Tennessee: A comfort for captives

A business-friendly regulatory approach, supported by an eco-system of industry professionals and a dose of southern charm, has allowed the state and its captive industry to thrive, according to the Tennessee Department of Commerce & Insurance’s Captive Insurance section’s director Jonathan P Habart, and business development director Michael Schulz.

 

Captive Review (CR): What makes Tennessee a premier domicile?

Jonathan P Habart (JH): It starts with the expertise of our people and the rest comes from our customer service. The majority of our analysts are certified public accountants and, as part of initial training, everyone has achieved associate of captive insurance designation. We’re a business-friendly state where commitment flows all the way through our section. We offer a personalised service, so every captive is assigned an analyst who understands its financials. A company may come up with a solution and I may propose options based on what works well in Tennessee – it’s all about communication.

Michael Schulz (MS): We have a relatively large team of 15, so have the ability to be proactive when it comes to providing analysis and recommendations on how a captive can become more efficient. The Tax Foundation ranked us as having the lowest per capita state and local taxes. And the latest US rankings in 2021 found we had the fourth most business-friendly environment. We think they got it wrong – we were really number one!

CR: How have you developed and improved your customer service?

JH: We’ve improved our standards over the past two years. Things that used to have a two-week turnaround now have a two-day turnaround. We’re always looking at ways to improve our processes. For example, this year we implemented a new software system and we’re already working on revising it to make the customer experience even better.

MS: The National Association of Insurance Commissioners (NAIC) recently assessed our whole insurance division to be the most efficient in the US.

CR: What are the types of companies that you seek to attract?

JH: There are 38 states and over 70 captive domiciles globally, so it’s about market positioning. Tennessee’s focus, from the governor down, is about being business friendly. It is at the heart of what we do, helping businesses be successful. There are currently 148 licensed captives with 350 cells. Eight captives were formed this year and three of those are international. Likewise, 24 cells have formed this year and several of these are international. We’ve also had redomestications and are talking to others about bringing their captive onshore. We’re a fast-growing state for business. It was already flourishing in 2019 but our light touch during Covid-19 made the state really boom. I keep thinking it’s going to ebb but it just keeps skyrocketing. When large companies decide to relocate to Tennessee, it’s an opportunity to talk to them about captives.

MS: Oracle created a facility in an area that was traditionally just warehouses. I can see eight cranes erecting high-rise buildings from my window right now and 60+ skyscrapers are planned in Nashville over the next five years.

CR: What progress have you been able to make since formally taking the position last November?

JH: I have made process improvements and been slowly hiring the staff needed for those improvements. For example, bringing more staff training in-house. I have two key goals: the first is making sure we keep staffing in line with providing a high level of customer service and the second is working on our web presence, revising our web portal with enhancements.

CR: In what way does the state support captive insurance?

JH: I speak with the commissioner on a regular basis to tell him about what we’re doing. Our commissioner does a great job and is very well connected with the industry. He’s very receptive and great to work with – and is interested in captives being successful in Tennessee.

MS: The support industry here is truly amazing, from captive managers to lawyers, accountants and actuaries. We work in concert to find out how we can be useful. The entire insurance division has an open door policy that encourages constant contact. We have created a business-friendly environment, meaning that we want to have responsible regulation without taking an adversarial stance.

JH: Two captive managers were originated in Tennessee and a whole series of them have offices in Nashville, including Marsh, Hylant and SRS. A number of actuaries are also right here in town.

CR: How closely do you work with the Tennessee Captive Insurance Association (TCIA)?

JH: We have a very active relationship that really helps both of us. We sponsor the TCIA’s November conference and co-host monthly industry happy hours, where folks get together for casual conversations and complex discussions. A lot of people understand captive insurance and are making it work in the state.

MS: Everyone at the TCIA is a licensed, certified professional and those in leadership capacities serve on a voluntary basis. Due to their expertise, many of them are very popular speakers, not just at US conferences but also offshore. It goes to show the kind of professionals we have here.

CR: How do you approach your statute?

JH: We structure things to be as business-friendly as possible. For example, we recently lowered the capital requirement for protected cell captive insurance companies. Together with the TCIA, we look at legislation every couple of years. We’re not afraid of creative solutions or things we haven’t seen before. When people come in, we consider how their proposal fits with our statute to make sure everything’s above board. Then, it is just about getting to know people and learning how to work with them.

CR: Are there any misconceptions around Tennessee?

JH: When I started, I met a lot of our captive managers and one said ‘We love working with you, but you take forever to approve things – a dividend can take three weeks!’ It turned out the last one he did was in 2019 and things had already changed. In fact, we did one that week – between Christmas and New Year – and it took just a day. Covid-19 destroyed lots of things, but led us to refine our processes. We were already working on our dividend processes but the pandemic meant we had to refi ne them to keep them running smoothly. Likewise, the approvals process used to take two-to-three weeks and now takes two-to-three days. Once you have provided everything, it doesn’t take long. We’ve vastly improved.

MS: We fully embrace country music – the annual Country Music Marathon is part of our identity – but there’s a lot more to Nashville. Our moniker is Music City USA but we’re also a massively important professional city. I’d put up the Nashville business community against any other in the entire country.

CR: Things are evidently going very well, so where do you go from here?

MS: In the last rankings, we were a top 10 domicile. Our goal is to see our programme’s position in the world market grow. That means promoting Tennessee as a domicile of choice. We have great relationships in the state business community and can rely on established contacts to help open doors – they’re key in attracting more captives. But I’m also reaching out to the growing community moving to town.

CR: What other attributes does Tennessee offer?

JH: One is our geography. We’re centrally located and easy to get to, with a high percentage of the US within an eight-hour drive. And you’re going to enjoy it when you come here – the magnetism of Tennessee helps draw people to our department.

MS: Our international airport has direct flights from London, Canada, the Caribbean and Mexico, and our festivals attract people from as far away as Australia. Since around 2014, Nashville has been on an upward trajectory. Once people come here – sat between the Smoky Mountains and the Mississippi River – they fall in love with it. Hopefully, even more people will visit and see why we call Tennessee home.

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