How does a regulator decide whether a captive can pay a dividend?
A request, a look at the financials, and a check that the floor still holds
Mark Wiedeman describes the dividend process as pretty straightforward. The captive submits a request, the department typically asks for a copy of the financials to see where the captive stands from that snapshot position, and then runs the process, which he says usually takes a couple of days to turn around. What the department is checking is that the captive keeps enough to maintain its minimum capitalization and enough to cover loss if it needed to. He adds a preference rather than a rule: he believes they ask that a captive be in business for a year or so, and would prefer a captive trade for a little while before it starts asking for money back, though that is looked at case by case.
The mechanics are light. A request goes in, the department typically asks for financials, and Wiedeman says it usually takes a couple of days to turn something like that around.
That timing is worth reading as his description of the normal case rather than a service standard. The answer is about a straightforward request on a healthy captive.
Key takeaways
A Tennessee dividend starts with a request and a copy of the financials, and Wiedeman says it usually turns around in a couple of days.
The department checks that the captive still holds its minimum capitalization and enough to cover loss.
He says they prefer a captive to have been in business for a year or so first, looked at case by case.
The test is a floor test. The department wants to see the captive maintaining enough in its coffers to keep its minimum capitalization, and enough to cover loss if it needed to.
That is the same solvency question that decides licensing, applied at the moment money leaves. A dividend that would take the captive below its statutory floor is not a dividend the department is being asked to approve.
From the conversation
Mark Wiedeman
Director, Captive Insurance Section, Tennessee Department of Commerce and Insurance
“we would prefer a captive be in business for a little while before they turn around and start asking for money from it”
Transcript
Read the full transcript 5 turns
HostWhen captive owners finally get that pot of gold and they want a dividend back to the parent company, how does that process look in Tennessee
Mark Wiedeman? It's pretty straightforward. They just submit a request for a dividend. They typically ask for a copy of their financials. We could just kind of see where they are from that snapshot position. And then we run the process. It usually takes a couple days to turn something like that around. We want to make sure that they're maintaining enough in their coffers to be able to keep, you know, maintain their minimum capitalization as well as, you know, enough
Mark Wiedemanto cover loss if they needed to. But typically, it's a fairly straightforward process
Host. And that can happen, you know, with a couple days heads up or a week or so heads up. Yeah, they
Mark Wiedemanjust send it in to us and then we start processing it. You know, we do try to ask that a captive be in business for, I believe, a year or so. You know, we would prefer a captive be in business for a little while before they turn around and start asking for money from it. But that's usually done on a, you know, we just kind of look at that on a case-by-case basis and see where they're at
Citations
Sources
- Captive Insurance Section, Tennessee Department of Commerce and Insurancehttps://www.tn.gov/commerce/insurance/captive-insurance.html
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.
Corrections or removal requests: contact@captiveip.com