Smaller domiciles target niches to win market share from larger jurisdictions
Some smaller domiciles, which are perhaps new to the captives space, are looking to attract business by using through 831(b) captives, more legislation and new coverage types, according to Anne Marie Towle, executive vice president and captive consulting practice leader at JLT Insurance Management (USA).
“Some of the newer domiciles are trying to differentiate themselves - particularly in US - through utilising the small captive elections,” said Towle. “Some of them have dedicated their space to the 831(b) captive.”
Towle spoke to Captive International at the CICA 2018 International Conference in Scottsdale, Arizona, about the theme of this year’s conference, the ‘Challenge of Change’.
North Carolina, Tennessee, Utah and Delaware have all adopted laws and regulations in recent years and are particularly popular domiciles for 831(b) captives, she noted.
Tennessee, for example, has enjoyed rapid growth as a domicile of choice for captives, adding 104 new entities in 2016. Some 67 of these entities were protected cell companies and nine were re-domestications from other domestic and international domiciles.
Citadel Risk, which formed cell captive Citadel Tennessee Captive Insurance Company in 2017, cited the simplicity of filing for 831(b) status under the regulations for protected cell structures in Tennessee.
Meanwhile, other domiciles are focussing on the Nonadmitted and Reinsurance Reform Act (NRRA), also known as the self-procurement tax, to encourage companies to form captives in their home state – or at least consider redomiciling there.
“Some are redomiciling and some are setting up a new one in their home state and then still reinsuring back to their Vermont captive, for instance,” Towle explained.
According to Towle, some of the more beneficial types of legislation that may encourage more formations include agency captives, dormancy laws for captives, and also allowing various lines of coverage.
“I know there are certain states in the US that don’t do risk retention groups (RRGs) or they really prefer single parent captives. In order to broaden that attractiveness they need to have broader available types of structures - similar to Bermuda, Cayman and Vermont,” she said.
However, Towle explained there may be some hesitancy in exploring different structures from some of the smaller domiciles that could have a lack of expertise in their insurance department in those areas.
“They shy away from them, because if they want to do something they want to do it well. Because otherwise they don’t want to burn a bridge or have a tarnished reputation,” she said.
A poll of captive insurance domiciles and statistics carried out by JLT IM USA shows the following number of new formations in 2017: Arizona, 11; Bermuda, 17; Cayman Islands, 33; Hawaii, 30; Missouri, 8; Montana, 42; Nevada, 22; North Carolina, 57; South Carolina, 15; Tennessee, 9; Texas; 8; Utah, 60; Vermont, 24; and Washington DC, 8.
“The formations were positive,” added Towle. “People are still forming captives for risk management purposes and to manage their insurance costs wisely. Today there are a lot of reasons why people establish captives outside property and casualty - for employee benefits, medical costs, and for certain types of risks that are unique to that organisation.”
JLT Insurance Management (USA) CEO Guy Ragosta previously said that with all the domiciles to choose from, it is important match companies’ needs in a captive insurance domicile with a domicile’s strengths and experience.
