Tennessee has stepped up its efforts to establish the state as a captive insurance industry leader with enhancements to the state’s captive insurance laws just passed by the Tennessee Legislature.
The changes to the 2011 captive law were signed into law in April by Gov. Bill Haslam and are expected to lead to a boost in the state’s captive industry and increase state revenue over the next several years.
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“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, partner at Tennessee-based law firm Nelson Mullins and president of the Tennessee Captive Insurance Association, says the updates to the law were part of the Association’s efforts to make Tennessee even 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 companies with captives in other states to redomesticate in Tennessee. The new law allows a company to transfer their captive entity from its old domicile into Tennessee through registering with the Secretary of State’s Office once the captive has been approved by TDCI.
In addition, captives that redomesticate from offshore to Tennessee are able to forego paying premium taxes in either the first or second year of their 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 over the previous deadline.
Doherty says the Tennessee Captive Insurance Association worked with lawmakers to enact changes that would encourage Tennessee companies with captives domiciled elsewhere to return to Tennessee, and so far it has been working.
“A lot have already moved their captives here and we anticipate the trend will continue,” he said. “As Tennessee gets more entrenched as a domicile there is not much reason for them to go anywhere else.”
Tennessee’s captive industry has grown significantly since the law was updated back in 2011. The Tennessee Department of Commerce and Insurance (TDCI) reported that as of mid-June, Tennessee 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 with these most recent changes Tennessee is working towards becoming an even more captive-friendly state while also 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. “The captive business is booming here and I think it will continue to boom,” he said. “The tax holiday will encourage a lot of companies to move back to Tennessee… we think the next year will be busy.”
About Amy O' Connor
O'Connor is associate editor of MyNewMarkets.com.