Redomesticating a Captive Insurer
At some point in a captive insurer’s existence, it may want to “shop around.” That is, the insurer may decide it should move its domicile, extract itself from the authority of its home jurisdiction, and reestablish itself in another, more advantageous jurisdiction. This process is called “Redomestication.”
Redomestication is not simply the process of moving a corporation’s business, office or operations to another jurisdiction. Simply doing that would subject the captive to the laws of its new jurisdiction, but the captive would still be subject to the laws of its old jurisdiction as well. Redomestication is a process going a step further, by which the captive ceases to be subject to its old domicile and voluntarily submits itself to its new domicile. Granted, redomestication is not peculiar to the captive insurance industry; however, this blog will discuss the process of redomestication as it specifically applies to captives.
Redomestication from one domicile to another domicile can provide benefits to the right captive insurers.
First, captive jurisdictions have differing rules on what lines of insurance are allowable for a captive to write. If a captive desires to write new or additional lines of business not currently allowed in its domicile, it might benefit from redomesticating.
Also, a captive may discover another jurisdiction’s regulatory regime is much more conducive and friendly to its business. This may be something as simple as the lower capital requirements (compare, for example, the lower requirements of North Carolina versus the Commonwealth of Puerto Rico). It may be something more intangible, such as the experience of the captive manager that one jurisdiction’s regulators work with the manager and its captives more cooperatively. It may even be that another jurisdiction is actively seeking redomestications by offering the redomesticating captives streamlined processes and a business friendly atmosphere. In any event, redomestication can allow a captive to move to where it is treated best.
For the right captive, redomestication can result in lower annual compliance costs, freeing up of excess capital, and the potential for better profits.
The Process of Redomestication.
Redomestication is more than simply moving the captive’s base of operations. It is a two-jurisdiction process: the captive has to divorce itself from its current domicile at the same time it has to obtain permission from its prospective new domicile. Each part will be conditional on the other jurisdiction jointly approving.
The process will depend in part upon which jurisdiction the captive is leaving, and which jurisdiction will be the redomestication destination. But at a state level, in general, the captive will need to obtain the permissions of its home domicile department of insurance and secretary of state, at roughly the same time it is filing its application for redomestication with the new domicile’s department of insurance which, upon being approved, will be filed with the new domicile’s secretary of state.
The ease of the process will depend in part upon the captive itself: if the captive has potential outstanding claims or regulatory compliance issues, it may be harder to obtain the requisite permissions from its old domicile. Similarly, if the captive is carrying “baggage” with it (e.g. a previous history of compliance issues), that reputation will often precede the captive such that the “new” domicile may be hesitant to allow it entry.
Redomestication of a captive insurer, in the right circumstances, can allow potential regulatory and business benefits to the captive. It can allow the captive to alter its lines of business in some cases, and in others to find a jurisdiction with requirements more friendly to the captive and conducive to doing business.
If you need advice on redomesticating your captive insurer to North Carolina, don’t hesitate to contact me.
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