Is it hard to get a captive dividend approved?
Not hard if the ratios hold up after the money leaves
Fenhua Liu's answer is that difficulty depends on financial strength rather than on policy. The department already holds the audited financial report and examines companies on a cycle, so when a dividend request arrives it is reading a captive it knows. It looks at capital and surplus, liquidity, the loss ratio and the multi year trend, and asks one question: after this money leaves, do the ratios still hold. Where they do, she says the department typically approves and processes it quickly.
The framing matters. Liu does not describe a dividend as something to be justified, she describes it as something to be tested. The test is whether the captive is still sound on the other side of the payment.
That is why she starts with financial strength rather than with process. A captive with strong ratios is asking an easy question; a captive with weak ones is asking a hard question regardless of how the request is written.
Key takeaways
Liu says the difficulty of a dividend depends on the captive's financial strength rather than on departmental policy.
The department reviews capital and surplus, liquidity, the loss ratio, and the trend across recent years before releasing a distribution.
Connecticut examines captives on a five year cycle, and strong governance and audited financials can let a pure captive go longer between examinations.
The department is not reading the captive cold. Audited financial reports are already on file, and Connecticut examines companies on a five year cycle, with pure captives able to go longer where corporate governance and audited financials are strong.
Liu describes looking more closely at a captive outside that pattern. The practical implication is that governance quality does not just satisfy the regulator at licensing, it buys lighter handling later.
From the conversation
Fenhua Liu
Assistant Deputy Commissioner and Director of Captive Insurance, Connecticut Insurance Department
“We typically approve it.”
Transcript
Read the full transcript 4 turns
HostSo how the dividend process, a lot of people, they want to get into captives because they get to keep the unrunning profit and investment income. Is it a very difficult process to get approval to dividend back on the capital of the captive as well capitalized? Actually
Fenhua Liu, it's not really depends on their financial strengths. As I mentioned, in Connecticut, they have to file with audited federal report. We also do examinations every five years for the company. Except the pure captive, they can wait if they have very strong corporate governance and they have very strong financial audit, financial reports. Other than that, we
Fenhua Liulook down very closely. Let's see if they send a dividend request. We're going to look at how much the
Fenhua Liucapital has suffered. What's the liquidity look like? What about the loss ratio? What's the trend they have had over the past few years? If we feel like we look at all the ratios, we feel comfortable after the dividends is distributed and then the ratio still remains strong. We typically approve it. We process this very
Citations
Sources
- Captive Insurance Regulation, Connecticut Insurance Departmenthttps://portal.ct.gov/cid/mission-and-divisions/captive-insurance
The views expressed are those of the featured guest, drawn from a recorded conversation, and reflect their own professional experience. Nothing on this page is insurance, tax, legal, or investment advice. Consult your own advisors about your specific situation.
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