North Carolina – The Captive Domicile of Choice

Determining where to establish a captive insurance company is one of the major decisions a captive owner will make in planning for the formation and operation of a captive insurer.  In many situations, a captive owner selects a domicile that is different from the one in which the captive owner and its insureds are located.  There are over 70 domiciles worldwide and approximately 40 are located in the United States.  Of those, North Carolina is an award-winning, leading domicile choice by captive owners and their service providers.  

So how do captive owners decide which domicile is the one that is right for their needs, and why is North Carolina a domicile leader?

There are four major factors that should be considered when determining where to form and operate a captive insurer:  

1. The domicile’s captive insurance legislative framework
2. The domicile’s regulatory environment
3. Regulatory costs of the domicile
4. Availability of captive service providers

Legislative Framework

First of all, a domicile’s captive insurance laws and regulations are important because those provisions determine the types and structures of captive insurers that may be licensed in the domicile.  A domicile’s captive insurance laws determine the risks that may be insured, capital requirements, required regulatory filings, and the type of transactions that require prior approval versus notification to the regulator. As previously mentioned, there are over 70 domiciles, so a captive owner has choices when determining which laws are the best fit for their captive insurance program; it is important for a captive owner to select a domicile that provides the statutory basis that will address the risk management needs of the owner and insureds.

In 2013, North Carolina enacted the North Carolina Captive Insurance Act, which enabled the formation and operation of captive insurers in the state.  Since that time, the state’s leadership has continued to update the captive laws, as appropriate, to remain relevant and competitive.  North Carolina’s laws provide for most any captive type and structure to be licensed, if the Commissioner deems it appropriate.  The Commissioner is granted discretion through these laws to regulate each captive insurer according to its unique risk profile.  With new risks emerging and new creative ways that captive insurers may be utilized to address those risks, North Carolina’s laws provide flexibility to the Commissioner to license captive insurers that will meet those needs.

Regulatory Environment

It is also important that the captive owner consider the regulatory approach and reputation of the domicile by asking the following questions:  Does the domicile welcome the captive industry and work with the industry to assist with its needs?  What is the regulatory approach of the domicile?  Are the regulators professional, knowledgeable, and experienced in captive regulation?  Is there sufficient regulatory staff and is the staff accessible and responsive?

The North Carolina Department of Insurance, under the leadership of Commissioner Mike Causey, has a mission of customer service and is proactive in addressing the needs of the captive industry.  The Department’s captive regulatory team strives to provide outstanding customer service by being accessible, responsive, and available.  Filings submitted to the team for approval are handled timely.  If there are issues or concerns noted during the team’s review of these filings, the team works with the captive insurer’s management to discuss the issues and attempt to find a fair resolution.  Although the primary responsibility of the Department is to regulate the licensed captive insurance companies, the team also strives to partner with the captive industry, as appropriate, so that the needs of the captives’ insureds may be met. The team knows how to appropriately regulate captive insurance companies and is comprised of knowledgeable and experienced insurance professionals, accountants, and actuaries.  

Regulatory Costs:

Navigating regulatory costs can be tricky. Each domicile has its own way of imposing regulatory fees, taxes, and other expenses to offset the cost of regulation. For example, some domiciles charge annual premium taxes while some charge a flat regulatory fee. There may also be fees charged for each filing that is submitted to the regulator.  Some domiciles hire consultants, such as actuaries and accountants, to assist them in meeting their regulatory responsibilities and then pass those expenses onto the captive insurers, and those costs must also be considered. Finally, there is the cost for the captive’s board to travel to the domicile for an in-state board meeting, which is typically an annual requirement.

North Carolina’s captive laws provide for a low regulatory cost of formation and operation.  The Department does not charge any fees whatsoever (with the exception of an application fee for special purpose financial captive insurers).  The primary regulatory costs for captives licensed in the state are premium taxes, which are competitive with those of other domiciles, and nominal fees paid to the North Carolina Secretary of State’s office for corporate document filings.  Additionally, the captive regulatory team is comprised of in-house professionals, which handle all captive regulatory responsibilities of the Department.  Therefore, no work is outsourced to consultants and no regulatory expenses are passed onto the captive insurers. The North Carolina laws allow for certain filing waivers and an examination approach that is different from most domiciles, providing for additional cost savings to the captive insurers. Lastly, the annual in-state board meeting requirement may be waived, if at least two North Carolina service providers are used.

Service Providers

A captive insurer typically relies on outside service providers such as captive managers, accountants, auditors, actuaries, attorneys, investment managers, and other professionals to help manage the operations of a captive insurer.  Therefore, it is necessary for the success of a captive insurer that the domicile’s captive industry is comprised of qualified service providers from all fields and that captive insurers have access to those providers.

A diverse group of qualified captive insurance professionals conduct business in North Carolina, and these professionals are comprised of captive manager, actuaries, auditors, claim managers, underwriters, attorneys, and others that service captive insurers.  The state has an active captive industry association, the North Carolina Captive Insurance Association, that works closely with the Department to consider legislative proposals and to make sure the needs of the industry are met.

North Carolina has established a great home for captive insurers and the state welcomes potential owners and their service providers to consider the benefits of the North Carolina captive insurance program.  The captive regulatory team of the North Carolina Department of Insurance is available to answer any questions and to provide regulatory guidance about the captive license and regulatory processes.  Information is also available on the Department’s captive website at www.nccaptives.com.