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Today Governor Katie Hobbs announced the appointment of Chuck Bassett as the Director of the Arizona Department of Insurance and Financial Institutions (DIFI) effective Monday, January 12. A veteran public policy attorney with over 30 years of experience, Bassett brings a wealth of expertise in insurance law and healthcare policy to the Department.

Bassett joins DIFI following a long tenure at Blue Cross Blue Shield of Arizona (BCBSAZ), where he served as Vice President of Government Relations and Public Policy since 2004. In that role, he led all facets of government relations, managed BCBSAZ’s state and federal legislative affairs, and served as a key advisor to executive leadership and the board of directors on complex regulatory issues.

“Chuck Bassett is a highly respected leader with a deep understanding of Arizona’s insurance landscape and a proven track record of navigating complex policy environments,” said Governor Katie Hobbs. “His extensive experience and commitment to public service make him the ideal person to lead DIFI as we work to protect Arizona consumers and ensure a fair and stable insurance market.”

“It’s an honor to be appointed to lead the Department of Insurance and Financial Institutions, an agency I have worked with and admired my entire career,” said DIFI Director Chuck Bassett. “I look forward to working closely with the Governor’s Office, policymakers, and stakeholders to improve oversight, promote transparency, protect consumers, and ensure the state’s insurance and financial services markets remain fair, competitive, and resilient.”

Prior to his leadership at BCBSAZ, Bassett served as an Associate Attorney at Low & Childers, P.C., where he focused on insurance regulatory law. He also held legal roles in the Arizona House of Representatives, including Rules Attorney and Legal Counsel to the Rules and Ethics Committees.

Community involvement has been central to Bassett’s career. Most recently, he served on the Arizona Chamber of Commerce Health Care and Public Affairs Committee and was a member of the Arizona Society of Healthcare Attorneys. He has also been involved with the Scottsdale Chamber of Commerce, Arizonans for the Arts, and the Fiesta Bowl Committee. He holds a Juris Doctorate and a Bachelor of Arts in Political Science from the University of Arizona and has been a member of the State Bar of Arizona since 1991.

Bassett succeeds Maria Ailor, who has served as Interim DIFI Director since May 2025. Governor Hobbs expresses her gratitude to Maria for stepping into the role of Interim Director to serve Arizona’s financial institutions, insurers, insurance producers, and the people of Arizona.

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Arizona legislators have introduced an update to the state’s captive insurance regulatory framework, Arizona House Bill 2193 (HB 2193), with Kutak Rock’s insurance regulatory and government relations team working in conjunction with stakeholders and policymakers to secure codification of the legislation.

The law has established the “dormant captive insurer” designation, in which captives that have ceased issuing policies and have no outstanding liabilities may apply for a Certificate of Dormancy, which will remain valid for up to five years and can be renewed.

However, dormant captives must maintain a minimum of US$125,000 in unimpaired paid-in capital and surplus, in addition to the filing of annual reports and the paying of renewal fees, to ensure regulatory oversight while reducing “unnecessary burdens”.

The legislation also reduces the minimum capital and surplus threshold for protected cell captives from US$500,000 to US$250,000, in a bid to “encourage innovation and growth” in the state’s captive market, due to a reduced barrier to entry.

Annual license renewal fees have been aligned and must be submitted between 1 July and 1 September, which is said to simplify administrative compliance without impacting 2025 renewal fees, due to it taking effect for 2026 renewal fees, with the department reaching out to coordinate payment of a one-time partial annual renewal fee on or after 30 June 2026.

Once 2027 commences, all captives will pay their renewal fees between the aforementioned dates, to bring all captives — irrespective of fiscal year end — into alignment, in addition to the updated Captive and Risk Retention Group Reference Guides, incorporating HB 2193’s changes, being posted on or around 26 September.

The new law will contain several amendments regarding LLC-structured captives, including the reflection that they are governed by a board of managers, as opposed to a board of directors.

The legislative changes are aimed to “make Arizona an even more attractive domiciliary jurisdiction for captive insurers, balancing growth opportunities with strong regulatory oversight”.

