“Each of these domiciles seems to be developing a niche market for new formations,” Ms. Gray said. “Nevada has been attracting [risk retention groups].”

Because a Government Accountability Office report raised worries about the adequacy of RRG regulation, “some states are concerned with licensing them,” she added. However, Ms. Gray also pointed out that “Nevada is still interested–most of their new formations are RRGs.”

Nevada also offers “a West Coast presence for companies that don't want to travel to the East Coast for a board meeting,” she said.

Arizona made a good showing, with 23 captives licensed in 2006. Most of their formations were single-parent captives, according to Ms. Gray, who noted that “Arizona is attracting a lot of West Coast construction groups setting up for contractors' liability.”

She also is seeing “certain industry groups licensing captives in 2006. We're still seeing licensing for physician groups–certainly not the same level as two or three years ago, but there are still some smaller groups being licensed for physicians.” Construction groups also are forming in Nevada and Arizona, she said.

Although Hawaii is the second-largest U.S. captive domicile, its number of formations has dropped significantly compared to other locales–with only eight licensed in 2006. “What's happening is that West Coast companies are more attracted to Arizona and Nevada instead of Hawaii, because of convenience,” said Ms. Gray.

Various states, she reported, have “taken Vermont's captive law and copied it word for word, so there's not a lot of competitive advantage from one domicile to the next.” She added that Arizona does not have a premium tax, which has been an advantage, “certainly, for captives writing a large amount of premium.”

When helping clients evaluate domiciles, she noted that cost is important–but not necessarily the deciding factor. “They look at the stability of the domicile, how long the captive law has been in place,” she said. “They want consistent regulation and consistent application of the regulations and laws as well.”

Ms. Gray said that Vermont has maintained its advantage of being a domicile “that's been in place with a captive law for 26 years.” Since 1981, when Vermont adopted its captive law, “they really have applied consistent regulation and they've had the support of the industry, the legislators,” she said. “It doesn't matter whether it's a Republican or a Democrat in office, they still support this industry.”

The Vermont captive market generates about $22 million in premium taxes annually and produces hundreds of jobs. “For a state the size of Vermont, that's a significant industry,” she continued. “So if you have a change in [political] parties, it doesn't make a difference.”

She observed that a small number of RRGs were licensed in Vermont in 2006. “RRGs are more expensive to regulate–they're reviewed on a quarterly basis. If you have a small RRG, usually they're just subject to the annual premium tax of $7,500, so that's not covering their costs of regulating the RRGs,” Ms. Gray said.

The following is a roundup of what's happening in the individual domiciles:

o VERMONT–37 new captives:

Derick White, director of captive insurance in the Captive Insurance Division of the Vermont Department of Banking, Insurance, Securities & Health Care Administration, confirmed that the state licensed 37 captives in 2006–the same number licensed in 2005.

This gives Vermont 563 active captives out of a total of 791 licensed facilities. “We should license our 800th, probably at the end of March,” Mr. White said. “We have eight pending right now.”

Of the 37 newest captives, 13 were formed to write property coverage–fire, disaster and terrorism.

“Four years ago, I would have said property doesn't lend itself to a captive, because it's high-severity, low-frequency–the opposite of what you usually put into a captive,” Mr. White said. “But now people are being forced to take such deductibles, or they're more willing to take larger coverage. If they already have a captive for another use, they put that into the captive. So captives are serving the needs of the market.”

The next most popular line, with 11 formed, was general liability–workers' compensation, professional liability and auto liability.

“We have a mixed bag,” Mr. White said, citing four “triple-X” captives licensed last year for life insurance triple-X reserves. “We also have some employee benefits, with Department of Labor approval. Wells Fargo just got approved. There are 10 DOL captives, and eight of them are in Vermont.”

Of the captives formed, 25 were pure captives and the rest were group captives, he noted. “We licensed three RRGs last year. I think when the market is a little soft, the RRGs are the first to respond and not form,” Mr. White said.

o NEVADA–36 new captives:

Cliff King, chief administrator of captive programs for Nevada's Department of Insurance, called 2006 “a good year. We licensed 36 in 2006, which is a new high for the state.” He said Nevada, which has had captive legislation since 2000, licensed 20 captives in 2005.

