"The CFOs ask good questions," he said. "They want to know exactly what will go on--how the reporting will be done. Even some of the smaller companies with less than 300 employees--retail or construction industries--often bring their CFO."

In 2005, he said Hawaii licensed 18 new companies--mostly pure captives, although two were medical malpractice risk retention groups. Of the 16 pure captives, two were Class-5, which he defined as a large captive that does reinsurance of affiliated risk. Hawaii also licensed its second Class-4 company, also known as a rent-a-captive or sponsored captive.

Growth was slightly slower in 2005 than in previous years--there were 30 in 2004; 23 in 2003; and since 1999 the average has been in the high teens, he noted. Industries represented include financial and educational institutions, as well as construction and gaming operations. Coverages include property and liability, while some use their captives to fund their workers' compensation deductible.

Geographically, he noted, captive owners "are spread out, but mostly from the Mid- and Western-U.S." However, one was from New York and another from Japan, owned by a non-U.S. taxpayer. It is the seventh captive with a Japanese owner, he said, noting that the geographic growth trend from the Asian markets "is continuing."

He added that two auto warranty risk retention groups were redomiciled to Washington, D.C. A third--PrimeGuard Insurance Company and its affiliated companies (1SourceAutoWarranty, First Assured Warranty Corp. and WarranteeWise Inc.)--was put into liquidation in December. (More information is available at www.primeguard.hawaii.gov.)

In Vermont--the largest U.S. captive domicile and one of the largest in the world--RRG growth is slowing down, said Leonard D. Crouse, deputy commissioner of the Captive Insurance Division, with the Vermont Department of Banking, Insurance, Securities and Health Care Administration.

"I don't know if it's market conditions or if it's the Government Accountability Office report [on risk retention groups] or [National Association of Insurance Commissioners] issues," he said, noting that the market "had to slow down anyway because the growth in the last three years was phenomenal--around 130 RRGs--with med mal a big driver."

Derick White, director of captive insurance for Vermont, reported 37 new captives in 2005, of which 26 were pure, five were RRGs, three were sponsored captives, two were association captives, and one was a branch captive.

"Normally about 75 percent are pure and the rest is a mix," he said. Of the captives, 10 were health care, which he said is "easing up compared to the prior two years, but it's still a very popular line." The second-largest category was manufacturing with nine companies, "large ones like BASF and Sun Microsystems."

Four of the captives were redomestications--from Hawaii, Bermuda, Barbados and the British Virgin Islands. There were two mergers--from Bermuda and New York. Geographically the captives were a mix, "but the Midwest is still popular," he said.

The biggest line of business, Mr. White noted, was liability, with 17 captives writing the coverage. The second largest was professional liability, with 12 captives. Of RRGs formed, he noted that four were medical and one was construction.

In the nation's capital, Dana Sheppard, associate commissioner of the Risk Finance Bureau for the Washington, D.C. Department of Insurance, Securities and Banking, said he believes 2006 will be "steady." Last year, he said D.C. licensed 19 captives for a total of 59.

In 2005, all but two or three captives formed were RRGs. Most were nursing homes, construction and transportation companies, he noted.

"The RRG trend continues," according to Mr. Sheppard, "part of which is because South Carolina has slowed down." He noted that D.C. might also see growth slowing on the number of RRGs because they require more regulatory staff.

"The problem is that the taxes we get from the RRGs don't support the amount of work we have to do on them," he said. "A regular company we look at once a year, but we look at an RRG every quarter."

Like some other domiciles, Mr. Sheppard noted that D.C. is beginning to look closely at producer-controlled companies. "We haven't said no to those, but we have raised our standards, so that may result in a slowdown," he said.

He explained that producer-controlled companies--mentioned in the GAO report--are formed by producers who put up the initial capital, then license and register the company in those states they think will be affected by the hard market. They then solicit members and start a program.

"Some people think the original intent of the [Liability Risk Retention Act] was for groups having hard market problems to get together and form a company and have someone manage it," he said. Others believe that because professionals are typically busy, producers may "assist in providing solutions," he added.

Mr. Sheppard said some traditional regulators look at producer-controlled groups as an abuse because "it looks more like a traditional insurance company."

D.C., he said, has not rejected such groups, but is being careful with them. "What we've seen is that producers typically want 15- or 20 percent for commissions, and by the time they pay their captive manager, accountant, actuary, lawyer and others, your expense ratio could be 40-to-50 percent. If you have a loss ratio that exceeds that, the numbers don't work."

Without a broker, he said, those groups typically operate with an expense ratio between 10- and 20 percent. "We're not saying no" to these groups, he added, unless "the economics don't work."

D.C., he added, is looking to attract more non-RRGs, pure captives, branch captives, redomestications and special-purpose vehicles for securitizations.

In New York, Peter J. Molinaro, senior deputy superintendent and captive group chairman for the New York insurance department, said his domicile had a "lull" from 2004 into 2005. Although the state gained seven captives, it had a net gain of five because two shut down, leaving a total of 35 captives. However, he noted, "they're all large--$100 million parent net worth. It's our threshold here."

He noted that extension of the Terrorism Risk Insurance Act was "very important, and we've seen several [captives] set up at the end of the year to take advantage of TRIA coverage." He added that brokers are projecting that "we'll see more of them."

Mr. Molinaro said the state has attempted for three years to get a bill to expand the number of New York businesses that could form captives--in part by lowering the threshold of pure captives from $100 million net worth in the parent, to $25 million.

"This would open up a significant number of parents eligible, and would allow [limited liability companies] and the formation of sponsored captives," he explained, adding it would extend the option to form a captive to public authorities and lower the threshold for getting into a group captive to "where individual group members can have a net worth of around $7 million."

The state, he said, has had "many requests from smaller businesses. We work with many business groups that are looking for the lowering of the thresholds." Currently, he said, New York is losing this business to other domiciles such as Vermont and South Carolina.

"We're looking forward to a good year this year based on the initial filings we've had," Mr. Molinaro said. "I'd like to add another 10 or 20 this year."

Jeff Kehler, program manager for the captive division of the South Carolina insurance department, said the state is being diligent regulating RRGs, "particularly with the GAO report coming out and the NAIC looking at RRGs. We have some flexibility, but you have to be more diligent."

He noted that the domicile is seeing more pure captives and more securitizations. The coverages, he said, are "all over the map," with the major categories being general liability, health care, medical malpractice, securitizations and transportation.

He also noted the state is seeing more redomestications. "I'm not sure what's driving it," he said. "But I think some of the domiciles out of the Continental U.S. are hard to get to and travel is expensive."

Cliff King, chief administrator of captive programs for Nevada, who was appointed in January, said the state enacted its captive legislation in January 2000.

"We only licensed four or five in the first couple of years," he said. "We got distracted in 2002 with med mal problems. I spent most of my time on those issues and construction defect litigation."

He said the domicile is now focused on captives again, and so far has licensed about 62. "So life is good. It's working well for us." Several of those captives are being used for medical malpractice coverage, while others are being used for long-term care and construction liability, he noted.

"Nevada is a friendly environment," said Mr. King, who has been with the Nevada division since 1998. "We have a good tax situation. We're responsive. We want to exceed expectations."

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