The Delaware Advantage
Delaware: One of the World’s Fastest Growing Captive Domiciles: Delaware is one of the fastest growing captive domiciles in the world. When Delaware formed the Bureau of Captive and Financial Insurance Products in 2009, Delaware had only 38 captive insurers. Today Delaware boasts over 550 active captives in various types including risk retention groups, special purpose captives, and sponsored cell captives.
Building on the “Delaware Advantage”: Delaware has traditionally been the preeminent and innovative domicile for U.S. businesses to incorporate. The Delaware Advantage is a collection of the many benefits the state of Delaware offers to traditional businesses. The advantages of domiciling a captive in Delaware build on these advantages, creating the ideal domicile for captive business.
Flexible and Modern Business Entity Statutes
· Delaware provides more flexibility than any other onshore jurisdiction with respect to the legal form of organization that a captive insurance company may take.
· Captive regulation is a “licensing” statute; Captive insurers may be organized as limited liability companies, partnerships, limited partnerships or statutory trusts.
· Allows a company to utilize a foreign entity, thereby offering expanded structural flexibility.
· Delaware’s positive, pro-business Chancery Court System is comfortable handling business & corporate issues.
· The Captive Bureau of the Delaware Department of Insurance is dedicated to attracting and serving the captive insurance industry. Staffed with a team of knowledgeable regulatory experts, the Captive Bureau maintains a significant partnership with the Delaware Business community and ensures that regulatory decisions are consistent.
· Delaware boasts a business-friendly state government in a prime location. Delaware is easy to get to and not far from the major financial centers of New York, Philadelphia, Boston and Washington, D.C.
· The stable political and corporate environment is bolstered by the Delaware Captive Insurance Association (DCIA) and a support network of management companies, law firms, banks, and accounting firms.
Significant Case Law Decisions
· Delaware boats a sophisticated judiciary with a reputation for excellence and fairness with an exemplary judicial record for corporate law.
Unsurpassed Corporate Law Expertise
· With its modern and flexible business laws, it’s no wonder that more than half of all U.S. publicly-traded companies and “Fortune 500” companies call Delaware their legal home.
Business Flexibility - Variety of Captive Types Permitted
Delaware provides great flexibility with respect to the legal form a captive insurance company may take. Depending on the particular type of captive insurance company involved, just about any domestic, foreign or alien corporation, LLC, partnership, limited partnership, statutory trust, reciprocal insurer or other entity could apply to act as a Delaware captive insurance company.
Delaware’s captive insurance company statute permits licensing of a captive insurance company that falls into one of the following categories:
· pure captive
· agency captive
· association captive
· branch captive
· industrial insured captive
· risk retention group (“RRG”)
· sponsored captive (i.e., a “protected cell captive” or “rent-a-captive”)
· special purpose captive (Series Captives)
· special purpose financial captive
Series Captives (SBUs)
Only a few US captive Domiciles allow series limited liability companies, which are set up to allow one core company to segregate its risks into subsidiaries and recognized as their own individual tax-paying entities. Delaware is one such state, but has taken the regulation a step further to allow series captives. Series captives are owned by a parent company with individual captives or cells. Unlike a segregated cell captive where the individual cells are treated as accounts, a series captive allows those individual members of the series to be treated like a captive. These Series Business Unites (“SBUs”) differ from a segregated cell captive in that SBUs exist pursuant to alternative entity laws and not pursuant to the captive insurance statutes that define protected cells. Some notable advantages of series captives:
· Not subject to the minimum premium tax requirement or a standard minimum capitalization.
· More flexibility to define its governance mechanisms.
· Can be designed for simpler administration than a protected cell captive.
· Series entity law protects the assets of one SBU from the debts & obligations of other SBUs.
Flat, Capped Premium Taxes
Delaware has flat rate premium tax structure. This approach simplifies calculation of premium tax payable by a captive insurance company. Moreover, the tax rate applicable to captive insurance companies with modest premium receipts is relatively lower in Delaware than elsewhere:
o 0.2% premium tax rate on direct premiums
o 0.1% premium tax rate on assumed reinsurance premiums
Additionally, there are annual caps on premium tax payments (premium tax on direct premiums is capped annually at $125,000, premium tax on assumed reinsurance premiums is capped annually at $75,000, with aggregate annual premium taxes thereby capped at $200,000). A captive employing at least 25 full time employees in Delaware has its premium tax capped at $50,000.