6 June 2013Analysis

BIMA attacks ‘potshots’ aimed at offshore domiciles

Politically motivated ‘potshots’ are unlikely to dissuade informed risk managers from considering their offshore options.

That is the view of Lawrence Bird, president of the Bermuda Insurance Management Association, who rejected suggestions that MetLife’s recent decision to move its Cayman-based Exeter Assurance captive onshore was part of a wider trend.

He said that despite the headlines, there had been no pattern of captives moving onshore. As he explained “new companies, of course, have more options nowadays in terms of selecting a domicile, but existing companies in a domicile rarely move.”

“Captive owners and prospects usually have sophisticated risk managers and other professionals heavily involved in the domicile decision and they understand the real reasons for establishing a captive and choosing a domicile, which has nothing to do with tax and everything to do with risk management, domicile infrastructure and an appropriate regulatory environment.”

“Fortunately, the majority of risk managers pay little or no attention to political posturing and exaggerated headlines”, said Bird. He said that when it comes to captives the terms offshore and onshore are increasingly meaningless, with the strength of the individual domicile the key factor in deciding upon a captive’s home.

Bird said that Bermuda remains the leading captive domicile and “by some distance”, but added that Bermuda and other domiciles cannot be complacent in the face of politically driven attacks. He said it was essential that domiciles such as Bermuda continue to “extol the many virtues of establishing and maintaining captives highlighting strengths such as robust and pragmatic regulation, world-class infrastructure—including Bermuda’s huge commercial re/insurance market—and the favourable costs of doing business.”

Close consideration

However, not everyone shares Bird’s opinion that domicile selection remains an even playing field. As Dennis Harwick, president of the Captive Insurance Companies Association explained, “with the growth in onshore domiciles, there has been a modest trend toward onshore redomiciliation, but I don't think you can make any broad conclusions based on one company's decision. I believe a recent survey conducted by Marsh confirmed the increase in the number of US based companies choosing an onshore domicile, which is consistent with the results of the 2013 CICA Market Study.”

Harwick did however agree that domicile selection is driven by a combination of factors, not simply political pressure over tax, with financial, regulatory and geographic considerations all playing their part. It would seem that those domiciles that can extend the strongest value proposition will remain first in the minds of those considering a captive.

Summing up the debate around the issue of onshore versus offshore, Harwick said that the issue “reminds me of the old quote from the tax lawyers:  "When you've seen one captive, you've seen one captive." It is difficult to talk in broad strokes about individual entities.