Benefits of Being a Captive in Utah
List of Questions
- What types of Captives are available in Utah?
- What are the capitalization and annual filing requirements in Utah?
- Are there any investment restrictions in Utah?
- What fees are applicable for Captives in Utah?
- What taxes are applicable to Captives in Utah?
- Are Captives covered under Guaranty Funds?
- What types of insurance can be written in a Captive?
- What must a Captive do to conduct business in Utah as a Utah domiciled Captive?
Generally there are two types of captives in Utah:
- Pure Captives
- Group Captives
- Single Parent (or Pure) Captive:
- A Pure Captive is owned and controlled by one company and insures that company and/or its affiliates.
- Branch Captive:
- A branch captive is an on-shore (US) arm of an off-shore captive. Branch captives are typically used to cover employee benefits under ERISA, which can only be offered by a US insurer and can only write the business that a pure captive may write.
- Special Purpose Captive:
- A special purpose captive is owned or controlled by a parent company and may only insure the risk of its parent.
A Group Captive is a captive insurance company owned and controlled by two or more non-affiliated organizations insured by the captive.
There are several types of group captives available under Utah statutes. Each of these captives is briefly described below:
- Association Captive:
- An association captive is owned by members of a common industry or trade association. This type of captive is designed to insure the risks of that industry among its members. Participation is limited to members of the association.
- Sponsored Captive:
- Sponsored captives are a type of rent-a-captive and are also called Segregated Cell and Protected Cell Captives. These entities allow for assets and liabilities of one captive program to be legally segregated from the assets and liabilities of other captive programs. Sponsored Captives allow for entities to insure their own risks without establishing their own captive structure.
- Industrial Insured Captive:
- An Industrial Insured Captive is one formed to insure the risks produced by a group of industrial entities.
An Industrial Insured is an insured that procures the insurance of any risk or risks by use of the services of a full-time employee acting as an insurance manager or buyer, and whose aggregate annual premiums for insurance on all risks is at least $25,000 and who has at least 25 full-time employees. Industrial entities may form a group and insure the risks produced by that group through an Industrial Insured Captive.
- Risk Retention Group (RRG):
- A Risk Retention Group is one form or type of captive that is restricted to writing only liability coverage. An RRG may have either state or federal charters. A federal charter allows the RRG to write liability coverage directly in any state where it is registered without having to become a licensed carrier in each state, or use a fronting company. This can significantly reduce the cost and effort of crossing state boundaries. However, they are restricted to writing liability coverage.
How Much Might It Cost to Create a Captive Insurer in Utah?
An organization considering the captive alternative will need to incorporate the following initial setup costs, and also the ongoing costs to manage a captive before making a final decision:
|Startup Activity:||Estimated Cost:|
|Prepare business plan and complete application||Varies, but should not be significant once feasibility study completed.|
|Filing of application||$200 per application|
|Review of application||$3,600 est. (only if Contractor reviewed)|
|Initial license fee||$5,000 without proration ($1,000 for a Cell without proration)|
|Initial e-Commerce fee||$250 without proration|
|Incorporation||Nominal fee with annual renewal of same. Paid to Dept. of Commerce|
|Sponsored||$1,000,000 (minimum of $350,000 provided by the Sponsor)|
|Annual renewal fee||$5,000 due June 1st ($1,000 for a Cell)|
|Annual e-Commerce fee||$250 due June 1st|
|State Taxes||None (captive is subject to real & personal property taxes)|
|Independent Actuary - Reserve Opinion||$5,000 - $8,000+|
|Independent CPA - Annual Audit||$8,000 - $12,000+|
|Management Firm||$24,000 - $36,000+|
In general, it is estimated that initial startup costs for a captive would be $30,000 to $60,000 plus initial capital. Ongoing maintenance costs would be estimated at $60,000 to $80,000 annually. Of course these are just estimates and will vary depending on the size and complexity of each captive arrangement. Service provider costs will vary depending on the complexity and requirements of the engagement.
Total Capital Requirement
|Association Captive (Mutual)||$750,000|
|Industrial Insured Captive||$700,000|
|Industrial Insured Captive (Mutual)||$700,000|
All companies shall have an annual audit by an independent CPA authorized by the commissioner, and shall file the audited financial report with the commissioner on or before June 30 for the year ending December 31 immediately preceding. The annual audit shall be on the same basis as the annual report. The audit report should consist of (R590-238-6):
- Opinion of Independent Certified Public Accountant (CPA).
