29 April 2013Bermuda analysis

Marsh report finds captives heading onshore

The Marsh annual benchmarking report for 2012 found that new captive owners are gravitating toward onshore domiciles in the US and the EU, although few existing captives are re-domesticating to onshore jurisdictions.

The report, which was released at RIMS 2013 and is based on the activities of the 886 captives managed by Marsh, found that 55 percent of companies had domiciles onshore by the end of 2012.

This result varied significantly from the 1991 to 2000 period. Only 45 percent of newly created captives were domiciled offshore at the end of 2012, the nineties saw 65 percent of new captives formed offshore.

However only 16 of over 1,000 captives were re-domesticated in 2012.

Arthur Koritzinksy, Marsh’s North American captive advisory leader, told Captive International: “there’s regulatory uncertainty in the EU; there really isn’t much in the US. The continued movement to the US has been going on now for almost 20 years and the change from last year to this year is only a couple of percentage points, but obviously the trend is continuing.”

"With the proliferation of new captive jurisdictions in the US, the economic downturn, and the passage of the Nonadmitted and Reinsurance Reform Act (NRRA), which provides potential tax savings for companies that stay in their home state, we anticipated that more US-based captives owners would re-domesticate their offshore captives to the US. That has not happened.”

He continued: “part of the reason may be the regulator experience, broad infrastructure, and the ease of doing business in more mature offshore domiciles like Bermuda and Cayman Islands, which are home to 78 percent of all offshore captives. Others may be waiting for a final decision as to the applicability of NRRA to the captive insurance industry.”

According to Koritzinsky, offshore domiciles have been concerned about the changing tide for a number of years, and are finding ways to fight back. He said: “where we have seen offshore jurisdictions focus now is on opportunities other than US single parent captives. Bermuda, for example, is really focusing on special purpose companies, on sidecars for companies that want to get into the commercial reinsurance business, cat bonds and most importantly emerging markets. Bermuda is the domicile of choice for many of the Latin American companies that we talk to about captives.”