Captive Insurance

Montana has become a leader in the captive insurance marketplace. Montana currently has nearly 300 domiciled captive insurance companies that have brought in over $13 million in premium tax payments since 2001, when captive legislation was enacted in the state.

The Commissioner of Securities and Insurance is committed to further growth in the dynamic captive insurance market. The state’s streamlined and efficient regulatory process and a knowledgeable team of accessible captive experts can help your company reach its goals. We’ve laid out everything you need to know to begin the process of domiciling a captive insurance company in our state.

Montana has a variety of captive types and business entity structures available for captive formations.

A captive is an insurance company created and wholly owned by one or more non-insurance companies to insure the risks of its owner (or owners). Captives are essentially a form of self-insurance whereby the insurer is owned wholly by the insured. They are typically established to meet the risk-management needs of the owners or members. Captives are formed to cover a wide range of risks; practically every risk underwritten by a commercial insurer can be provided by a captive. The type of entity forming a captive varies from a major multinational corporation—the vast majority of Fortune 500 companies have captive subsidiaries—to a nonprofit organization. Once established, the captive operates like any commercial insurance company and is subject to state regulatory requirements including reporting, capital and reserve requirements.

Captive insurance companies have been in existence for over 100 years. However, over the past 30 years, there has been significant growth in the captive market — including in Montana, which is now considered a U.S. leader in captive insurance.

The 2001 Legislature passed a law allowing captive insurance companies to operate under the Montana Code Annotated (MCA) Title 33, Chapter 28. A captive insurance company is a specialized company established primarily to insure the risks of a parent company or members of an association. Captives serve the insurance needs of the parent organization or association without the uncertainties of commercial availability and cost. They provide an insurance alternative for businesses and organizations, which is particularly important during times of a difficult insurance market when companies are looking for options.

Captives do not interact with consumers in the same fashion as traditional multi-line companies so the CSI office has been able to create a streamlined regulatory environment for them.

The captive insurance industry provides significant economic benefit to Montana. An infrastructure of professional service providers (managers, accountants, lawyers, actuaries) has developed to support the industry. Captive insurers domiciled in Montana provide insurance to rural hospitals, nursing homes, doctors, commercial trucking companies, contractors, and others. Long-term benefits to Montana include the potential for new jobs, an expanded tax base and increased economic activity.

In the years following original enactment of Montana’s captive legislation in 2001, the Montana Legislature has passed several important law changes that favorably impacted captives. Examples include: in 2011 the legislature provided the authority to create incorporated cells within a protected cell captive insurance company, as well as the new special purpose captive licensing category; in 2013, the legislature enacted changes to Montana’s corporate laws that permitted business entities (including captives) to form as Series LLC companies; and in 2015 the legislature changed the law that provided public entities (political subdivisions) the ability to own a captive.

Steps to form a Montana captive insurance company

The procedures listed below should be followed to form a captive insurance company in Montana and to apply for a Certificate of Authority from the Montana Commissioner of Securities and Insurance:

1. Prepare the documents needed for the application for Certificate of Authority.

2. Submit the application to the commissioner for review. Include a $200 application fee and a $300 license fee.

3.Submit drafts of the business organizational documents with the captive insurer’s application for Certificate of Authority. In drafting the organizational documents, the services of a local attorney may be desirable.

4. Provide information concerning the adequacy of the expertise, experience, and character of the person or persons who will manage the captive insurer. Affidavits are required on directors, officers and management personnel.

5. Have your CPA complete the Application for Authorization as an independent certified public accountant.

6. Have your actuary complete the Application for Authorization to Certify Loss Reserves and Loss Expense Reserves for Captives.

7. If a Letter of Credit will be used for Capital & Surplus, see sample.

8.The Montana insurance code authorizes the commissioner to obtain services to review the application for a captive insurer at the applicant’s expense. If the commissioner determines that such services are needed, you will be required to submit an additional copy of the application materials to the reviewer and you will be notified of the cost.

9.Montana captive insurers must file an annual statement, Section 33-28-107, MCA.

Montana captive insurer requirements

Montana administrative rules require that an independent certified public accountant, approved by the commissioner, audit the captive annually. The applicant must select an accountant who meets the requirements of the administrative rule. You may ask the Department if your CPA is currently approved. See 6.6.6801 through 6.6.6821 ARM.
Montana administrative rules require that loss reserves and loss expense reserves be certified by a Fellow of the Casualty Actuarial Society, a member in good standing of the American Academy of Actuaries, or an individual who has demonstrated his competence in loss reserve evaluation to the commissioner. The commissioner must approve the actuary. The applicant must select an actuary that meets the requirements of the administrative rule. See 6.6.6816 ARM.
Pursuant to Section 33-28-107(2)(a), MCA, each captive insurance company shall submit to the commissioner a report of its financial condition in a form and manner as required by the commissioner, verified by oath of two of its executive officers.

As required by Section 33-28-107(2)(c), MCA, each captive insurance company shall report using generally accepted accounting principles, unless the commissioner requires the use of statutory accounting principles.

Captive Risk Retention Groups must file an annual statement on or before March 1 using the annual statement blank adopted by the National Association of Insurance Commissioners (NAIC) for property-casualty insurance companies. This form must also be filed with the NAIC.

All captive insurers other than risk retention groups may file the Montana Short Form Annual Statement on or before April 1.

All books, records and other information necessary for a statutory examination should be located in Montana.

Need more help?
Call Steve Matthews, Montana Captive Coordinator at 406-444-4372.