Future-proofing captives: a US perspective

Matthew Finney, of RH CPAs, and Renea Louie, of Sotera Global Management, look at the importance of future-proofing your captive.

In the rapidly evolving landscape of risk management, the role of captive insurance companies has never been more vital – or more challenged. As the U.S. economy adapts to technological disruption, regulatory changes and shifting risk dynamics, captive owners, sponsors and regulators must look beyond current operations to secure long-term relevance and resilience. “Future-proofing” a captive is not just a strategy – it's a necessity.

“Captives are uniquely positioned to provide tailored coverage where commercial markets fall short.”

Evolving risk landscape

The nature of risk is changing. Traditional exposures such as workers’ compensation and general liability remain foundational, but emerging risks are commanding more attention:

• Cybersecurity threats are now a top-tier concern across industries.
• Climate-related perils are impacting property insurance availability and pricing.
• Reputation and social risk are being amplified by social media and ESG scrutiny.
• Pandemic risk and systemic supply chain vulnerabilities remain fresh in corporate memory.
• Technological risks relate to the rapid development of new technologies such as AI.

Captives are uniquely positioned to provide tailored coverage where commercial markets fall short. However, to stay ahead, they must be structured with flexibility to address these evolving risk categories.

Regulatory trends and jurisdictional considerations

U.S. captive domiciles have become increasingly sophisticated, with more than 38 states offering some form of captive legislation. However, future-proofing a captive means carefully selecting or revisiting jurisdictional alignment.

Key considerations include:

Regulatory agility: jurisdictions such as Vermont and Nevada are known for their proactive engagement with captives, but smaller states are innovating as well.

Digital readiness: some regulators are piloting blockchain, electronic filings and AI-based risk assessments.

Tax clarity: states that provide clear guidance on premium taxes, economic nexus and federal excise tax implications create less friction for long-term operation.

Regulator turnover: regulatory stability: a growing concern across several domiciles is the attrition of experienced regulators, many of whom are being lured into higher-paying roles in the private sector. This has resulted in untrained or transitional staff managing complex captive matters, leading to delays, inconsistent guidance and operational friction for captive owners and managers.

Because of this, annual re-evaluation of a domicile’s consistency, responsiveness and regulatory friendliness must become a core component of a captive’s strategic governance process. Captives that regularly assess their domicile’s alignment with current and future needs will be better positioned to adapt – or relocate – if regulatory quality erodes.

Forward-looking captives might also need to consider international compliance frameworks, particularly if they write risks outside the U.S. or have global ownership. For captives with international risk portfolios or foreign ownership, compliance with global frameworks – such as OECD’s BEPS 2.0 – must be factored into jurisdictional strategy to avoid unintended tax or regulatory exposure. Additionally, U.S. tax provisions such as global intangible low-taxed income (GILTI) might affect the parent company depending on how the captive is structured, making proactive tax planning an important consideration.

“Increasingly, U.S. domiciles are scrutinising board composition, independent director qualifications and conflict-of-interest practices.”

Capital and surplus strategies

A common reason captives fail to remain relevant is undercapitalisation or failure to build strategic surplus. Future-ready captives are incorporating dynamic capital strategies, including:

Surplus notes to allow for tiered capital structures.

Participation in surplus for aligned stakeholders such as franchisees or members.

Alternative reinsurance to spread risk or enhance capital efficiency.

Additionally, many captives are now adopting enterprise risk management (ERM) frameworks that guide appropriate capital allocation in alignment with the sponsor's broader risk appetite and strategic goals. Some captives are also introducing performance benchmarking, KPI monitoring and reserve development trends to further align capital decisions with long-term financial health.

Investment management in a new economic era

Future-proofing also involves rethinking how captive assets are managed. The prolonged low-interest rate era has shifted, and with it, so has the return potential and volatility of traditional portfolios.

Modern captive investment strategies should consider:

• Asset-liability matching, especially for longer-tail lines.
• Integration of ESG investing, in alignment with sponsor values and potential reputational benefits.
• Liquidity management, to ensure sufficient access during claim spikes or crises.
• Capturing real-time data for better treasury/risk synchronisation.
• Evaluating the overall investment strategy with attention to debt-versus-equity allocations, including appropriate classification as held-to-maturity, available-for-sale or trading securities.
• Captives can benefit from tailored investment policies, developed in concert with the board and investment advisers who understand the unique regulatory and operational environment of captives.

