Governor Phil Scott signed H.649 on March 24, banning risk retention groups domiciled in Vermont from making loans to or investing in their member-owners or affiliates. The law takes effect July 1, 2026. For captive managers and RRG board members, the two headline provisions land directly on the asset side of the reserve equation: what backs unpaid claims, and how much capital a protected cell must prove it holds before it can write a single policy.
What the Law Does
The RRG investment restriction codifies what Vermont’s Department of Financial Regulation had enforced as regulatory practice. After July 1, no Vermont-domiciled RRG may originate a new loan to, or make a new investment in, any member or affiliate. Transactions already in place before January 1, 2026, are grandfathered.
The second major provision targets sponsored captive structures. Each protected cell must now file a sworn statement with the Commissioner certifying that it has the funding and collateral outlined in its approved business plan before commencing operations. This mirrors requirements already applicable to licensed captive insurers but had not been formally extended to cells.
H.649 also formalizes quarterly financial statement filings for RRGs in accordance with National Association of Insurance Commissioners (NAIC) standards, broadens eligible organizational forms to include LLCs, permits sole proprietorships as cell participants, and tightens independent director definitions for captive boards.
Who It Affects
The RRG loan prohibition matters most to group captives and risk retention groups whose invested asset portfolios include member notes or affiliate receivables. These structures are common among self-insured professional services firms, healthcare providers, and public entity pools. The protected cell certification requirement affects sponsored captive programs where multiple cells share a sponsor’s infrastructure but maintain segregated assets and liabilities, a structure used by hospitals, construction groups, and franchise operations.
Vermont remains the largest U.S. captive domicile with more than 1,400 licensed captives. Christine Brown, Deputy Commissioner of Captive Insurance, said the bill “advances the state’s strong foundation” and ensures alignment with evolving industry standards.
The Reserve Mechanism
The RRG loan prohibition is an asset adequacy measure. Member loans are illiquid, correlated with the same risks the RRG insures, and difficult to value at fair market. Removing them from the invested asset base forces a portfolio restructuring that may lower net investment income. If the RRG’s reserve discount calculation assumed a yield supported partly by member loan interest, the expected investment income component shrinks, and the nominal reserve requirement rises.
The protected cell certification is a capitalization gate. By requiring a sworn funding statement before a cell can commence business, Vermont reduces the risk that an underfunded cell begins writing policies and generating IBNR obligations it cannot support. For the sponsor and other cells in the structure, this limits contagion risk: a cell that fails to meet claims does not draw on common assets or distort the sponsor’s aggregate reserve position.
What This Means for Your Next Review
If your RRG holds member loans as invested assets, ask your actuary whether the investment income assumption in the reserve discount needs to be reset once those positions are divested. For sponsored captive participants, confirm with your captive manager that each cell in your program has filed its funding certification and that the certified amounts align with the actuarial projections in the most recent reserve study. Both changes are effective July 1; the time to adjust assumptions is the current review cycle, not the next one.