By JOSHUA CLIFTON, a Chicago-based writer who covers workers' comp and disability issues
Maine is welcoming its first captive, and state insurance officials are predicting it won't be the last.
A law allowing for the formation of insurance
captives has been on the books since 1997, but in 2009, lawmakers set out to restructure the captive law, which insurance experts said contained too many restrictions and provided an unfriendly climate for insurers. New incentives signed into law by former Gov. John Baldacci last year prompted First Maine Captive, an initiative of three workers' compensation group self-insurers in the state, to set up shop.
The new measures eliminate Maine's captive premium tax, expand the definition of association captives, allow the formation of sponsored and branch captives, and ease restrictions on the investment of captive assets by pure captives.
Speaking on behalf of the first captive, administrator Russell Peterson, founder of R.A. Peterson Associates LLC in York Harbor, Maine, said that lawmakers interested in promoting growth and competing with neighboring states had "helped create a more welcoming environment for captives."
"We're still a long way from states like Vermont, but I think the state is certainly more interested in bringing more business here," Peterson said.
Vermont, which introduced captive legislation in the early 1980s, has more than 900 licensed captives, generating millions of dollars in tax revenues and annual licensing and examination fees. In 2010, Vermont licensed 33 new captives.
First Maine Captive is comprised of three self-insured healthcare-related providers, including MaineHealth; Eastern Maine Healthcare; and a group representing small, rural hospitals in the state. The captive, which represents $1.5 billion in payroll, will write excess workers' comp coverage for claims that exceed $500,000.
Peterson said that tax incentives were among the changes created under the new law that made domiciling in the state more appealing for his clients. Under the new law, captives that create jobs in the state are rewarded with a decade-long moratorium on premium taxes. The benefit is part of a wider push through the state's Pine Tree Development Zone Program, a bipartisan initiative to provide tax and insurance relief to employers that bring business and job growth to Maine.
Mila Kofman, superintendent of the Maine Bureau of Insurance, said that the legislative changes aren't the only components to the state's system that should appeal to captives.
"For captives to form and be successful, they really need to work with regulators who have expertise in alternative risks," she said. "And although we haven't had captives in Maine, we have a long history of working with alternative risk entities. At least half our workers' comp market is self-insured, and the bureau has a lot of expertise internally to look at alternative risk entities and evaluate them properly."
The state, Kofman said, also has a market of accountants, attorneys and captive managers with a level of expertise that makes Maine an attractive choice for captives.
Kofman hopes that Maine First Captive will mark the beginning of a promising new trend that will have a broader economic impact for the state.
"The extra flexibility, tax incentives and regulatory expertise certainly make Maine's market more attractive and competitive, so I do think we'll see more captives in the future," she said.
January 18, 2011
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