Vermont's governor, Phil Scott, has signed new captive insurance legislation into law.
“Part of what makes Vermont a leading domicile for captive insurance is our work to continuously modernize our regulations in this area,” Governor Scott said in a prepared statement. “Captive insurance is a highly competitive sector and my administration is pleased to continue to work collaboratively with the legislature to consistently ensure our captive law keeps pace with the fast-changing needs of the industry.”
Among the many updates included in the new law are changes to Vermont's captive examination schedule. The law changes the captive examination schedule from once every three years (which can be extended to five years) to not less than every five years. The commissioner retains the authority to examine companies whenever deemed necessary.
“This will better reflect the state's current practice of prioritizing examinations based on an assessment of the company's risk,” said Dave Provost, deputy commissioner of captive insurance. “I believe the captive industry will welcome this move, along with other updates included in the bill.”
Vermont's new law also adds flexibility in investments by allowing companies the ability to either adhere to current investment rules or develop their own plan for approval by the Department of Financial Regulation (“DFR”). “For certain captives, the old law required companies to follow prescriptive, often strict investment statutes,” said Ian Davis, director of financial services. “This move will allow Vermont statutes to keep pace with the rapid changes in the investment environment.”
“As we have for many years, we worked collaboratively with the Department of Financial Regulation to develop a consensus bill that will help grow our industry while maintaining our state's prudent regulatory standards,” said Richard Smith, president of the Vermont Captive Insurance Association. “We are grateful for the continued support from Governor Scott and that of the state legislature.”
Additional changes include clarifying the definition of an independent director, requiring National Association of Insurance Commissioners (“NAIC”) statutory accounting for affiliated reinsurance companies, and a specific inclusion of sole proprietorships among eligible businesses to be cell participants.
The new law also allows captives to use any organizational form permitted by Vermont law.
In summary, the changes in the law include the following:
- Dividends and distributions – Amends statute to identify nonprofit incorporated protected cells as eligible for dividends or distributions with commissioner approval.
- Captive formation – Allows captives to use any organizational form permitted by Vermont law. This includes sponsored cell captives and the incorporated cells within.
- Attorney-in-fact bond – Allows the commissioner to exempt the attorney-in-fact from the bonding requirements under specific circumstances.
- Examinations – Modifies the examination schedule to “five years or more frequently as needed.”
- Investments – Provides flexibility in investments by giving companies the option to develop their own investment plan for DFR approval.
- Sole Proprietorships – Specifically includes sole proprietorships as eligible business to be cell participants.
- Accounting standards for ARCs – Requires NAIC statutory accounting for affiliated reinsurance companies (“ARCs”).
- RRG independent directors – Clarifies the governance standards for risk retention groups, specifically the definition of independent director.
- Own risk and solvency assessment – Applies subchapter 7A of chapter 101 (“ORSA”) to risk retention groups (“RRGs”).
Learn more: http://www.vermontcaptive.com.
Victoria Spears
Victoria Prussen Spears is senior vice president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. A graduate of Sarah Lawrence College and Brooklyn Law School, Ms. Spears was an attorney at a leading New York City law firm before joining Meyerowitz Communications. She may be contacted at [email protected].