Can a captive go dormant instead of shutting down?
Dormancy pauses most of the obligations without dissolving the company
The Utah Insurance Department amended its code to let a captive go dormant rather than shut down, for exactly the situation where the commercial market softens and an owner would rather buy coverage outside for a while. Dormancy is an application: the department confirms there are no live policies, that claims are extinguished or otherwise handled, and that the captive is compliant, then issues a certificate of dormancy. The captive keeps a manager and two annual filings, drops the audit and actuarial opinion, and pays a reduced fee against a reduced capital floor.
The reason dormancy exists is economic, and Travis Wegkamp states it plainly. When a captive stops making sense for a year, the alternative to pausing is dissolving it, and rebuilding later means a whole new company, a new feasibility study and a new business plan. That is expensive compared with going dormant and coming back out.
It also fits the situation the host described: soft commercial pricing that could turn around at any moment. Dormancy is the option for an owner who does not want to commit to leaving.
Key takeaways
Utah amended its captive code to allow dormancy so an owner does not have to dissolve a captive during a soft commercial market.
A dormant captive keeps its manager and files the annual statement and statement of economic benefit, but drops the audit and actuarial opinion unless the department raises a concern.
Dormancy halves the annual license fee and cuts the minimum capital requirement, and Liu notes the former five year limit on staying dormant has been removed.
Entry is an application rather than a notification. The department confirms there are no existing policies, that all claims have been extinguished or taken care of, and that the captive is up to date and compliant with the rest of the code. It then issues a certificate of dormancy.
What continues is deliberately small. The captive still needs a captive manager, and Wegkamp expects a manager to negotiate reduced fees given how much less filing there is. Two reports still go in annually: the annual statement and the statement of economic benefit.
From the conversation
Utah Insurance Department
Captive Insurance Division, State of Utah
“amended our code a few years back to allow for that”
This answer begins at 32:06 of the full conversation. Watch or listen to the whole thing.
Citations
Sources
- Captive, Utah Insurance Departmenthttps://insurance.utah.gov/captive
The views expressed are those of the featured guest, drawn from a recorded conversation, and reflect their own professional experience. Nothing on this page is insurance, tax, legal, or investment advice. Consult your own advisors about your specific situation.
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