Captives in Utah – Basics
How much might it cost to create a captive insurer in Utah?
An organization considering the captive alternative will need to incorporate the following initial setup costs, and also the ongoing costs to manage a captive before making a final decision:
Startup costs
| Startup activity | Estimated cost |
|---|---|
| Business plan & feasibility study | Varies by management company, captive size and captive type. Likely to be the most significant cost other than initial capitalization. Could be $40,000 - $100,000+. |
Regulatory costs
| Regulatory fee | Cost |
|---|---|
| Application submission fee | $200 per application |
| Initial license fee | $7,250 without proration ($1,000 for a cell without proration) |
| Initial e-commerce fee | $250 without proration (not applicable to cells) |
| Incorporation | Nominal fee with annual renewal of same. Paid to Dept. of Commerce opens in a new tab |
Capital requirements
| Captive type | Initial capital |
|---|---|
| Pure captive | $250,000 |
| Association | $500,000 |
| Industrial insured / RRG | $700,000 |
| Sponsored | $250,000 (minimum of $50,000 provided by the sponsor at all times) |
Maintenance costs
| Ongoing maintenance | Estimated cost |
|---|---|
| Annual renewal fee | $7,250 due before June 1st ($1,000 for a cell) |
| Annual e-commerce fee | $250 due before June 1st (not applicable to cells) |
| State taxes | None (captive is subject to real & personal property taxes) |
| Independent actuary – reserve opinion | $5,000 – $8,000+ |
| Independent CPA – annual audit | $8,000 – $12,000+ |
| Management firm | $30,000 – $40,000+ |
In general, it is estimated that initial startup costs for a captive would be $30,000 to $60,000 plus initial capital. Ongoing maintenance costs would be estimated at $60,000 to $80,000 annually. Of course these are just estimates and will vary depending on the size and complexity of each captive arrangement. Service provider costs will vary depending on the complexity and requirements of the engagement.
What are the capitalization and annual filing requirements in Utah?
| Captive Type | Total Capital Requirement |
|---|---|
| Pure Captive | $250,000 |
| Association Captive (Mutual) | $500,000 |
| Industrial Insured Captive | $700,000 |
| Risk Retention Group | $700,000 |
| Sponsored Captive | $250,000 (minimum of $50,000 from Core) |
| Cell Captive | No regulatory minimum; set by Sponsor |
Annual audit:
All companies shall have an annual audit by an independent CPA authorized by the commissioner, and shall file the audited financial report with the commissioner on or before June 30 for the year ending December 31 immediately preceding. The annual audit shall be on the same basis as the annual report. The audit report should consist of (R590-238-6 opens in a new tab):
- Opinion of Independent Certified Public Accountant (CPA).
- Audited Financial Statements (including balance sheet, statement of gain or loss from operations, statement of changes in financial position, statement of cash flows, and statement of changes in capital paid up, gross paid in and contributed surplus and unassigned funds (surplus), income statement, statement of stockholder’s equity, cash flow statement, and notes to the financials).
- Independent Auditor’s Report on Internal Controls.
- Accountant’s Letter of Qualifications.
- Certification of Loss Reserves and Loss Expense Reserves (individual certifying must be approved by commissioner).
Annual report:
Each Utah captive will be required to file a Report of the Financial Condition of the Captive Insurance Company (Annual Report) with the commissioner before March 1 of each year, verified under oath of two of the executive officers. The form of the report is as follows (§31A-37-501 opens in a new tab; R590-238-4 opens in a new tab):
- A pure captive, sponsored captive, industrial insured captive or producer reinsurance captive shall submit the annual report using the “Captive Insurance Company Annual Statement Form” provided by the commissioner.
- An association captive or industrial insured captive shall annually submit to the commissioner a report using the applicable NAIC Annual Statement Blank.
Additionally, due before March 1 of each year with the Annual Report is a Statement of Economic Benefit to the State of Utah (R590-238-21(4)) and a Statement of Actuarial Opinion (R590-238-4(4)) (individual opining must be approved by commissioner).
Department examination:
There is no mandatory examination period for a Utah captive. A captive may be called for an examination at any time by the Commissioner; a called examination will typically cover the preceding five (5) year period. The cost of that examination will be borne by the captive being examined.
Are there any investment restrictions in Utah?
Industrial Insured Captive and Risk Retention Groups must comply with the same investment restrictions that a traditional insurance company must observe. Specific investment restrictions are contained in Utah Code Annotated (U.C.A.) § 31A-18-108 opens in a new tab and U.C.A. § 31A-18-109 opens in a new tab.
Other captive types have no restrictions on allowable investments as noted in U.C.A § 31A-18-103 opens in a new tab, except that the Commissioner has the authority to disallow any investments that threaten the solvency or liquidity of the captive. Each captive insurer must file a description of their investment strategy as part of the initial application. The captive must notify the Department of any future changes to that investment strategy.
A Pure Captive and an Incorporated Cell Captive of a Sponsor are the only types of captives that may make loans to their parent company or its affiliates. However, such loans may not be made from the minimum capitalization that is required by U.C.A. § 31A-37-204 opens in a new tab. While the Department may allow these captives to make loans back to their affiliates, there could be significant tax implications. Therefore, a captive insurer should consult with appropriate tax advisors prior to making request of the Department for a related-party loan.
What fees are applicable for captives in Utah?
- Initial license application: $200
- Initial license application review: Actual costs incurred by outside reviewer
- Initial license issuance: $7,250 ($1,000 for a cell)
- Initial e-commerce fee: $250 (not applicable to cells)
- Annual renewal fee: $7,250 ($1,000 for a cell)
- Annual e-commerce fee: $250 (not applicable to cells)
What taxes are applicable to captives in Utah?
Except for personal and real property tax on property owned by the captive in Utah, an annual assessment and e-Commerce fee totaling $7,500 ($1,000 for a Cell), is the sole tax or fee assessed on a captive insurer in Utah. (This is not applicable to RRGs.)
Are captives covered under guaranty funds?
No, a captive insurance company is prohibited from contributing financially to a plan, pool, association, guaranty fund or insolvency fund not covered by the guaranty associations in Utah or elsewhere.
What types of insurance can be written in a captive?
A captive insurance company may provide ALL lines of insurance allowed by the insurance code, Title 31A, EXCEPT workers compensation insurance, or direct coverage for personal motor vehicle, and homeowners’ insurance (an exception may be made for an Association captive), or any component of these coverages. Notwithstanding, if approved by the commissioner, a captive insurance company may insure, as a reimbursement, a limited layer or deductible of workers’ compensation coverage. See U.C.A § 31A-37-202 opens in a new tab.
A pure captive may only insure the risks of its parent, affiliates, or controlled unaffiliated business.
In addition, an association captive may insure the risks of association member organizations and affiliates of the association member organizations.
What must a captive do to conduct business as a Utah domiciled captive insurance company?
- Obtain from the commissioner a valid Certificate of Authority specifying the types of insurance authorized (i.e. complete the application licensing process).
- Hold at least once each year in Utah a board of directors (managing members) meeting, or in the case of a reciprocal insurer, a subscriber’s advisory committee meeting. Or join the Utah Captive Insurance Association (UCIA) at the "Summit" level membership
- Maintain the principal place of business of the captive in the State of Utah.
- Appoint to the captive company’s board of directors (managing members) a resident of the State of Utah.
- Appoint a resident registered agent to accept service of process and act on behalf of the captive in Utah.
- Renew the Certificate of Authority annually before July 1 of each year.
- Comply with all other applicable statutes and rules.