Insurance legislation could mean jobs for SD

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PIERRE — South Dakota’s status as a tax-free place for wealthy people to establish personal and family trust funds hasn’t produced many jobs other than at law firms. But state lawmakers were told Friday that white-collar jobs could result if South Dakota allows more types of captive insurance companies, including captive trusts, which currently aren’t recognized in any state.

In a captive arrangement, an operator owns the business being insured and the insurance company serving it. The business pays premiums to the insurance company. This arrangement was developed during the 1970s as insurance became costly for high-risk business lines.

Lawyers in the South Dakota State Bar Association joined their counterparts in several other states to form a captive insurance company that would serve them in their law practices. The company is now headquartered in Montana.

Four captive insurance companies currently operate in South Dakota. Legislation that will be presented next week in the state House of Representatives would allow three new types of captive insurance operations.

One is a sponsored captive, in which the assets of different businesses are placed into individual cells, with those cells segregated so losses are separated by cell.

Special purpose captives are owned or controlled by a parent company and can only insure the risk of its parent.

The third new type would be trust captives. They would need to have a trust administration in South Dakota, have some assets in South Dakota and have a South Dakota trustee.

Mallori Barnett, a lawyer for the state Division of Insurance, said a business owner could create a captive insurance company and place the shares into a trust for the benefit of the person’s children, giving the trust the ownership interest.

This can provide “a substantial tax savings,” she said, with the Division of Insurance reviewing the insurance and the Division of Banking reviewing the trust. She said trusts will be more attracted to South Dakota as a result.

The legislation, HB 1061, was endorsed Friday by the House State Affairs Committee. Its chairman is House Republican leader David Lust, of Rapid City, who also chairs state government’s work group on trust administration.

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