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Missouri The Captive Domicile Close to Home

Missouri The Captive Domicile Close to Home. John F. Rehagen, CFE Captive Program Manager. Kansas City Area RIMS November 9, 2010. Missouri Captive Insurance. Background Missouri Captive Law Advantages Future Expectations. SLIDE. Missouri Captive Insurance: Nov. 9, 2010.

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Missouri The Captive Domicile Close to Home

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  1. Missouri The Captive Domicile Close to Home John F. Rehagen, CFE Captive Program Manager Kansas City Area RIMS November 9, 2010

  2. Missouri Captive Insurance Background Missouri Captive Law Advantages Future Expectations SLIDE 2 Missouri Captive Insurance: Nov. 9, 2010

  3. Background History of the Missouri Program Law Enacted August 2007 Collaboration of Midwestern Business, Insurance Companies and Missouri Government They wanted their captive operations close to home Seen as an economic development tool by the state Originally signed by Republican Governor Expansion signed by current Democratic Governor SLIDE 3 Missouri Captive Insurance: Nov. 9, 2010

  4. Background History of the Missouri Program 9 captive licenses issues as of 9/30/2010 First Pure Captive licensed, November 2007 First Special Purpose Captive Licensed, December 2007 First Association Captive Licensed, April 2009 Expect as many as 15 licenses issued by YE 2010 Premium Written by Captives Exploding $30 Million in 2007 $123 Million in 2008 $1.1 BILLION in 2009 $1.6 BILLION estimated in 2010 SLIDE 4 Missouri Captive Insurance: Nov. 9, 2010

  5. Background The Missouri Department Receives no taxpayer money, funded by fees paid by its licensees and regulated entities More than 500,000 members of Missouri’s workforce are licensed by the department More than 7,000 companies are licensed or registered with the department Full time staff of 534 2009 FY budget $36.9 million SLIDE 5 Missouri Captive Insurance: Nov. 9, 2010

  6. Background The Missouri Department Director appointed by the Governor an industry expert Seven divisions with long-term leaders and employees in place Tasked with enforcing the laws and regulations of the state Mission: To efficiently and effectively encourage a fair and open market for consumer service industries. Key objectives: Protect consumers, encourage competitive marketplace and enhance state-based regulation. SLIDE 6 Missouri Captive Insurance: Nov. 9, 2010

  7. Background The Captive Team Department Director: John M. Huff formerly with Swiss Re Division Director: Fred Heese CPA, CFE, 25+ Experience Captive Program Manager: John Rehagen, CFE Support Staff Captive Financial Analyst- AFE Reinsurance Examiner- CPA, ARe, 20 + Experience Life & Health Actuary- 30 + Experience P&C Actuary- 30+ Experience Division Counsel- 25+ Experience Primary Consultant- Milliman, an experienced international firm SLIDE 7 Missouri Captive Insurance: Nov. 9, 2010

  8. Missouri Captive Law Formation Types Pure Captive Association Captive Industrial Insured Captive Branch Captive Special Purpose Life Reinsurance Captive SLIDE 8 Missouri Captive Insurance: Nov. 9, 2010

  9. Missouri Captive Law Requirements Pure/Branch Captives Insures owners, affiliates and unaffiliated controlled entities Minimum capital and surplus $250,000 GAAP Financials Stock, Nonprofit or LLC Industrial Insured Captive Insurers members of the industrial insured group Minimum Capital $500,000 GAAP Financials Stock, Mutual, LLC or Reciprocal SLIDE 9 Missouri Captive Insurance: Nov. 9, 2010

  10. Missouri Captive Law Requirements Association Captives Insures association members Minimum capital and surplus $750,000 GAAP or SAP Financials Stock, Mutual, LLC or Reciprocal Special Purpose Life Reinsurance Captive Insurers life insurance company affiliates Minimum Capital $250,000 SAP Financials Stock, MO Statutory Close Corp, LLC or other form approved SLIDE 10 Missouri Captive Insurance: Nov. 9, 2010

