Kevin Doherty, partner of Nelson Mull ins and chair of TCIA, talks to Captive Review about
Tennessee's strategy for captive growth and considers the future of the industry in the domicile.
Captive Review (CR): What has it taken to develop and grow Tennessee as a captive insurance domicile?
Kevin Doherty (KD): I always use the analogy
of a three-legged stool, which is the most sta ble kind of chair. Its three legs are:
The Executive Branch: Governor Haslam , commissioner McPeak and captive director Michael Corbett. They regulate and administer captive law,
Kevin Doherty is a partner in Nelson Mullins Riley & Scarborough's Nashville office. His practice focuses on insurance regulatory law, with particular empha sis on captives, risk retention groups, self -insurance
funds, and other alternative insurance vehicles.
area , where participants are still retaining a substantial portion of their own risk - in most cases up to 49%.
CR: How has Tennessee encouraged this growth?
KD: The first thing we did was ensuring
the law included a flexible protected cell arrangement. This includes not only tradi tional protected cells, but also incorporated
and supported it in the first place.
The Legislature: Has been supportive in
Further to this, our incorporated law per
helping create cutting-edge legislation and passing it. This can be seen in 2011 when we initially rewrote the entire chapter on captives, again in 2013 and again recently in 2015.
The Private Sector: We have an industry
with vital, qualified professionals who handle the captive insurance business taking place in Tennessee. This includes attorneys like us, accountants , CPAs , banks and actuaries . It also includes, perhaps most significantly, captive managers. Several captive managers have actually opened offices in Tennes see, which shows a significant commit ment to the growth of the industry here .
All three of these legs are critical and present in Tennessee . I believe that is the reason we have been so successful in the first four years of this new domicile.
CR: What are the main captive growth areas?
KD: Tennessee now has 82licensed captives
and 218 approved cells that are connected to several of the protected cell captives in the state. That is a total of 300 risk-bear ing entities and this number continues to grow.
This is a significant total, by which you
can tell that the leading growth area is the protected cell captive arrangement , other wise known in other domiciles as segregated
portfolio companies. The concept started off shore, but became popular onshore. I believe Tennessee is now one of the leading states in this area.
What the protected cell captive arrange
ment allows is for the creation of cells and captive units for all types of businesses. These businesses then do not necessarily have to go to the trouble of putting up the capital them-
"We have an industry with vital qual ified profess iona ls who handle the captive insurance business that takes place in Tennessee"
selves, and can join an existing facility.
Essentially this arrangement increases the marketplace to include medium and smaller sized businesses.
In the past, these businesses were not necessarily able to participate in the captive insurance model except on a group basis . Group captives are not seeing a lot of growth right now. It is mostly in this protected cell
mits not only corporations, but LLCs and Series LLCs. There are only a small num ber of states that have a Series LLC law as well as the protected cell law. Significantly, Tennessee is one of those . These Series pro vide a significant administrative advantage because they do not require registration with the secretary of state, but they are still regulated by the Department of Commerce and Insurance .This streamlines the process, but it provides adequate oversight because the department is looking at and improving each, individual cell.
CR: What does the future look like for cap tive insurance?
KD: The simple answer is that we need to continue to make sure we have the high est qualified people in all sectors of our industry, both public and private. Michael Corbett and his captive division is doing exactly that for the public sector. The peo ple he is hiring are top-notch. They are qualified and they are able to understand the nuances of captive formation.
We need to make sure we keep captives solvent and hiring in Tennessee . That will allow us to continue to grow.
We will continue in the future to look at other domiciles, both onshore and off shore. If they are employing innovative mechanisms to help businesses form cap tives that we have not tried before, we will be open to supporting that in Tennessee .
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