Captive Insurance for Connecticut REITs: The State's Captive Law and Licensing

A Connecticut captive insurer is a licensed insurance company formed mainly to insure the risks of its parent, affiliates, members or participants. Connecticut law, chiefly Conn. Gen. Stat. § 38a-91aa (opens in a new tab) and the sections after it in chapter 698, recognizes pure, association, industrial insured, sponsored, special purpose financial, agency, branch and risk retention group captives. A license comes from the Connecticut Insurance Department after an application supported by organizational documents, a business plan, a feasibility study, financial projections and other exhibits. Published minimum capital runs from $50,000 for a pure or branch captive to $1 million for a risk retention group, subject to the Commissioner's discretion, and a Connecticut captive pays an annual premium tax, files annual reports, meets governance requirements and is examined.

How captives work for REITs in general, including fronting and the other domiciles REITs use, is set out in REIT captive insurance. The Connecticut license, its costs and its filing calendar are what differ when the domicile is Connecticut.

What does Connecticut mean by a captive insurer?

A captive insurer is an insurance company created mainly to finance the risks of its parent, its affiliates, its members or participants, or certain unrelated entities, according to the Connecticut Insurance Department (opens in a new tab). It can write insurance directly or assume risk as a reinsurer behind a policy another insurer issues. Either way, it is a regulated insurer with capital, reserves, reports and examinations, not an internal account.

A captive insurer is also different from a captive insurance agent. The NAIC defines a captive insurer as an insurance company established by a parent to insure the parent's exposures, while a captive agent sells or services contracts for one insurer (NAIC glossary (opens in a new tab)). The agent meaning is covered in independent vs captive insurance agent.

Which captive structures can Connecticut license?

§ 38a-91aa (opens in a new tab) supplies the definitions, and the Connecticut Insurance Department's structure page (opens in a new tab) describes each one:

• Pure captive: insures the risks of its parent and affiliated companies or controlled unaffiliated businesses.
• Association captive: insures the risks of the member organizations of an association and their affiliated companies.
• Industrial insured captive: insures the risks of the industrial insureds in the group, their affiliates and controlled unaffiliated businesses.
• Sponsored captive: a sponsor provides insurance or reinsurance through protected cells, which are legally separated participant accounts.
• Special purpose financial captive: provides insurance or reinsurance through special-purpose financial arrangements.
• Agency captive: owned or controlled by licensed insurance agents or producers, insuring risks tied to policies sold through those owners, within statutory limits.
• Branch captive: a Connecticut branch of a foreign or alien captive insurer.
• Risk retention group: a liability insurer owned by its insured members under the federal Liability Risk Retention Act, restricted to liability coverage.

For a REIT, the first structural question is whose risks the captive will carry. A REIT insuring its own property deductibles is a different case from a sponsor pooling risks across several funds or a group of unrelated owners sharing a protected-cell facility. A risk retention group is not a general-purpose property captive, because it is limited to liability.

What does a Connecticut captive application require?

The Connecticut Insurance Department's formation process (opens in a new tab) runs in a set order. It begins with a pre-feasibility business analysis and the selection of captive management, legal, accounting, actuarial and investment providers the Department has reviewed, followed by a meeting with the regulator and staff. The applicant then files organizational documents, a signed and notarized captive application with an $800 application fee, and a business plan, feasibility study and pro forma financials (application materials (opens in a new tab)). The company is formed through the Connecticut Secretary of the State and receives a Certificate of Authority.

Connecticut adds local requirements once the captive operates. It needs a Connecticut resident licensed agent, at least one Connecticut resident board member and a Connecticut bank account. It must hold capital as the approved application and business plan describe, use a Commissioner-approved format for any letter of credit, pay a $375 annual license fee, hold an annual board meeting in Connecticut, and submit material changes before putting them in place.

A license is not an approval of every proposed structure. The Department reviews the application, business plan, feasibility study, financial condition, operations and risk profile before it issues one.

How much capital does each structure need?

The Connecticut Insurance Department's minimum capital page (opens in a new tab) lists a pure captive at $50,000, a branch captive at $50,000, a sponsored captive's general account at $75,000 with cell capital depending on the risks taken, and association, agency, industrial insured and special purpose financial captives at $250,000. A sponsored captive licensed as a special purpose financial captive is listed at $250,000, a risk retention group at $1 million, and a dormant captive at $15,000.