  11. Missouri Captive Law Ongoing Requirements (Typical with all domiciles) Principal place of business in Missouri Annual board meeting in the state Resident incorporator and board member Resident agent for service of process Use of approved service providers Material changes in business plan, dividend payments, loans or investments in affiliates and organization changes require prior approval. Annual tax filing Annual financial filing Renewal Fee (Which is deductible from premium tax) Audited financials and reserve certification. SLIDE 11 Missouri Captive Insurance: Nov. 9, 2010

  12. Missouri Captive Law Captive Fees Application/Licensing Fee $7,500 Annual Renewal Fee $7,500 Fees are fully deductible from premium tax, no other hidden fees One time Actuarial Application Review Fee $4,000 maximum Payable to the actuarial review firm assigned by the Department Premium Tax Rates Millions of $ Direct Premium Assumed Premium 0-20 0.380% 0.214% 20-40 0.285% 0.143% 40-60 0.190% 0.048% 60+ 0.072% 0.024% Minimum Tax $7,500, maximum $200,000 Don’t forget to deduct annual fees, many captives pay no premium tax SLIDE 12 Missouri Captive Insurance: Nov. 9, 2010

  13. Missouri Captive Law Similarities with other Domiciles Very low tax rates Formation types Minimum capitalization levels Application requirements On-going requirements Coverages allowed SLIDE 13 Missouri Captive Insurance: Nov. 9, 2010

  14. Missouri Captive Law Differences from other Domiciles Fees deductible from premium tax Only one fee, no additional fees for each filing Fee structure allows responsiveness and growth Alien redomestication stated in law No resident captive manager required Self management allowed in some cases Does not allow Cell or RRG’s (Less NAIC/IRS scrutiny) LOC’s Surety Bonds & Financial Guarantee Policies admitted for SPLRC 60 day decision required by SPLRC, others 30 or less Biggest difference we have an office right here in Kansas City SLIDE 14 Missouri Captive Insurance: Nov. 9, 2010

  15. Missouri Captive Law Recent Changes Revised Effective August 2009 Removed restrictive investment requirement. Standardized number of resident incorporators for all types Added reciprocal organizational type Added Alien redomestication Eased admittance requirement for SPLRC assets Solidified department funding to allow for growth Changes encouraged continued growth and made Missouri more attractive not only for companies out of state but in state as well. SLIDE 15 Missouri Captive Insurance: Nov. 9, 2010

  16. Missouri Advantages Location Central Location, close to the majority of the country Direct flights from every major city in the country Borders 8 states and has 20 relative next door neighbor states Department utilizes offices in KC, STL and Jefferson City Direct access to the decision makers at the department who will come meet with you if needed. Allows for prompt attention to your captive needs All this allows for efficiency and reduces business cost SLIDE 16 Missouri Captive Insurance: Nov. 9, 2010

  17. Missouri Advantages Other Advantages Large commercial carriers in state unlike most captive domiciles Allows for potential reduction in fronting carrier collateral. Captives admitted, not subject to self procurement tax in Missouri, eliminate fronting cost entirely. Offshore captives can redomesticate Remove negative perception related to offshore captive activities Eliminate need for separate SAP statements and auditor fees Lower cost of living here, reduce service provider fees Recognition as a good corporate citizen keeping dollars at home Local captive service providers and consultants right here ready to help you make your captive a success. SLIDE 17 Missouri Captive Insurance: Nov. 9, 2010

  18. Missouri Advantages Companies interested in Missouri Large National and International Companies Banks and Financing Companies Privately Held and Midsized Companies Professional/Trade Associations Owners of Existing Captives- Missouri subsidiary or Branch less cost Redomestication- Moving Captive Closer to Home Companies with significant exposures in Missouri Large Life Insurance Companies SLIDE 18 Missouri Captive Insurance: Nov. 9, 2010

