Arizona established itself as a captive domicile in 2001, and enjoyed some good growth early in that decade. In 2008 that growth slowed considerably with 2009 and 2010 experiencing a net loss in the number of captives (-7% in 2009 and -2% in 2010). Positive growth resumed in 2011, but at close to 0% in 2011 and 2012. 2013 has improved the trend so that total captives are back to the 2008 level.
Arizona Captive Insurance Domicile
Arizona currently regulates approximately 100 captives. We at Capstone are encouraged by the recent improvement in the overall outlook for Arizona, but we remain cautious about recommending the state as a primary captive domicile.
Advantages that are promoted by the Arizona Department of Insurance include:
- No premium tax in addition to the annual $5,500 renewal fee,
- Minimum capitalization requirement for pure captives is $250,000,
- A small company exemption of annual actuarial opinion and audit requirement may apply, and
- No routine statutory exam for pure captives.
A potential disadvantage is that the state requires at least one captive insurance company Board of Directors’ meeting per year be held in Arizona.
The predominant industry groups for Arizona captives are health care and social assistance, which represents 28% of the total number of Arizona captive insurance companies, finance and insurance which represents 19% and construction which represents 18%. Captive types recognized by Arizona include pure captives, pure reinsurance captives, group captives, agency captives, protected cell captives and risk retention groups.
Benefits of Arizona Captive Insurance Domicile
The most tangible benefit of Arizona as a captive insurance domicile is that there is no premium tax, which is particularly attractive to larger captives that would otherwise incur higher costs in other domiciles.
The regulatory bulletin from the Arizona Department of Insurance for its captive insurance program states: “Arizona captive insurers are not required to pay state premium taxes … this omission is crucial because comparison to captive insurance laws in other domiciles, US and alien, plainly shows that when captive insurance premiums are taxed it is according to a schedule specific to that form or insurance rather than that at the rates applicable to ordinary commercial insurance business.” (Captive Insurance Times)