V. Board composition and governance evolution

Strong governance is essential for future-ready captives. Increasingly, U.S. domiciles are scrutinising board composition, independent director qualifications and conflict-of-interest practices.

To remain future-focused, captives should:

• Include directors with cyber, ESG, or technology expertise.
• Conduct regular governance reviews and board education.
• Formalise succession planning for officers and directors.

Board structures that emphasise diversity in experience and thought will better anticipate challenges and respond with agility.

Technology and digital transformation

Technology is reshaping how captives operate – from underwriting to claims processing. Many forward-looking captives are beginning to deploy:

• Policy administration platforms with API connectivity.
• Data analytics tools to monitor claims trends and predict risk.
• Blockchain solutions for contract certainty and reinsurance settlements.

Digitisation is not just about efficiency – it’s about insight. Digital transformation requires a deliberate data governance strategy – deciding what data to collect, how to protect it and how to leverage AI tools for predictive insights that give captives a forward-looking edge. By capturing and leveraging proprietary data, captives can become critical intelligence arms of their parent organisations.

Strategic use of reinsurance

Reinsurance remains a key tool for future-proofing captives. Its use is evolving beyond traditional stop-loss arrangements to:

• Structured quota share arrangements that stabilise earnings.
• Parametric reinsurance for climate-related or business interruption risks.
• Fronting partnerships that expand the captive’s geographic reach or line of authority.

In addition, forward-thinking captives are entering multilateral reinsurance pools or collaborating with other captives to address industry-specific risks.

Expanding the business purpose

Captives formed for a single-line, single-entity purpose are increasingly being re-examined. Many are evolving into:

• Enterprise risk captives covering multiple subsidiaries.
• Group captives or risk retention groups (RRGs) offering broader member participation.
• Fronting captives that support embedded insurance programmes or new product development.

 Sponsors that see their captive as a strategic business unit – not just a compliance vehicle – will be best

Talent and advisory continuity

The insurance talent shortage is real, and it affects captives as well. Future-proofing means building trusted, multi-generational teams:

Formalise relationships with advisory firms, actuarial consultants and auditors.

Invest in succession planning, especially for single-owner or closely held captives.

Consider third-party management partners with scalable solutions and institutional knowledge.

Continuity ensures that institutional memory, compliance rigour and strategic relationships are maintained across generations. As captives innovate and expand into new risk areas or structures, the role of external auditors must evolve as well.

Auditors familiar with non-traditional lines, digital assets, or complex reinsurance arrangements can provide more meaningful assurance and help management navigate emerging reporting complexities.

Planning for exit and legacy

An often-overlooked part of future-proofing is planning the captive’s exit or transition. Depending on the sponsor’s goals, this could include:

• Orderly wind-downs, with runoff provisions and claim tail analysis.
• Conversion into an RRG or commercial insurer, especially to gain market access.
• Partial sale or recapitalisation, allowing for liquidity or reinvestment.

Having a documented exit or transition strategy is a hallmark of good governance and provides clarity for successors and regulators alike. To support this, some sponsors are developing internal exit “decision trees” that map out potential pathways – such as runoff, conversion or sale – based on future business goals, regulatory developments or capital planning needs.

Conclusion

Captives have proven themselves as powerful tools for customised risk financing and strategic resilience. But static models are no longer sufficient. A future-proofed captive is not just well capitalised and compliant – it is digitally enabled, strategically governed and dynamically aligned with the enterprise it serves.

As economic, environmental and technological risks continue to evolve, U.S. captives that anticipate and embrace change will not just survive – they will lead. As captives become more sophisticated financial instruments, their owners and managers also have an opportunity to shape industry standards and advocate for innovation-friendly regulation. In this era of volatility, resilience is not a destination, it is a direction. And captives that chart a future-focused course will be the ones shaping the next generation of risk management.

Matthew Finney is an audit manager at RH CPAs. He can be contacted at: mfinney@rh-accounting.com

Renea Louie is the  chief executive officer of Sotera Global Management. She can be contacted at: ReneaLouie@SoteraGM.com

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