While Arkansas is a small captive domicile with 16 captives at the end of 2023, it has enjoyed significant growth in recent years, with state regulators and others expecting that growth to continue.
That optimism is based on several factors, including an attractive captive statute.
For example, the maximum annual premium tax is capped at $100,000, while the minimum capital and surplus requirement for single-parent captives is just $250,000.
"Arkansas is a low-cost, business-friendly state," said Arkansas Insurance Commissioner Alan McClain. "Due to the department's renewed focus on attracting new business, we've seen Arkansas-based companies with existing captives starting to return home to redomesticate here, as well as large companies and businesses in the state starting to seriously consider captive formation," Mr. McCain added.
Another attraction: highly available and experienced state captive regulators.
"There is a very stable and experienced regulatory staff," added Victoria Fimea, a former senior vice president, legal counsel, and head of the regulatory department for North America for Artex Risk Solutions in Mesa, Arizona.
Captive regulators say their goal is to be available to current and prospective captive sponsors, as well as to captive managers.
"We have the resources, the talent and the expertise to provide the best service possible for our current and future captives," Mr. McClain said.
At the same time, Arkansas legislators have done their part to enhance the appeal of the state, whose original captive statute was passed in 2001, as a captive domicile.
For example, in 2017, Arkansas legislators passed a measure to allow captives to go into dormant status and resume operations when the parent company deems it appropriate, eliminating the burden of going back through the licensing process.
In addition, a dormant captive only has to maintain capital and surplus of $25,000 and is exempt from premium taxes.
In 2019, Arkansas lawmakers approved legislation that can give captives more time to file annual reports on their financial condition. While the regular filing date remains March 1, captives may request additional time to file with the state insurance commissioner. Several additional amendments were made in the captive law in areas such as requirements for sponsored captive companies, protected cell requirements, conversion and merger procedures, and other technical/procedural standards addressing captive market developments.
In 2021, the captive law was amended to remove the requirement that a producer be a resident of Arkansas in order to own a producer reinsurance captive insurance company, expanding the options for new domestic captive insurers. The law also was amended to list branch captives within the definition of captive insurance companies.
In 2023, Arkansas legislators amended the law to enlarge the examination cycle from 3 years to 5 years or whenever the insurance commissioner determines it to be prudent.
Arkansas' captive statute sets low captive premium tax rates. For example, the tax rate on direct written premiums up to $20 million is 0.025 percent, while a 0.150 percent tax is assessed on the next $20 million of direct premiums and 0.050 percent tax is set on premiums exceeding $40 million, with a maximum annual tax of $100,000.
In 2023, captive growth in Arkansas resulted in more than $397.5 million in premiums. Continued captive growth lies ahead, Arkansas regulators and others predict.
"We are committed to making Arkansas a great home for captives," Mr. McClain said.
