Usually on the leading edge of corporate legislation, Delaware uncharacteristically has come late to the captive insurance game. However, the drafters of recently overhauled Delaware captive insurance company legislation used their time wisely, watching the sector develop and deciding what would be needed to put Delaware on the cutting edge.

Some key features of the new Delaware legislation, which was adopted as of August 2005, include:

• A very low premium tax

• Relatively low application and annual fees

• Examinations by the Commissioner only once every three years

• Relatively low capitalization requirements

• All entity forms allowed, including LLCs (this could be a very significant advantage because it theoretically allows a captive to have charging order protection)

• Allows RRGs, protected cell, industrial captives, and “special purpose” captives

Notably, the Delaware statute allows a captive to underwrite not only the risks of other subsidiaries of the owner, but also other entities that have contractual affiliations with the owner, which should make it easier for Delaware captives to comply with recent IRS Rev. Rul. 2005-40.

The new Delaware statute raises the bar for captive legislation. It is likely that Delaware quickly will become a major captive jurisdiction, mirroring the quick success of South Carolina.

In related news, Wilmington Trust Company, a major Delaware trust company, has bought Charleston Captive Management Company and apparently will aggressively pursue the formation of captive insurance companies in Delaware. Also, a Delaware Captive Insurance Association has been formed and are now hosting an informative website at http://www.delawarecaptive.org