During the first two years of its captive legislation, the state licensed only seven, then 12 in 2003. “We finally got some staffing for the captives, and it's been good ever since,” Mr. King said.

Of the 36 captives created in 2006, there were nine RRGs, one association captive and 26 pure captives, he said. They wrote medical malpractice and construction liability as well as reinsurance for workers' comp.

“We have several that were first-party insurance–auto dealers out of Florida,” he noted. When the dealers found they would be charged $1.8 million in premium for $2 million of coverage for their property in Florida, they formed a captive. They “put in $200,000 in capital and surplus, because it's a pure captive. They paid themselves $1.8 million premium and issued a policy with a $1 million deductible.” At the end of five years, he said, “they'll have about $10 million in the bank and it's their money–and they've never had a million-dollar loss.”

Mr. King said he hopes to license another 36 this year. “We've licensed three this year and we have several in the works now,” he said.

o SOUTH CAROLINA–29 new captives:

South Carolina licensed 29 new companies in 2006, for a total 164 licenses–140 of them active–said Jeff Kehler, program manager for the state's Alternative Risk Transfer Services. In 2005, he said the domicile licensed 21 captives.

The captives licensed in 2006 included eight pure captives, one sponsored, eight special-purpose financial captives and five special purpose captives.

“Coverages are all over the map,” he said. In 2006, there were transportation companies, health care for medical malpractice and nursing home professional liability, manufacturers, service companies, “and a few unusual–from the standpoint that they were looking to fund their windstorm deductibles,” he said. “Normally you don't see those.”

He added that captives tend to be casualty-driven, “but deductibles on property are up to 5 percent of total insured value.”

He said he is predicting 30-to-35 licenses in 2007 for South Carolina.

So far this year, he said, “we're seeing special-purpose financial captives, we're seeing a fair percentage of pure captives, we have one and maybe two sponsored captives in the works, and I think we'll see some more.”

He added that people also are looking into captives to address coastal property issues, and “since there doesn't seem to be a solution on the horizon for med mal, we'll continue to see professional liability.”

South Carolina also had several redomestications for employee benefits. “I think EB is right on the cusp of becoming a major line of coverage to be insured in captives,” he said.

o ARIZONA–23 new captives:

Rod Morris, captive insurance administrator for Arizona, said the state licensed 23 captives in 2006 (up from 18 the year before), giving them a total of 84.

Of those, 66 percent were pure captives and 27 percent were RRGs, he said. “We had three agency, one association and one protected cell,” he noted.

Almost half of the licensed captives have general liability in their program, he said. Second is professional liability, then medical malpractice, workers' compensation and auto liability. Miscellaneous coverages included terrorism, crop/hail, life, earthquake, builders' risk, prescription benefits, cargo and property, according to Mr. Morris.

The most popular industries, he noted, were “anything medically related, especially physician/physician management.”

He predicted that in 2007, “we'll see more property, hopefully some employee benefits, and I think we'll see a continuation of homebuilders and contractors or general liability.”

He also said there will most likely be more pure captives and fewer RRGs than in 2005. “Because there is so much focus on RRGs meeting the NAIC accreditation standards, I think there is just less interest in them,” he explained.

o WASHINGTON, D.C.–11 new captives:

With 11 new formations in 2006, the District of Columbia has 72 companies licensed to date, said Dana Sheppard, associate commissioner of the risk finance bureau for the Department of Insurance, Securities and Banking. Three of the new captives were RRGs, six were pure captives, one was a branch and one an association captive, he said, adding that two have already been formed so far this year.

“What I'm still seeing are a lot of contractor companies for liability,” Mr. Sheppard said. “I would think the market would be saturated–I think there are about 15 RRGs writing contractor coverage, but people are still coming.” He added that there are still inquiries from doctors and nursing homes, as well as interest from trucking and transportation companies.

“For us, it's a little slower than in the past, but there's nothing I would point to as a trend,” he said. “The market is a little softer for some lines and there's more competition among domiciles, so captives and RRGs are more spread out.”

