MID TERM

MID-TERM
1.What are the benefits of forming a captive insurance company? (click on the “Captive
Basics” link at the top of the page, and then “Why form a Captive” on the next screen) 
Captive insurance refers to a subsidiary corporation established to provide insurance to the parent
company and its affiliates. A captive insurance company represents an option for many organizations,
from Fortune 500 companies to nonprofits, that want to take financial control and manage risks by
underwriting their own insurance rather than paying premiums to third party insurers.

The advantages of going captive are:

- Coverage tailored to meet your needs
- Reduced operating costs
- Improved cash flow
- Increased coverage and capacity
- Investment income to fund losses
- Greater control over claims and so on
- Smaller deductibles for operating units
- Additional negotiating leverage with underwriters
- Incentives for loss control
- Alternatives to the costly practice of trading dollars with underwriters in the working
layers of risk

Over 1,200 companies have already realized the advantages of captive insurance operations
licensed in Vermont. In fact, for several years now, Vermont has ranked as the number one
captive domicile in the United States and the number three-ranked domicile internationally. In
1981, Vermont realized the potential benefits of attracting captive insurance companies and
passed legislation providing the appropriate regulatory and taxation environment. Vermont
continues to be recognized as a quality domicile by captive owners, brokers, regulators, and
others in the industry due to its high level of professionalism. An ever-increasing number of
companies are further recognizing Vermont as their captive insurance domicile of choice. The
Benefits of Vermont's 1981 "Special Insurer Act" and the Changes Beyond. In 1981, Vermont
realized the potential benefits of attracting captive insurance companies and passed legislation
providing the appropriate regulatory and taxation environment. 

Reasons for forming a captive include:

There are numerous potential advantages to forming a captive insurance company. Captive
insurance companies are formed for both economic and risk management purposes. For example,
by forming a captive insurance company, a business can dramatically lower insurance costs in
comparison to premiums paid to a conventional property and casualty insurance company. By

Mai THỊ Quỳnh -18071214

 MID TERM

establishing one’s own insurance vehicle, costs for overhead, marketing, agent commissions,
advertising, etc., may result in significant savings in the form of underwriting profits, which can
be retained by the owner of the captive company.

Additionally, a captive insurance company can provide protection against risks which prove to
be too costly in commercial markets or may be generally unavailable. The inability to obtain
specialized types of coverage from commercial third-party insurers is another reason why clients
may choose to establish a captive insurance company. With a captive insurance company, a
business owner can address their self-insured risks by paying tax deductible premium payments
to their captive insurance company. To the extent the captive generates profits, those dollars
belong to the owner of the captive.

In most cases, to the extent existing P&C coverage is reasonably priced, business owners will
continue to maintain existing policies for their traditional coverage and supplement existing
coverage by addressing their self-insured risks with their own captive insurance company. Policy
features, coverage and limits can be drafted to meet specific enterprise exposures. This allows for
many risk-management advantages, including:

–The parent firm may have difficulty obtaining insurance

–To take advantage of a favorable regulatory environment
–Costs may be lower than purchasing commercial insurance
–A captive insurer has easier access to a reinsurer
–A captive insurer can become a source of profit

2a. Why is Vermont a popular domicile for captives? (click on the “Why Vermont” link
under “About Us”) 
Since 1981, when Vermont was one of the first states to adopt captive enabling legislation, the
state has been at the forefront of the captive insurance industry. With one of the largest networks
of experienced and knowledgeable regulators, management professionals, in-house examiners
and service providers of any domicile, Vermont provides all of the resources necessary for your
captive to thrive. And, with unparalleled legislative support, you can be sure your captive is
strong, secure, and supported at every turn.

2b. How many Fortune 100 and Dow 30 companies have a Vermont captive? (see the
“About Us” link) 
For nearly 40 years, Vermont has been a global leader in captive insurance. Vermont is first,
worldwide, in gross written premium and assets under management, and ranks third in the
number of active captive insurance companies. Vermont’s captive insurance industry serves 48
of the Fortune 100 corporations and 18 of the Dow 30. Vermont is also a five-time winner of
Captive Review’s top US Domicile honor.

Mai THỊ Quỳnh -18071214

 MID TERM

3.How has the number of Vermont captives and the premiums written by these captives
grown over time? (see “Captive Statistics” link under “Captive Basics” to see some very
interesting charts) 
The captive insurance market quickly responded to Vermont's appeal. Within a few years,
Vermont became the largest US captive domicile. Indeed, such well-known companies as H.J.
Heinz Co., Hormel Foods Corp., Sealed Air Corp., and Wells Fargo & Co. have set up Vermont
captives.