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A coalition representing captive insurance, banking, and related sectors is seeking the repeal of an Internal Revenue Service rule that targets microcaptive arrangements, arguing that it imposes undue regulatory burdens on small businesses.

The rule, finalized in January 2025 after a development period that began in 2023, classifies a microcaptive transaction as a “transaction of interest” under specific conditions. These include situations in which the insured holds at least 20% of the captive’s voting power or value, and either the captive’s loss ratio falls below 60% or no taxable income was generated for fund recipients over the prior five years.

Although the rule took effect in January, the IRS announced in April it would not impose penalties on microcaptives that fail to meet the disclosure requirement if they file by July 31. The original deadline was in April but was extended in response to difficulties filers faced during tax season.

In a letter to the IRS and the US Department of the Treasury, organizations including the 831(b) Institute requested that the rule be repealed ahead of the new filing deadline. While the final rule contained revisions reflecting some industry feedback, the coalition maintains that it still undermines the purpose of Section 831(b) of the tax code.

Section 831(b) was enacted by Congress nearly four decades ago to help small and mid-sized businesses manage risk through captives, particularly when access to commercial insurance was limited or unaffordable.

Proponents argue that the IRS’s current approach conflicts with that original legislative intent and imposes compliance obligations that many smaller firms are ill-equipped to manage.

That section allows certain small and medium-sized businesses to exclude premiums from federal income taxes if specific criteria are met. According to the letter, the provision was designed to help businesses that have trouble obtaining insurance through conventional markets or face high costs for coverage.

Why are captives becoming more popular?

In recent years, rising premiums, increased deductibles, and shrinking coverage capacity in the commercial insurance market have led many small businesses to explore alternative risk financing strategies, including microcaptives.

These entities have become a more accessible option for firms facing challenges in securing adequate or cost-effective protection in traditional insurance markets.

The IRS began a nationwide audit initiative targeting microcaptives in 2008, citing concerns that many were being used for tax avoidance. The stakeholder groups noted that although more than 1,100 small captive audit cases are pending, only 10 had gone to trial as of June 16.

Of those cases, more than 27% resulted in settlements of 10% or less of the amounts initially assessed by the IRS.

One notable case – spotlighted earlier this month – involved a settlement between the IRS and Bruce Molnar over microcaptive structures used between 2005 and 2012. The IRS questioned the level of risk distribution and premium pricing in the structures, ultimately leading to a negotiated outcome rather than full litigation.

The IRS has also listed microcaptive transactions among its annual “Dirty Dozen” tax schemes, a designation that signals the agency’s view that such structures may be used to improperly shield income.

Critics of the classification argue that it paints all microcaptives with the same brush, regardless of whether the arrangement meets legitimate risk management criteria.

If implemented as written, the rule would remove a key risk management option for small businesses, said Dustin Carlson (pictured above), president of the 831(b) Institute.

“Commercial insurance is often insufficient, unavailable, or unaffordable to many small businesses; by further restraining access to alternative plans with wide-sweeping and ill-informed regulations, the IRS threatens the continued existence of our nation’s small businesses,” Carlson said in a report from AM Best.

Carlson also said that the rule undermines small business resilience by introducing broad and misinformed restrictions. He said that it reflects a misunderstanding of captive insurance and that such actions are becoming central to policy debates.

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Governor Hobbs has announced the appointment of Maria Ailor as the Interim Agency Director of the Arizona Department of Insurance and Financial Institutions (DIFI) May 30, 2025.

Ms. Ailor brings an impressive resume of 30 years of public service experience as an insurance regulator, advancing through the ranks and serving in various supervisory roles, most recently as Assistant Director of DIFI’s Market Regulation and Consumer Services Division.

In her prior role, Ms. Ailor implemented multiple system modernizations for DIFI, including enhanced market data analysis and improved DIFI’s consumer complaint and appeals programs.

Ms. Ailor is certified in Advanced Market Conduct Management and as an Accredited Insurance Examiner by the Insurance Regulatory Examiners Society (IRES). Additionally, she has served on the Executive Board of IRES and serves on many of the National Association of Insurance Commissioners’ committees, task forces, and working groups.

