25 September 2013Analysis

Bird: increased scrutiny holds no fear

Despite suggestions that the US is ramping up scrutiny of captive insurers, the industry has little to fear, with increasing regulatory oversight having been a feature of the captive landscape for some time.

Those are the thoughts of Lawrence Bird, president of the Bermuda Insurance Management Association, responding to a recent article in Forbes that said that the US Internal Revenue Service is filling its pipeline with “dubious” captive insurance entities.

As Bird explained to Captive International, “despite dramatic headlines and political aspirations, there isn’t much of interest to get fired up about or scrutinise. The vast majority of captives are established for sound business and risk financing reasons and there is nothing to hide.”

Captives have fared well under scrutiny, said Bird, with the pursuit of ‘rogue’ captives a “positive factor overall as long as the very few cases where something nefarious may be going on does not tarnish the reputation” of the wider captive sector.

He added that regulatory bodies need to tailor their oversight and scrutiny of the sector to the realities of a sound and well-regulated financial sector. Regulators “really won’t find much wrong and [should] measure their efforts accordingly”, said Bird.

No light touch

Despite suggestions that the proliferation of US and international domiciles may lead to the application of lighter regulatory requirements in some jurisdictions, Bird said he did not think “any responsible business should, nor will, set up a captive in a domicile which does not have robust and respected regulation, and which neither has the infrastructure nor the expertise in place to deal with captives”.

He agreed that new domiciles would likely emerge in the coming years, but argued that it “is highly questionable whether they would be successful in this already well established marketplace.”

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