Celina R. Babauta
GOVERNOR Arnold I. Palacios has signed into law Senate Bill 24-9, allowing novel captive insurance companies to operate in the CNMI.
Authored by Senator Celina R. Babauta, S.B. 24-9 is now Public Law 24-3.
Also known as the Captive Insurance Act of 2025, the new law permits captive insurance companies to be licensed, domiciled, and to transact business in the Commonwealth.
Captive insurance companies serve a valuable risk management function. As defined by online financial resource Investopedia, “a captive insurance company is a wholly-owned subsidiary created by a parent company to provide insurance coverage and risk management for itself and its affiliates.” Businesses form “captives” for various reasons, including when they cannot find a suitable outside firm to insure them against specific risks. Premiums paid to the captive insurer may result in tax savings, and the insurance coverage provided is often more affordable and tailored to the company’s needs.
According to P.L. 24-3, the responsible utilization and growth of the captive insurance industry is in the best interest of the Commonwealth. The new law states that a captive insurance company “represents an option for many organizations, from Fortune 500 companies to nonprofits, that want to take financial control and manage risks by underwriting their own insurance rather than paying premiums to third-party insurers.”
Under the law, each captive insurance company is required to pay the Commissioner of Insurance a non-refundable $500 fee for examining, investigating, and processing its license application. A special purpose financial insurance company must pay a non-refundable $2,500 fee for the same process.
Annual license renewal fees are also set at $500 for captive insurance companies and $2,500 for special purpose financial insurance companies.
These are the capital investments required by type of captive insurer:
– Pure captive insurance companies: minimum capital of $50,000.
– Group captive insurance companies: $100,000.
– Industrial insured captive insurance companies (incorporated as stock insurers): $150,000.
– Rent-a-captive or protected cell captive insurers: minimum of $150,000 for the first client or cell, with an additional $150,000 per added client or cell, up to a maximum of $750,000.
– Risk retention group captive insurers: $500,000.
The Federated States of Micronesia is the first jurisdiction in the Micronesian region with a developed and regulated captive insurance industry.
The FSM passed its Captive Insurance Act in 2006 and has since become a significant domicile for captive insurance companies, particularly those serving Japanese corporate clients.
