Vermont Governor Phil Scott signed into law new legislation modernizing Vermont’s captive insurance statutes and removing inconsistencies.
This year’s bill, H.515, proposed several updates to Vermont’s captive insurance law, including allowing captive insurance companies to enter into parametric risk transfer contracts, simplifying reporting requirements, improved solvency procedures for sponsored cellular captives and clarified an inconsistency related to the treatment of affiliated companies in sponsored cellular companies.
“Vermont is always looking to improve its laws to better meet the needs of captive insurance companies, while improving the quality of our regulations,” Scott said. “This year is a great example of that.”
The Captives Bill this year included the passage of specific legislation that would allow captive insurance companies to enter into parametric risk transfer contracts. Parametric risk transfer contracts are becoming commonplace as another form of protection against catastrophic events. A parametric contract pays out a certain sum upon the occurrence of certain quantifiable events (for example, a hurricane of a specific category hitting a specific area), whether or not the contract holder suffers a loss. In contrast, an insurance contract pays an amount upon the occurrence of the same or similar events, but the policyholder must sustain and prove a loss, and the amount is subject to adjustment.
“While purely parametric contracts are not considered insurance largely because of this distinction, the contract is a useful risk management tool,” said Deputy Commissioner David Provost of the Department of Financial Regulation, “and there are safe harbor features that can be built into the contract to qualify it as insurance. Organizations often use captives as a central repository for all types of risk management tools, not just insurance, so it will be useful for companies to have explicit authority for their captive to enter into parametric contracts.
“Vermont continues to take ideas from the industry and really consider those ideas,” said Kevin Mead, president of the Vermont Captive Insurance Association. “I’m glad we were able to work together to make it easier for captives to use another risk management tool.”
Additional changes include simplification of reporting requirements, improved delay procedures and language consistency for the treatment of affiliated businesses in cells and consolidations.
“These small changes, when added up year after year, make a huge difference to captive insurance companies,” said Brittany Nevins, business development manager for captive insurance. “Vermont continues to be proactive and ask itself, ‘what can we do to be better?’ It’s at the heart of our industrial culture in our state.
Among the changes to the law are:
- Simplified reports; this removes the requirement for tax year filers to complete a special calendar year report and now requires a simpler report for premium tax reconciliation on an accrual basis. About 15% of Vermont captives file on a fiscal year basis.
- Delinquency procedures; improves delinquency procedures when a sponsored cell company or individual cell becomes insolvent. The change allows the DFR to deal effectively with the affected cell without affecting solvent cells or limiting current authority.
- Treatment of affiliated companies in bells; this removes inconsistencies in current law, making it clear that cells may insure the risks of one or more participants or, subject to the approval of the commissioner, other parties unaffiliated with the participants.
- groupings; this removes “consolidations” from 6006a, which is supposed to deal with captive mergers only, not consolidations.