LOCATION, LOCATION, LOCATION of your Captive IS significant.  The old joke of the domicile location being selected based on the risk manager looking for a nice place to visit and play golf, ski, or visit the mountains and lakes, does not apply today.  This is serious business.  The state of domicile selected is critical to the effectiveness of the owners and insured’s overall captive structure, purpose and program.


Recent regulation in the US has generated increased interest in reinsuring Employee Benefit plans through a Company or Group Captive.   In 2000, Columbia Energy received a prohibited transaction exemption from the Department of Labor (DOL) that allowed Columbia Energy to reinsurance their long-term disability plan.  In March of 2003 the U.S. Department of Labor published its intent to grant a prohibited transaction exemption to Arbor Daniels Midland (ADM) to reinsure its life program.  There are many advantages to implementing a strategy to reinsure employee benefit plans into a captive.  One advantage is the potential tax benefits of the IRS consideration that employee benefits are third-party business.


One of the DOL requirements is that the Captive must be a US based Captive.


The state of domicile for a Captive that will be used to Insure/Reinsure Employee Benefits must allow the Captive to write DIRECT, without the use of a front company.  One state is even attempting to allow Workers’ Compensation to be written direct with the Captive without a front.


The laws, both at the Federal and the State level, are creating change and more Self Insured and Alternative Risk Transfer options, to which your OWN Industry Captive and RRG can and should be considered as a viable option.


If the Business or Industry intends to use the Captive for Employee Benefits, the state of Domicile that permits the DIRECT writing of IRS qualified third-party Employee Benefits, which eliminates the need for a fronting insurer, would be a primary consideration.