  19. Missouri Advantages Proposed uses for a captive Nearly all coverages are allowed Fund Deductibles Commercial auto, property and liability Excess Workers Compensation Warranty Product recall Franchisee and Distributor cover Business Interruption Cover exclusions Performance Bonds TRIA Credit Insurance Med Mal E&O Employee Benefits Access to Iowa FHLB loans Reduce surplus strain from term life reserves SLIDE 19 Missouri Captive Insurance: Nov. 9, 2010

  20. Missouri Advantages Licensing Process (usually 30 days or less) Discuss your captive plans with the Department Complete the application and provide requested documents Licensing Fee, Draft Articles and Bylaws, Bio’s, Business Plan, Feasibility Study, Proforma Financials (Example docs are available to aide the applicant) Department reviews documents and issues a certificate of General Good Certificate and other organization docs are filed with the Missouri Secretary of State to form the captive insurance company Department consulting actuary will review and issue an opinion, which is paid for by the applicant Place the minimum capital and surplus in the captive Department issues the license Place additional recommended capital if any into captive and commence business SLIDE 20 Missouri Captive Insurance: Nov. 9, 2010

  21. Missouri Advantages Redomestication Process Basically a streamlined licensing process to change address Discuss your captive plans with the Department File the application material with some differences File draft articles of domestication which are amended to meet Missouri law In lieu of feasibility study simply provide the last three years annual statements, current year quarterly statements, most recent audit and examination if any Provide a no objection letter from existing domicile indicating no regulatory issues In most cases no outside actuarial review will be required. Department reviews documents and issues a certificate of General Good to request that domesticating company continues its legal existence in Missouri Certificate and other organization docs are filed with the Missouri Secretary of State to domesticate the captive insurance company License will be issued upon certification of domestication Foreign or Alien captives are allowed to redomesticate SLIDE 21 Missouri Captive Insurance: Nov. 9, 2010

  22. Future Expectations 2010 Outlook and beyond Interest in redomestication from both on shore and offshore domiciles has spiked as a result of the recent changes in the law Currently three additional applications are under review, more expected Several Missouri companies are in the feasibility stage Several Midwestern companies are in the feasibility stage Future plans for several Insurance Companies include more SPLRC’s Continued steady increase in new licenses issued each year Continued steady increase in premium written each year Continued increase in local service providers Continued benefits to our local economy SLIDE 22 Missouri Captive Insurance: Nov. 9, 2010

  23. Future Expectations Captive Insurance Association Leading service providers from around the country recently organized the Missouri Captive Insurance Association Association intents to be a means for service providers to network among themselves and captive owners to publicize their services Plans to market the Missouri Captive Program across the country Intends to develop relationships with other Captive Associations to provide access to high quality training and current captive information Anticipates working closely with state government to keep the Missouri captive law attractive Looking for more membership to help promote the benefits of captive insurance in Missouri Interested in learning more, email the Executive Director at mocaptive@gmail.com or visit their website at mocaptive.com. SLIDE 23 Missouri Captive Insurance: Nov. 9, 2010

  24. Future Expectations Missouri’s vision is to become the leading domicile in the Midwest Location, simple processes and an updated law is making it happen The Department is experienced with stable leadership The state has embraced captive insurance Missouri offers unique opportunities Using our Midwestern work ethic and common sense approach Listening to applicants and working with them on their plans The law was designed for local businesses like yours Let’s talk about how you can benefit by keeping your captive close to home Questions??? SLIDE 24 Missouri Captive Insurance: Nov. 9, 2010

  25. Contact us John F. Rehagen, CFE Captive Program Manager Missouri DIFP 301 W. High St., Suite 530 Jefferson City, MO 65101 Phone:573-522-2563 Fax: 573-751-5888 E-mail: John.Rehagen@insurance.mo.gov SLIDE 25 Missouri Captive Insurance: Nov. 9, 2010

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