How does a regulator decide whether a captive can pay a dividend?
A request, a look at the financials, and a check that the floor still holds
Mark Wiedeman describes the dividend process as pretty straightforward. The captive submits a request, the department typically asks for a copy of the financials to see where the captive stands from that snapshot position, and then runs the process, which he says usually takes a couple of days to turn around. What the department is checking is that the captive keeps enough to maintain its minimum capitalization and enough to cover loss if it needed to. He adds a preference rather than a rule: he believes they ask that a captive be in business for a year or so, and would prefer a captive trade for a little while before it starts asking for money back, though that is looked at case by case.
The mechanics are light. A request goes in, the department typically asks for financials, and Wiedeman says it usually takes a couple of days to turn something like that around.
That timing is worth reading as his description of the normal case rather than a service standard. The answer is about a straightforward request on a healthy captive.
Key takeaways
A Tennessee dividend starts with a request and a copy of the financials, and Wiedeman says it usually turns around in a couple of days.
The department checks that the captive still holds its minimum capitalization and enough to cover loss.
He says they prefer a captive to have been in business for a year or so first, looked at case by case.
The test is a floor test. The department wants to see the captive maintaining enough in its coffers to keep its minimum capitalization, and enough to cover loss if it needed to.
That is the same solvency question that decides licensing, applied at the moment money leaves. A dividend that would take the captive below its statutory floor is not a dividend the department is being asked to approve.
From the conversation
Mark Wiedeman
Director, Captive Insurance Section, Tennessee Department of Commerce and Insurance
“we would prefer a captive be in business for a little while before they turn around and start asking for money from it”
This answer begins at 15:23 of the full conversation. Watch or listen to the whole thing.
Citations
Sources
- Captive Insurance Section, Tennessee Department of Commerce and Insurancehttps://www.tn.gov/commerce/insurance/captive-insurance.html
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.
Corrections or removal requests: contact@captiveip.com