Newly Passed North Carolina Law Aims to Bring in More Captive Insurance Companies, Risk-Retention Groups

North Carolina lawmakers have recently passed a significant new bill aimed at attracting captive insurance companies and risk-retention groups to the state. This legislative measure, known as Senate Bill 319, received unanimous support from both parties and was endorsed by the North Carolina Captive Insurance Association, which represents the interests of captive insurers in the region. Governor Roy Cooper officially signed the bill into law on July 2, 2024, and it took effect immediately, demonstrating the state's commitment to fostering a competitive insurance environment.

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About the author:
Andrew Rennick, CPCU

Transcript

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North Carolina lawmakers have recently passed a significant new bill aimed at attracting captive insurance companies and risk-retention groups to the state. This legislative measure, known as Senate Bill 319, received unanimous support from both parties and was endorsed by the North Carolina Captive Insurance Association, which represents the interests of captive insurers in the region. Governor Roy Cooper officially signed the bill into law on July 2, 2024, and it took effect immediately, demonstrating the state's commitment to fostering a competitive insurance environment.

One of the most impactful changes introduced by this new law is the reduction of the retaliatory tax rate for risk-retention groups not chartered in North Carolina, which has been lowered from a steep 5% to a much more favorable 1.85%. This substantial decrease in tax burden is expected to incentivize more out-of-state insurers to either establish a presence in North Carolina or relocate their existing operations, thereby contributing to the state's economy.

In addition to the tax reductions, the law empowers the state insurance commissioner with the authority to conduct thorough financial examinations of risk-retention groups based in North Carolina. This provision not only enhances regulatory oversight but also allows the commissioner to charge these groups for the costs associated with their examinations, ensuring that the state can maintain its oversight capabilities while also generating revenue.

Another noteworthy aspect of this legislation is the extension of a two-year exemption from the gross premiums tax for out-of-state captive insurers that decide to relocate or establish their domicile in North Carolina. Previously, captives had to complete their redomestication by December 31, 2022, to qualify for this exemption. The new law now allows captives redomesticating in 2023 or 2024 to fully benefit from this tax break, making it an even more attractive option for insurers considering a move.

North Carolina is already recognized as one of the leading states for captive insurance companies, boasting a favorable regulatory environment and support from local government. A decade after the state’s Captive Insurance Act was enacted, North Carolina is now home to an impressive 311 captive entities, as reported by the North Carolina Department of Insurance. This number places the state just behind Vermont and Utah in terms of domestic domiciles, showcasing its growing prominence in the captive insurance landscape.

Overall, these legislative changes are highly beneficial for captives and risk-retention groups, offering captive owners compelling reasons to consider North Carolina as their preferred domicile. The combination of reduced tax rates, enhanced regulatory framework, and the extension of tax exemptions positions North Carolina as an increasingly attractive destination for captive insurance, ensuring its continued growth and success in the industry.

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