Veto Overridden on Illinois Legislation Containing Captive Provisions

Illinois lawmakers Tuesday overrode an earlier gubernatorial veto of legislation that will set new minimum capital and surplus requirements for captive insurance companies licensed in Illinois.

The latest legislative action by the Illinois House, which overrode Governor Bruce Rauner's veto on an 89–20 vote, followed the state Senate's 52–0 override 2 weeks earlier.

Governor Rauner supported the captive provisions in the legislation, S.B. 1737, which he earlier said would make Illinois "more attractive to companies that use this insurance option. "His objections centered on other bill provisions, including those, he said, that would impose "unnecessary new restrictions on rate-setting in the Illinois workers' compensation insurance industry."

On the captive side, the measure will, among other things, set new minimum capital and surplus requirements, with a $250,000 minimum for pure captives—those insuring the risks of parents and affiliated companies; $500,000 for industrial insured captives; and $750,000 for association captives.

By contrast, under Illinois law, captives generally have to maintain at least $1 million in capital.

The measure also will give Illinois-licensed captives the ability—after first securing the approval of the director of the Illinois Department of Insurance—to provide loans to affiliated companies.

In addition, the bill includes a provision that would reduce the industrial insured premium tax from 3.5 percent to 0.5 percent of gross premium.

Backers of the legislation say the measure will give a big boost to the appeal of Illinois, which has just a handful of captives, as a captive domicile.

"We are very happy that the captive law will be modernized. We hope that several dozen companies will" set up captives in Illinois, said Mark Denzler, vice president and chief operating officer of the Illinois Manufacturers' Association in Springfield.

"We are very pleased with the veto override," said Mary Kay Martire, a partner with the law firm McDermott Will & Emery LLP in Chicago. "This is an important and potentially exciting development for the captive community. It will help make Illinois an attractive captive domicile option, particularly for large Illinois-based companies."

With the final approval of the captive legislation, Illinois joins several other states, including Connecticut, Delaware, Kansas, North Carolina, South Carolina, and Vermont, that passed measures earlier this year enhancing their captive statutes.