Vermont Gov. Phil Scott has signed new legislation into law that strengthens the state’s captive insurance regulation.
The legislation combines changes to Vermont’s insurance and captive insurance statutes in a single bill. The bill made several updates to Vermont’s captive law, including clarifying the ability of a cell to convert to another type of entity, and simplifying processes around redomestication, mergers, and the filing of organizational documents prior to licensure.
This year marks the 40th anniversary of Vermont’s Special Insurer Act of 1981, which created the captive industry in the state.
“Through the years, Vermont has remained proactive in modernizing our laws to help the industry grow in the state,” Scott said. “Vermont is a global leader in captive insurance and continues to collaborate with the sector to ensure we remain a top destination for companies looking to create captives.”
Among the updates included in the new law is an addition of language that allows for the conversion of a cell into another entity in accordance with the state’s corporation laws.
“Protected cells are a popular alternative risk transfer mechanism worldwide and are a growth area for the captive industry,” said David Provost, deputy commissioner of captive insurance. “The department has always liked the idea of cells as an incubator space for captive growth and wants to be sure it is easy for cells to convert to a standalone captive insurance company.”
Mergers and redomestications have historically been referenced in Vermont’s traditional insurance statute. Since mergers and redomestications occur more frequently in captives, it made more sense to have captive-specific sections within the new captive statute, according to a Vermont government news release.
“Vermont has seen a variety of redomestications, where a captive moves their captive from another state to Vermont, and Vermont has benefitted from this movement,” said Richard Smith, president of the Vermont Captive Insurance Association. “We want to make this process and others as clear and simple as possible for companies.”
The remaining changes corrected minor oversights in the 1981 bill to ensure the law more accurately reflects current regulatory procedures.
“Every year Vermont looks not just at larger recommendations for improvement, but carefully considers all recommendations for improvement,” said Brittany Nevins, director of Captive Insurance Economic Development. “This is part of what makes Vermont a consistent, trusted and effective domicile.”
Changes in the law include the following:
- Captive formation process: Amends the statute to no longer require certified copies of organizational documents and contribution of capital prior to licensure. Instead, capital may be contributed after licensure, with the company required to file a statement to that effect with the Department of Financial Regulation.
- Reports and statements: Agency captives have been added to the list of companies required to file an annual report.
- Protected cell conversions: Provides the ability for protected cells to convert to a standalone captive insurance company or a different type of cell.
- Mergers and consolidations of captives: Simplifies the merger process, provided there is unanimous consent among the parties.
- Redomestications: Creates a new section in the captive statute instead of referencing the traditional insurance statute.
- Service of process: Changes the designated agent for service of process for foreign risk retention groups and purchasing groups doing business in Vermont from the secretary of state to the financial regulation commissioner.