The Arizona Captive Insurance Association has elected to hold a Western Region Captive Conference. How do you think this event will benefit Arizona as a domicile?

This is a tremendous opportunity for ADOI to provide first-hand

information about our domicile and to interact with the regulatory community, and also to network with other regional regulators to discuss ‘best practices’.

How does the Arizona Captive Insurance Association help you advance the captive industry in Arizona?

Partnering with the Arizona Captive Insurance Association provides excellent opportunities to enhance captive communication, education and development, and promote our quality-over-quantity ideology.

A captive domiciled in Arizona may not be required to have annual actuarial studies or independent audits by a CPA (chartered public accountant) if certain requirements are met. Is it anticipated that this will continue in the future, and how do you ensure that there is sufficient scrutiny in this environment?

ADOI based its 2008 decision to extend these exemptions

for captives on our historical regulatory practices for traditional insurance companies. We decided it was not necessary to regulate the captive insurance companies to a greater extent than the traditional insurance companies and concluded that it was appropriate to allow the exemptions for captive insurers. We expect to continue to allow the Actuarial Opinion and the Audited Financial Statements exemptions going forward.

ADOI requires all non-RRG captive insurance companies to file their

annual reports, while all RRGs must file annual and quarterly financial statements. Our review and analysis include procedures to identify solvency issues and several precautionary measures with respect to the exemptions.

A captive insurer with affiliate receivables is not eligible for (and we

will not grant) an exemption from the Audited Financial Report filing requirement, regardless of premium volume. The director may exercise discretionary authority to require an Actuarial Opinion or an Audited Financial Report for: (1) the year end in which ADOI will examine the company; and (2) anytime the analysis of a captive insurer’s financial condition indicates that policyholders, claimants and other creditors are at greater than normal financial risk.

RRGs are subject to a routine financial examination every five years

at a minimum, but if our routine surveillance of an RRG identifies an issue, we may accelerate the examination schedule. Non-RRG captive insurers are not subject to routine financial examination, but may become subject to examination if we determine that it is prudent to examine the business, transactions and affairs of the company to ascertain the captive insurer’s financial condition, its

42 US Captive . April 2010

ability to fulfil its obligations and whether the captive has complied with our statutes.

What are some of the recent successes for captives in Arizona and what do you think was their deciding factor in domiciling in Arizona?

Instead of trying to guess why businesses choose Arizona, we put

that question to those captives that are currently domiciled here. Although the reasons differ, they speak well of our success:

Bob DeFillippo, Prudential

Prudential started its first Arizona captive in 2004 (Prudential

Arizona Reinsurance Company or PARCC). We now have three captive reinsurance companies in Arizona and are currently seeking approval for a fourth. We have found the Department of Insurance to be very knowledgeable and familiar with our life insurance business, and we have developed a long-standing working relationship with the department that allows us to explore options and seek approval for our changing needs.

Janice Chamberlain, Costco

We moved from Bermuda to Arizona for a number of reasons. The

first was to avoid the negative perceptions regarding ownership of an offshore company. We also think Arizona is a captive-friendly domicile with knowledgeable regulators. It also has astute captive managers, which means that administration is easier than in an offshore domicile and less expensive, as are the ancillary services. Finally, the transport links are good—it’s relatively easy to travel from the Pacific Northwest.

Marcia Philpott, Salt River Project

Salt River Project, which is the third-largest public power company

in the United States and which is located in Arizona, redomiciled its Bermuda-based rent-a-captive, Salt River Project Captive Risk Solutions, Ltd, to a single-parent captive in Arizona in 2003, in order to insure property terrorism risk exposure through the Terrorism Risk Insurance Act of 2002. It was a relatively easy decision for us to select Arizona as the domicile for our captive. First, we’re an Arizona-based business. But we also liked the ease of working with the regulators, the workable capital requirements and no premium taxes.

What is the future for Arizona and captives? How do you intend to keep it competitive on the global stage?

Again, by focusing on quality over quantity, we intend to keep Arizona

at the forefront of the captive community. Furthermore, the reputation of the Arizona domicile and its captive managers is exemplary and keeps Arizona competitive on the global stage. We are committed to maintaining our high standards in the captive community nationwide. Arizona regulators are among the best in the country, and we attract first-rate, top-quality captive business and plan to continue every effort to continue to do so in the future.

Stephanie Lefkowski is the chief analyst at the Arizona Department of Insurance. She can be contacted at: captive@azinsurance.gov Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60