Arkansas has amended its statutory regulation of captive
insurance companies in two significant ways. First, following the
lead of several other states and foreign jurisdictions, the
amendment provides for the creation of "incorporated protected
cells," which it defines as "a protected cell that is
established as a corporation or other legal entity separate from
the sponsored captive insurance company or producer reinsurance
captive insurance company of which it is a part." Second, it
provides for the designation of a captive insurance company as a
"dormant captive insurance company."
Under the new regulation, the creation of an incorporated
protected cell requires the prior written approval of the Arkansas
insurance commissioner, and a protected cell may be converted into
an incorporated protected cell "without affecting the
protected cell's assets, rights, benefits, obligations, and
liabilities." Once created, an incorporated protected cell may
enter into its own contracts, and counterparties have no recourse
against the sponsored captive insurance company and its assets
"other than against assets properly attributable to the
incorporated protected cell that is a party to the contract or
The law defines "dormant captive insurance company" as
"a pure captive insurance company, sponsored captive insurance
company, or industrial insured captive insurance company that has:
(1) Ceased transacting the business of insurance, (2) No remaining
liabilities associated with insurance business transactions, or
insurance policies issued before the filing of its
application." Such a company must apply for a certificate of
dormancy, which is subject to renewal every five years. Once
granted this certificate, a dormant captive insurance company must
maintain unimpaired, paid-in capital and surplus of $25,000 and pay
a periodic license renewal fee, but it is not subject to
Arkansas' minimum premium tax. Before it may resume issuing
insurance policies, it must get approval from the commissioner of
This amendment made two other changes. First, it removed
restrictions on the corporate forms that captive insurance
companies may take, which were previously limited to domestic stock
insurers, stock insurers with their capital divided into shares and
held by shareholders, mutual insurers without capital stock, and
reciprocal stock insurers, depending on the type of captive. Under
the new law, any "captive insurance company may be formed and
operated in any form of business organization authorized under
Arkansas law and approved by the Insurance Commissioner."
Second, it gave the commissioner discretion to determine whether
business written by a sponsored captive insurance company must be
fronted by an insurance company, something that was previously
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