Florida Becomes Latest Home To Captives Nearly half of the states in the U.S. allow captive insurance entities to operate. Now Florida is joining the list, with Governor Rick Scott recently signing into law a measure allowing the formation of captive insurance companies in the state. The measure, H.B. 1101, allows the formation of single-parent captives, special-purpose captives, industrial insurance captives and captive reinsurance companies. The new law takes effect in July of this year. Captive reinsurance companies are required to have a minimum of the greater of $300 million or 10% of reserves in capital and surplus. Captives licensed in Florida will be required to hold at least one annual board meeting in the state and appoint a registered resident agent to act on their behalf. Captives and captive reinsurance companies must pay a $1,500 application fee and a $1,000 annual renewal fee. Captives Formed by Self Insurers to Reduce Taxes A captive insurance company operates at the behest of and for the benefit of a noninsurance parent-owner company or group. A captive insurance company is self-owned by the very persons or group whose risks it insures. Ownership may be by a single parent or by a group of shareholders. The latter is referred to as a "multiple-owner captive." These entities resemble mutual insurance companies, but for a limited number of participants. The formation of a special purpose captive insurance company by an affiliate or controlled company should not be negatively influenced by the jurisdiction of formation; and, while captives provide insurance primarily in the areas of general liability and workers compensation, the structure can be used to address what once were considered more exotic risks (i.e. ransom, kidnapping, terrorism). A captive insurance company is established for the individual needs of the owners or members, as opposed to third- party insurance. Tax advantages are not the principal reason for forming such an arrangement. Although each captive is distinct, some common advantages are sought, including reduced cost of coverage, direct access to reinsurers, provision of broader or otherwise unavailable coverage, mitigation of the market swings of commercial insurance, improved cash flow, risk spreading, improved risk retention capability, and integration with an overall risk management plan. Captive insurance companies represent a significant component of the alternative risk market. Due to their growth, strength, and utility over the past decade, captive insurance companies are no longer considered by many insurance professionals to be a truly "alternative" insurance market. The use of a captive is now seen as an integral part of general business risk management.