16 June 2016Bermuda analysis

Employee benefits and Solvency II to boost captive growth

Bermuda’s captive market is set for strong growth in the next couple of years as a number of positive factors converge to boost interest in the sector and formations, David Gibbons, the chairman of the Bermuda Captive Conference and managing director of PwC Bermuda, has said. Numbers for this year’s conference, which ran Monday June 13 to Wednesday June 15, were up ten percent on the year before and he believes a lot more captive owners and delegates from markets such as Latin America and Canada have attended. He is also optimistic that numbers will increase again next year when the event, to accommodate the Americas Cup being hosted by Bermuda, moves from its traditional June slot to September. Gibbons also believes that many companies paused in the process of looking to form a captive on Bermuda while they waited for its Solvency II status and how this might apply to captives to be confirmed. It was confirmed that Bermuda has secured Solvency II equivalence earlier this year but has also secured a ‘bifurcated’ approach that means that captives have remained exempt from the regulation – something that many view as being the best of both worlds for Bermuda. “Some people did wait and see exactly how that would pan out but the way it has panned out is very positive for Bermuda and now offers certainty to the market. I think now that is out of the way, I am positive we will see a steady increase in the number of formations over the next couple of years,” Gibbons said. While some of this growth will come from Latin America and Canada, markets Bermuda has specifically targeted in recent years, Gibbons also stresses that he anticipates more US-based group associations will be looking to form captives as they increasingly understand the economies of scale and savings captives can offer. He also anticipates growth will come as a result of an enhanced interest in using captives to cover cyber risks and the rise of captives to manage employee benefits liabilities. He believes the latter in particular is likely to lead to tangible increase in formations of captives in the coming years. “Everyone is talking about cyber but there is still some way to go on the understanding of that risk and support is needed from insurers and reinsurers. In contrast, the employee benefits side will generate real growth,” Gibbon said. “A lot of global companies are starting to look at their global costs around this and how they manage it and understanding the benefits of using a captive. But this potentially means a lot of premium income for captives but significant savings for individual companies.”