Much anticipated legislation has been introduced to clarify language defining captive insurers in the Nonadmitted and Reinsurance Reform Act of 2010 (NRRA), the State of Vermont announced.

The bill was introduced by Sen. Patrick Leahy (D-VT) and Sen. Lindsay Graham (R-SC) in the U.S. Senate. A companion bill was introduced by Rep. Peter Welch (D-VT) in the U.S. House of Representatives.

The issue had to do with whether captives are considered nonadmitted insurers if they are domiciled outside of their home state, and whether such a captive would be required to pay a self-procurement premium tax to its home state. Because of this ambiguity, some companies were hesitant to domicile captives outside of their state and some were redomiciled.

“Congress never intended the NRRA to include captive insurers, and the legislation I have introduced with Sen. Graham would simply clarify congressional intent,” Sen. Leahy said in a statement. “It is a straightforward, commonsense clarification that will give needed assurance to the captive insurance industries in Vermont, South Carolina, and across the country.”

Sen. Graham noted that the legislation, “will enable organizations to have a choice in where they domicile their captive. Our legislative fix will create opportunities for this emerging industry and I hope Congress will push it into law.”

The legislation “clarifies a provision within NRRA to ensure that captives in Vermont and around the country continue to operate in the same responsible way that they have for decades,” Rep. Welch said. “I am pleased to work with Senators Leahy and Graham on this practical fix to an unintended consequence.”

The new wording defines a “captive insurance company” as wholly owned, directly or indirectly, by a single parent company, group of companies or by an industry, trade, or service group or association whose primary purpose is to provide insurance to cover the risks of the organization.

The wording change has been the focus of the Coalition for Captive Insurance Clarity, formed by the captive industry in 2012 under the leadership of the Vermont Captive Insurance Association (VCIA).