Delaware Corporate Trust & Securitization Law Update August 16, 2007 Delaware Amends Law to Expressly Provide for Special Purpose Financial Captive Insurance Companies On July 18, 2007, Delaware Governor Ruth Ann Minner signed into law legislation that provides a comprehensive scheme for the formation of special purpose financial captive insurance companies ("SPFCs"). Recently, SPFCs have become popular vehicles for the securitization of insurance risk (i.e., funding by the capital markets of carefully defined segments of such risk). Delaware continues to be on the cutting edge in offering the business community flexible legal entities through which to conduct business. Already the forum of choice when it comes to organizing corporations, limited liability companies, limited partnerships and statutory trusts, Delaware intends to achieve a comparable position for Delaware SPFCs by providing the most advanced captive insurance legislation that can be used together with Delaware legal entities, which have long been the favored choice for capital markets transactions. Read More. . . Form of Entity Delaware's captive insurance law provides an explicit authorization allowing the use of certain business organization forms in the formation of an SPFC or Read More. . . Licensing When applying for a certificate of authority, the SPFC must file a plan of operation with the Delaware Insurance Commissioner (the “Commissioner”), which is required to include the following: Read More. . . Capital Requirements A certificate of authority shall not be issued unless an SPFC has and maintains capital and surplus of not less than $250,000. A sponsored captive insurance company, used to establish protected Read More. . . Securities An SPFC may issue securities, including any form of debt obligation, equity, surplus certificate, surplus note, funding agreement, derivative, or other financial instrument that the Commissioner designates, by rule Read More. . . Dividends and Repayment of Securities Dividends or distributions may be declared and paid if they do not jeopardize the fulfillment of the SPFC's obligations or threaten the solvency or liquidity of the SPFC. An SPFC may submit periodic written Read More. . . Insurance and Reinsurance An SPFC shall insure only the risks of a counterparty, which may be but need not be the parent or an affiliate of the SPFC. An SPFC may cede risks assumed through an SPFC contract to third party reinsurers Read More. . . Investments An SPFC will not be subject to any restriction on investments other than the Commissioner’s power to prohibit or limit any investment that threatens the solvency or liquidity of the SPFC. The new legislation Read More. . . Insolvency The Delaware SPFC Statute specifies a definition of insolvency with respect to SPFCs. Insolvency under the Delaware SPFC Statute occurs when: Read More. . . Sponsored Captive Insurance Companies and Protected Cells The Delaware SPFC Statute modifies some parts of Delaware's existing statutes regulating sponsored captive insurance companies and the protected cells established by a sponsored captive Read More. . . Taxes As a tax matter, an SPFC pays premium tax at the same rate as non-SPFC captive insurance companies up to an annual maximum aggregate tax of $200,000.00. Read More. . .
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