Why is this Topic Important to Wealth Managers? Provides specific information in regards to costs relating to the formation of an insurance company. Discusses multiple domicile options and how they relate to each other.
Wealth managers may be interested to know generally what costs are involved to form and manage a captive insurance company in different jurisdictions. Take for example Vermont. It is known as the “Captive Capital” here in the States, and for good reason, Vermont has licensed over 900 captives at last count. 
The licensing fees in Vermont total $4,800 (in the first year and only $300 a year thereafter.)  However, there are a couple of downsides to the preliminarily greener pastures. First, Vermont requires initial capitalization of a “pure”, which includes a traditional single parent, captive of $250,000.  Secondly, Vermont requires the captive to pay minimum premium tax of $7,500 which has an underwriting level of approximately around $2 million dollars at a rate of 0.38%. 
As a general rule, the formation and annual expenses, including premium taxes, of captive insurance companies will be lower in most offshore jurisdictions rather than domestic domiciles. 
One offshore jurisdiction known for international finance is considered an industry leader in captive insurance; “Bermuda, where almost twenty-five percent of the World’s captives are registered.”  Next are the Cayman Islands which have a slightly less number of captives, behind Bermuda and Vermont with approximately 760 companies. The domicile had total insurance reserves held in captive insurance companies of US $42.3 billion as of June 31, 2010.  The annual fee to the insurance department for a captive insurance company, or “Class B” insurance license, as it’s know in Cayman, is currently $10,365.85.  One significant benefit at present, is that a captive does not have to pay a tax on premiums until 2016 (the company can still underwrite risks arising in or from the U.S., which raises additional issues and questions that will be addressed later this week). Also, the minimum capitalization to start is less than half of Vermont, only $120,000. 
And yet still other domiciles such as St. Lucia, offers initial capitalization requirements as low at $50,000.  Additionally, here annual operating fees can be as low as, $2,500 annually. 
Some other annual costs and fees (approximately) that may be necessary for consideration, whether forming an insurance company either offshore or domestically, including, but not limited to:
- captive manager ($10,000-$150,000)
- registered agent ($100-$5,000)
- actuary, ($5-50,000)
- auditor, ($5-25,000)
- asset manager (10-40 basis points)
- legal counsel ($100-500 + per hour).
“Operating expenses can vary significantly from one domicile to another, but it is not unusual for the cost of services such as captive management, audit and legal fees, and others to be as much as 10-20% more in some of the more established offshore domiciles.” 
Nevertheless, costs and fees are only one of many considerations for a proper domicile when forming an insurance company and a full examination of insurance needs should be weighed. A list of some of these considerations can be found on our earlier blogticle Captive Insurance Companies Introduction September 1.
Tomorrow’s blogticles will discuss taxation of international insurance companies.
We invite your questions and comments by posting them below, or by calling the Panel of Experts.
About Vermont Captive. http://www.vermontcaptive.com/about-us.html
. Posted 1997. Last Accessed 9/27/2010.
 Vermont Captive Fees and Taxes. http://www.vermontcaptive.com/regulations/fees.html. Posted 1997. Last Accessed 9/27/2010.
 Title 8 Vermont Statutes Annotated Chapter 141. “Captive Insurance Companies.” http://www.vermontcaptive.com/regulations/laws.html. Last Accessed 9/28/2010.
 Vermont Captive Fees and Taxes.
 3 Asset Protection: Dom. & Int’l L. & Tactics § 41:15. Duncan E. Osborne and Elizabeth Morgan Schurig. (2010). Westlaw.
 Freedom In Captivity: The Captive Insurance Legislation of Nevis, Jan Dash, Esq., Herman W. Liburd citing, International Association of Insurance Supervisors, Issues Paper on the Regulation and Supervision of Captive Insurance Companies, October, 2006, p. 50.; A Guide to Captive Insurance (Part 1), William Elliot, Journal of International Taxation, April, 2005.
 Inurance Managers Association of Cayman. http://www.caymancaptive.ky/. Updated 6/30/2010. Last Accessed 9/27/2010.
 Cayman Islands Monetary Fee Schedule Effective January 1 2010.
 2nd Annual Risk Management Captive Domicile Roundup. Risk Management. http://www.accessmylibrary.com/coms2/summary_0286-18713728_ITM. Last Accessed 9/27/2010.
 Pinnacle St. Lucia. http://www.saintluciaifc.com/online_registry/fees.htm. Last Accessed 9/27/2010.
 Wilmington Trust. “Captive Insurance Companies.” http://www.captive.com/service/WilmingtonTrust/images%20and%20pdf/captive101whitepaper.pdf. 2008. Last Accessed 9/28/2010.