Bench & Bar March/April 2026

2026 ANNUAL CONVENTION OVERVIEW ON PAGE 6

In the private sector, medical practices and hospitals, which face ever-rising pro fessional liability premiums and daily cyber-risk threats, are turning to captives. 17 Other professional service providers, like law and engineering firms, also use captives to insure against liabilities. 18 Agri-busi nesses, typically through state or regional co-ops or trade associations, likewise use captives to insure against crop losses and other exposures. 19 Quite simply, captives are industry-agnostic and can be used to insure all types of first-party and third-party prop erty/casualty risks of both for-profit and not-for-profit entities. They cannot, how ever, be used to insure personal property lines ( e.g., homeowners’ insurance). Currently, Kentucky law permits captives to insure against a number of common risk categories, including: 20 • General Liability • Professional Liability • Property and Facility Product or Service Warranties • Products Liability • Employment Practices • Directors’ and Officers’ Liability • Workers’ Compensation / Employers’ Liability • Business Interruption / Evacuation / Disaster • Terrorism / TRIA (multi-peril and domestic) • Environmental Liability and Clean-up • Transport and Auto Fleet Liability (Large Deductible & Umbrella / Excess) • Shipping and Inland Marine • Equipment Maintenance & Repair • Title / Private Mortgage • Employee Benefits (ERISA and Non-ERISA ) In addition to the various lines of cover age that captives are permitted to directly

insure, captives may be used to reinsure those same risks and to procure reinsur ance directly from the commercial market. 21 Kentucky also provides for different captive structures, with variable initial capitaliza tion requirements, to allow flexibility in meeting the private insurance needs of their related insureds. 22 However, while Kentucky’s captive insur ance scheme may have been cutting-edge decades ago, it has fallen behind. For example, Kentucky’s legislation allows for protected cell captives. A protected cell captive is much like buying a condo in a larger building, where the “sponsor” captive is the building (and usually owned by the captive manager or a parent company), and the individual, protected cells are the condo units (with segregated assets and liabilities). The initial capitalization requirements for protected cells typically are lower than other types of captives, thereby creating a mech anism by which small-to-medium-sized businesses can participate in captive pro grams. However, the Kentucky Department of Insurance currently does not license protected cell captives, which restricts the ability of small-to-medium-sized busi nesses to access captive insurance within this state. 23 Compare Kentucky to Tennessee, which, at the end of 2025, had more than 700 risk-bearing entities, including 165 inde pendent captive insurers and 557 protected cells. 24 Collectively, Tennessee captives earned $2.41+ billion in premiums according to the Tennessee Department of Commerce and Insurance’s most recently published reports. 25 With a simplified premium tax rate of 0.4% of direct, written premium, that is approximately $9.64 million in tax revenue to the state. In contrast, according to the most recently published figures from 2024, Kentucky’s captives earned only $130 million in written premium, reflecting huge growth potential for the state. 26 SO HOW DOES AN ORGANIZATION PROCURE CAPTIVE INSURANCE? Lawyers who help assess the adequacy of their clients’ insurance coverages would be well-served to contact a “captive manager”

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with premiums rising everywhere. 13 Many Kentucky organizations face widening gaps in insurance coverage. Captive insurance is tailored to address these very issues. Indeed, nationwide, leaders of public and private organizations increasingly turn to captive insurance to cover organizational risks. For example, even though California does not have captive-enabling legislation, the University of California established a cap tive insurance company a few years ago in Washington D.C. (where it has a satellite campus) to insure the property and casualty risks of its 10 campuses. 14 In 2022, Tennes see formed its own captive to create savings on insuring state property (which, legend has it, came in handy later that year when Tennessee beat Alabama and fans tore down the goalposts at the Rocky Top football field). 15 In 2025, based on an independent report that indicated a captive could save the state $12 million annually, Arkansas passed legislation to allow its public schools to establish their own captive. 16

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