Iowa Captive Insurance

Iowa is on the verge of becoming the next state to adopt self-insurance companies. On April 24, the Iowa Senate unanimously passed Senate File 549 (SF 549), as amended, a “captive insurance company act bill” that the House passed earlier in April. Governor Kim Reynolds is expected to sign the bill, making Iowa the thirty-sixth jurisdiction in the United States (including the District of Columbia) to adopt an insurance coverage statute. Bills passed by the Iowa General Assembly and signed into law generally take effect on July 1 following passage, unless otherwise noted. SF 549 does not specify an effective date, so it is expected to take effect on July 1 of this year, bolstering Iowa’s robust insurance industry with a modern, competitive statute.

SF 549 is modern, well written, and bears strong resemblance to prior laws from other jurisdictions. It authorizes the creation of pure, associated, protected cell, specialty, and industrial insured captives, establishes regulatory reporting and review requirements, provides a premium tax framework, and charges the Iowa Department of Insurance with responsibility for administering the law and promulgating rules thereunder.

The license categories mirror the ‘traditional’ categories used in other jurisdictions and include a ‘special purpose’ category which is reserved for prisoners ‘formed or authorized [in Iowa] that [do] do not meet the definition of another type of captive company [defined in SF 549]or this [are] formed by, on behalf of, or for the benefit of a political subdivision of [Iowa].” The “special purpose” category would allow the insurance department flexibility to license inmates who don’t fit neatly into any of the “traditional” categories.

Each inmate, including, if applicable, serial and secure cell inmates, must pay an initial registration fee and an annual renewal fee of $300. The one-time non-refundable application fee is $200. Each captive shall submit an annual report to the Department of Insurance by April 1 of each year and submit to regulatory examinations at the discretion of the Commissioner of Insurance, but not less often than every three years. Annual premium taxes will be assessed as follows:

  • 0.35 percent on the first $20 million in direct premiums plus
  • 0.25 percent for each dollar of direct premium over $20 million.

Meanwhile, annual premium taxes on reinsurance premiums written will be assessed as follows:

  • 0.20 percent of reinsurance premiums written up to $20 million plus
  • 0.125 percent of reinsurance premiums accepted from $20 million to $40 million plus
  • 5.0 percent of reinsurance premiums accepted that exceed $40 million.

The General Assembly set the minimum annual premium tax for all captives at $5,000. Like most other captive jurisdictions, a captive resident in Iowa will need to have a director or manager who is a resident of the state. In addition, the parties responsible for the management of each captive will be required to hold an annual meeting in Iowa each year.

Iowa will also have dedicated insurance adjusters. The insurance department is expected to establish its own insurance bureau to carry out its duties under SF 549. The bureau will be staffed by three new full-time employees: a bureau chief, an examination specialist and an examiner. Their salaries, as well as other costs of administering the law, will be funded by the Iowa General Fund until the state generates enough premium tax revenue to cover them. Dedicated captive regulators and funding are critical to the sustainable growth of the captive jurisdiction.

Finally, SF 549 brings captives into a jurisdiction that already boasts a large and complex insurance industry, which is perhaps why the General Assembly quite ambitiously expects net taxable premiums from captives to reach $15 billion in 2023 and to are increasing at 6 percent per year.

With a modern, competitive bill that is comparable in many ways to the captive laws of other jurisdictions, including premium taxes and fees, dedicated captive regulators, and a robust core insurance industry, Iowa will be a captive home to watch in the future.

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