What are the minimum capital requirements for a captive?
The statutory minimum is a floor, and three things move what you actually post
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.
The first thing to understand is that the statutory minimum is a category, not a quote. Connecticut sets a different floor for each type of captive, and Liu runs through them in order: a pure captive lowest, an agency captive above it, and a risk retention group substantially higher again. Association captives and the special purpose vehicles get their own treatment.
She also notes that the state moved these numbers recently through legislation, reducing minimums by captive type. A figure an adviser quoted a few years ago may simply be out of date.
Key takeaways
Connecticut sets minimum capital by captive type and recently reduced those minimums through legislation, so older figures may be stale.
The department can require more than the statutory minimum where the risk profile and the actuarial opinion say the programme needs it.
A strong fronting carrier behind the programme can reduce what the department asks for, and its absence can increase it.
The number that matters to an applicant is usually not the floor. Liu is explicit that even where the minimum is met, the department may require more capital based on the risk profile and on what the actuary concludes the programme needs.
That is the same pattern Utah's director described: the statutory minimum sets the lower bound and the actuarial work sets the operative one. An applicant planning against the statutory number alone is planning against the wrong number.
From the conversation
Fenhua Liu
Assistant Deputy Commissioner and Director of Captive Insurance, Connecticut Insurance Department
“We did reduce the minimum capital requirement by type of captives.”
Transcript
Read the full transcript 5 turns
HostWhat are the minimal capital requirements and collateral requirements that the state imposes, and how are they decided
Fenhua Liu? Connecticut has recently passed less return. We did reduce the minimum capital requirement by type of captives. For example, for pure captives, the minimum capital requirement is only $15,000. However, we're going to look at their risk profile on their actual opinion, make sure their capital can meet their requirement based on their
Fenhua Liurisk profile. So even though it's the minimum, but we still may require more capital based on the actual report. And for other captives, for example, agency captive, we ask for minimum of $75,000. And for risk rotation rule, we still keep a million dollars minimum capital. And for others, for example, association captives, and
Fenhua Liuindustry insured captives, or any other special perfect financial vehicle captives, or sponsor capital licensed as a special perfect financial vehicle captives, we all look at their, do they have a fronting services or not? Do they have a fronting carrier? If not, we may ask more capital, but if they do have a very strong fronting companies, we may ask for less captives. It all depends on type of captives and
Fenhua Liutheir risk
Citations
Sources
- Captive Insurance Regulation, Connecticut Insurance Departmenthttps://portal.ct.gov/cid/mission-and-divisions/captive-insurance
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