With 589 captives at year-end 2020, Vermont is not only—by far—the no. 1 US captive
domicile, it also is the world's third-largest captive domicile. And for some types of captives,
Vermont is the biggest domicile. For example, with nearly 90 risk retention groups (RRGs), a
special type of captive authorized under federal law, Vermont is the home of far more RRGs
than any other domicile.

The two industries that sponsor the most Vermont captives are healthcare and manufacturing,
each of which accounts for nearly 20 percent of the state's captives.

the number of Vermont captives in 2020 in the following

Pure 357

Risk retention group 87

Special purpose financial 38

Sponsored 43

Industrial insured 21

Association 12

Branch 3

Affiliated reinsurance company 2

Agency 1

Notably, Vermont’s 43 sponsored captives have experienced significant grow, with well over
300 cells

Mai THỊ Quỳnh -18071214

 MID TERM

Figure 1: Number of captives by gross written premium

According to figure 1. Number of captives by gross written premium has a large fluctuation .
when number of captives over 150 , GWP in dollars (Millions) less than 1 million and
Number of captives less 25 , GWP in dollars (Millions) over 500 million

4a. What is the initial licensing fee for a Vermont captive, and what does it cost to renew
the license each year? (under the “Laws & Regulations” link at the top of the page, click on
“Vermont Captive Fees”) 
Activity Related fee
Initial department licensure $500
Initial department licensure ( SPFI) $5,000

Mai THỊ Quỳnh -18071214

 MID TERM

Annual license renewal due April 1 $500

Annual license renewal ( SPFI) due April 1 $5,000

b. What is the premium tax rate for business written by a Vermont captive insurer? 
Millions of dollars Direct premium tax rate Assumed premiums tax rate
0-20 0.38% 0.214%
20-40 0.285% 0.143%
40-60 0.19% 0.048%
60+ 0.072% 0.024%

5a. How much surplus and capital are necessary to start a pure captive, an association
captive, and a risk retention group in Vermont? (under “Laws & Regulations,” click on
“Vermont Laws,” and then click on the “Title 8 Vermont Statutes Annotated” link. See
page 3 and page 4 to answer this question and the following question.) 
Captive type Capital& surplus minimum requirements
Pure and brand captives USD $ 250,000
Association , industrial insured& agency USD $ 500,000
Risk retention group USD $ 1,000,000

5b. Does the surplus and capital requirement have to be met through cash? Explain.
(see Section 6004, part (c)) 
The insurance commissioner may prescribe additional surplus requirements based on the type,
volume and nature of the insurance business. Capital and surplus may be in the form of cash,
marketable securities, a trust approved by the commissioner and of which the commissioner is
the sole beneficiary, or an irrevocable letter of credit that uses the qualified format and is issued
by a qualified bank

Referencing: 
International Risk Management Institute(2014–2021), Inc. (IRMI) “Vermont Department of
Financial Regulation, Captive Insurance Division” Available at :
https://www.captive.com/domiciles/vermont-captive-domicile-summary?
fbclid=IwAR0103Pbg4GEAnA_iThU6uYgU1mHXFn8SsrTod_Y6Pk0ybcrRciccB9R_2w

Department of Financial Regulation “ADVANTAGES OF CAPTIVE INSURANCE” Available

at :
https://dfr.vermont.gov/industry/captive-insurance/become-vermont-captive/advantages-captive-
insurance?fbclid=IwAR37-IQHJdnCLabsx3l-Zul5G9pBp_uPfRzXqADbC0I-KSZMeUxkUhzBIjI

written by Vermont captive insurance”Our numbers speak for themselves” ” Available at :

https://www.vermontcaptive.com/wp-content/uploads/2021/07/VTC0017-
21_Numbers_SSupdate_July21.pdf?
fbclid=IwAR3L3Pn4Hf3Gznnc1OHpTQvcTIO0BnIZ_2q9_jSeQYqwZ3yjmv2bpc0jGts

Oxford risk management group( 2021)“Why Form A Captive?” Available at :

Mai THỊ Quỳnh -18071214

 MID TERM

https://www.oxfordrmg.com/why-form-a-captive/?fbclid=IwAR1A0LM3GUqo9QMTY_-
IzZpuCbBSPaz8D_xi9ngXOGlMfomTD6WHkQsXupM
Agency of commerce and community development” Available at :

https://accd.vermont.gov/economic-development/programs/captive-insurance?
fbclid=IwAR38C3FxgZQozMit4faKhZMvp5cXDNk3zb0yMqUqA8tO5ynZ3h_jjMqLya4

Mai THỊ Quỳnh -18071214