On March 14, 2007, two cutting-edge captive insurance statutes became law in the District of Columbia. The "Captive Insurance Company Amendment Act of 2006" and the "Special Purpose Financial Captive Authorization Amendment Act of 2006," both enacted by the Council of the District of Columbia last December and signed by outgoing Mayor Anthony Williams, completed the 30 legislative-day period of Congressional review required of all laws enacted by the Council and took effect on that day.

The Captive Insurance Company Amendment Act further improves the District's segregated cell captive statute, which allows a captive insurance company to segregate the risks of its individual members so that the assets and liabilities of each cell are not commingled. The law already allowed each cell to be individually capitalized with its own funds and to pay for the losses arising within its cell, without spreading those risks among the other cells. The amendment just enacted allows each cell to be separately incorporated, thereby strengthening the legal walls of separation between the cells. No other U.S. jurisdiction, not even Vermont, has this feature.

The Special Purpose Financial Captive law allows captives to securitize risks, that is, to transfer risks to the capital markets through the creation and issuance of marketable securities. While a few other states (Vermont, South Carolina) have such laws on their books, the lack of this provision in District of Columbia law was viewed by the captive insurance community as a handicap. That handicap has now been removed and the District is anticipating a major spurt in the number of captives seeking licenses there.

Captive insurance companies are formed for the purpose of insuring the risks of their owners, who can be corporations, associations or hospital systems. They are not commercial insurance companies selling to the general public and therefore they arguably do not need the same level of regulatory scrutiny as commercial insurers.

More and more insurance risks are being written through captives, which collectively now account for close to half of all insurance on a worldwide basis. Originally these captives were all located off shore, especially in Bermuda, which has several thousand captives licensed there. Then, some 20 years ago, Vermont enacted the first domestic U.S. captive insurance law and has attracted over 500 captives to that state. As is true of Bermuda, captive insurance companies are today a major source of revenue for Vermont. In more recent years other U.S. jurisdictions have adopted captive laws, but only a few—South Carolina, Hawaii, Arizona and the District of Columbia—have succeeded in attracting this growing form of insurance business.

The Council of the District of Columbia, at my urging as the then DC Insurance Commissioner, enacted its first captive insurance law in 2000, and the first captive insurer was licensed in DC in 2001. Since then, more than 70 captives have been licensed in the District of Columbia, and DC has become one of the fastest-growing captive jurisdictions not only in the United States but in the world.

The attraction of the District of Columbia as a captive domicile comes not only from its being the nation's capital, but also because it boasts one of the most innovative and flexible legal and regulatory systems of any jurisdiction. Its Insurance Department has a separate unit dealing with the regulation of captives, and that unit has gained a reputation for prompt and reasonable regulation and ease of access that captive insurers find very useful. The taxes realized on the activities of licensed captive insurers, in turn, are providing an increasing amount of revenue for the District Government.