D.C. has legislation in the works that would set it apart from the other U.S. domiciles, with a projected enactment date for the two bills of about March 14, he said.

Mr. Sheppard explained that the amendment to the captive law would authorize D.C. to set up reinsurance captives to facilitate securitization transactions. He noted there has been much interest in the new legislation. “We have actuaries on staff, so we have talent we can tap into, and what we don't, we will be willing to add,” he said. “This is a new area for us.”

o HAWAII–8 new captives

Craig Watanabe, insurance administrator for the State of Hawaii's Department of Commerce and Consumer Affairs, Insurance Division, said the Aloha State licensed eight new companies in 2006 and deleted two.

Growth is definitely down at the second-biggest U.S. domicile–from 18 companies licensed in 2005 and 30 in 2004. Mr. Watanabe cited as the cause the softening of the traditional insurance market as well as the proliferation of domiciles–”particularly Arizona and Nevada. We had two captives leave to go to Nevada.”

That doesn't mean Hawaii is no longer a major captive player, he emphasized. The new companies on Hawaii's roster, he said, “were very strong. One was a Japanese company named Denso, which manufactures parts for Toyota and large auto companies. That market will continue to grow–from Japan in particular and possibly from some of the other Asian countries.”

He said Hawaii also licensed its first ERISA-exempt employee benefits captive with the U.S. Labor Department–Global Energy Resources out of Georgia. “It's a British Virgin Island captive with a branch now in Hawaii,” he said.

For 2007, he predicted that continued softening in some commercial market lines would cause slowdowns in some captive growth areas.

o MONTANA–8 new captives:

Montana licensed eight captives in 2006, compared with three in 2005, according to the state's captive insurance coordinator, John Huth. “To date, we've licensed one in 2007, and we have six pending applications already,” he said. “This should be our most productive year to date.”

Montana passed its captive legislation in 2001. “So far we have 22 licensed captives and six applications pending,” he said. Of those, seven were RRGs, two reciprocals and 13 were pure captives.

Steve Matthews, the chief financial examiner for captives, said he sees no trends in terms of industry or coverage. Coverage includes attorneys' liability, truckers' liability, business interruption, health care liability, contractors' liability and medical malpractice. “Geographically, we're all over as well,” he noted.

What's attracting new captives to Montana? “I think they like the regulatory atmosphere here,” according to Mr. Huth. “We're fair, we're open-minded. But on the other hand, if we have problems we're going to talk to them about it.”

Mr. Huth said updated legislation that will bring the state's captive rules in line with most other domiciles has passed the Senate and is expected to go to the House in a matter of weeks.

o NEW YORK–6 new captives.

Jody Wald, coordinator of the captive group for the New York Department of Insurance, said the domicile licensed six new captives in 2006, for a total of 40.

“We're trying again to get new captive legislation,” he said. “Currently the threshold for a parent [captive] is a net worth requirement of $100 million. We're trying to lower that to $25 million.”

Mr. Wald explained that although group captives are allowed in New York, “we don't have any at the present time. Lowering the threshold will help companies take advantage of the group captive law.”

Mr. Wald noted that “several of our new captives are real estate firms, so they're coming into New York for the [Terrorism Risk Insurance Act] coverage for their property. We already licensed one and we're hoping to continue the trend.”

He added that “if they want to give us a real estate niche in the captive world, that's fine by us; we'll take it. And there is a TRIA situation here [in New York].”

Mr. Wald projected that 2007 “will be a little busier than '06. We're hopeful of new legislation, and if that happens we'll be a lot busier.”

o Delaware–no new captives.

Delaware, which passed new captive legislation last year, is still “putting the finishing touches on our housekeeping,” said William P. White, administrator of the state's captive insurance program. “We're trying to make sure we're properly aligned with what we consider good regulatory best practices.”

Mr. White said the domicile has “seen a good bit of activity, at least in terms of inquiries, on a broad range of things–everything from where we are with RRGs to how we would handle securitizations and big-ticket items.”

He said the domicile anticipates a “slow but steady” number of applicants within the next few weeks. “We're ready to get going. We've already published our process, we've redone our Web site–everything, including applications, is online.” The Web address is www.delawareinsurance.gov.