9 October 2013Analysis

The spike in US domiciles is ‘not sustainable’

The number of US domiciles with captive legislation has reached a level that is “not sustainable”. Domiciles need to reach a critical mass if they are to create a sustainable and capable regulatory environment.

That is the view of Simon Kilpatrick, senior vice president, business insurance at Advantage Insurance Management in South Carolina, who said that in order to build a strong domicile that can sustain a captive industry, there needs to be “an insurance department that has the resources and know-how to do their job”.

In order to do so states will need to allocate sufficient funds to the development of their captive sector. This would likely only be achievable once they have reached a critical mass that can support a comprehensive regulatory team, he said.

Kilpatrick added that while the number of domiciles has increased recently, “ultimately you will see numbers fall back to a sustainable level”. He said that the number of new domiciles raised questions regarding the viability of some jurisdictions. “There simply aren’t enough captives out there to sustain the number of domiciles we see at present”.

Kilpatrick was bullish about Cayman’s future however, arguing that once the smoke has cleared “there will ultimately be a flight to quality”—a situation which will benefit Cayman as a strong, well-regulated captive domicile, he said.

Not that it has been all bad news for the wider captive market. The debate around captive domiciles has helped to raise the profile of the industry, he said. “State legislative measures are helping to drive that conversation”.