Maryland Governor Wes Moore approved Chapter 638, Senate Bill 890 on May 26, 2026. From July 1, 2026 through June 30, 2028, the law bars the Maryland Insurance Administration (MIA) from charging or collecting the state’s 3% premium receipts tax, along with related fees, penalties, and interest, on captive insurance lawfully procured by nonprofit hospitals and nonprofit health care systems. The prohibition reaches “any existing and retroactive tax liabilities,” so it suspends back-tax collection too, and it directs the MIA to study captive use, regulation, and taxation and report to the Governor and two legislative committees by January 1, 2027.
The number that makes this a reserve story is the one the bill removes. Under Insurance Article Sections 4-209 and 4-211, an unauthorized insurer or an insured procuring coverage from one owes a premium receipts tax of 3% of gross premiums, and late payment triggers a penalty of 25% of the tax due plus 1% per month or part of a month. That is the leakage the moratorium pauses. It does not make a single birth-injury claim, delayed-diagnosis claim, or large stop-loss reimbursement any cheaper. For a hospital captive board, Chapter 638 is a funding and domicile question, not a claim-cost one.
Who it affects
The direct audience is Maryland nonprofit hospitals and nonprofit health care systems that place professional liability, obstetric, managed care, cyber, or medical stop-loss risk in a captive. The eligible structure under Section 4-209 covers a nonprofit health care system and premiums paid by its parent entity, any subsidiary, or any constituent provider, as well as a nonprofit hospital located in the state. The finance audience is hospital risk officers, treasury teams, captive board members, parent-system finance committees, and the auditors who review nonprofit hospital self-insurance.
The Maryland twist is that the captives themselves are not in Maryland. The state has no domestic captive framework, so its hospital systems set up captives decades ago in offshore domiciles such as the Cayman Islands, where Maryland’s 3% tax went unpaid. That is the gap the MIA study is meant to close, and it is why the bill weighs a state registry for captives “domiciled in other jurisdictions but used by entities in the State.” The issue is not parochial. The Society of Actuaries Research Institute’s February 2026 healthcare captive report counts more than 8,000 captives globally writing roughly $50 billion in premium as of 2024, with single-parent and group medical captives among the fastest-growing segments. State tax treatment of those structures is a board-level capital item, not a compliance footnote.
The reserve mechanism
The lever is captive funding adequacy and domicile economics, not frequency or severity. Maryland’s law leaves the loss process alone, so the actuarial central estimate for unpaid claims should not move. What moves is non-claim leakage and the cash that competes with the funding margin.
Size the lever with the public numbers. The MIA estimates the state has been forgoing at least $2.3 million a year by not collecting the 3% tax from hospital captives, and a former insurance executive who flagged the practice through Maryland’s whistleblower program puts the cumulative shortfall at roughly $20 million over five years. Those figures are the annual and multi-year tax bill the moratorium suspends across the affected hospital captives in aggregate; the same whistleblower estimates as much as $3 billion of nonprofit hospital funds now sit in offshore captives. For an individual captive, the 3% rate applied to its gross written premium is the recurring saving, and the suspended 25%-plus-1%-per-month penalty is the avoided cost on any back tax that would otherwise have come due.
In reserve terms, a board should keep three numbers separate. First is the actuarial central estimate for unpaid claims, including incurred but not reported (IBNR) and development on known claims. Second is the captive’s risk margin or funding target above that estimate, typically expressed as a confidence level such as the 75th or 80th percentile. Third is tax and regulatory leakage that draws on the same cash. Chapter 638 improves only the third number for two years. Booking it as a reduction in the first, or quietly relaxing the second because cash looks easier, would be the error. A reserve review for hospital professional liability IBNR should still test severity, reporting lag, case-reserve adequacy, and tail factors regardless of the tax line, and a single-parent captive review should still reconcile gross, ceded, and net before the board decides how much capital is genuinely available.
What this means for your next review
Make a call rather than a wish list. For most Maryland hospital captives the defensible move is to hold the domicile and treat the moratorium as a clearly labeled, time-boxed line in the capital plan, not a structural change. Two years is short, the bill is silent on whether the suspended back taxes come due when Section 2 abrogates on June 30, 2028, and the MIA study could land on a registry fee, a revised premium tax, or new treatment of capital contributions and internal reserves. Funding to the actuarial central estimate plus the board’s chosen margin should not loosen because $2.3 million a year of statewide leakage paused; if anything, the unresolved retroactive question argues for carrying the contingent tax as a separate reserve or disclosure rather than spending the relief.
Redomestication is the harder call, and the economics now point at least as much to certainty as to rate. An offshore captive that was attractive partly because Maryland’s tax went uncollected looks different once the state is actively studying how to tax or register it. A U.S. captive domicile with a published premium tax, often on a sliding scale that falls to a fraction of a percent at higher premium volumes, can be cheaper and far more predictable than an offshore structure facing an open retroactive-tax question, before counting Section 953(d) and federal considerations. Boards weighing the trade-off can compare frameworks the way other states have built them, from Florida’s new protected-cell regime to Alabama’s capital moratorium and Louisiana’s Regulation 139 choices, and should pressure-test any redomestication against the reserve-estimate and capital gates a new domicile will apply at formation.
Practically, put a captive funding bridge on the agenda for the next reserve study or interim monitoring meeting. Ask management and the actuary to show unpaid claim reserves, selected margin, available surplus, the 3% premium tax accrual, and any retroactive tax exposure as separate lines. Let the reserve study answer the loss question and the capital model answer the funding question, so that whatever the MIA recommends in 2027 can be absorbed without reopening the loss pick. For background on how providers fund retained risk, the SOA report and actuary.info’s captive insurance guide both walk through domicile selection, premium tax, and reserve methodology; a refresher on self-insurance captives and SIRs frames where the retained risk sits in the first place.
Sources
- Maryland Chapter 638, Senate Bill 890, approved May 26, 2026
- Maryland General Assembly SB 890 bill history
- The Baltimore Banner: How the Cayman Islands helped Maryland hospitals avoid taxes
- The Baltimore Banner: Lawmakers question pause on Maryland hospitals’ insurance tax collections
- Maryland Matters: Senate eyes pause on collection of tax on hospitals’ offshore captive insurance
- Society of Actuaries Research Institute, Healthcare Insurance/Reinsurance Captive Landscape, February 2026
- actuary.info: Captive Insurance, A Complete Guide for Risk Managers and Actuaries