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Vermont’s latest “robust” captive bill addresses confidentiality, parametric and cells


  • More concise wording around confidentiality and reporting standards
  • Explicit legislation around captives converting to cell structures
  • Parametric policies can now be defined as insurance contracts under Vermont lawVermont’s latest “robust” captive bill addresses confidentiality, parametric and cells

Vermont Governor Phil Scott signed Bill H.659 on May 20, 2024, which includes important updates to the State’s statutes.

The Green Mountain State is the largest captive domicile in the world by number of captives, adding 15 new captives to its roster during the first quarter of 2024, taking the total number of captives to 669.



Its latest Bill cleans up legislation on confidentiality and information sharing, giving the Commissioner and the Department more discretion in disclosing captive material.

It also provides an update to the State’s cell legislation, providing specific provisions for captives wanting to convert to an unincorporated protected cell structure.

The Bill alters the language concerning parametric policies, removing the previous language which labelled parametrics as not insurance contracts.

The State updates its captive legislation each year to make sure it is proactive and keeping up with the contemporary needs of captive owners.

“For a very mature domicile, it’s great that every year the industry goes to the legislature and requests improvements to our Statutes,” Peter McDougall, president and director at Paul Frank + Collins P.C., told Captive Intelligence.

McDougall said that with Vermont having been a domicile for 42 years, many of the proposed changes can be relatively small, but each change is important.

“This year it is a pretty robust bill with improvements to our captive Statutes,” he said.

“It really demonstrates the ability of Vermont to be proactive and make sure our Statute is up to date and provide the best place for a captive to domicile.”

Sandy Bigglestone, deputy Commissioner for the captive insurance division at the Vermont Department of Financial Regulation, said they went through the entire Statute to make sure it is “consistent and affords all the right protections”.

“I think where we ended up was a very important update,” she said when speaking on episode #100 of the Global Captive Podcast.

Captive Intelligence published a Long Read in August highlighting that Vermont is not resting on its laurels having recently taken top spot for number of active captives, with a focus on “quality over quantity” and a continued recruitment drive both within the regulator and across the local industry.

Confidentiality

The latest Statute has streamlined the confidentiality provisions within the State, while at the same time allowing more flexibility for the Department when it comes to sharing and reporting captive information.

“The Commissioner may, in the Commissioner’s discretion, disclose or publish or authorise the disclosure or publication of any such record or report or any part thereof in the furtherance of legal or regulatory proceedings brought as a part of the Commissioner’s official duties,” the Statute noted.

“Neither the Commissioner nor any person who received documents pursuant to this subsection, material, or information while acting under the authority of the Commissioner shall be permitted or required to testify in any private civil action concerning any confidential documents, material, or information.”

McDougall said that Vermont is strong when it comes to confidential treatment of captive matters, “and I think these changes are just really to update the Statute”.

“I think it is the Department that mostly did the work on these proposals and spent time to really streamline the confidentiality provisions throughout the captive Statutes,” he said.

“It’s a good example of something that they probably didn’t need to do as the old language was probably sufficient, but this is certainly an improvement that helps with the understanding and interpretation of the Statute.”

Bigglestone said the Department has been working on its confidentiality interpreting and working within the confidentiality Statute over the past couple of years.

“Vermont had made some changes last year to fill gaps in terms of the information that could be requested, which Vermont wants to make sure is protected,” she said.

“That’s very important to captive insurance because it is private insurance for all intents and purposes, but there are times where we can share.

“We want to make sure we have the right protections in place and have the ability to use discretion to share when needed, and oftentimes we would get company consent.”

Cell legislation

The latest captive Statute includes explicit language permitting captives to convert to an unincorporated cell structure from other types of captive structure permitted under Vermont law.

“Subject to the prior written approval of the Commissioner, a captive insurance company domiciled in this State and organised as an agency captive insurance company, association captive insurance company, industrial insured captive insurance company, pure captive insurance company, risk retention group, or special purpose financial insurance company may be converted into an unincorporated protected cell,” the Statute said.

Bigglestone said it seems like Vermont tweaks its cell legislation every year to make sure it’s up to date, improved, and the easiest to use.

“It’s a great tool for many organisations and what we discovered was that while it’s very clear in the Statute that any cell can convert to any other type of captive, we found what was lacking was explicit language allowing any type of insurance company, or captive insurance company under Vermont Statute to convert into a cell,” she said.

It is common in the captive industry to see parent companies the subject of M&A activity, with the purchasing company already owning a captive.

“They may want to combine the captives but keep them separate for certain purposes and a cell structure might be a good way to do that,” McDougall said.

“They may want to segregate risks in a cell structure rather than have two separate pure captives, so it’s good to have this flexibility in place.”

Parametric

The latest Statute clearly permits captives to write parametric insurance contracts and strikes through previous legislation which stated that a parametric contract is not an insurance contract.

“Any captive insurance company that transfers risk by means of a parametric contract shall comply with all applicable State and federal laws and regulations,” the Statute noted.

Bigglestone said that the State made it explicit a few years ago that captives could enter into parametric contracts, but that they went a “little too far” with the wording.

“We wanted to be very conservative because there were federal rules relating to the SEC where parametrics are accounted for as swaps or derivatives,” she said.

“Our experience so far has been parametric contracts can very much be structured as insurance contracts.”

Bigglestone said the Department wanted to remove some language, so they were not causing confusion.

“Even though we believe we’ve seen the insurance contracts, and we believe our law does allow for it,” she said. “One area of the definition caused some confusion and so that should absolutely take care of it.”

McDougall said the second half of the section that’s been deleted was problematic in some instances because the State does already have captives writing parametric contracts that are considered insurance.

“In this language that’s stricken, it says that a parametric contract is not insurance,” McDougall said.

“It’s great the Department recognises that they may have gone a little bit too far with this language when they put it in place 2022 and they’re fixing it,” he said.

McDougall said around 70% of his captive clients have asked him about parametric insurance.

“When we talk to them about it it’s interesting, but I haven’t seen many take the step and act on it, so maybe this change might help,” he said.