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On May 7, 2025, Arizona Governor Katie Hobbs signed House Bill 2193 into law after the bill passed in the Arizona legislature in late April. HB 2193 amends the captive insurer section of the Insurance Code by reducing the minimum capital and surplus requirements for protected cell captive insurers to $250,000 and changing the due date for a captive insurer’s annual license renewal fee to a date not earlier than July 1 nor later than September 1.

HB 2193 permits dormant captive insurers with no outstanding liabilities to apply for a certificate of dormancy which, once issued by the Arizona Department of Insurance and Financial Institutions, remains valid for a renewable five-year term. To qualify as a dormant captive insurer, the entity must have both: “(i) ceased transactions in the business of insurance, including issuing insurance policies; (ii) no outstanding liabilities associated with the business of insurance or has not issued any insurance policy before filing an application for a certificate of dormancy.” Dormant captive insurers still have financial reporting obligations and must maintain an unimpaired, paid-in capital and surplus of at least $125,000.

The bill also cleans up statutory references to the corporate governance structure of captive insurers operating as LLCs.

HB 2193 is expected to take effect in August or September 2025.

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The US captive market is facing a talent crisis that needs to be addressed if it is to make the most of a wide range of potential opportunities.

Anjanette Fowler, managing director of the Insurance Solutions Group at PNC Institutional Asset Management told Captive International that there is a huge generational gap between more established professionals and younger professionals. This mid-career gap is creating a lot of pressure in terms of being able to support and service all the demand coming into the captive industry right now.

“Separately, there has been this resurfacing of scrutiny on 831(b) captives, and that ties in with the importance of educating folks about the merits of a captive,” Fowler explained. “Overall, I think the industry is doing a good job of utilising these risk-financing structures the way they are intended to be used.”

Looking at the gaps in the recruitment market, Fowler said that there’s no question professional development is key. PNC has an active analyst program within its Asset Management Group and their team is engaged with that process to try to find the best talent coming out of that program, which is how the company is approaching that next-gen aspect.

On the mid-career gap, Fowler thinks there should be more dedicated campaigns to recruit mid-career accounting, actuarial, tax, finance, healthcare, cybersecurity, and legal professionals who are either looking for a career change, or potentially being impacted by automation, AI, and tech advancements. A lot of those industries fit in nicely and would provide a solid foundation for understanding the captive insurance industry.

She added that CICA has done very well with the NEXTGen and Amplify Women initiatives — both of which are increasing industry awareness and participation.

Fowler underlined that ‘Captive’ is not a foreign term anymore. The processes for creating and using a captive structure are much more popular and refined, and the reinsurance market has become easier to navigate. It seems like a more cohesive industry than even just a few years ago.

She said that what’s traditionally been called “alternative risk financing” is now no longer alternative; it is now almost a necessity that you have this risk-financing tool in your toolbelt. Education is a critical component of getting that message through.

“I should note that CICA, as a domicile-agnostic association, has done a phenomenal job helping captive owners and prospective captive owners understand the ways they can leverage their captives,” she stressed. “In fact, we’re aware of folks who have attended CICA before even forming their captive just to get a better understanding of the different processes, from feasibility to formation and beyond, as well as the overall risk management and total cost of risk implications to their organization.”

Finally, with natural catastrophe losses seeming to increase every year in the US, could captives provide a solution? Fowler responded with: “A resounding, absolute “Yes!” Not only could they provide a solution, they are actively providing solutions. Whether an organization is in a geographic area that is prone to natural disasters or not, the reality is everyone is going to feel the impacts of these catastrophic events, directly or indirectly.”

She said that some risk lines are more pressured than others, but captives certainly provide a solution away from the traditional market that helps abate some of those pressures. PNC is seeing that in its client base every year.

At the end of the day, a captive is going to provide an organization with greater control, a smoothing of risk-financing costs, and a broadening of options and solutions, she explained. Once an organisation starts to head down that path, they generally quickly embrace the benefits and lean into optimising the use of their captive not just in risk transfer, but also in how the premium and capital associated with those risks is invested or utilized.

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