The hospitals set up their captive insurance companies as for-profit businesses. As a forprofit business, a hospital’s o shore captive insurance company is not subject to any of the reporting or other restrictions applicable to the nonprofit hospital itself. For example, a hospital’s for-profit o shore captive insurance company does not file a Form 990 disclosing its income, receipts, disbursements or other information to the public. In fact, federal law prohibits any organization for which a “substantial part of its activities consist of providing commercial-type insurance” to qualify as a 501(c)(3) nonprofit. [4]
Maryland’s nonprofit hospitals identify their o shore captive insurance companies as taxable for-profit corporations. For example, GBMC identifies its Bermuda captive insurer, Ruxton Insurance Company, Inc., as a related organization “taxable as a corporation.” Ruxton Insurance Company, Inc. does not file a Form 990 with the IRS.
Ruxton holds $84 million in assets of which only $59 million are held against insurance claims. The remaining $25 million are unrestricted funds. Ruxton currently writes about $13 million per year in premium which translates into a Maryland premium receipts tax obligation of $390,000 per year.
[1] https://www.youtube.com/watch?v=0-zBbSoUHd0 (“There’s functionally not much di erence or maybe no di erence in paying a claim in how that claim gets paid when its paid out of that first level that’s being set aside in the captive. It could just as easily come out of the operating account or savings account for paying claims”, 39:28-47), (“[Investment earnings of the captive insurers is] like any other income generated by the hospital…. [A]s tax exempt entities, [funds in the captives] are used to pay claims and are not taxed.” 42:56 – 43:33); (“I just wanted to comment that my understanding is that these funds that are held in the captive insurance companies are still subject to the nonprofit and tax exempt related requirements so that the idea that they are off in a fund and therefore no longer required to be used for healthcare purposes to my knowledge that is not accurate” 11:07:45 - 08:10).
[2] 26 U.S. Code § 501(c)(3). 26 CFR § 1.501(c)(3)-1.
[3] 26 U.S.C. § 6033(a)(1).
[4] 26 U.S. Code § 501(m).
Maryland Hospital Association
October 21, 2026
Marie Grant
Commissioner
Maryland Insurance Administration
200 St. Paul Place, Suite 2700
Baltimore, MD 21202
Re: Comments on the MIA October 7 Public Meeting on the Use of Captive Insurance
Dear Commissioner Grant:
On behalf of the Maryland Hospital Association (MHA) and our member hospitals and health systems, thank you for the opportunity to participate in the Maryland Insurance Administration’s (MIA) Oct. 7 meeting on captive insurance. We appreciate MIA’s efforts to study how hospitals use these arrangements and to consider an appropriate policy approach for Maryland.
Maryland hospitals face significant liability risks through medical professional liability, cybersecurity risks, premises liability, and more. Because hospitals cannot obtain affordable commercial insurance for the full scope of their risks, they must self-insure by setting aside funds to cover future claims. Captives provide a structured and disciplined way to manage these funds and meet obligations. Any future state policy regulating captives must recognize the unique circumstances of Maryland’s nonprofit acute care hospitals and support their ability to manage risk affordably.
Why and How Hospitals Use Captives
Hospitals provide complex care around the clock, including emergency, trauma, surgical, and obstetric services. These responsibilities create substantial medical liability exposure, alongside other risks including cybersecurity, premises liability, and others. With this level of unavoidable liability exposure, there are no viable options for hospitals to purchase coverage for the full scope of their risk on the commercial market. Therefore, hospitals must self-insure, setting aside significant funds to cover potential claims. Actuarial assessments determine the appropriate amount to be set aside, and a captive provides a structured arrangement to manage those funds.
Placing dedicated funds in captives also allows hospitals to purchase reinsurance. Reinsurance is commercial coverage hospitals purchase to cover any losses beyond what they set aside in the captive. While hospitals pay the vast majority of claims through their self-insurance, they must have reinsurance in the event they suffer a “catastrophic” loss. Reinsurers require hospitals to cover a portion of their own risk based on actuarial assessments. Setting aside funds in a captive gives reinsurers confidence that hospitals can meet their self-insurance obligations.
