The Vermont Domicile

The Vermont Insurance DomicileWith close to 600 regulated domiciled captive insurance companies, Vermont is the largest captive insurance domicile in the United States. The state is also the third largest captive domicile in the world, having the most captives and underwritten premiums.

The State is home to many of the captive insurance companies owned by Fortune 500 corporations, as well as large risk retention groups. It has been a leader in the regulation of captive insurance companies since the passing of the 1981 “Special Insurer Act,” which made Vermont the first captive domicile. The Vermont domicile’s statutes and regulations have been used as a blueprint for many state domiciles formed thereafter.

Benefits of Vermont Captives

Advantages that are promoted by the Vermont Department of Insurance include:

  • Initial capitalization of $250,000 for pure captives,
  • No investment restrictions for pure captives,
  • No approval of rates and forms required,
  • Reasonable capitalization requirements that may be met with a Letter of Credit, and
  • A stable business-friendly climate.

Is a Vermont Captive Right for You?

While Vermont has often been referred to as the Gold Standard for captive domiciles, there are disadvantages associated with the state. Vermont uses its position as a major captive domicile to boost the local economy by requiring:

  • The captive manager to be based in Vermont,
  • A principal place of business to be in Vermont,
  • At least one incorporator must be a resident of Vermont, and
  • At least one meeting per year must be held in Vermont.

At a recent ceremony celebrating the 1,000th captive licensed, Vermont Governor Peter Shumlin said, “The captive industry has generated almost $350 million in direct taxes and fees to Vermont’s coffers since its inception in 1981. It is exactly the type of industry that is a priority of my administration.

It creates high paying jobs, has minimal impact on our environment, creates tourist traffic and generates much needed tourist traffic.”  While all captive domiciles are interested in the benefits that are enjoyed by the local economy, we at Capstone believe that these benefits should not drive the regulations to this extent.

Another area of concern is that the regulatory mindset of the state is focused on large multinational corporations and risk retention groups.  In a recent article in Captive Review, David Provost, Deputy Commissioner of captive insurance said, “Vermont does not really specialize in one type of captive; however, smaller captives and entrepreneurial captives tend to choose to go to other states because Vermont pays them more scrutiny than other states might.”

The Vermont captive insurance domicile is a better fit for larger companies than for midmarket organizations.

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