24 January 2017Analysis

South Carolina licenses 17 new captives in 2016 amidst a “climate of uncertainty”

The State of South Carolina welcomed 17 new captives in 2016, a result which the Director of Captives for South Carolina, Jay Branum, was “extremely pleased” with, despite a lower number of captives licensed compared to 2015 and 2014 figures.

Although South Carolina had welcomed 30 new captives in 2015, and 20 in 2014, Branum was very positive with the additional 17.

“We take pride in the fact that we have added 67 new captives to the register of South Carolina captives in just the past three years – especially considering the climate of uncertainty that characterized the whole of 2016, and the low level of new license activity the domicile had experienced in the years leading up to 2014,” he told Captive International.

Breaking down these 17 new captives, seven are pure captives, an additional seven are special purpose captives (SPCs) – including 2 incorporated cells, which South Carolina’s statue treats as SPCs – and a further 3 are risk retention groups.

Branum said the result of 2016 has to be viewed against the backdrop of two major destabilising factors: the ‘wait and see’ attitude surrounding the US presidential election and the developments in the Protecting Americans against Tax Hikes (PATH) Act.

The US presidential election pushed the already high level of uncertainty in the business environment, Branum suggested, leaving many senior business executive an enterprise owners averse to taking any new big steps, such as capitalising a new insurance subsidiary.

The second factor which Branum considers brought uncertainty was the passage of the PATH Act towards the end of 2015 that changed the eligibility criteria for companies seeking to avail themselves of the election not to be taxed on underwriting income under Section 831(b) of the Internal Revenue Code.

Branum continued: “This development threw the world of so-called ‘microcaptives’ or ‘enterprise risk captives’ into considerable uncertainty, prompting some owners to restructure their ownership arrangements so as to comply with the new criteria, while prompting others to dissolve their captives instead of disturbing pre-existing ownership arrangements within the parent organisation and its operating units.”

Branum hinted at some new initiatives that are under way for South Carolina that will become manifest as the year unfolds.

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