Governor Scott Signs Bill Updating Vermont Captive Insurance Laws

On May 20, 2024, Governor Phil Scott signed new legislation that enhances several aspects of Vermont's captive insurance statute. Each year, the Vermont Captive Insurance Association (VCIA) collaborates with the Vermont Department of Financial Regulation (DFR) to propose updates to these statutes based on industry feedback. The recently signed Bill H. 659 aims to improve regulatory practices by clarifying the law, eliminating unnecessary redundancies, and better aligning statutory requirements with the captive insurance market.

"Vermont has a strong foundation of regulators and service providers who work together to ensure our state is as supportive as possible for Vermont's captive insurance companies," said Governor Scott. "The passage of the yearly captive bill is always an important action to further improve the quality of our regulation."

Key provisions of this year's bill are as follows.

• Introducing explicit language to allow the conversion of captive insurance companies into protected cells
• Amending the language regarding parametric contracts to accommodate various contract structures
• Lowering the minimum statutory requirements for agency-type captive insurance companies to better align with the captive insurance marketplace
• Addressing statutory redundancies related to confidentiality requirements

One significant amendment, Section 4, revises §6004(a)(4) to lower the minimum capital requirement for agency captives from $500,000 to $250,000. Since the agency-type captive statutes were first enacted in 2017, Vermont has gained considerable experience regulating this type of entity. This adjustment aims to better reflect the current captive insurance market without compromising the financial health and solvency of captive insurance companies. The DFR determined that this change poses no risk to solvency, as §6004(b) allows the commissioner to prescribe additional capital and surplus based on the type, volume, and nature of the insurance business transacted.

"Captive insurance companies are regulated based on their individual risk profile, and our robust regulatory team is skilled at understanding appropriate capital to match the unique risk," said Sandy Bigglestone, deputy commissioner of Captive Insurance. "Because of this, we realized it wasn't necessary to have a high arbitrary starting point for these companies."

In the 2022 legislative session, section 6002(a) was amended to permit captive insurance companies to enter into parametric contracts for risk transfer, which have proven useful amid increasing natural disasters. Since then, parametric contracts have been structured effectively under state laws as insurance contracts, necessitating some regulatory adjustments to avoid overly restrictive measures. The DFR has the processes and procedures in place to classify and account for these contracts appropriately when presented for approval.

"The industry in Vermont knows that the regulators and the legislature are open to discussing new ideas and open to feedback," said Kevin Mead, president of VCIA. "It's one of the central reasons why companies choose Vermont to license their captive insurance company in."

"This process is essential for Vermont to proactively address inefficiencies in its statutes without compromising on quality regulation," said Brittany Nevins, Captive Insurance Economic Development director, Vermont Department of Economic Development. "This annual process ensures that Vermont is continuing to regulate captive insurance companies as best as possible."