A new law that lowers capital requirements and is predicted to boost captive insurance business in the US State of Florida became effective on July 1.
Florida captive insurance legislation became effective in 1982, but the state currently hosts no captive insurers. Up until this point, state law allowed for the creation of captive insurers and industrial insured captive insurance companies.
During a 2012 regular legislative session, the Florida legislature passed Committee Substitute for House Bill 1101. Florida’s governor, Rick Scott, signed the bill into law on 24 April 2012.
It specifies criteria for the formation, incorporation, coverage, capital and surplus, reporting, licensure and reinsurance of captive insurers.
“We welcome captive insurers to Florida’s insurance marketplace. The new law will encourage the formation of new captive insurers, which will promote increased investment in our insurance marketplace. I thank governor Scott for signing this bill and the Florida legislature for passing this important piece of legislation,” said Kevin McCarty, Florida’s insurance commissioner.
The legislation aids the formation of captive insurance companies interested in providing various types of property and casualty insurance. Life and health insurance are specifically excluded from the permissible uses of a captive insurer.
It could have a positive economic impact in Florida through the costs and fees that are associated with the legislation’s various captive-specific requirements, such as state licensing, maintenance of a principal place of business in Florida or maintenance of the branch operation’s principal place of business in Florida.
It also requires captive insurers that are based in Florida to hold at least one annual board meeting in the state and appoint a registered resident agent to act on their behalf in Florida. According to Captive Insurance Companies Association figures, a capital requirement of $100,000 is needed for pure captives in the state, and $200,000 for industrial insured captives.
Captive reinsurance companies are required to have a minimum of the greater of $300 million or 10 percent of reserves in capital and surplus. As for local office requirements, pure captives are required to have minimum surplus of $150,000 while industrial insurers that are incorporated as stock companies are required to have $300,000 in minimum surplus. Industrial insured captives that are incorporated as mutual insurers are required to have at least $500,000 in surplus.
The state faces stiff competition for captive insurance business from dozens of US states, including Vermont, Delaware, South Carolina, Hawaii, Missouri and Montana.
Approximately 30 jurisdictions have enacted captive insurance laws over the past decade, with one of the distinguishing features of the various laws being the premium tax rate that is charged.
Vermont was one of the first states to enact a captive law, and charges a sliding scale tax based on the amount of premiums that the captive collects. Tennessee uses a flat rate of 1 percent of gross premiums that are collected. The Florida law provides for a premium tax rate of 1.75 percent on gross premium receipts.