Hospitals face increasing costs both for the claims they fund themselves and for the protection they purchase. Reinsurers are requiring hospitals to cover more of their own risk while charging higher premiums for covering smaller portions of the risk. Hospital coverage towers (self-insured amount plus reinsurance) consist of successive layers above the hospital-funded retention, sometimes with several reinsurers sharing a layer. Some Maryland health systems use as many as 35 reinsurers to assemble the protection they need. The MIA’s 2026 report documents the resulting pressures: claims and expenses exceeded premiums for hospitals and reinsurers responded by reducing capacity and charging more for each layer of coverage “making MPL coverage significantly less affordable for hospitals and healthcare facilities.” [1] The lack of viable commercial insurance options must be a factor when considering regulatory policy.
Maryland Hospital Captives Support Nonprofit Risk Management
All Maryland acute care hospitals are nonprofit organizations. As such, hospitals do not pay income tax on revenue from their charitable missions and receive no income-tax deduction advantage from setting aside funds in a captive. Unlike many other businesses, hospitals provide essential patient care 24 hours a day, seven days a week, and must manage the complex risks associated with delivering that care.
Hospitals use captives solely to finance risk. Examples discussed during the Oct. 7 meeting of captives being used for financial gain involved for-profit entities with structures and purposes fundamentally different from those of Maryland’s hospital-based captives.
This distinction is important when evaluating the use of captive insurance by nonprofit hospitals.
Why Hospital Captives Are Established Outside Maryland
Maryland does not have a regulatory framework to establish captives. As noted in MIA’s presentation, 35 states permit captive formation while Maryland is among the 15 that do not.2 MIA studied this issue in 2013 and recommended against Maryland becoming a captive domicile.3 Therefore, hospitals must establish captives in other jurisdictions with the requisite regulatory framework and expertise in covering health care risks.
We respectfully ask that MIA account for the absence of an in-state option and the established regulatory frameworks and extensive experience of other jurisdictions in overseeing captive insurance when considering how to regulate hospital-based captives.
Evaluate Captive Finances in the Context of Hospital Obligations
As noted previously, hospitals face substantial liability risks. For a multi-hospital health system, those risks multiply dramatically. When evaluating the gross amount of funds within a captive, it is important to consider the obligations those funds support. Actuarial assessments of a hospital’s risk each year determine the appropriate funding to cover claims for that year. Because claims can take years to resolve, the funds for a given year must remain available well beyond the initial coverage year. Therefore, the overall amount in a captive may be large, but when covering liabilities for multiple hospitals over multiple years, the amount is not only reasonable but necessary to sufficiently cover potential claims. Public hospital financial statements posted by the Health Services Cost Review Commission support this by disclosing liabilities, including estimated unpaid claims obligations and related expenses. A captive is an effective vehicle to dedicate funds to cover future claims on an annual basis and ensure they are available over time.
Global Budgets Limit Hospitals’ Ability to Cover Additional Costs
Under Maryland’s unique hospital payment model, hospitals do not have the same ability to adjust to cost increases as hospitals in other states. HSCRC establishes regulated hospital rates and caps annual revenue through global budgets. Hospitals cannot independently negotiate higher rates with insurers or simply increase patient volume to cover new expenses. Although budgets receive annual adjustments, that update does not account for actual liability and risk management costs. The annual update relies on broader regional cost benchmarks, which do not reflect Maryland hospitals’ experience. Hospitals must manage these obligations within their approved global budgets.
Hospitals operate within these limits while serving patients whether they have Medicare, Medicaid, commercial insurance, or are uninsured. They provide emergency care regardless of ability to pay and offer generous free or reduced cost care to eligible patients. These responsibilities are central to their charitable missions and Maryland’s payment model. Additional risk management costs will divert funds that would otherwise go to direct care, the health care workforce, and other essential services.
