Travis Wegkamp, director of captive insurance at the Utah Insurance Department, explains how the beehive state is fast establishing itself as a key captive domicile
In our 2023 World Domicile Report, Utah was ranked fourth in the global captive domicile rankings amid a growing number of jurisdictions competing to attract captives. How did Utah manage to establish such a top spot? To find out, Captive Review spoke to Travis Wegkamp, director of captive insurance at the Utah Insurance Department.
Captive Review (CR): Last year Utah ranked fourth in the world domicile rankings – behind Vermont, Bermuda and the Cayman Islands. A year on, how has Utah’s captives sector grown?
Travis Wegkamp (TW): Over recent years we have seen some good growth – for around three years we have been doing nearly 60 or so formations each year. In 2023 and 2022 there was 34% and 27% net growth, respectively, in terms of licensed risk-bearing entities. That was good to see because we’ve had some lean years since the PATH Act 2017 came into effect.
Utah was popular with a lot of the smaller captives at the time, but that market has certainly seen a cooling since the PATH Act and greater Internal Revenue Service scrutiny came about. We continued to grow in terms of gross premiums during those years, but again we saw contractions in numbers. To get those back up in the last couple of years and be fourth in the world is fantastic – we were very happy to see that. In terms of gross premiums, a couple of years ago we broke the $2 billion mark and in 2022 we did $2.3 billion. In 2023 I was pleasantly surprised when we did $3.2 billion – with nearly $1 billion growth in premiums. It’s fantastic to see captives are being utilised more and that we have established such a strong base for captives here in Utah.
CR: What are some of the reasons Utah is establishing itself as a go-to destination? How is the state able to differentiate itself from other domiciles?
TW: There are a few reasons. First, we try to be a cost-effective domicile and competitive in terms of things such as required minimum capitalisation. For instance, we require only $250,000 for a pure captive to be formed. We are proactive on our charges, and recently lowered the sponsored captive minimum to get more competitive with cells – it used to be $500,000 total ($200,000 from the core), it is now $250,000 in total and $50,000 in the core.
Our tax treatment is beneficial. In Utah, there is zero premium tax for captives – they pay a flat licence fee of $7,500 for a new standalone captive and a further $1,000 for every additional cell. All in all, it’s very reasonable and competitive. You can grow your programme as large as you want to, and you won’t be penalised with larger taxes as you grow. We have worked very hard to establish a reputation as a friendly state in terms of regulation, with common sense rules and an approach that is available and communicative. We strive to respond quickly to any requests from captives and help with anything they want to do.
We work very hard to be responsive with quick turnarounds – we can issue a captive licence pretty much as quickly as the applicants want to move, if they come to us with a full packet and a motivation to get things done. The last thing people want, in any industry, is waiting ages for responses from a regulator so we make a point of taking that pain out of the process. Finally, it doesn’t hurt that Utah is a beautiful state – it’s a great place to visit, and offers a lot of outdoor activities. You can hit the slopes in North Utah and then visit the desert in the South – it’s a diverse and vibrant place.
CR: Earlier this year, Utah Insurance Department unveiled a series of changes to its captive legislation – how will these further improve the state’s standing as a captive domicile?
TW: In general, Utah is a business-friendly state. Our legislature is responsive, and willing to work with us when trying to get changes made. The reduction to capital requirements for sponsored programmes was made in response to one of our captive managers mentioning this when discussing domicile choice. I brought it up with the Utah Insurance Commissioner and we felt comfortable making that change; with his support we got the bill amended in time for the recently concluded 2024 session.
Another change we made was to allow captives in Utah to provide personal lines of insurance. This was in response to hearing homeowners’ struggles with trying to get insurance due to traditional carriers pulling back from covering risks such as forest fires and floods. With home coverage increasingly unaffordable, we changed our captive legislation to allow homeowners associations in the state to form captives and provide insurance to their members. Generally, those personal lines are not allowed in a captive, but we felt within an association captive we could dip our toes in the water and see how things went.
We try to be open to any opportunities – we felt this homeowner association coverage was probably best suited to homeowners who probably don’t have a mortgage on their home, but in the language of the statute we didn’t make that specific restriction. We want to leave things open enough for captives to innovate. Another change was to remove the required five-year examination period. This was an attempt to make legislation better reflect the reality here. We already had the ability to waive that examination with an audit in lieu, and the truth is the large majority of our captives are more or less operating very well so we don’t see the need to do full-blown examinations on them. It’s an opportunity to make things easier for both parties, and we’ll call examinations only as and when they’re needed.
CR: What kind of innovation are you seeing from the captives domiciled in Utah?
TW: I love seeing innovation. I want people to come here with unique ideas and we will do what we can to make those work. I keep my regulator hat on of course but fortunately the code here in Utah spells out what you can’t do but isn’t prescriptive on what you can do. As long as there is legitimate risk transfer and the other basic notions of insurance are met, I love to see innovation.
With captives that is what the alternative market should be: the chance to cover anything and everything that the traditional market can’t do, or can’t do well – and this is evident in our work with homeowner associations. I’m always excited to see those new opportunities. The COVID-19 pandemic was a unique situation in which captives were able to show their worth, pivot quickly and provide business interruption cover as risks arose. That’s the approach I want to take: to be a partner in captive managers’ success. This can be beneficial to me as a regulator – if things are of concern, or an issue arises, I would rather people brought them forward and we can work through those together.
CR: What is your outlook for Utah for the rest of 2024?
TW: I’m feeling very positive, and that it will be similar to the past few years. I can’t name names, but some large companies have moved or formed their captives here, as evidenced by our significant premium growth. I expect to see growth numbers similar to last year’s, with potentially even more growth in the cell space with the reduction in capitalisation requirements.
We’ve had a lot of interest in the homeowner coverage association – we don’t yet know what this will end up looking like but it has gained a lot of traction. In general, I expect to see an increase in gross premiums, as we did last year – maybe not billion-dollar growth but some upward movement. We have a very positive outlook. I don’t like the hard market, but it does tend to benefit captives.
But we aren’t getting complacent, and I realise how competition is growing between captive domiciles. We are increasing efforts to attract foreign companies and make them aware of Utah as a captive insurance domicile. You don’t have to be a Utah corporation or US business to be here. We are planning to have a presence at the Cayman Captive Forum, and maybe go to Bermuda and Luxembourg as well. We are keen to make Utah more visible on a global scale.
