Georgia Hopes to Establish State as Captive-Friendly with Newly-Revised Law Lowering Taxes, Capital Requirements

Companies looking to form captives in Georgia can now do so with more favorable conditions since the passage of several business-friendly amendments to the Georgia captive insurance law, which became effective July 1.

The effort to make the changes to the law was spearheaded by the Georgia Captive Insurance Association (GCIA), formed in October 2014 with the purpose of updating the law and revitalizing Georgia as a captive domicile.

“We want captives to come to Georgia,” said Alana Mueller, senior manager at Atlanta-based accounting firm Bennett Thrasher and president of GCIA. “We have many companies in Georgia that have insurance captives in other states and we wanted to provide them with an opportunity to form a captive in their home state.”

The main changes to the law include:

• A reduction in the premium tax on all captive insurance companies to 0.4 percent of the first $20 million and 0.3 percent on each dollar thereafter of direct premiums collected. Reinsurance premiums are taxed an even lower rate.
• A reduction in the minimum capital and surplus to $250,000 for pure captive insurance companies and $500,000 for risk retention groups, association and industrial insured captive insurance companies.
• Clarification that two or more captive insurance companies under common ownership and control shall be taxed as though they were a single captive insurance company and establishes a maximum premium tax of $100,000 per group of affiliated captives.
• Provides for enhanced confidentiality of captive filings.
• Allows captives to participate in pooling and permits insuring of controlled unaffiliated business.

According to those in the association, Georgia’s captive law prior to July 1 actually deterred companies from forming captives in the state – in fact, no active captives were domiciled in Georgia when the amendments were introduced this year. The main culprits behind the lack of captives were the premium tax (previously 4 percent) and minimum capital and surplus requirements (previously $500,000) stipulated in the original 1988 law.

J. Scot Kirkpatrick, shareholder and leader of the Trusts and Estates Practice at law firm Chamberlain Hrdlicka in Atlanta, served on the GCIA steering committee that helped push the law forward. He said the bill was drafted to match other state’s captive requirements, particularly neighboring Tennessee, which had less capital requirements and a lower premium tax.

“Georgia has been at a competitive disadvantage for a number of years…[Georgia’s requirements] don’t make sense for small business owners when other states require less,” he said.

The speed in which the amendments were introduced and passed by the Georgia Legislature was a surprise to those at the GCIA who pushed for the changes. The association worked in tandem with the Georgia Department of Insurance (GADOI) to introduce a bill at the beginning of the 2015 state legislative session. The legislation was sponsored by state Representatives Bruce Williamson, Chuck Efstration, Jason Shaw, Rick Golick and Richard Smith and sailed through the Georgia House and Senate.

“When we formed the association last fall, we said we will get [the bill] put together and in front of the right people and get the insurance commissioner involved and have it ready for next year. It all happened much more quickly than we thought,” said Kirkpatrick.

Kirkpatrick said legislators agreed with the premise of the amendments. Prior to this law he would have to send clients that wanted to form captives to other states and Georgia lost out on a lot of tax revenue year after year as a result.

“It is much smarter for the great state of Georgia to have a captive insurance law that is competitive with our neighboring states so that we aren’t sending business elsewhere when we are able to do it here,” he said.

According to a spokesperson for the GADOI, Insurance Commissioner Ralph Hudgens also supported amending the current captive law because there were no pure captives domiciled in the state prior to the passage of the bill. He requested the amendments to the Georgia captive law as part of his department package this year.

“Commissioner Hudgens hopes that the law changes will bring more captive insurance companies to Georgia and will also bring the professional jobs necessary to service those captive insurance companies,” the Commissioner’s office wrote in an email to Insurance Journal.

Captive Growth Expected

Ellyn Casazza, senior vice president of Marsh Captive Solutions Group in Atlanta and a co-chair of the legislative committee for GCIA, said there has already been a very favorable response to the law changes from a number of leading Fortune 50 companies based in Georgia that are interested in moving their captives to their home state, as well as a number of smaller organizations looking to form captives for the first time.

“By having the ability to form a captive in the parent’s home state, captive insureds can utilize the captive in a more cost efficient manner since they do not incur premium taxes that otherwise would be incurred when procuring coverage from a captive that resides outside their home state,” she said.

Casazza said Marsh Captive Solutions also supported the changes in the law and will help facilitate the captive formation process by coordinating the preparation and submission of regulatory applications, facilitate discussions with the captive insurance regulators and make sure all necessary items are in order so approved captives remain in compliance.

The GADOI has released the application and guidelines for those looking to form captives in the state, which can be found on the department’s website.

More Changes Ahead

Mueller said GCIA is now working on other captive law changes with the Georgia Department of Insurance for the next legislative session to bring Georgia up to par with other leading captive domiciles. Those changes include the types of captives that can be formed in the state, like protected cells and special purpose financial captives.

GCIA is also working on expanding its membership of captive companies, a goal made easier since the passage of the amendments.

“Now that we have the changes to the law there are more people interested in joining the association,” she said. “We have a lot of captive insurance professionals in Georgia even without captives in the state, and all those people have been helping to make these changes.”