Captives & Risk Retention Groups (RRG's)
List of Questions
- What is a Captive Insurance Company?
- Are There Different Types of Captives?
- How do I convert a foreign domiciled captive insurance company to a Utah domiciled captive?
- What Types of Captives are available in Utah?
A captive insurance company ("Captive") is an insurance company organized to cover the insurable risks of the parent organization and/or its affiliates. Insured entities have the opportunity to control the operations and tailor the company to their own needs. Currently, 40% of major U.S. corporations and many multinational companies own their own captive insurance company.
A captive insurance company can be organized under the laws of any jurisdiction with a captive statute, Utah is one such jurisdiction. The jurisdiction under which the captive insurance company is organized is called the "domicile" and is regulated by the laws of that domicile. Generally, a captive domiciled in one state would not be an admitted insurer in any other state.
Depending on the needs of the entities that need coverage, captives can be organized in several different ways. The manner in which a captive is regulated depends on how it is structured.
There are several types of captives: pure captives, group captives and reinsurance captives. The differences between types of captives are tied to factors such as the number of owners, the legal structure (stock, mutual or reciprocal insurers), the source of capital (rent-a-captives and sponsored captives allow covered entities with limited capital to participate using a third-party's capital), and the scope of risks underwritten (some captives allow for employee benefits and third-party risks to be covered).
Converting a Foreign Captive Insurance Company to a Utah Domiciled Captive Insurance Company.
A foreign captive insurance company may be converted to a domestic captive insurance company. To qualify for domestication a foreign captive must be incorporated as a mutual, stock or LLC insurance corporation in another jurisdiction.
A change of domicile is achieved by preparing and adopting articles of domestication in compliance with the requirements of Utah Code Annotated (U.C.A.) § 16-6a-1518 (foreign non-profit corporation) or U.C.A. § 16-10a-1533 (foreign non-profit corporation) and U.C.A. § 16-6a-1003 depending on the form of organization in which the foreign captive conducts its business. The articles will be filed with the Utah Department of Commerce, Division of Corporations and Commercial Code after the Utah insurance commissioner approves them.
In addition to the articles of domestication the foreign captive must file an accurate and complete application for a certificate of authority to conduct business as a captive insurer in Utah. An application may be obtained by meeting with the Utah Captive Insurance Director and the department's Chief Financial Examiner at the Utah Insurance Department (3110 State Office Building, Salt Lake City, Utah 84114-6901).
Once the application is approved the applicant may file the approved articles of domestication with the Division of Corporations and Commercial Code (160 East 300 South, Salt Lake City, Utah 84111-0000) and pay any fee the division may require.
Upon filing of the articles of domestication with the division, the foreign corporation is domesticated in Utah and the Utah Insurance Commissioner will issue a Certificate of Authority authorizing the company to conduct business as a Utah captive insurer.
The applicant must pay an application fee of $200 at the time an application is filed with the department, a Certificate of Authority (License) fee of $5,000 and e-Commerce fee of $250 at the time an application is approved. The certificate is renewable each year thereafter, unless revoked, by paying a renewal fee of $5,000 and an e-Commerce fee of $250.
Generally there are two types of captives in Utah:
- Pure Captives
- Group Captives
The types of Pure Captives are:
- Single Parent (or Pure) Captive:
- A Pure Captive is owned and controlled by one company and insures that company and/or its affiliates.
- Branch Captives:
- 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 Captives:
- 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 an 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 Captives:
- 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 Captives:
- 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 Captives:
- 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)
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 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.