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Legislative Memo

T 518.465.7511

BILL:

S.6591 (Seward) / A.10735 (Grannis)

  Support

SUBJECT:

Captive Insurance

 

S.6591 (Seward) / A.10735 (Grannis)

DATE:

June 14, 2002

 

A critical component of business is the adequacy, availability, and affordability of commercial insurance. All these factors have come under intense pressure in the wake of the World Trade Center attack, but the New York Legislature has a unique opportunity to help New York's businesses hard-hit by the commercial insurance crisis.

Captives, an alternate form of insurance, are created when a business or groups of businesses join to form a corporation to insure or reinsure their own risk. These self-insurance vehicles can allow New York's businesses to pay lower premiums, tailor coverage to their specific needs, accumulate investment income to help reduce net loss costs, access the reinsurance markets to transfer risk, and gain greater control over claims and over their broad risk management operations.

Captives have been recognized as a key part of legitimate risk management strategies for over two decades. Captives are utilized by a majority of big business. Previously, businesses were forced to turn to other states or Bermuda to create captives. But, in 1997, Governor Pataki signed New York's first captive legislation authorizing the formation of captive insurance companies in the State. This proposal would allow an even wider range of businesses the opportunity to utilize captive insurance companies to retain, fund, and better manage some of their risk.

The proposed bill, S.6591 (Seward)/A.10735 (Grannis), creates additional flexibility by adjusting the threshold for businesses to form single parent captives and to participate in a group captive. The new legislation will allow even more New York businesses to take advantage of the benefits of captive formation. The bill also provides a new alternative form of insurance known as a sponsored captive insurance company, which permits various participants to use the same vehicle to self-fund their risks.

Captives can provide New York's businesses access to the reinsurance market and the ability to foster long-term relationships with reinsurers, maximize cost savings, gain underwriting and retention funding flexibility, and reduce costs of operation. These innovative and flexible tools will give New York's businesses an even bigger edge in this new age of financial modernization.

For the above stated reasons, we urge the legislature to act on this new legislation that creates greater flexibility and allows businesses and public entities new opportunities to avail themselves to greater choices for more efficiency in managing and financing risk.