The Alberta advantage: why is there so much interest in Alberta as a captive domicile?

Despite being proclaimed into force less than a year ago on July 1, 2022, the Province of Alberta’s Captive Insurance Companies Act (the Alberta Act) is already having a meaningful impact on North America’s captive insurance market. In a relatively short period of time, we have seen Alberta license four captives and are witnessing the beginning of what is expected to be a robust ecosystem to service these and other Alberta captives that will follow.

Having helped structure and license half of Alberta’s captives to date, currently working on several others, and having frequent new discussions with persons who reach out for guidance on establishing their own Alberta captive, I would like to offer some insights into why I believe we are seeing so much interest in Alberta captives. An understanding of why Alberta entered into the captives market in the first place provides a good starting point for this discussion.

Established as a crown corporation in 2020, the Invest Alberta Corporation (Invest Alberta) was founded to promote Alberta as an investment destination of choice to investors with the goal of benefiting Alberta’s economy. Shortly after being established, Invest Alberta asked the public for ideas on economic development opportunities. An interest group submitted a proposal for Alberta to establish itself as a global reinsurance hub with captives as a conduit. Invest Alberta agreed with the proposal and work began to develop and implement the Alberta Act relatively swiftly, and it became effective on July 1, 2022.

Appreciating the economic rationale behind, and the speed with which Alberta implemented, the Alberta Act, it is clear that Alberta is motivated to offer itself as a preferred domicile of choice for those looking to establish captives. With Canada already having a captive domicile option since the late 1980s with British Columbia’s Insurance (Captive Company) Act (the BC Act), Alberta had to differentiate itself from British Columbia. It did so in the following two important ways, which alone or together are major reasons why many current and would-be captive owners are very interested in Alberta:

Alberta allows new associations to form captives

In addition to pure captives and sophisticated captives, the BC Act and the Alberta Act provide for the establishment of association captives. While the BC Act requires the association to have been in continuous existence for at least one year, the Alberta Act does not require a minimum term of existence before forming an association captive. This allows members to come together quickly to form an association for the purpose of establishing an association captive in Alberta.

Alberta allows for limited partnership captives

Perhaps the most significant difference between the Alberta Act and the BC Act is that the Alberta Act permits captives to be formed as a limited partnership. The BC Act does not. The availability of a limited partnership structure may permit owners (and associations in particular) to limit their exposure in a manner similar to a segregated cell structure available in offshore captive jurisdictions.

Growth expectations

British Columbia has been a captive domicile option for more than 35 years, and we estimate there are about 25 captives established under the BC Act. Based on my experience thus far, and current conversations, I would expect Alberta to achieve about 25 licensed captives within the next five or so years.

This expected growth rate is not surprising. What is surprising, however, is the diverse profiles—of industry and size—of those that are expected to form a captive in Alberta in the next several years. While some oil, gas, and mining companies (OGMs) may choose to redomesticate existing captives to Alberta or start new Alberta captives to complement existing global risk transfer solutions by assuming a select portion of risks (as would be expected given the historical nature of Alberta’s economy), I expect the majority of growth to come from non-OGM owned Alberta captives.

Based on my experience so far, those interested in establishing a captive in Alberta are from a diverse cross-section of the global economy: forestry, transportation, heavy equipment, services, manufacturing, hospitality, and retail industries, to name a few.

Of the new Alberta captives established in the next several years, the majority will be pure captives formed as corporations and association captives formed as limited partnerships (with more pure captives than association captives), with a few sophisticated captives sprinkled in.

Others also believe we will see a steady growth in the number of Alberta captives and as a result, a good number of specialised services providers have started to focus on them. For example, within the past year or so, we have seen the likes of Strategic Risk Solutions, BMS, and NFP establish subsidiaries in Canada to provide captive management services. Other specialised service providers such as actuaries, auditors, and investment managers are also taking note and targeting Alberta captives. A healthy ecosystem focused on Alberta captives is developing rapidly.

As Alberta continues to see success as a captive insurance domicile, it will be interesting to see whether any other Canadian provinces or territories introduce their own captives legislation to compete. With British Columbia already an option, Ontario is, perhaps, the next most likely to offer itself as a preferred captive insurance domicile in Canada.

Rick Da Costa is a Partner I National Leader, Corporate and Regulatory Insurance & Reinsurance at BLG. He can be contacted at: RDacosta@blg.com.