What are the minimum capital requirements for a captive in Utah?
The statutory floor is one number and the actuary's number can be higher
Travis Wegkamp gives the minimum capital by captive type, and says the pure captive minimum covers the majority of what Utah licenses. Then he adds the part that matters more in practice: the statutory floor is not always the operative number. If the feasibility study's actuary concludes the programme needs more capital to be feasible given the lines and limits proposed, the department wants to see that higher amount confirmed at the bank before it issues the certificate of authority.
Wegkamp runs the minimums by structure. A pure captive carries the lowest floor and is the majority of what Utah licenses. An association captive sits above it, a risk retention group higher again, and a sponsored insurance programme matches the pure captive figure with a portion of it required to come from the sponsor and stay there.
He also notes that an individual cell inside a sponsored programme carries no minimum capital requirement of its own.
Key takeaways
Wegkamp gives a different statutory capital minimum for pure captives, association captives, risk retention groups and sponsored programmes, and says the pure captive case is the majority in Utah.
An individual cell has no minimum capital requirement of its own, while a sponsored programme requires part of its capital to come from and be maintained by the sponsor.
The actuary's feasibility determination can require more capital than the code does, and the department wants that amount confirmed at the bank before issuing the certificate of authority.
The more useful half of the answer is what overrides those numbers. Wegkamp explains that any additional capital the department needs to see before issuing a certificate of authority comes from the feasibility study and the actuary's determination of what the programme needs to be feasible.
His worked example is direct: given the coverages and limits a captive wants to write, an actuary might conclude the programme needs substantially more than the statutory floor, and in that case the department wants a bank confirmation of the larger amount before the certificate is issued.
From the conversation
Travis Wegkamp
Director, Captive Insurance Division, Utah Insurance Department
“capital requirements to start off with a typical pure captives, the minimums $250,000”
Transcript
Read the full transcript 5 turns
Hostwhat are the minimum capital requirements and collateral requirements the state has in place? But also, if you could estimate what is kind of an out-of-pocket cost for someone getting a captive started, you've seen plenty of these feasibility studies before. What should a business is trying to do this for the first time budget? So
Travis Wegkamp, yeah, I'll go over all that, but also, if possible, I'd point people to our website, particularly, as I mentioned, insurance.utaw.gov/captiv, particularly under the research section, there's a captives in Utah basics, and it gives kind of all this information as well as some estimates on some costs and things like that. But yeah, capital requirements to start off with a typical pure captives, the minimums $250,000, and
Travis Wegkampthat's the majority that we see here in Utah. There are larger ones, association captives, $500,000, an ROG, $700,000, and then the sponsored insurance program would be $250,000 as well, and a minimum of $50,000 must come from the sponsor at all time be maintained by them. The rest, then, can be made up of the sales once they come on board,
Travis Wegkamp, and no minimum requirement for a sale in terms of capital. Any additional amounts that we might want to see or need to see, capitalized before we would issue a license, a certificate of authority, would be based essentially off the feasibility study and the actuaries' determination of what needs to be there for the program to be feasible. For example, if based on the
Travis Wegkampamount of coverages they want to write, the limits in those coverages, maybe the actuaries would say, minimum, you need a million in there to make this program feasible. So, above the $250,000, we'd want to see a bank confirmation of the million there before we would issue the certificate. A lot of times, the $250 is fine, and then they infuse that whatever additional is needed in there with upfront premium payments on those lines of coverages that
Citations
Sources
- Captive, Utah Insurance Departmenthttps://insurance.utah.gov/captive
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