Legislation signed this week is expected to encourage the formation of new captive insurers in Delaware.
The bill, HB 218, is poised to bring new jobs, new business and new tax revenue to the state, according to the Property Casualty Insurers Association of America (PCI).
The legislation provides "the types of flexibility and benefits that attract captive insurers to smaller states like Delaware," said Richard Stokes, PCI regional vice president. "This is win-win for businesses and consumers alike."
Enacted July 12 but signed Aug. 22, the Delaware Revised Captive Insurance Company Act rewrites the state's original captives legislation by encouraging the formation of new companies. It offers a wider range of insurable coverages, caps premium taxes, expands the choices in the legal form of organization that a captive may take, and provides flexibility on minimum capital and surplus requirements.
Captives are insurers that are owned by the companies they insure. They may be established as direct-writing companies issuing policies to, and receiving premiums from, their insureds.
The insurance industry, however, is generally highly regulated and, in many jurisdictions, certain risks may only be written by an admitted insurer, PCI explained.
A smaller captive most often will operate as a reinsurer accepting the risks of its parent company, which has been insured by a licensed direct-writing company, or fronting company, and then ceded to the captive.
The fronting company will charge a fee for its services and may require a letter of credit to guarantee the captive's ability to pay claims. Today there are more than 4,000 captives worldwide writing over $20 billion in premium.
"The captive insurance industry is an internationally emerging market, and we are pleased that this legislation has positioned Delaware at the forefront of this group," Mr. Stokes added. "While this legislation will help Delaware become more competitive in attracting captive insurers to the state, this is only a small portion of the insurance market.
We are hopeful Delaware will consider other changes to its insurance laws that will make it a more competitive and stable marketplace."
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