New Tennessee Law Aims to Enhance State’s Captive Industry

Tennessee is praising captive insurance legislation signed by the governor on May 12, saying it is expected to “maintain and further enhance Tennessee’s place amongst the most attractive states to locate a captive insurance company,” according to a statement from the Tennessee Department of Commerce & Insurance (TDCI).

The 2017 legislation, enacted as Public Chapter 354, further modernizes the Revised Tennessee Captive Insurance Act of 2011, which ignited Tennessee’s competitive captive industry.

A captive insurance company represents an option for many corporations and groups that want to take financial control and manage risks by underwriting their own insurance rather than paying premiums to third-party insurers.

TDCI Captive Insurance Section Director Michael Corbett said the recently passed legislation gives Tennessee protected cell captives even greater flexibility in moving cells between captives and spinning off individual cells into standalone captives.

“This is a significant efficiency for Tennessee companies,” Corbett added.

The legislation also allows captives to develop a process for a captive to exist in a dormant status so captive managers may procure insurance from the traditional market when advantageous and later return to the captive structure when the market fluctuates. In addition, the bill allows the state insurance commission to grant an extension of time, not to exceed 60 days, to file the premium tax returns and pay the taxes imposed, without penalty, but interest will be charged.

Any captive insurance company that fails to pay any taxes due, plus penalties and interest, for 60 days beyond the due date may thereafter be debarred from transacting any business of insurance in the state until such taxes, penalties, and interest are fully paid.

“This legislation reinforces the Volunteer State’s reputation as one of the nation’s premier captive domiciles,” said Tennessee Captive Insurance Association President (TCIA) Kevin Doherty.

TDCI Commissioner Julie Mix McPeak praised the passage of the bill and touted the state’s captive industry.

“Less than ten years ago, successful Tennessee businesses had to look elsewhere to form a captive insurance company because there wasn’t a place for them here,” said McPeak. “Today, Tennessee is at the forefront of the industry due in no small part to the leadership of Gov. Bill Haslam, the strong captive insurance team we have in-house led by Director Michael Corbett, and the robust support that we receive from members of the General Assembly.”

TDCI said Tennessee’s captive insurance enhancements have significantly contributed to Tennessee’s economy. In 2011, Tennessee only had two captive risk-bearing entities (RBEs) and has increased that number to 160 captive insurance companies and a total of 545 RBEs.

For the 2016 tax year, total premium dollars surpassed $1 billion for the first time in the state’s history and a 2016 economic development survey of captive managers attributed more than $650 million in direct and indirect spending in the state to the captive insurance industry.

The 2017 captive legislation drew bipartisan support from leaders in both houses of the General Assembly and was sponsored by Senate First Vice Chairman of the Senate Judiciary Committee Sen. Doug Overbey (R-Maryville) and House Majority Leader from District 63 Rep. Glen Casada (R-Williamson County). The legislation was recently signed into law by Tennessee Governor Bill Haslam.