Vermont, Hawaii Pass Laws Creating Domicile Dilemma.

Regulatory provisions in states such as Vermont and Hawaii are making captive insurers a proposition that's too attractive to pass up, one risk manager said.

Karen J. Golden, director of risk management for Whitman Corp., a holding company for Pepsi Bottling Co., spoke at the 15th annual Vermont Captive Insurance Association Conference.

The only thing to consider is whether you snow ski or scuba dive. "It has to be a business consideration," Golden said. "It's a reality."

Golden said that captives provide control by isolating funds for losses. She added that since her company has a heavy cash business, it wants to pay for its own losses.

"Having a captive run those losses instead of having them go to the balance sheet gives you an advantage," she said.

Captives also give control by allowing companies to manage claims and litigation. It allows them to vigorously defend the claims they choose to defend. "I want to take care of my employees who might be out on workers compensation or treat customers fairly if they have a legitimate injury from a product," Golden said.

She said she wouldn't go with a guaranteed-cost program, under which an insurance company insures from the "first dollar" and manages the claims. "By putting my retention into a captive, it just gives more flexibility in managing my own claims," she said.

Choosing the right captive domicile is also important. Much debate has centered on the choices of Bermuda, Vermont or Hawaii.

Kathryn M. Boucher, a certified public accountant for Marsh Management Services Inc. and a speaker at the conference, said Vermont has made more of an effort than any other domicile by keeping legislation up to date and focused on the evolving captive industry.

"Vermont created a response to companies that didn't want to go offshore," Boucher said. "The decision to choose Vermont over Bermuda also comes down to 'location, location, location."'

Many insurers consider going to Hawaii because it offers a captive similar to Vermont but includes some extra options not found in Vermont--such as warranty programs for homeowners and automobile owners, said Jeffrey Johnson, partner for Primmer & Piper PC.

But Golden said Vermont offers "convenience factors" that just can't be found in Bermuda or Hawaii.

For example, Whitman Corp., before initiating a tax-free redomestication to Vermont, had been domiciled in Bermuda for more than 20 years. During that time, the company had problems reaching its captive because of time differences and different holiday schedules.

"We were having so many problems in Bermuda that the whole situation just became more of frustration," she said.

Tax advantages also figured into Whitman's decision to domicile the captive in Vermont. Golden also said that the lines of coverage that Whitman could put in a Vermont captive weren't permitted in a Bermuda captive--primarily employee benefits.

She envisioned creating a true integrated disability-management program under Whitman's captive--something not possible in Bermuda--which would have occupational and nonoccupational cases treated the same way.