DELAWARE
insurance is different from regulating traditional commercial insurers, and she believes that a separate bureau serves the interest of the captive insurance industry.
A commitment to merging Delaware’s business entity laws with captive insurance No other captive domicile can rival Delaware’s corporate and business entity laws. Since the early 1900s, Delaware has become the first choice for businesses incorporation. Its incorporation business, supplemented by the growth in numbers of such alternative entities as limited liability companies, limited partnerships and statutory trusts, continues to lead all others. Close to a million business entities choose Delaware as their legal home. Of the corporations that make up the Fortune 500, more than half are incorporated in Delaware. Coupled with its corporate laws was the development of a first class legal system that efficiently and quickly resolves disputes involving business entities.
A Delaware-domiciled captive can take advantage of the best corporate and entity laws in the world. Under the Delaware limited liability company (LLC) act for example, the members of a LLC can agree to waive the duty of loyalty. That’s right. In the realm of LLCs, Delaware allows all fiduciary duties to be waived by those managing the LLC (members if it is member-managed, managers if it is manager- managed) except the duty of good faith and fair dealing.
A commitment to captives Commitment means ‘the act of committing to a charge or trust’. Commitment is knowing and understanding a goal, developing a plan to achieve that goal, following through with actions and then continuing to sustain that goal.
Many states have captive laws on the books. Without a vision for growth, a commitment to firm and fair regulation, and a dedication to the captive industry, those laws will be nothing more than letters on a page. Not in Delaware. In 2009, under the leadership of insurance commissioner Karen Weldin Stewart, Delaware entered the captive insurance world with a vengeance.
Commissioner Stewart formed the Bureau of Captive and Financial Insurance Products as a separate bureau within the Delaware Insurance Department. With more than 20 years in the insurance industry, commissioner Stewart understands that regulating captive
A commitment to innovation In 2009, Delaware became the first state to license the world’s first series LLC captive and is the only domicile in the world where a series of either Delaware statutory trusts or LLCs can be a captive. In 1996, the Delaware General Assembly codified the series LLC and statutory trust laws. Similar to a cell structure, a series structure permits the ring-fencing of assets and liabilities. This ensures the certainty that the liabilities of one series will not affect the others. After observing how the mutual fund industry uses series to separate different types of funds, the bureau decided to make series available for captive insurance.
Sometimes referred to as a ‘captive on training wheels’, a series LLC allows a company or individual to access captive insurance without having to post a large amount of capital, or pay a minimum premium tax. The advantage of a series is its ease of formation and dissolution. Instead of creating a new legal entity, a series is created or dissolved by changing the business plan and series agreement. This reduces administrative costs, making captive insurance far more palatable for the newcomer. In many cases, a captive owner will decide to move to the next level by converting the series into a pure or other form of captive. Since the recognition of a series as an individual taxpayer, the series LLC captive has become Delaware’s flagship product.
CICA | Forty years of captive leadership 119
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