10 June 2019Analysis

Bermuda captive market faces competition from onshore domiciles

Against a backdrop of more US captive domiciles gaining prominence and maturing, companies may opt to keep their captives onshore. The Bermuda captive community will therefore need to focus on continuous improvement and take the necessary steps to retain existing captives and attract new captives that are fit for what Bermuda offers.

This is according to Brady Young, president and CEO of Strategic Risk Solutions, who spoke to Captive International ahead of this year’s Bermuda Captive Conference.

“Bermuda’s sustainable competitive advantage is the expertise among it’s service provider and regulatory community.  Few if any domiciles have the breadth and depth of knowledge and experience that can be found in Bermuda. Also the accessibility and convenience of Bermuda continues to be attractive to captive owners, especially on the East Coast of the United States,” said Young.

Young continued: “The above bodes well for the more demanding and sophisticated clients who need what Bermuda can provide.  The challenge for Bermuda is remaining competitive for those less complex clients who have the option to implement their captive programme in various onshore domiciles.”

US domiciles such as Vermont, Utah, Delaware, North Carolina and Tennessee have seen significant growth over the years. A number of states have also been modernising and updating their captive laws to help facilitate new business.

Furthermore, US Tax Reform implemented at the start of 2018 increased the burden of tax compliance for offshore captives, which has become an additional consideration in forming a captive and may drive captives to redomicile onshore.

Vermont, as an example, introduced  a new captive structure to act as a more favourable reinsurance alternative for US companies conducting business in offshore jurisdictions that are now faced with a substantial tax burden from Base Erosion Anti-Abuse Tax (BEAT) provisions as part of the tax reforms.

Young suggested that captives on Bermuda have more flexibility than onshore captives to do customer and other third party business, an area he is seeing more growth it.

“Many clients continue to like the ability to meet and access reinsurers and excess insurers in the same market at the same time they are doing captive business,” he added.

Young also believes the Bermuda captive market is seeing some “exciting developments” given what is going on in the insurance market generally and is well placed to benefit from  the changing landscape of players in the insurance supply chain.

He added: “Mature captives are being used to solve new problems such as gaps in cyber risk programs and in response to the hardening market to access alternative sources and forms of reinsurance and capital.”