Montpelier
05 June 2017
Reporter: Stephanie Palmer

A.M. Best: New agency rules will boost business in Vermont


Vermont’s updated law allowing for the inclusion agency captives will make the state more attractive to captive formations, according to A.M. Best.

House Bill 85 was signed into law by Vermont governor Phil Scott on 1 May, and defines an agency captive as a reinsurance company controlled by an insurance agency or brokerage.

According to A.M Best, the change “highlights the push by the insurance industry in recent years to get closer to the insureds”.

In a briefing note, A.M Best said: “Many agents have deep-rooted relationships with profitable books of business. The agency captive will allow them to continue to control that relationship through working with a primary carrier, while sharing in the risk by participating in the fortunes of the business written.”

Under the new rules, agency captives will receive a share of premiums written, through a reinsurance agreement with a traditional insurer, and will be obligated to pay their share of any claims. They will be required to maintain capital and surplus of at least $500,000.

In addition to the agency captive provision, the legislation allows for broader accounting systems, and clarifies risk retention governance standards. It also expands the scope of dormant status to include all captive types.

A.M. Best said: “The dormancy status will allow captive owners to reactivate a captive if capacity shrinks; commercial prices harden; and, especially, if the business performs profitably, making it attractive enough to bear the risk.”

At the time of signing the legislation, Scott said: “This bill will further advance Vermont's reputation as the 'gold standard' for domiciles and will provide greater flexibility and clarity going forward for our companies."

Richard Smith, president of VCIA, added at the time: "We're delighted to have [Governor Scott’s] continued support and that of the legislature in keeping pace with the changing needs of the industry. I have already been contacted by a number of entities interested in Vermont's new agency captive provision."

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