On April 9, 2025, the Arkansas State Legislature introduced Senate Bill 237, a legislative proposal aimed at reforming the tax structure for captive insurance companies operating within the state. The bill seeks to establish a tiered tax rate system for reinsurance premiums, which is expected to enhance the competitiveness of Arkansas as a domicile for captive insurers.

The key provisions of SB 237 outline a graduated tax rate on reinsurance premiums, starting at 0.225% for the first $20 million, decreasing to 0.025% for amounts exceeding $60 million. Notably, the bill exempts certain transactions from the reinsurance tax, particularly those involving the assumption of liabilities from insurers under common ownership, provided they are part of a plan to discontinue operations. Additionally, the bill stipulates a minimum tax of $5,000 for captive insurance companies with lower tax liabilities and caps the total tax at $100,000 per year.

A significant aspect of SB 237 is the introduction of a tax credit for noncommissioned salaries and wages of Arkansas employees working in captive insurance operations. This credit can be applied against the premium taxes, incentivizing companies to hire locally and contribute to the state's economy. To qualify, employees must reside in Arkansas and pay state income taxes.

The bill has sparked discussions among lawmakers and industry stakeholders regarding its potential economic implications. Proponents argue that the reforms could attract more captive insurance companies to Arkansas, fostering job creation and economic growth. However, some critics express concerns about the long-term sustainability of tax incentives and their impact on state revenue.

As SB 237 progresses through the legislative process, its outcomes could significantly influence the landscape of captive insurance in Arkansas. If passed, the bill may position the state as a more attractive option for insurers seeking favorable tax conditions, potentially reshaping the local insurance market and its economic contributions. The next steps will involve further debates and potential amendments as legislators weigh the benefits against the concerns raised.