Recommendations
Maryland hospitals are unique. All Maryland acute care hospitals are nonprofit, face significant liability risks associated with providing patient care around the clock, and operate under a rateregulated reimbursement system. These characteristics warrant an exemption from Maryland’s 3% unauthorized insurer premium tax and recognition of the difference between hospitals funding their own captive and purchasing reinsurance.
Although they work together to cover hospital risks, reinsurance is fundamentally different than a hospital-based captive. A hospital’s captive is wholly owned and funded by the hospital. Whether a claim is paid by the hospital directly or the captive, it is paid with hospital funds. Reinsurance, however, is a commercial insurance product where a premium payment obtains a pre-established level of coverage from a carrier who bears the responsibility for paying future claims. Maryland’s regulatory approach must recognize the distinction between hospitals setting aside their own funds and purchasing this additional protection.
Additional transparency can be obtained through a prospective registry with a reasonable annual fee. Required reporting should use existing financial statements, actuarial assessments, and regulatory filings where practicable, avoiding unnecessary duplication and expense.
Conclusion
Maryland hospitals must finance unavoidable risk within limited global budgets while sustaining care for their communities. Preserving affordable hospital self-insurance ensures hospitals can meet these obligations and direct more resources to patient care. MHA appreciates MIA’s consideration and looks forward to continued collaboration.
Respectfully,
Andrew Nicklas,
Senior Vice President, Government Affairs & Policy
General Counsel
[1] MIA, Availability and Affordability of Health Care Professional Liability Insurance: 2026 Report, p. 3.
[2] MIA, Use of Captive Insurance Companies Public Meeting Presentation, October 7, 2026, slide 10.
[3] MIA, Report to Examine Methods to Establish and Properly Regulate a Captive Insurer Industry in the State of Maryland, December 2013, p. 1.
Captive Insurance Companies Association (CICA)
October 20, 2026
Submitted via email to [email protected] and [email protected]
The Honorable Marie Grant
Insurance Commissioner
Maryland Insurance Administration
200 St. Paul Place, Suite 2700
Baltimore, MD 21202
Re: Study on the Use, Regulation, and Taxation of Captive Insurance Companies (Senate Bill 890)
Dear Commissioner Grant:
The Captive Insurance Companies Association (CICA) appreciates the opportunity to submit written comments following the Maryland Insurance Administration’s (MIA) October 7, 2026 public meeting on the use of captive insurance companies by entities in the State. CICA is the leading domicile-neutral trade association representing over 700 members of the captive insurance industry, including captive owners, managers, regulators, and service providers. Since 1972, CICA has worked to raise standards across the industry through education, collaboration, best practices, and ongoing engagement with stakeholders, policymakers, and regulators.
Senate Bill 890 (SB 890) directs the MIA to study how Maryland entities use captive insurance, how captives are regulated and taxed in other jurisdictions, the feasibility of a registry for captives domiciled elsewhere, and the results of completed investigations. CICA supports that inquiry. Captive owners should comply with the tax and regulatory obligations that legally apply to them, and where abuse exists, it should be addressed. At the same time, the record before MIA should reflect how captives are actually used, how they are regulated, and where the application of Maryland law to them presents genuine legal questions. Selected allegations, presented without that context, should not become the basis for recommendations affecting every Maryland business, hospital, university, and public entity that relies on a captive.
Captives Serve Legitimate Risk Management Purposes
A captive is a licensed insurance company formed to insure or reinsure risks of its owner or owners, their affiliates, or other persons permitted by the applicable captive statute. The structure has been in use for more than 50 years and is used across many sectors of the economy, including manufacturing, banking and finance, utilities, media, colleges and universities, religious organizations, government entities, and hospitals. Captives are not limited to the largest corporations, and captive owners often place only a portion or layer of their risk in the captive while continuing to purchase coverage from traditional insurers and reinsurers.
