Tennessee Updates Captive Law, Sets Sights on Being ‘Captive Leader’

Tennessee has stepped up its efforts to establish the state as a captive leader with new enhancements to the state’s captive insurance laws passed this year by the Tennessee Legislature.

The changes to the 2011 captive law are expected to boost the state’s captive industry and increase state revenue.

“The captive insurance industry operates in a competitive, fast-moving environment that demands competitors keep pace or be left behind,” said Captive Insurance Section Director Michael Corbett. “Tennessee must be nimble and forward-looking if we are going to surpass the goals we’ve established and continue our unprecedented growth.”

Kevin Doherty, president of the Tennessee Captive Association, says the updates to the law were part of efforts to make Tennessee more “captive-friendly.”

“The changes were largely in response to [captive] industry activity. These are tweaks — not fundamental changes but important changes,” Doherty said.

The 2016 changes, which represent the third update to the Revised Tennessee Captive Insurance Act of 2011, aim to make it easier for captives to redomesticate. Companies can now transfer their captive entity from another domicile into Tennessee by registering with the Secretary of State’s Office once the captive has been approved by the Tennessee Department of Commerce & Insurance (TDCI).

In addition, captives that redomesticate from offshore are able to forego paying premium taxes either in the first or second year of operation, provided they commit to staying in operation for five years or pay back the foregone premium tax with interest.

The protected cell changes include giving captive owners protections that ensure the assets of individual cells are not isolated from any other cell owner. Other revisions include self-procurement tax forgiveness and setting a uniform due date of March 15 for annual reports and payment of premium taxes, an extension of two weeks.

Doherty said so far companies are taking advantage of the changes. “A lot have already moved their captives here and we anticipate the trend will continue,” he said.

Tennessee’s captive industry has grown significantly since the law was updated back in 2011. TDCI reported that as of mid-June, the state now has 133 captive insurance companies and 321 cell companies for a total of 454 risk-bearing entities. In 2011, the state had only two.

Doherty said Tennessee is working towards becoming an even more captive-friendly state and increasing state revenue. Last year the state saw about $1 million in tax revenue from captives and he expects that will at least double in the next year. “Captive business is booming here and I think it will continue to boom,” he said.