Frequently Asked Questions

Why has Delaware revised its captive insurance laws?

• Delaware has consistently been at the forefront of business development and strives to maintain its reputation as a preeminent business jurisdiction. Captive insurance has become a sought after business discipline and, accordingly, members of the business community felt it was time to revisit Delaware's captive insurance statute and to update the statute to make it more attractive and competitive with other jurisdictions.

What is captive insurance?

• Captive Insurance is a risk management tool which allows businesses to more effectively and efficiently manage corporate risk. In addition, it offers a more efficient means to retain risk within the corporate structure.

What type of company can benefit from captive insurance?

• Captive Insurance can suit a range of companies. Large corporate structures often benefit from creating a wholly-owned captive, or "pure captive" to insure risks germane to the organization's business needs. Smaller companies can benefit from captive insurance planning by aligning with other similarly situated companies and participating in a group captive, association or sponsored captive insurance company.

At what point does the use of a captive insurance company become cost effective?

• As with any new business structure, there are certain administrative costs which may create a threshold for participation. Typically, the minimum corporate premiums required to make a pure captive cost effective would be approximately $750,000. To participate in a sponsored or group captive, the minimum is typically $200,000.

What are the advantages of setting up a captive insurance company in Delaware?

• Delaware has a rich history as a business friendly state with a well established infrastructure. Delaware is convenient for travel and surrounded by attractions and entertainment options, which make it a desirable destination.
• Delaware's revised statute will provide for such things as:
• Flexible choice of entity
• A low and predictable premium tax
• A "special purpose captive", which allows for licensing of nontraditional captives
• Delaware's service provider industry is poised to provide a full complement of services to captives in Delaware.

How is a captive insurance company taxed in Delaware?

• Captive insurance companies, like traditional insurance companies, are taxed on their premium income. Any investment or otherwise passive income is exempt from Delaware state income tax.

What is the first step in forming a captive?

• There are several ways to initiate the process of forming a captive insurance company. Many of the large insurance brokers can point you in the right direction. You can also contact a captive manager who can initiate the process with a feasibility study and customize the right plan for your organization. In addition, you can seek information from attorneys who practice in the field.

Who do we contact for more information?

• The Delaware Captive Insurance Association is an organization consisting of industry members and captive insurance companies and can provide more information on captive insurance in Delaware. You can go to the Association's website at delawarecaptive.org, email us at inquiry@delawarecaptive.org or contact Richard Klumpp, Interim Executive Director at (302) 651-8356.

An Overview of the Delaware Statute and Benefits of Forming a Captive in Delaware

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