THE LEGAL process for forming a captive in the US generally can be broken down into the following four steps:
- Form a legal entity (a corporation or, in some states, also possibly a non-corporate entity) in the state that has been selected as the captive’s domicile.
- Appoint officers; adopt articles of incorporation and by-laws; contribute minimum required capital; issue share certificates.
- Submit captive insurance licence application, which generally includes a business plan, designations of a captive manager and other service providers, and biographical information about the captive’s officers.
- Following receipt of a captive insurance company licence, the captive will commence insurance business by issuing one or more policies of insurance or reinsurance in keeping with its business plan.
Steps 1 and 2 are routine matters for most law firms that would fall in the category of 'legal and corporate governance' costs in a captive’s start-up budget. Although performing these steps does not require a licence to practice law, it is nevertheless prudent and common to rely on an attorney for steps 1 and 2.
Regarding steps 3 and 4, captive insurance company formation historically has been spearheaded by captive intermediaries or captive management companies (whether owned by an insurance brokerage house, a commercial insurer or privately by the management company’s principals). Amidst the advisory talents offered by risk management consultants and other types of captive insurance intermediaries, where do attorneys fit in with captives?