Delaware Insurance Department
CIT talks about figures, regulation and all things Delaware with Steve Kinion of the state’s insurance department after its encouraging 2012 captive results
Was 2012 a good year for captive growth in Delaware?
Yes, this has been the US State of Delaware’s best year. The 2012 additions are 59 captives, one cell, and 179 series units. The total number of licences issued for risk bearing captives will be 212 captive companies, 12 protected cells, and 364 series units. The total number of captive licences issued will be 588. Not all of the licences that were issued since the adoption of the captive law in 1984 remain active. Over the course of this time, we have had 22 captive companies dissolve or re-domesticate, one cell dissolve, and six series units dissolve. Our active licence numbers are 190 active companies, 11 protected cells, and 358 series units. The total active captive entity count is 559.
Of the 59 captives registered, have you seen any trends or popular lines emerging?
We are seeing an increased level of interest from small- and medium-sized employers in forming captive insurers for medical stop-loss purposes. Since the implementation of the Patient Protection and Affordable Care Act, I am seeing more inquiries about forming these types of captives.
It has been reported that last year’s growth could see Delaware overtake Hawaii as the third largest US captive domicile. What would this mean to the state?
Delaware’s growth as a captive domicile is an affirmation of insurance commissioner Karen Weldin Stewart’s goal of making the state a world-class domicile. In 2008, when Stewart was campaigning for election as insurance commissioner, she promised to build this state’s captive industry. She has kept that promise—with dividends added. When she formed the captive bureau in July 2009, there were only 38 captive insurers. We have achieved a 558 percent growth rate in terms of licensing captive companies, and a 1500 percent growth rate in total licensing of captive entities.
The total captive company growth rate stands at 38.5 percent. How do you intend to retain such a healthy rate in the future?
Delaware will continue this rate by being a leader. Stewart has directed me as captive director to take a leadership role in the captive world. Taking a leadership role means to be at the forefront of captive issues before the National Association of Insurance Commissioners (NAIC) and federal insurance bodies. It also means becoming a leading spokesperson for the captive industry. Stewart believes that Delaware should lead the captive industry from the front.
In 2012, the NAIC formed the Captive and Special Purpose Vehicle Use Subgroup. This subgroup studies insurers’ use of captives and special purpose vehicles to transfer insurance risk, other than self-insured risk, in relation to existing state laws and regulations, and establishes appropriate regulatory requirements to address concerns that are identified in this study. The appropriate regulatory requirements may involve modifications to existing NAIC model laws and/or generation of a new NAIC model law.
Though it is not a member of this subgroup, Delaware has been an active participant. Late last year, Delaware issued a comment letter about a whitepaper from the subgroup. Though the whitepaper contained valid points, there were others with which Delaware disagreed. The comment letter contained the points of disagreement. I then testified at the November 2012 meeting of the subgroup to verbally express Delaware’s plans for a solution to address the NAIC’s concerns.
What qualifies you to be a spokesperson for the captive insurance industry?
I can explain captive insurance to those who are not familiar with how it operates. I am an 18-year insurance veteran. My insurance career ranges from serving as a regulator to private law practice to the boardroom. I worked for Farmers Insurance Group and have served on the boards of directors of two property and casualty insurance companies. My health care experience includes serving five years on the board of directors of the Illinois Comprehensive Health Insurance Plan, and serving as chairman of the Oklahoma Health High Risk Pool for eight years. This background enables me to understand insurance from the executive level. I am also a judge advocate in the US Army Reserve, holding the rank of lieutenant colonel.
My work with captive insurance began in 1995. Through my experience and leadership abilities, I lead both the captive bureau and NAIC on various matters related to captive insurers. I chair the Delaware Insurance Department’s internal task force that is addressing insurers taking loans from the Federal Home Loan Bank system, and participate in its internal derivatives task force. For NAIC matters, as mentioned, I actively participate in the NAIC’s captive and special purpose vehicles use subgroup, and lead the effort to rewrite the risk purchasing group portion of the NAIC Risk Retention and Purchasing Group Handbook.
Since becoming captive director in July 2009, I have fulfilled Stewart’s goal of making Delaware a top-tier captive domicile. Today, Delaware is in the top five of US captive domiciles. My experience with regulating captive insurers ranges from very small captives having less than $500,000 of annual premium, to those with annual premium measured in the hundreds of millions.
Could you explain the more stringent regulatory standards that have been imposed by the captive bureau?
Even though my involvement with captive insurers began in 1995, I learn something new every day as captive director. The more stringent standards mean a continuous improvement for how Delaware regulates captives. It is also adhering to Stewart’s high standards for licensing captive insurers.
What makes Delaware different from other captive insurance domiciles?
The answer is Stewart. As insurance commissioner, she has formed a business incubator within the captive bureau so that new concepts and ideas are encouraged and tested. Stewart’s willingness to apply innovative ideas is one of the reasons that Delaware is pioneering the world’s first series captive insurance company. This pioneering activity allows individual series, either formed under a Delaware limited liability company or statutory trust, to become captive insurers. Until Stewart allowed this form of captive insurer, no other captive domicile had even considered doing so.
