Branch Captive and Agency Captive Insurance Companies Now Expressly Permitted in Delaware

May 5, 2010

Publication| Insurance

On Monday, May 3, 2010, Governor Markell of Delaware signed into law House Bill 314 amending the Delaware Revised Captive Insurance Company Act (the “Act”).  The amendment adds “agency captive insurance companies” and “branch captive insurance companies” as additional forms of captive insurance companies explicitly permitted under the Act.  The Delaware Department of Insurance with the assistance of the Delaware Captive Insurance Association, including Richard J. Facciolo, a director in the Business Department of Richards, Layton & Finger, drafted the amendment.

Branch captive insurance companies are typically on-shore branches of off-shore captives.  Branch captives are often used to underwrite employee benefits under ERISA, which must be provided by a U.S. insurer.  The amendment, however, permits branch captive insurance companies to write any line of business for which captive insurance companies are authorized to write under the Act.  Branch captive insurance companies must maintain minimum capital and surplus of $250,000, or such other amount determined by the Insurance Commissioner.  If the Insurance Commissioner is satisfied that the branch captive insurance company has provided adequate information concerning its financial condition in the reports and statements it is required to file with the jurisdiction in which the alien insurance company that formed the branch captive insurance company was formed, the Insurance Commissioner may waive the annual report otherwise required pursuant to Section 6907 of the Act.  Premium taxes apply only to the branch business of the branch captive insurance company conducted in Delaware.  A branch captive insurance company must maintain a principal place of business in Delaware.

Agency captive insurance companies are typically owned or controlled by an insurance agency or broker and insure the risks associated with insurance contracts placed by such agency or broker.  The agency or broker shares in the profits and losses associated with such contracts and, as such, has better control of the risks as well as financial incentives for profitable underwriting.  Agency captive insurance companies must maintain minimum capital and surplus of $250,000.  An agency captive insurance company can be incorporated as a stock corporation or as a nonstock corporation; may be formed as a limited liability company, partnership, limited partnership or statutory trust; or may be such other person, other than a natural person in that natural person’s individual capacity, approved by the Insurance Commissioner.

As with many other forms of captive insurance companies licensed under the Act, neither an agency captive insurance company nor a branch captive insurance company is subject to any restrictions on allowable investments whatsoever, including those limitations contained in the Insurance Code; provided, however, that the Insurance Commissioner may prohibit or limit any investment that threatens the solvency or liquidity of any such captive insurance company.


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