Organizations form captives for practical reasons:
- The traditional market will not provide adequate or affordable coverage for a particular risk, or withdraws capacity when markets harden; a captive may also provide a sound risk-financing alternative where commercial coverage remains available.
- The owner needs coverage tailored to its operations that standard forms do not provide.
- The owner wants greater control over claims, loss prevention, and the stability of its insurance costs over time.
- The owner's loss experience is better than the market assumes, and the captive allows it to retain underwriting results rather than pay for the losses of others.
- Having a captive allows the owner to negotiate fairer rates for the coverage it places with traditional insurers. The availability of the captive to insure risks that are priced uncompetitively by the traditional market, access international reinsurance markets, which may offer better rates, and provide ready data on the cost of insuring the owner’s risks is a powerful negotiating tool with traditional carriers.
A captive’s license authorizes it to conduct the insurance or reinsurance business permitted by its domicile and approved business plan. Depending on applicable law and the requirements of counterparties, its policies may support contractual or statutory insurance requirements, and its reinsurance arrangements can transfer risk it should not retain. A domicile license does not, by itself, authorize direct insurance in every other jurisdiction. Federal insurance-company status and the tax treatment of particular payments must separately satisfy applicable federal requirements, including the relevant insurance risk, risk-shifting, risk-distribution, and commonly accepted insurance standards. State insurance classification and federal tax classification are distinct inquiries. These distinctions do not diminish the captive’s riskmanagement purpose, and lawful insurance tax treatment does not itself establish abuse.
The widespread use of captives by hospitals and other healthcare providers is a case in point for the benefits captive insurance provides. Medical professional liability coverage has experienced periods of scarce capacity and sharp price increases. Captives can support continuity of coverage, actuarially informed claims funding, and access to reinsurance. Domicile selection may reflect healthcare expertise, available structures, regulatory requirements, reinsurance relationships, and the cost and disruption of changing an established program. A captive’s domicile does not, by itself, indicate an effort to avoid oversight. CICA encourages MIA to obtain evidence directly from affected owners and regulators before drawing conclusions about why particular captives were formed, remain in a domicile, or hold specified assets.
Captives Are Regulated Insurance Companies
Captives are licensed, capitalized, and supervised by the insurance regulator of their domicile. Nearly 40 states and the District of Columbia have longstanding captive legislation, and established offshore domiciles maintain their own insurance supervisors. Although requirements vary by domicile and captive type, captive regulation typically includes:
- Review and approval of a business plan, feasibility study, and the qualifications of owners, officers, and directors before licensure.
- Capital and surplus requirements and regulatory review of capital adequacy in light of the risks written.
- Annual audited financial statements and, in most cases, an actuarial opinion on loss reserves.
- Periodic financial examinations and regulatory review and approval of material changes to the business plan.
- Use of expert captive managers, auditors, and actuaries.
The confidentiality that domicile regulators extend to captive filings is a deliberate legislative choice, not an absence of oversight. Such filings may contain proprietary loss data, pricing, claims information, and sensitive information concerning pending patient claims. Regulators obtain information required under their supervisory authority, and applicable law may permit confidential sharing with other regulators or law enforcement. Public access varies by jurisdiction, document, and captive type. A statutory capital minimum is likewise a starting requirement, not a complete measure of adequacy: actual capital, reserves, reinsurance, and supervisory requirements must be evaluated against the risks assumed. Any identified weakness should be addressed on its facts rather than inferred solely from confidentiality or a comparison of nominal minimum capital requirements.
