Fenhua Liu, assistant deputy commissioner of captive insurance at the Connecticut Insurance Department, explains the proactive steps being taken to attract captives

Companies looking to establish captives are spoilt for choice as to which domicile they should call home. However, this presents opportunities for new jurisdictions to disrupt the status quo and establish themselves as captive domiciles.

It isn’t an easy challenge but Connecticut is one of these success stories and in recent years it has emerged as one of the world’s fastest-growing captive domiciles.

To find out more, Captive Review spoke to Fenhua Liu, assistant deputy commissioner of captive insurance at the Connecticut Insurance Department.

Captive Review (CR): Connecticut is one of the world’s fastest-growing captive insurance domiciles. What kind of growth is being seen in terms of the number of captives being attracted to the state?

Fenhua Liu (FL): The past few years have been very exciting and 2022 in particular was a watershed year – there was a growth in captives of 28.6%, ranking us as the fastest-growing captive domicile in the 2023 World Domicile Report, the third year in a row as a leading domicile.

In 2023, there was a 37% increase in the state’s captive insurance sector. This includes the addition of 10 new captive insurers, reflecting a 22% increase, and a 108% surge, with 13 new cell risk-bearing entities. As of May 2024 we have licensed three additional captives, and we are licensing another one currently. Growth is one thing, but this is sustained growth.

CR: How has Connecticut been able to stand out in an increasingly competitive captive insurance domicile market? Have the state’s regulations played a role?

FL: There are three key reasons. First, our new pro-captive legislative has changed every year over the past three years. Second would be the cost efficiency we offer captives with lower regulatory costs compared to other domiciles.

For example, we have the internal resources to review applications and we don’t send them to external actuaries for review – we can do the same for examinations, and pure captives may waive examinations. That can save costs and time. Our fees are low, only a one-time $800 for application, an annual licence fee is $375, and there are no filing fees for business plan or director and officer changes.

Finally, it is location – we are next to New York and Boston, both major business hubs. We are fortunate to have the support of Andrew Mais, Connecticut’s Insurance Commissioner. His leadership has empowered us to leverage the full backing of the entire department and the state, making Connecticut a prime destination for attracting captive insurance companies. We are actively communicating this message and its supporting information to the captives industry. Additionally, we have enacted numerous groundbreaking legislative changes in recent years

CR: What kind of legislative changes have been enacted in Connecticut to attract captives?

FL: Over the past three years, we have proposed legislative changes every year. We have had statutes allowing captive formation in the state since 2008 but we had only 16 captives by 2019. It had been slow but when Commissioner Mais joined in 2019, he looked at what we could do to support the sector and things accelerated from there. Progress was challenging, as COVID-19 was a major disruption, and we have to make sure any legislative changes are done with the proper consultations.

A major change enacted is the reduction of minimum capitalisation requirements for all captives, but the Commissioner has the authority to impose a higher level of capital and surplus if necessary, by risk profiles. The level can be as low as $50,000 for pure and branch captives, and $75,000 for sponsored captives.

Previously this had been $250,000 for pure and branch captives, and $225,000 for sponsored captives. The legislative changes go beyond capitalisation requirements. For example, pure and branch captives also have the opportunity to waive their examinations if they have good corporate governance and audited financial results. This saves them time and the costs of examination. Since those major changes, enacted starting in 2022, we have continued to evolve this legislation.

In 2023, new regulations came into force that permit captives in Connecticut to accept and transfer risks through parametric contracts. This will allow businesses to cover and finance unique risks more easily. This act also allows the protected cell of a sponsored captive to establish one or more separate accounts, allowing companies to address their business needs more effectively.

CR: Connecticut has been able to attract some of the biggest names in insurance – how valuable is this for the state as a captive destination?

FL: All captive applications in Connecticut are confidential so I would defer to the captive owners to provide details. However, you can check the updated Connecticut captive names list on our website. Some large insurance companies and global insurtechs/managing general agents (MGAs) have formed captives here. For example, an insurance company formed a sponsored captive here last year, so business owners could rent cells from it to insure their risk.

About 10 captives in Connecticut are owned by Fortune 500 companies – word is spreading about what we can offer captives and, by extension, their owners.

CR: What trends are you seeing from the captives being established in Connecticut? For instance, are cell structures particularly popular?

FL: Yes, I see the trend of more cell structures formed or leveraged in Connecticut, especially after we added more flexibility to our laws for sponsored captives. Also, as mentioned, some global carriers and insurtechs/MGAs have formed captives here because they want to help clients cover more risks. We are seeing many out-of-state entities form captives here, sometimes in addition to captives domiciled in other locations.

At the beginning they intended to merge all captives into one and move out of Connecticut but after collaborating with us, and hearing what we can offer, they decided to merge their captives from other domiciles into one captive here. We are also seeing more risks being added, such as climate change, cyber and healthcare deductible reimbursement programmes.

CR: What is your outlook for Connecticut for the rest of 2024?

FL: It’s important to reflect on how far we’ve come. Commissioner Mais joined in 2019, I was promoted to my current role in 2020, and the Department has spent a lot of time changing the image of Connecticut as a captive domicile. We realised that captives differ from traditional carriers so we used a risk and principles-based approach to regulate captives. We made a lot of legislative changes, and this was key to reinventing our image to become more supportive and business-friendly, while performing our duty as the regulator for our captives’ long-term success.

This created a solid foundation in Connecticut and some momentum. Things soon began to snowball, and we are expecting more growth in the captives sector in Connecticut. The message is out there, and people recognise what we can offer as a domicile. Many captives are forming here as they want to leverage an innovative and pro-captive environment to cover insurance gaps, preserve profits for their business and control and finance their risks.