Iowa just rolled out the welcome mat for captive insurers – and threw in a tax break to close the deal.
Governor Kim Reynolds signed House File 2766 into law on May 15, sealing a sweeping rewrite of Iowa's captive insurance laws that builds a new regulatory framework for life captive reinsurance companies and offers an unusual carrot: a premium tax break for captives that move their home base to Iowa.
The bill cleared both chambers with near-unanimous support. The Iowa House passed it 91-1 on April 20, and the Senate followed the next day with a 44-0 vote.
Under a new section, 521J.27, a foreign or alien captive that redomesticates to Iowa pays premium tax only on premiums received after the move. The captive can also skip premium tax in either the year it redomesticates or the year after. The catch: if it surrenders its Iowa license or moves out within five years, it owes the foregone tax back, plus 10% per year from the date that tax would originally have been due. The waiver does not apply to tax years beginning on or after January 1, 2030.
The new law also creates a new Subchapter II of Chapter 521J for life captive reinsurance companies – captives set up by life insurers or their affiliates to reinsure life insurance risk ceded by an affiliated company.
To get a certificate of authority, a life captive reinsurer must hold at least $5 million in unimpaired paid-in capital and surplus, keep its principal place of business in Iowa, have at least one Iowa-resident director, and hold at least one annual board meeting in the state. The insurance commissioner can require more capital based on the type, volume, and nature of the reinsurance business written. Applications cost $2,500 up front, with the same fee due each year on renewal.
Risk-based capital requirements are steep. Section 521J.106 sets minimum RBC at 2.5 times the number produced by the standard life RBC formula.
Investment rules are tight too. Life captive reinsurers must hold cash and securities that are investment-grade at acquisition. Up to 10% can sit in non-investment-grade assets, but the law bars several categories outright: securities rated 5 or higher by the NAIC Securities Valuation Office at acquisition, asset-backed or mortgage-backed securities rated 3 or higher, convertible bonds, preferred or common stock, and private equity or hedge funds.
The law also clamps down on disclosure. Premium tax returns filed under sections 432.1 and 432.1A are now off-limits to public records requests. Any current or former state officer or employee who willfully or recklessly publishes one commits a serious misdemeanor and must be dismissed from state employment. Documents filed under the new life captive reinsurance subchapter are also confidential, with narrow exceptions for civil discovery under specified conditions and information-sharing with other regulators who agree in writing to keep the material confidential.
There's good news for existing captives as well. The law lowers the minimum capital and surplus for a protected cell captive from $500,000 to $100,000 – and as low as $250,000 for protected cell captives that take no risk, write homogenous risks across cells, and run no more than 10 cells.
Other tweaks: captive organizational documents now need commissioner approval before filing with the Secretary of State, and the commissioner's rulemaking authority for the captive subchapter is now discretionary rather than mandatory.
For carriers and reinsurance professionals, the redomestication tax break is the headline. Paired with the new life captive reinsurance framework, Iowa has built a clear pitch for captives looking to switch domiciles.
