Captives Find New Home in Michigan

Michigan will become the newest U.S. captive domicile under a bill now awaiting Gov. Jennifer Granholm's signature. The bill swiftly passed the House of Representatives and the Senate. House legislators made changes favored by Office of Financial and Insurance Services Commissioner Ken Ross that included an increase in renewal fees in order to pay for staffing and training needs, said Pete Langley, chief of staff to bill sponsor Sen. Alan Sanborn, R-11th Dist. The bill also authorized OFIS to contract out some related services to businesses with experience managing captive regulations. 
 
"We believe this is a good opportunity to promote Michigan's economic growth and allow some of our domestic insurers to add jobs and business," Langley said. 
 
Ross is pleased with the changes and is supportive of the current bill, Ross' spokesman Jason Moon said. 
 
Peter Kuhnmuench, executive director of the Insurance Institute of Michigan, said his members are supportive of the legislation. "They've got the tools they need in Michigan," he said. 
 
Jackson National Life, in particular, has intentions to take advantage of the new law, he said. 
 
"This will give companies like Jackson more flexibility to run their business in the most efficient manner possible," Jackson spokesman Tim Padot said in a statement. 
 
After an initial application fee of $10,000, the amended legislation will assess captives an annual renewal fee of $5,000 to $100,000, based on the size of total annual premiums. It will also establish minimum capital and surplus requirements of $150,000 for a single-parent captive and $400,000 for an association captive established as a stock company or limited liability company. 
 
An association captive insurance company incorporated as a mutual insurer will face a $750,000 capital and surplus requirement. Minimum requirements for a sponsored captive providing coverage through protected cells will range from $150,000 to $300,000, depending on variables including the number of cells. 
 
Once Granholm signs the bill, Michigan will join Illinois as the only captive domiciles in the upper Midwest. 
 
As more states explore the captive market, they could face diminishing returns, said former Washington, D.C. Insurance Commissioner Lawrence Mirel, who created the district's domicile status during his tenure. 
 
By becoming a captive domicile, Michigan will give state-based insurers the opportunity to grow a new line of business without registering outside the state, Kuhnmuench said. 
 
In July of last year, Missouri became a U.S. captive domicile with passage of a law setting out minimum capital requirements of $250,000 for single-parent captives, $750,000 for association captives and $1 million for risk retention groups. It was estimated that 50 or more new captives could be formed in the state over the next three years, bringing in as much as $10 million in new taxes and fees to the state.