Captives in New York State

Note: DFS has called for a national moratorium on captive insurance transactions used to artificially lower reserve and collateral requirements - also known as "shadow insurance." DFS will not approve such transactions.


Licensing and Incorporation

  1. Arrange a preliminary meeting with the Department's Captive Group to discuss the proposed captive and to review the licensing and incorporation process.
  2. Obtain approval for use of the name of the captive.
  3. Prepare and submit four completed Captive Insurance Company License Application forms (PDF), with all required attachments, to the DFS Captive Group including:
    • A copy of the charter and bylaws or other similar documents,
    • A financial statement certified by two officers, and
    • A Plan of Operation.
  4. Incorporation and Licensing of the captive occurs with the direct assistance of the DFS Captive Group.
  5. Upon a determination that the applicant has complied with the provisions of Article 70 of the Insurance Law, a License shall be issued to the captive insurer.

General Requirements

The submitted application should include the following:

  • Completed biographical for each officer and/or director
  • Plan of operation
  • Pro forma financials for the next five years
  • Proposed charter and by-laws
  • Actuarial analysis
  • Loan agreement
  • An independent valuation of a subsidiary may also be required

Plan of Operation

The plan of operation submitted with the License Application must include an actuarial report or feasibility study prepared by a qualified independent actuary. The content for the plan of operation is set forth in the Application Form. Any proposed changes to the plan of operation subsequent to licensing shall be submitted to the Superintendent thirty days before becoming effective.


Letters Of Credit

Letters of Credit (PDF) can be used to meet capital and surplus requirements.


Incorporation

After review of the proposed charter and by-laws by the New York State Department of Financial Services, the applicant will submit an executed copy of the charter. For stock insurers, an incorporation tax of one-twentieth of one percent of the par value of capital stock must be submitted to the New York State Department of Financial Services (New York Tax Law -- Section 180) at this time. The executed copy of the charter will be forwarded by the Department of Financial Services to the New York State Attorney General for recording and the Department of Financial Services will issue a Certificate of Incorporation to the captive company. After the company has been incorporated it must submit a copy of its by-laws, which shall be certified by the corporate secretary or assistant corporate secretary.


Biographical Affidavit

The License Application requires submission of biographical affidavits for directors and executive officers of the proposed captive insurer. Copies should be made, completed, executed and submitted with the Application. Each Biographical Affidavit (PDF) form should be filled out entirely.

After incorporation, the applicant must submit:

  • A certified notarized copy of the by-laws
  • Appointment of Superintendent of Financial Services as attorney
  • Certificate of designation by captive insurer
  • Board of Directors resolutions for the appointment and designation
  • Proof of funding

Appointment of Superintendent as Agent for Service of Process

The captive insurance company shall submit a Power of Attorney (PDF) designating the Superintendent as agent for service of process. This shall be accompanied by a Certificate of Designation (PDF) naming the person to whom the Superintendent can forwarded any process served upon him. A certified copy of a Resolution of the Board of Directors (PDF) authorizing both the appointment and the designation is also required.


Other Requirements

Principal Office and Records

All of the books and records of the captive insurance company must be maintained at the insurer’s principal office, which shall be located in New York. Books and records consist of all information and files necessary to perform an audit or examination of the captive insurer.

Board of Directors

Three directors are required. The Board of Directors must hold at least one meeting in New York each year. In addition, two members of the Board must be residents of New York.

Manager

The manager of a captive insurance company shall be a person or firm resident in New York and shall be either: (1) licensed as an agent or broker in New York; or (2) approved by the Superintendent to act as a captive manager.


Captive Annual Statements

The Annual Statement Form is in Microsoft Excel format. The Annual Statement has to be submitted by March 1 of each calendar year, both in hard copy and electronically to:

George Babu
Supervising Insurance Examiner
New York State Department of Financial Services
Property Bureau
1 State Street
New York, NY 10004

Questions regarding this statement should be directed to George Babu at (212) 480-2046 or [email protected].


Taxes and Assessments

Tax filings and payments are made to the New York State Tax Department in accordance with the provisions of Article 33 of the New York Tax Law. Captive insurers are subject to a premium tax (referred to as a "franchise tax" under NY Tax Law) as set forth in Section 1502-b of the Tax Law. Unless capital is increased, Licensed captive insurers are not taxed under any other provision of the New York Tax Law.

Captive insurance companies must also pay an assessment pursuant to Section 206 of the New York Financial Services Law, which is used to defray the operating expenses of the Department of Financial Services. The assessment is based upon the direct premiums written in New York only; non-New York and reinsurance premiums are not used in calculating the assessment. The level of the assessment varies from year-to-year. A Report of Premiums is filed on an annual basis with the New York State Department of Financial Services.

Taxation

Insurance companies are taxed under Article 33 of the New York Tax Law. Chapter 389 of the Laws of 1997 amended various sections of that Article (and added new Section 1502-b) to impose a premium tax (referred to as a “franchise tax” under New York law) on captive insurance companies. These and other tax law provisions were subsequently amended by Chapters 62 and 188 of the laws of 2003; Chapter 57 of the Laws of 2009; and Chapter 59 of the Laws of 2014. The tax on captive insurers is set forth in Section 1502-b. Captives are not subject to any other taxes under Article 33 of the New York Tax Law.

Notwithstanding the foregoing, if premium income makes up 50% or less of a captive insurer’s gross receipts for any taxable year, then the captive insurer will be deemed a “combinable captive insurance company” and will be required to file a combined return with its closest controlling stockholder. In such cases, the captive’s income will be subject to taxation under the provisions of either Article 9-A or Article 32 of the New York Tax Law, and not Article 33.

Summary Table of Taxes on Captive Insurers

Taxes are levied on all premiums written unless such premiums are taxed in another jurisdiction.

TYPE OF BUSINESS PREMIUMS SECTION 1502-b TAX RATE

Direct Business

$0-$20 million

.4%

 

$20-$40 million

.3%

 

$40-$60 million

.2%

 

Greater Than $60 million

.075%

Reinsurance Assumed

$0-$20 million

.225%

 

$20-$40 million

.15%

 

$40-$60 million

.05%

 

Greater Than $60 million

.025%


Financial Examination

Each captive shall be subject to an examination at least once every five years.


Captive Documents and Forms

Documents Word/Excel links PDF links
Annual Statement Form Annual Statement n/a
Compliance/Renewal Certificate n/a Certificate
License Application Form Form Form
License Application Form - Instructions Form - Instructions Form - Instructions
Sample Letter of Credit Letter Letter
Sample Biographical Affidavit Affidavit Affidavit
Sample Power of Attorney Power of Attorney Power of Attorney
Sample Certificate of Designation Certificate Certificate
Sample Resolution of the Board of Directors Resolution Resolution