Those figures are floors, not the amount a REIT captive will hold. For every structure other than a risk retention group, the Commissioner may allow less or require more based on the type, volume and nature of the business and the captive's obligations. A captive writing property catastrophe layers for a portfolio carries obligations very different from one funding a small liability deductible, and the feasibility study is where that difference is measured.

What can a Connecticut captive insure?

When its organizational documents authorize it, a Connecticut captive may apply to insure any kind of loss, damage or liability that is properly a subject of insurance, unless the law prohibits it or the Commissioner disapproves it as contrary to public policy, under § 38a-91bb (opens in a new tab). The same section lets specified structures accept or transfer risk through parametric contracts.

§ 38a-91ll (opens in a new tab) limits whose risks each structure takes. A pure captive may insure its parent, affiliates and controlled unaffiliated businesses; association and industrial insured captives are limited to the organizations the statute names; and a risk retention group is limited to its members' and owners' risks. No Connecticut captive may provide personal-risk insurance for private passenger auto or homeowners coverage, or any part of it, and a captive may accept or cede reinsurance only as the captive statute allows.

For a REIT, that leaves room for property deductibles, retained layers and commercial liability risks, while ruling out personal auto and homeowners coverage. Whether a particular layer is a good fit for a captive is a feasibility and tax question, not a licensing one.

What reports, audits and examinations apply?

A Connecticut captive must file its license renewal and fee, its premium-tax filing and payment, and its annual report by March 1 each year, and its audited financial statements by April 1, according to the Connecticut Insurance Department (opens in a new tab). The annual report is verified by the oath of two executive officers.

The statute adds a wrinkle. § 38a-91gg (opens in a new tab) sets a March 15 reporting date for pure and industrial insured captives, and branch captives file the reports their home jurisdiction requires. Reconcile the structure-specific statute, the Department's instructions and the current filing bulletin before the first filing season.

Captives are generally examined every three years, and the Commissioner may extend the interval to five years where specified management, operational and internal-audit practices are in place. Bulletin FS-4C-25 (opens in a new tab), dated December 26, 2025, sets financial-reporting requirements for Connecticut-domiciled captives, non-Connecticut captives doing business in Connecticut, and branch captives licensed in Connecticut.

What does Connecticut charge in captive premium tax and fees?

Connecticut taxes captive premium on a sliding scale under § 38a-91nn (opens in a new tab). On the Connecticut Insurance Department's current schedule (opens in a new tab), direct premium is taxed at 0.380% on the first $20 million, 0.285% from $20 million to $40 million, 0.190% from $40 million to $60 million and 0.072% above $60 million. Reinsurance premium is taxed at 0.214%, 0.143%, 0.048% and 0.024% across the same bands.

The annual tax has a $7,500 minimum and a $200,000 maximum, and a new captive gets a $7,500 premium-tax credit in its first year. The filing and payment are due on or before March 1. Add the $800 initial application fee and the $375 annual license fee, and the regulator's charges are only part of the cost; management, actuarial, audit, legal and fronting fees sit on top.

What changed in Connecticut's captive law recently?

Connecticut's captive law dates to Public Act 08-127, effective January 1, 2009, and was amended in 2011 by Special Session Public Act 11-1, which, according to the Department's 2011 legislative summary (opens in a new tab), created the reinsurance premium tax and the first-year $7,500 credit. Later amendments came through Public Acts 14-6 and 22-118.

The two most recent rounds matter for a structure being designed now. Public Act 24-138 made 2024 changes involving parametric risk transfer, risk-based capital flexibility, protected cells and examination treatment (Connecticut Insurance Department, July 16, 2024 (opens in a new tab)). Public Act 25-130, with its captive changes effective October 1, 2025, added flexibility for protected-cell conversions, transfers and related transactions (Connecticut Insurance Department, July 25, 2025 (opens in a new tab)). Confirm the current statute and each act's effective-date language before relying on an older rule.

What if the captive is domiciled outside Connecticut?

A REIT with Connecticut buildings can own a captive licensed somewhere else, and Connecticut then has its own filing. Under § 38a-277 (opens in a new tab), an insured that procures, continues or renews insurance with an unauthorized insurer on a Connecticut subject of insurance, other than through the surplus lines law, must report to the Commissioner of Revenue Services within 60 days, and the statute provides for a 4% premium receipts tax on applicable nonadmitted insurance, subject to its definitions and exceptions. The Department's forms page (opens in a new tab) carries Form 115-NIN for nonadmitted premium tax reporting.

