By Chris Kramer
The Sunshine State is back in the captive insurance business. This past August, the Florida Office of Insurance Regulation issued a license to a non-profit Florida corporation to write medical malpractice, other liability and miscellaneous casualty. This was the first license issued to a domestic captive insurer since 1988.
Florida’s re-entry into captive insurance joins the ranks of the other 37 states providing licenses, with most captives in recent years set up in Tennessee, Vermont, Utah, South Carolina and Delaware. For example, Tennessee as of mid-year has 133 captive insurance companies and 321 cell companies for a total of 454 risk-bearing entities (RBEs). In addition, changes in 2016 to the protected cell law make Tennessee the strongest domicile in the world for the operation of cell companies.
Under the Florida Insurance Code, the only lines captives may not ordinarily insure include workers’ compensation and employer’s liability, life, health, personal auto and personal residential property insurance. Moreover, under Florida law, a pure captive organized as a non-profit entity must demonstrate net assets of at least $250,000 and initial unimpaired paid-in capital of at least $100,000 for a pure captive insurance company and $200,000 for an industrial insured captive insurance company. The minimum funding requirements for pure captives organized as for-profit entities consist of unimpaired paid-in capital of at least $100,000 and unimpaired surplus of at least $150,000. The application process requires a company to demonstrate its claims history and prove that it will manage the captive professionally.
Non-profit captives in Florida may qualify as tax-exempt. Captives that do not qualify as tax-exempt may receive tax-advantaged treatment under section tax code 831(b). 831(b) captives are taxed on their investment income only, as long as the company receives no more than $1.2 million in premium each year ($2.2 million, indexed for inflation, beginning in 2017), without impacting the deductibility of the premiums paid by the owner to the captive. 831(b) captives must also meet other legal requirements, including, but not limited to “risk distribution”.
Caitlin Morgan specializes in captive insurance solutions and can assist a business in determining if it’s a right candidate for a captive as well as which approach is best aligned with the company’s business strategies and goals. To find out more about our captive solutions and the services we provide, contact us at (855) 975-4949.