Captives owned by Maryland entities may also be visible through other channels. Where applicable, a nonprofit owner reports related entities and specified transactions on Form 990 and its schedules; financial reporting may also include consolidated or other disclosures concerning the captive. These requirements vary, and not every nonprofit or governmental owner files Form 990. Public reporting supplements, rather than replaces, domiciliary supervision. Information discussed at the October 7 meeting was drawn in part from public filings. Neither consolidated financial reporting nor the recognition of a subsidiary’s separate legal status establishes that its assets are unrestricted or beyond applicable oversight; conversely, a parent’s tax exemption does not automatically exempt its captive or every captive transaction from tax.
Maryland Tax Issues
CICA supports compliance with the tax obligations that legally apply to captive transactions. Determining which obligations apply, and to what, is not always straightforward. The application of existing tax and reporting requirements to captive arrangements warrants careful consideration of the particular transactions, parties, and applicable law. CICA encourages MIA to distinguish existing requirements and its interpretation of those requirements from any proposed policy changes, and to explain the basis and intended scope of its recommendations. That analysis should recognize differences among captive structures and transactions and preserve affected parties’ ability to raise applicable legal positions and defenses. In particular, CICA recommends that the report address the following matters expressly:
- Identify the jurisdictional basis, scope, and limitations of any asserted taxing authority over multistate captive programs, including potential overlapping tax claims, without prejudging particular taxpayers’ liabilities or available defenses.
- Genuine equity contributions and amounts maintained as loss reserves or retained surplus should not be treated as additional premium merely because they fund a captive’s insurance obligations. Reserves are liabilities, not a separate receipt of premium. The report should explain how taxable premium is identified by substance, without allowing a premium payment to escape tax merely by being labeled capital and without taxing the same receipt again as it is reserved or retained.
- The report should distinguish direct insurance from reinsurance, including arrangements in which a captive assumes risk from a fronting insurer. These structures may present different tax and regulatory considerations and should be evaluated under the applicable legal framework. A captive’s assumption of reinsurance should also be distinguished from its purchase of reinsurance to support coverage it writes directly.
- Any proposed nonprofit-specific exemption or alternative funding approach should be evaluated separately from the question of whether current law already grants one. Nonprofit ownership alone does not establish an exemption from insurance premium tax. The report should assess public service and patient care effects, the treatment of the captive and its owner as distinct taxpayers where applicable, and whether targeted prospective legislation is warranted.
A disputed tax position does not, by itself, establish tax evasion. Taxpayers may take good-faith positions, subject to applicable reporting and payment obligations and review through audit, administrative proceedings, and the courts.
Section 831(b)
CICA does not condone abusive micro-captive arrangements under Internal Revenue Code § 831(b). The IRS has pursued abusive transactions through examinations and litigation for years. Section 831(b) nevertheless authorizes an alternative tax regime for qualifying small insurers; a valid election is not itself abuse. Federal disclosure requirements and their application are also subject to judicial review. Disclosure of a reportable transaction does not, by itself, determine that the underlying arrangement is invalid or that its participants have evaded tax. [1]
Section 831(b) governs federal tax treatment for eligible electing small insurers, including qualifying captives; other nonlife captives may be taxed under section 831(a), subject to applicable federal law. An insurer’s size or election does not substitute for examining the substance of its insurance business. Federal qualification and Maryland premium taxation are separate questions: section 831(b) neither creates a Maryland exemption nor establishes liability under Maryland law. The record on abusive micro-captive transactions should not be used to characterize all captives, including legitimate electing small captives, or arrangements outside that provision’s scope.
Registry and Additional Oversight Proposals
CICA does not believe a registry for captives domiciled in other jurisdictions is needed.
However, as MIA evaluates the feasibility of a registry for captives domiciled in other jurisdictions, CICA asks that it weigh the following:
- Duplication. A registry proposal should identify the specific information gap and how each required filing would address it. Captives already submit information under their domiciles’ applicable reporting and examination regimes. For confirmation of licensing status, a current certificate of authority, regulator-issued attestation, or equivalent evidence should ordinarily suffice. Additional necessary supervisory information should, where lawful and practicable, be obtained through confidential regulator-to-regulator cooperation or existing reports, rather than duplicative filings. A status certificate alone is not proof of solvency or compliance with every Maryland obligation.
