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Vermont, which has seen its rate of captive insurance growth slow in recent years, has no intention of relinquishing its top spot as the nation's No. 1 captive insurance domicile, Gov. James Douglas said.

"We're going to continue to do what we can to have the resources necessary to maintain ... our leadership position as the gold standard of domiciles," he said.

Last year, Vermont licensed 43 new captive insurance companies, down from 77 in 2003. For the first six months of this year, the state has licensed 19 companies.

Reasons for the drop vary. They include a softening market, mergers and dissolutions, according to Leonard D. Crouse, deputy commissioner of the Vermont Captive Insurance Division.

In addition, state officials said they are being more selective in issuing licenses, as captive insurance companies attract more regulatory scrutiny.

While Vermont has seen its growth of captive licenses level off, the state is far ahead in terms of total captives. According to data from A.M. Best Co. and Spring Consulting Group, Vermont leads the United States by far. It is home to 527 captive insurance companies, followed by Hawaii with 130 captives. South Carolina is third with 119 captives.

The captive insurance industry brings in about $21 million in revenue to the state and employs about 1,400 people. In the last couple of years, the state opened three new offices for captive insurance, said Douglas, with more to come next year.

For their part, VCIA officials said this year's meeting will be the biggest yet, with more than 1,300 attendees.

Speaking to many of those attendees in Burlington, Vt., Douglas noted that Vermont had been held up as "the gold standard" for captive domiciles.

"It's nice to have someone else say that about us rather than make it up ourselves ... so we'll do what we can to make you successful," he said.

Looking back at the history of the captive industry, which began in Vermont more than 20 years ago, Douglas said that the first industry meetings consisted of a dozen people meeting "around a restaurant table."

The state's captive insurance division started 15 years ago, with four people in the division. Today there are nearly 30 people.

While the regulatory environment is stricter than it was a decade ago, Vermont captive owners won't have to battle any new corporate-governance rules any time soon, even though issues such as Sarbanes-Oxley are playing an increasing role in captive formation. That's because Vermont is confident that its resident captives are already doing what needs to be done.

Ending speculation, Vermont captive insurance officials said they would not bow to the current corporate-governance hysteria and begin instituting new governance rules for new or existing captives.

That is not to say that the department isn't paying attention to the issue, but it has chosen to proceed with caution, following the proverbial "If it ain't broke ..." rule of thumb.

"Are we going to mandate anything? Probably not, but we are going to look a little closer at (issues related to) corporate governance. I think we should," said Crouse, at a press conference at the VCIA show.

About 75 percent of Vermont's pure captives are owned by publicly traded companies, said Crouse, so there is an expectation that those companies are already in compliance with corporate-governance and transparency standards.

He also said that the proliferation of SOX has already brought the issue to the forefront, and that the majority of Vermont captive owners are already doing a very good job with corporate-governance issues because it's just good business.

"I think with Sarbanes-Oxley going on, it just makes sense for these companies to do it ...," said Crouse, "to do it because it's the right thing to do."

September 15, 2005

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