Captive legislation signed into law late last week, among other provisions, creates a “dormant” status for captives, allowing a captive that has ceased insurance operations to cost-effectively retain its license so that it can eventually resume operations.

The new legislation, which takes effect immediately, offers a feasible option to closing a captive, said David Provost, deputy commissioner of Vermont’s captive division, who worked with the Legislature on the new changes.

He told Risk Management that the state currently has about 10 captives that fall into this category. “There are a number of situations that could prompt a company to close its captive,” he said. For example, the captive’s parent company could be in a net-loss situation for an extended period of time and “any tax benefit they had with the captive disappears and so they close the captive.”

Another example is a merger, “where the acquiring company says, ‘We’re not in the insurance business.'” The new law allows management to keep the captive “until it realizes the benefits it provides,” he said. “This is an option to very inexpensively keep their license active. They can pay the license fee, skip the taxes, and then if they are ready to resume the captive, it’s already here.”

Holding onto the captive’s license means the parent company can avoid reincorporating or going through the application process again. What’s more, the captive managers and other business relationships are already in place. Controls are also built into the legislation, so that even though the captive is an “empty shell,” the company still provides regular reports to the domicile, Provost said.

The legislation was crafted with input from the Vermont Captive Insurance Association. A complete copy of the bill will be posted on the Vermont Legislature’s website, a copy of the bill as passed with amendments is available at: http://www.leg.state.vt.us/docs/2014/bills/Passed/H-563C.pdf.