- Confidentiality. Maryland law likely already protects trade secrets and confidential commercial and financial information, and SB 890 separately protects specified information furnished by nonprofit health systems or hospitals for this study. Those protections should not be assumed to resolve every future registry disclosure issue. Any registry should expressly protect proprietary financial, underwriting, pricing, claims, personal, and patient information regardless of owner type, while permitting necessary regulatory and law-enforcement access under appropriate safeguards. It should preserve applicable privileges and confidentiality upon interagency sharing and provide notice and an opportunity to assert protection before any contested public disclosure.
- Interaction with existing taxes. A registry would introduce additional compliance costs and potentially additional fees or assessments for Maryland businesses that rely on captives. The report should assess those cumulative burdens alongside existing tax and reporting requirements. CICA does not support the creation of a registry or the imposition of associated fees.
- Scope. Any registry should define the required Maryland nexus, covered entities and transactions, responsible filer, and treatment of cells or participants, multistate group and association captives, reinsurance, and risk retention groups. It should respect applicable Liability Risk Retention Act limits and avoid registration triggered solely by a Maryland exposure within an otherwise unrelated program. Registration should not be treated as consent to broader licensing or solvency jurisdiction beyond what applicable law permits. These comments identify safeguards that would be necessary if MIA nevertheless recommends a registry; they do not alter CICA’s opposition to its creation.
A Complete and Balanced Record
The study SB 890 requires will shape Maryland policy toward every captive owner in the State, not only those discussed at the October 7 meeting. CICA respectfully asks that MIA’s findings and any recommendations:
- Reflect the full range of Maryland entities that use captives and the risk management purposes those captives serve.
- Describe the regulatory oversight captives are subject to in their domiciles.
- Distinguish established misconduct from unproven allegations, lawful tax elections, good-faith legal disputes, and disagreements over governance or disclosure, rather than treating those categories as interchangeable evidence of abuse.
- Report the aggregate results of completed investigations, as SB 890 directs. Where individual examples are discussed, identify the source, procedural status, findings, relevant legal duties, and material context, and afford affected parties a fair opportunity to respond without waiving confidentiality or privilege. This includes examples involving travel, alleged off-book funds, or limits on access to records. Such examples should not support conclusions about a captive’s legitimacy or the industry generally without a demonstrated connection between the established facts and the proposed regulatory response.
- State MIA’s interpretation of current jurisdictional requirements, tax bases, statutory exclusions, and the treatment of reinsurance, capital contributions, and reserves; identify any matters requiring judicial determination or legislation; and recommend clear prospective rules and fair implementation measures without prejudging particular taxpayers’ liabilities.
- Evaluate any registry or additional oversight for duplication, confidentiality, and interaction with existing taxes.
- Assess the potential effects on Maryland businesses, nonprofits, public entities, insured professionals, and claimants, including coverage availability, total risk-financing costs, and the funding of existing long-tail liabilities. Evaluate proposed burdens against demonstrated benefits and reasonably available alternatives, rather than assuming equivalent commercial coverage will be available if captive arrangements become uneconomic.
Where abuse exists, CICA supports targeted enforcement and proportionate corrective measures. Policy for captive insurance should rest on the full record, recognize legitimate risk-management functions and lawful tax treatment, and avoid treating captive ownership, domicile, or confidentiality as a presumption of wrongdoing.
CICA appreciates MIA’s consideration of these comments.
Sincerely,
Daniel D. Towle
President
CICA
[email protected]
www.CICAWorld.com
[1] Micro-Captive Listed Transactions and Micro-Captive Transactions of Interest, 90 Fed. Reg. 3534 (Jan. 14, 2025) (T.D. 10029) ; see also Drake Plastics Ltd. Co. v. IRS (district-court review distinguishing the listed-transaction and transaction-of-interest provisions).
