Nathan Adams IV is a Partner in our
Tallahassee office. Beth A. Vecchioli is a
Tallahassee in our Sr Policy Advisor office .
After several decades, Florida is back in the business of
licensing captive insurance companies. On Aug. 11, 2016, the
Florida Office of Insurance Regulation issued a license to a
nonprofit Florida corporation, pursuant to Chapter 628, Part V,
Florida Statutes, to write medical malpractice, other liability and
miscellaneous casualty. It was the first license issued to a
domestic captive insurer since 1988, pursuant to a Florida statute
last amended in 2013.
Captive insurance can be characterized as a form of
self-insurance. It enables companies with excellent claims
histories due to strong compliance programs to retain the benefits
of their good risk management practices, rather than pay out the
benefits to independent insurance companies. Captives enable
companies to turn their risks into rewards and to obtain coverage
for risks that would otherwise be commercially unattainable. Pure
captives are wholly owned by the insured and act just like any
commercial insurers, issuing policies, collecting premiums and
paying claims, but not offering insurance to anybody but the owner,
so the only claims history that matters is the owner's, as
opposed to the industry's claims history as a whole, albeit
sometimes the owner is a group of entities. The owner or group of
owners benefits when its claims history beats the industry's
Most captives have been licensed in recent years in the states
of Vermont, Utah, South Carolina, Delaware or Tennessee, or
overseas in Bermuda, the Cayman Islands, Barbados and Guernsey.
Overseas captives are appropriate in the context of particular risk
management needs, but many companies are organized domestically to
accommodate particular regulatory and risk considerations.
Regulatory authorities in the most common captive domiciles are
considered experts and constructive participants in the regulatory
process. Now, Florida also is open for business, equally
constructive and interested in building a captive industry in the
Sunshine State to benefit local companies and stimulate business
tourism as a result of the minimum mandatory annual meeting
Captives are especially attractive in Florida due to the
relatively high property insurance rates. Under the Florida
Insurance Code, the only lines captives may not ordinarily insure
include workers' compensation and employer's liability,
life, health, personal motor vehicle and personal residential
property insurance. Nonprofit captives may qualify as tax-exempt.
Captives that do not qualify as tax-exempt may receive
tax-advantaged treatment under 28 USC §831(b). So-called
"831(b) captives" are taxed on their investment income
only, as long as the company receives no more than $1.2 million in
premium each year ($2.2 million, indexed for inflation, starting in
2017), without impacting the deductibility of the premiums paid by
the owner to the captive. Of course, these so-called "831(b)
captives" must also meet other legal requirements, including,
but not limited to, "risk shifting" and "risk
Captives are appropriate for mid- to large-sized entities or
associations of similar entities. They can be organized as
nonprofit or for-profit entities. Under Florida law, a pure captive
that is organized as a nonprofit entity must demonstrate net assets
of at least $250,000 and initial unimpaired paid-in capital of at
least $100,000 for a pure captive insurance company and $200,000 in
the case of an industrial insured captive insurance company. For
pure captives organized as for-profit entities, the minimum funding
requirements consist of unimpaired paid-in capital of at least
$100,000 and unimpaired surplus of at least $150,000. The
application process requires a company to demonstrate its claims
history and prove that it will manage the captive professionally.
Ordinarily, qualified vendors can provide these services to the
captive with substantial net benefit to the insured.
Captive insurance may sound complex, but experienced attorneys,
actuaries, managers, claims handlers and audit/tax consultants can
help take away the guesswork by estimating and managing the
insurance risks. Required reinsurance provides a backstop against
unlikely 10-year or more catastrophic events. Reinsurance
intermediaries can readily interest the reinsurance market in
solidly designed captives. Nearly every industry can benefit from
captives, but a few that may especially benefit include healthcare,
hospitality, property development, energy and education.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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