- Audited Financial Statements (including balance sheet, statement of gain or loss from operations, statement of changes in financial position, statement of cash flows, and statement of changes in capital paid up, gross paid in and contributed surplus and unassigned funds (surplus), income statement, statement of stockholder's equity, cash flow statement, and notes to the financials).
- Independent Auditor's Report on Internal Controls.
- Accountant's Letter of Qualifications.
- Certification of Loss Reserves and Loss Expense Reserves (individual certifying must be approved by commissioner).
Each Utah captive will be required to file a Report of the Financial Condition of the Captive Insurance Company (Annual Report) with the commissioner before March 1 of each year, verified under oath of two of the executive officers. The form of the report is as follows (§31A-37-501; R590-238-4):
- A pure captive, sponsored captive, industrial insured captive or producer reinsurance captive shall submit the annual report using the "Captive Insurance Company Annual Statement Form" provided by the commissioner.
- An association captive or industrial insured captive shall annually submit to the commissioner a report using the applicable NAIC Annual Statement Blank.
Additionally, due before March 1 of each year with the Annual Report is a Statement of Economic Benefit to the State of Utah [R590-238-221(4)] and a Statement of Actuarial Opinion [R590-238-4(4)] (individual opining must be approved by commissioner).
Each Utah captive will be due for examination at least once every five (5) years by the Utah Insurance Department. The cost of that examination will be borne by the captive being examined.
Association Captives, Sponsored Captives, and Industrial Insured Groups must comply with the same investment restrictions that a traditional insurance company must observe. Specific investment restrictions are contained in Utah Code Annotated (U.C.A.) § 31A-18-105 and U.C.A. § 31A-18-106.
A Pure Captive has no restrictions on allowable investments (as noted above in U.C.A § 31A-18-105 & 106), except that the Department will not allow investments that threaten the solvency of the captive. Each captive insurer must file a description of their investment strategy as part of the initial application. The captive must notify the Department of any future changes to that investment strategy.
A Pure Captive is the only type of captive that may make loans to the parent company or an affiliate of the captive. However, such loans by a Pure Captive may not be made from the minimum capitalization that is required by U.C.A. § 31A-37-204(1) and U.C.A. § 31A-37-205(1). While the Department may allow pure captives to make loans back to the parent, there could be significant tax implications. Therefore, a captive insurer should consult with appropriate tax advisors prior to making request of the Department to make loans back to the parent.
Initial license application: $200
Initial license application review: Actual costs incurred by outside reviewer
Initial license issuance: $5,000 ($1,000 for a Cell)
Initial e-Commerce fee: $250
Annual renewal fee: $5,000 ($1,000 for a Cell)
Annual e-Commerce fee: $250
Except for personal and real property tax on property owned by the captive in Utah, an annual assessment and e-Commerce fee of $5,000 ($1,000 for a Cell) and $250 respectfully, is the sole tax or fee assessed on a captive insurer in Utah.
No, a captive insurance company is prohibited from contributing financially to a plan, pool, association, guaranty fund or insolvency fund not covered by the guaranty associations in Utah or elsewhere.
When permitted by its articles of incorporation or charter, a captive insurance company may apply to the commissioner for a certificate of authority to do ALL lines of insurance allowed by the insurance code, EXCEPT workers compensation insurance, personal motor vehicle or homeowners insurance, or any component of these coverages. See U.C.A § 31A-37-202(1)(a) and (b)(iv).
A pure captive may only insure the risks of its parent, affiliates, or controlled unaffiliated business. See U.C.A § 31A-37-202(1)(b)(i).
An association captive may only insure the risks of association member organizations and affiliates of the association member organizations. See U.C.A § 31A-37-202(1)(b)(ii).
An industrial insured may only insure risks of the industrial insureds that comprise the industrial insured group and affiliates of the industrial insureds that comprise the industrial insured group. See U.C.A § 31A-37-202(1)(b)(iii).
- Obtain from the commissioner a valid Certificate of Authority specifying the types of insurance authorized (i.e. complete the application licensing process).
- Hold at least once each year in Utah a board of directors (managing members) meeting, or in the case of a reciprocal insurer, a subscriber's advisory committee meeting.
- Maintain the principal place of business of the captive in the State of Utah.
- Appoint to the captive company's board of directors (managing members) a resident of the State of Utah.
- Appoint a resident registered agent to accept service of process and act on behalf of the captive in Utah.
- Renew the Certificate of Authority annually by July 1 of each year.
- Comply with all other applicable statutes and rules.