How a small wonder became a global giant

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Department of Insurance captives team
Members of the Department of Insurance captives team: (Seated left to right), Jerry Grant, director of communications, Paul Reynolds, chief of staff, Karen Weldin Stewart, insurance commissioner, Harding Drane, deputy insurance commissioner, and Sam Marzar, financial analyst 2. (Standing left to right) Rasa Zubielaite, financial analyst 3, Sean Brown, financial analyst 2, Michael Grillo, financial analyst 1, Mark A. Murowany, assistant director, Jamie Bafundo, office manager, Raciel Moratin, financial analyst 1, and Darlinda Moffett, administrative assistant.

By Joyce Carroll

Special to Delaware Business Times

While Delaware was once affectionately dubbed a small wonder, the state’s exploding captive insurance industry is one more reason the moniker no longer fits. Within the field the state is a global giant, hosting over 1,000 captive insurance companies.

In 2013, Captive Review magazine named the state the top onshore domicile for captive.

The industry has proven to be a lucrative one for the state, accounting for a revenue stream of $4.6 million for fiscal year 2015. This state revenue benefits the city of Wilmington as well, and has increased city coffers over the past three years. Some captive owners come from within our borders, but many more come from all corners of the United States and from overseas.

Captive insurance is a mid-20th  century product, but here in Delaware its roots were established long ago with the formation of holding companies. Delaware holding companies allowed big corporations to set up subsidiaries in the state. By moving certain intangible assets into 

the subsidiary like royalties and investment gains, the corporations were able to reap the benefits of Delaware’s business-friendly corporate tax laws.

“There was big interest in it. Revenues [earned] in one state were moved into a state where it wasn’t taxed,” said Jeff Simpson, a director at Gordon, Fourmaris, & Mammarella, P.A. in Wilmington.

“By the late 1990s, states were getting tired of losing revenues, so they changed their laws,” he continued. Left with a dilemma, but fully aware that the state had a sturdy foundation in place, the holding company committee within the Delaware State Chamber of Commerce came up with a solution. The captive insurance program worked like a holding company, but shifted the financial benefits from tax incentives to insurance incentives. Not an unfamiliar concept in Delaware, captives had already caught on within the medical field and other high-risk industries like the nuclear power industry.

“Delaware was already a captive insurance state. But prior to 2004, we had never marketed ourselves to attract business,” said Simpson, adding, “We needed to build something better, stronger, faster, and cutting edge.”

Under the leadership of former Delaware Gov. Ruth Ann Minner and with support from then-Insurance Commissioner  Matt Denn,  a legislative revamp jump-started this under-utilized market. Interested parties, including Simpson, then-vice president at Wilmington Trust, collaborated, looking to offshore captives and industry leader Vermont to cherry-pick some of the best features.

Statute changes in 2005, followed by subsequent legislative bills in 2007 and 2010, sparked the interest of potential captive seekers looking for a domicile. The state’s insurance department named Bill White as its regulator dedicated to captives. Under Denn’s tenure, and with a regulator and modernized statute on the books, captives in Delaware grew from just four to over three dozen.

But what really got the ball rolling to avalanche speed was the election of Insurance Commissioner Karen Weldin Stewart in 2009. Stewart previously served as deputy insurance commissioner and had significant retail and insurance experience in the private sector, including at Marsh & McLennan.

Among the tools in her PR toolbox: a Rolodex. Stewart reached out to former colleagues at Marsh & McLennan and other internationally recognized insurance firms that address the full range of insurance risks. 

“I spent two days a week traveling with my Rolodex. We didn’t have the funding to do what Vermont had done. So, if you
can’t put on a big show, the next best thing is one-on -one interviews with people you know,” she said.

Stewart was also forward-thinking enough to realize that if the state were to be taken seriously, it needed more than just a regulator. She brought in one of the industry’s best – Steve Kinion – to head the newly created Delaware Captive Insurance Bureau.

“I felt that in order to get something moving, we had to rebrand it,” she said. Kinion oversees a staff of 31, and a budget of $2.1 million.

On Stewart’s watch, the number of captives in Delaware has now grown from several dozen to more than 1,000, making it the third largest captive insurance domicile in the country and sixth in the world.

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