§ 38a-254 (opens in a new tab) excludes premiums paid to a captive insurer, as defined in § 38a-91aa, from the risk retention group premium-tax provision. That exclusion does not settle every case; the specific captive, transaction, admission status and filing still need analysis.

Fronting is the common workaround. When a captive is not admitted to write a line directly in Connecticut, an admitted insurer can issue the policy and cede some or all of the risk to the captive through reinsurance, while the fronting insurer keeps its contractual, regulatory, claims, collateral and counterparty obligations. Using admitted carriers for fronting may help avoid nonadmitted premium taxes, but it brings collateral, fronting fees and premium-tax costs of its own, according to the Department's 2022 captive FAQ (opens in a new tab). Lenders and contracts can also require a particular issuing insurer, so ask whether yours do before choosing a structure.

How do federal REIT tax rules affect a captive?

Connecticut licensing settles nothing about federal tax. Under 26 U.S.C. § 856(l) (opens in a new tab), a taxable REIT subsidiary is a corporation other than a REIT in which the REIT owns stock directly or indirectly and for which the REIT and the corporation jointly elect TRS status; the election is generally irrevocable unless both consent to revoke it. A corporation is also treated as a TRS when another TRS owns more than 35% of its voting power or value, subject to exceptions. The asset tests in section 856(c)(4) cap the value of TRS securities at 25% of the REIT's total assets under the current Code text, and the gross-income tests apply alongside them.

A REIT-owned captive therefore needs analysis for entity classification, the TRS election, asset-test and income-test treatment, related-party rules, insurance-company tax treatment and accounting effects. Section 856 does not approve a captive structure on its own.

Small captives face a second federal question. 26 U.S.C. § 831(b) (opens in a new tab) offers an alternative tax regime for qualifying non-life insurers below a premium threshold, subject to diversification requirements and an election. IRS Notice 2016-66 (opens in a new tab), dated November 1, 2016, identified certain related-party section 831(b) micro-captive arrangements as transactions of interest and warned of possible tax avoidance or evasion, and IRS Revenue Bulletin 2023-17 (opens in a new tab) reports later proposed rules treating categories of micro-captive transactions as listed transactions. A captive is not automatically a tax-saving arrangement.

Questions to ask before forming a captive

Take these to the Connecticut Insurance Department, the captive manager, the actuary, the auditor, the tax adviser, the lender and the board:

• Which risks will the captive insure directly, and which through reinsurance behind a fronting insurer?
• Which structure fits the ownership: pure, sponsored with protected cells, association, industrial insured, branch or another type?
• What feasibility analysis supports the proposed premiums, reserves, capital and risk distribution?
• What additional capital or surplus may the Commissioner require, and will a letter of credit be used in an approved format?
• Which service providers has the Department reviewed and recognized?
• Who will serve as the Connecticut resident board member and resident agent, and where will board meetings be held?
• Which reports, audits, actuarial certifications and examinations apply, and on which dates?
• What fronting, collateral, lender and contract requirements apply?
• Does the structure require a TRS election or raise REIT asset or income-test issues?
• If section 831(b) is involved, are its requirements met, and does the arrangement avoid the features named in IRS micro-captive guidance?
• What is the process for material changes, dormancy, redomestication, protected-cell conversion, insolvency or dissolution?

Frequently asked questions

Is a feasibility study required for a Connecticut captive?

Yes. The Connecticut application materials list a feasibility study and a business plan among the documents the Department reviews, along with pro forma financials and the organizational documents.

How often is a Connecticut captive examined?

Generally every three years. The Commissioner may extend the interval to five years where the captive has completed specified management, operational and internal-audit practices.

Can a Connecticut captive write homeowners or personal auto coverage?

No. Connecticut prohibits captives from providing personal-risk insurance for private passenger auto or homeowners coverage, or any component of it. The REIT's own commercial risks are a separate question under the captive statute's structure limits.

What is the most a Connecticut captive pays in premium tax each year?

The Department's current schedule caps the annual captive premium tax at $200,000, with a $7,500 minimum and a $7,500 credit in the first year.

How do I check a captive manager's or producer's license?

Use the Connecticut insurance license lookup (opens in a new tab) to confirm a producer's or captive manager's license status before you share portfolio information.

Your next step

Before a board sees a captive proposal, line up the feasibility study, the capital plan, the fronting and lender terms, and the federal tax analysis, and put the questions above to each adviser. The wider insurance program a captive sits beside is in insurance for Connecticut REITs, and you can find licensed agencies and brokers by city and category in the Riskado directory of Connecticut insurance agencies.