In conversation
Captive Insurance in Connecticut
Why Domicile a Captive in Connecticut
Fenhua Liu is Assistant Deputy Commissioner and Director of Captive Insurance at the Connecticut Insurance Department. In this conversation she covers what the state competes on, what a regulator looks for before approving a captive, the capital required, the service providers a captive needs, what has to be filed each year, how a dividend gets approved, and what a protected cell captive is and who uses one.
Questions answered
Why would a captive choose to domicile in Connecticut?
Fenhua Liu makes an ecosystem argument rather than a price one. Connecticut calls itself the insurance capital of the world, and her case rests on what that means practically: a deep pool of actuaries, accountants, captive managers and brokers, and a large population of insurers already in the state that can front and reinsure captive business. She adds what the state has changed recently, naming pro captive legislative work over the past five years, a tax credit for licensed captives, and a low fee.
Watch from 1:04What does a regulator look for before approving a captive?
Fenhua Liu starts with structure rather than paperwork. The first questions are who owns the risk, who is insuring it, how strong the parent is, and whether the arrangement actually meets risk distribution and risk transfer requirements. From there the department reads the business plan and feasibility study, the corporate governance, the service providers chosen, and whether capital is adequate for the liabilities to be written, including aggregate limits and any fronting or reinsurance behind them.
Watch from 4:03What are the minimum capital requirements for a captive?
Fenhua Liu describes minimum capital as a floor set by captive type rather than a single number. Connecticut recently reduced those minimums by type: a pure captive sits lowest, an agency captive higher, and a risk retention group highest. What an applicant actually has to post is then adjusted by the risk profile and the actuarial opinion, which can require more than the statute does, and by whether a fronting carrier stands behind the programme, which can mean the department asks for less.
Watch from 6:04What service providers does a captive need?
Fenhua Liu sets a competence and character standard first, then names the core team: a captive manager or consultant, a CPA firm for the annual audit, and an actuary for the feasibility study. Beyond that it depends on the programme, and she lists brokers, claims adjusters, investment advisers, tax advisers, risk managers and industry specialists such as an information technology expert for a cyber book. Providers do not have to be located in Connecticut. The residency requirement lands on the board instead: at least one director must be a Connecticut resident.
Watch from 7:56What does a captive have to file with the state each year?
Fenhua Liu describes a compact annual obligation: an actuarial opinion supporting the loss reserves, and an audited financial report. The tax return goes separately to the Department of Revenue Services. Alongside the calendar filings sit the things that require permission first, including material business plan changes and any dividend back to the owners. What the department is watching for is solvency and liquidity, and she describes going back to a captive when the loss ratio runs high or capital and surplus fall.
Watch from 10:28Is it hard to get a captive dividend approved?
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.
Watch from 12:19How do you pause, close or move a captive out of a state?
Fenhua Liu treats dormancy, closing and moving as variations on the same process. Whichever exit is taken, the department first confirms there are no outstanding liabilities, that claims have been paid and obligations met, and that fees and premium tax are settled. Dormancy runs off a checklist and is quick. Closing ends in a dissolution filing or the return of the licence. Moving to another domicile requires the receiving regulator's approval, and where business moves between captives it is done by novation agreement with confirmation from both states.
Watch from 14:01What is a protected cell captive and who uses one?
Fenhua Liu defines a protected cell as a segregated account attached to a sponsored captive, each cell owned by its own participant. The separation is the whole point: assets, liabilities, obligations and surplus do not cross between cells, so one cell's surplus is not available to pay another cell's obligations. She says companies choose cells to save cost, and describes participants renting a cell that still behaves like their own pure captive while sharing the fees, the tax filings and the sponsor's structure.
Watch from 16:59Does a regulator treat a real estate captive differently?
Fenhua Liu says real estate is simply one industry among many in a book of over a hundred captive entities, and that the department treats each application on its risk profile rather than on the sector behind it. What it reads is the same list every time: whether there is enough capital to pay claims, the aggregate limit and sub limits, whether there is a fronting carrier, and who owns the risk. She does allow that different industries carry different exposures and risk management needs, while the review philosophy stays the same.
Watch from 19:48How does a regulator assess a captive's reinsurance?
Fenhua Liu treats reinsurance as central to solvency rather than as a schedule item. The department looks at who the proposed reinsurers are and asks one question: if this cover is triggered, will the money actually arrive. A reinsurer rated A minus or above by AM Best reads as more credible. Where the risk is ceded to an affiliate or to a smaller reinsurer, the department may require additional collateral behind the reserves so the claims can still be paid, and where a reinsurer is unrated it examines the financial strength directly.
Watch from 21:59What should you do before you form a captive?
Fenhua Liu's advice is about what happens before an application exists. Start from the department's published list of captive service providers, managers, CPAs and actuaries, and interview them rather than taking the first name offered. Make sure the captive is being set up as a genuine risk management solution aimed at long term success, develop the corporate governance to support that, and negotiate with providers on both service quality and cost. She also suggests taking tax advice on whether a captive is right for the business at all.
Watch from 24:03The 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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