D.C. Wild Card Law Boosts Captives
A new “wild card” law in Washington, D.C. has introduced a concept to the captive world that has been a staple in the banking industry.
The Captive Insurance Company Act of 2004, enacted in November, replaces the law governing captives in the jurisdiction since 2000. Its “wild card” or best practices provision allows the insurance commissioner to authorize a captive insurer that is otherwise qualified to conduct business in the district to engage in any activity in any form permitted by a captive insurer in another jurisdiction, explained Arthur Perschetz, chairman of the Captive Insurance Council of the District of Columbia, who heads the insurance practice at the law firm of Muldoon, Murphy & Aguggia LLP.
Similar laws, he noted, are common in the banking industry, designed to create parity between federal-chartered banks and state banks.
“Typically the federal banks are a little more flexible in terms of letting banks do new things,” he said. “So a number of legislatures developed what in the banking industry are called 'wild card' laws, [which allow a state bank to] automatically do anything that is authorized to a federal bank, so they don't have to keep amending their banking laws.”
The best practices provision allows the insurance commissioner to permit a captive wishing to establish in the district to do anything it could in any other domicile worldwide.
D.C. Insurance Commissioner Lawrence Mirel said the main reason for adding the best practices provision is that “we don't have to go back to the Council each time and ask for a new law” in case there are major innovations to regulations in competing jurisdictions. “It's enabled us to keep up with the competition, rather than to have to go back [to the legislature] each time.”
The new law, he said, will “make us more responsive in a more timely manner,” adding that “I don't think this will be a major item, but it gives me the flexibility to act quickly.”
The best practices provision, Mr. Perschetz said, will help those with “new and innovative ideas, particularly the professional risk manager, to be able to implement them upon showing they are reasonable.”
Since the best practices law was passed, Mr. Perschetz said he has had “maybe a dozen inquiries from potential clients wondering if this might work for them. Some of them were looking for a unique provision and flexibility. Others wanted to be in a jurisdiction this flexible and forward thinking.”
The new act also offers other incentives to locate in D.C., such as lower capital requirements, authorizing the creation of segregated captive accounts, and establishing new minimum capital and surplus requirements.
Reproduced from National Underwriter Edition, March 4, 2005. Copyright 2005 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.
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