On February 12, 2008, the Michigan Senate voted 36-0 to amend the state's Insurance Code to provide for the creation of captive insurance companies. If passed by the Michigan House of Representatives and signed by the governor, the new legislation, S.B. 1061, would provide for the formation of captive insurance companies (“Captives”), special purpose financial captives (“SPFCs”) and protected cell insurance companies.
Under the proposed legislation, Captives and SPFCs would pay “Annual Fees” ranging from $5,000 for companies with annual premiums less than $10,0000 to $25,000 for companies with annual premiums equal to or greater than $60,000,000. Capital and surplus requirements for Captives would vary depending on the type of captive and in some cases, its organizational form. For example, an association captive insurance company incorporated as a domestic stock insurer or organized as an LLC would need to have $400,000 in unimpaired paid in capital and retained earnings, but an association captive insurance company incorporated as a mutual insurer would need to have $750,000. Minimum capitalization requirements for SPFCs are $250,000.
Another feature of the bill is the creation of a Captive Insurance Regulatory and Supervision Fund (the “Fund”) that would be credited with 20% of all fees and assessments paid by the Captives and the SPFCs under the proposed regulation. The Fund would be managed by the state insurance commissioner and the monies earned would be used to pay for expenses incurred in promoting the captive insurance industry within the State and other related items.
On the same day, the Michigan Senate also passed S.B. 1062, which would exempt captive insurance companies from the 1.25% Michigan business tax on gross direct premiums written on property or risk located or residing within the state.
S.B. 1061 and 1062 are now both under consideration by the Michigan House of Representatives. S.B. 1062 is tie barred to S.B 1061, which means that S.B. 1062 will only become law if S.B. 1061 is also enacted into law.
We will continue to monitor these proposals and provide further updates at InsureReinsure.com.