fiscal pictures in most states.” She said response has been very favorable from captive owners who are just getting the word the captive legislation has passed.

“Obviously they are very pleased and they see it as a strong signal from the state of Vermont that we want them here,” she said. “Through the whole four month process, through the House and Senate, there was not one 'nay' vote on this legislation. It's amazing. I've never seen anything like it.”

Highlights of H.452 include:

A reduction of the mandatory minimum capital and surplus required for sponsored captives, from $1 million to $500,000. It also establishes a minimum capital and surplus of $1 million for all risk retention groups.

Before the ruling, “RRGs were just blended into the whole mass of captive insureds and were subject to whatever requirements captive[s] were subjected to,” Ms. Lambert said.

A provision that permits alien captives to merge with Vermont insurers.

Previously, Ms. Lambert said, anyone with a Vermont captive who wanted to move an offshore captive to Vermont could not merge the two unless the offshore was redomiciled to Vermont. It also works the other way around, allowing freer access between offshore and onshore domiciles.

A provision that allows non-profit groups to form captives in Vermont.

Under the current law, non-profits “find a circuitous way to form a captive,” she explained. “They have to establish a for-profit captive mechanism and then explain to the IRS that they are a non- profit, but are required to have a for-profit captive.”

As well as a cap of $200,000 on premiums collected, the second piece of the legislation, H.466, includes an increase in the minimum tax paid by captives from $5,000 to $7,500.

Ms. Lambert said the association deferred to the department, which noted that the minimum amount of $5,000 captives now pay had not changed in the 20 years captives have been forming in Vermont. “Our managers tested the waters and they didn't find much resistance,” she said.

The new legislation, which will go into effect Jan. 1, 2004, will decrease direct premium taxes for captives of all sizes.

“We have four 'bands,'” Ms. Lambert explained. “If you have $0-$20 million [in direct premiums] running through your captive, right now, your direct premium tax rate is 0.4 [percent] and it will become 0.38″ percent (or 38 hundredths of one percent), she said. Captives with direct premiums in the $20 million-$40 million band, she continued, now pay taxes at a rate of 0.3 percent on the next $20 million dollars. That rate will become 0.285 percent under the new law.

Going on to describe changes in the last two bands, she said the tax on the next $20 million (for those in the $40 million-$60 million band), now 0.2 percent, will become 0.19 percent. The fourth band, for captives with more than $60 million of direct premium, now 0.075 on the next $20 million, will become 0.072, she said.

For assumed reinsurance premiums, the tax rate in the first band will go from .225 to .214 percent, with decreases in the next four bands also, she said.

Reproduced from National Underwriter Edition, June 16, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.