With 740 captives, Vermont is the leading domicile in the U.S.

By Michael J. Moody, MBA, ARM

“Any program that makes sound business sense gets done, and done in a timely fashion.”

—Leonard D. Crouse, CFE
Director of Captive Insurance
State of Vermont

Worldwide, 2004 was a red-letter year for captive growth. Onshore and offshore captive domiciles reported record growth in captive formations. Today, more than 5,230 have been formed, according to the latest statistics provided by the Captive Insurance Company Association. The growth occurred across most lines of coverage and included single parent captives, group programs such as risk retention groups, cell captives, and rent-a-captives.

Despite the widespread growth in captives, some domiciles fared better than others. One domicile that continued its fast pace is Vermont. Already the largest U.S. domicile, and third largest worldwide, Vermont continued to add to its totals. But what is the reason that this small, Northeastern state continues to come up big in captive formations, year after year?

Innovative approach

Over the years, captive insurance companies and Vermont have become synonymous. So much so, that many people think that the U.S. captive movement started in Vermont. But that was not the case. Three other states had passed captive legislation by the time the Vermont Special Insurer Act became law in 1981. What separated Vermont from the others was the innovation that was incorporated into its statute. For example, the initial legislation waived the requirement that insureds show proof that commercial insurance was unavailable. In addition, the Act also waived countersignature requirements. Today, we take these kinds of things for granted but 24 years ago, they were quite innovative. Vermont has maintained this leading edge approach and continues to refine its captive laws as needed.

And it is this kind of innovation that continues to distinguish Vermont from its competitors. Recent changes in the Act have included:

• Several favorable changes to the premium tax structure, including a $200,000 cap

• Streamlining the captive statutes and cleaning up the original Act that had numerous changes made to it over the past years

• Creating the deputy commissioner position

It’s this kind of attention that has resulted in Vermont’s licensing of more than 740 captives since it opened its doors.

Tone at the top

As with any well-run venture, it’s the support from the top that determines its performance. Early on, legislators in the Green Mountain State saw the economic value in a highly specialized, non-polluting industry that could bring millions of dollars into the state treasury. And while many states have now joined the captive domicile sweepstakes, Vermont has a firm hold on the top U.S. spot and is not about to give it up. For these efforts, Vermont residents have been the recipients of over $1 billion in fees and premium tax since the captive legislation was originally passed.

One of the early moves that ultimately resulted in the success of the domicile was selecting Leonard D. Crouse, CFE, as the director of Captive Insurance in May 1990. Crouse was a career insurance regulator who was, at the time, chief examiner of the Property and Casualty Division of the Massachusetts Insurance Department. Since Crouse’s move to Vermont, the state has enjoyed increasing stature in the captive arena. He now runs the largest governmental staff of captive insurance professionals in the world, which currently totals 24 employees.

Vermont prides itself on the attention it gives to the captive insurance industry. From a regulatory standpoint, the statutes have served as a model for many other domiciles. Crouse’s approach has always been straightforward. “The trick,” he says “is to be firm and fair without regulating too much.” And while the statute is quite lengthy, Crouse’s method of oversight is simple, “Any program that makes sound business sense gets done, and done in a timely fashion.”

Interest grows

While the captive movement in general has benefited from the cyclical nature of the property/casualty market, Vermont’s captive growth has exploded, especially during the last 15 years. During that time frame, Vermont has gone from 187 captives to the previously mentioned more than 740. And while many believe it is the market cycles that drive formations, Crouse is quick to point out, “Our growth has been quite similar each year, regardless of market conditions.” He says that there is really only one reason for this growth and it’s that corporations are beginning to see that “they can save money with a well-run captive.” Senior management of organizations today, Crouse says “is understanding the strategic value of a captive.”

Molly Lambert, president of the Vermont Captive Insurance Association, adds that the growth is due in large part to the “price volatility in the traditional insurance market. Buyers just don’t like uncertainty,” she notes, so they are turning to captives to help control their costs. As a result, organizations are looking to captives to be the centerpiece of their risk management programs. They now realize that a captive can “give them better control of their risk management programs,” Lambert says. And existing captive owners are “looking for ways to utilize their captives more expansively,” she observes, “while taking maximum advantage of the flexibility and nimbleness of the captive.”

Future trends

Most industry experts agree that despite the current softening insurance market, the captive movement will continue. The increased sophistication of insurance buyers coupled with the vagaries of the traditional insurance industry will continue to generate captive formations. In addition, there continue to be affordability and availability issues in some lines of coverage. Medical professional coverage still has many problem jurisdictions as do nursing homes and professional employment organiza-tions. These areas will continue to be strong captive candidates.

Currently, corporate insurance buyers are also concerned about the lapse of the federal terrorism coverage. Accordingly, many existing captives and potential captive owners are considering including terrorism in their captives. The same is true for directors and officers liability coverage, as many companies struggle to find acceptable coverage. Additionally, many captive owners are reviewing the feasibility of including employee benefits in their captives. The recent implementation of the expedited EXPRO process by the Department of Labor has increased interest in this area, and since all of the prior DoL-approved captives are domiciled in Vermont, this is a logical choice for captive owners.


Selection of a captive domicile is one of the most important components of any feasibility study. It will impact many aspects of the captive and can directly impact its long-term success. For years, captive owners have been making Vermont the U.S. domicile of choice. While there are a number of reasons for this, key considerations include a regulatory environment that is second to none and an infrastructure that represents the best captive service providers in the industry. Couple this with an enlightened regulatory team that has the knowledge, experience and staff to do the job properly, and captive owners soon see why Vermont is the gold standard. *