CAPTIVE DOMICILES

(March 2019)

The continued viability of risk retention groups and the existence of brokers and special management groups providing underwriting, claims and other administrative services for captives in the United States encouraged many states to adopt captive insurance laws to attract captive programs.

Related Article: Captive Insurers

Vermont, the first state to become a United States domicile for captives, allows risk retention groups with a minimum capitalization of $500,000 but most captives receiving approval have far more than the minimum capitalization. The following states are United States Captive Domiciles:

· Alabama

· Arizona

· Arkansas

· Colorado

· Connecticut

· Delaware

· Delaware Tribe of Indians

· District of Columbia

· Florida

· Georgia

· Guam

· Hawaii

· Illinois

· Kansas

· Kentucky

· Louisiana

· Maine

· Michigan

· Missouri

· Montana

· Nebraska

· Nevada

· New Jersey

· New York

· North Carolina

· Ohio

· Oklahoma

· Oregon

· Puerto Rico

· Rhode Island

· South Carolina

· South Dakota

· Tennessee

· Texas

· U.S. Virgin Islands

· Utah

· Vermont

· Virginia

· West Virginia

These states benefit from the Federal Risk Retention Act, because it requires that the domicile of a risk retention group be on-shore and not at any offshore site.

Related Article: Risk Retention Groups

Both state and offshore domiciles actively campaign to attract captive companies and encourage them to locate in the domicile location. The reasons are that captive or alternative market operations generate considerable revenue without some of the problems that might accompany other types of businesses, such as air pollution with a manufacturing concern.

FOREIGNERS ARE ALSO CAPTIVATED

The locations that offer the greatest flexibility and potential profitability (as well as most flexible tax treatment) exist outside of U.S. borders. Current foreign domiciles include the following:

Abu Dhabi	Curacao	Labuan	St. Kitts
Anquilla	Cyprus	Liechtenstein	St. Lucia
Australia	Denmark	London	Singapore
Bahamas	Dubai	Luxembourg	Sweden
Bahrain	Germany	Malta	Switzerland
Barbados	Gibraltar	Mauritius	Turks and Caicos Islands
Bermuda	Guernsey	Micronesia	Vanuatu
British Columbia	Hong Kong	Nevis
British Virgin Islands	Ireland	New Zealand
Cayman Islands	Island of Jersey	Panama
Cook Islands	Isle of Man	Qatar
Insert palm pic

The formation of captives and the level of alternative market use are affected significantly by changes in insurance pricing and coverage availability in traditional markets. Businesses that were forced to self-fund during past hard markets have learned from that experience and have become more committed to using alternative markets. In addition, since many of these alternative markets are better able to control their insurance costs, they are less vulnerable to the pricing volatility regularly seen in the traditional market. Some businesses are forced into self-funding or "went bare" in the past return to the traditional commercial market as rates drop, pricing becomes more attractive and coverage forms broaden. However, some larger concerns have developed effective self-funding techniques and have either decided not to return to the traditional market or return to it only with high deductibles or at higher attachment points. Many corporate clients of risk management consultants become familiar with alternate risk funding mechanisms when the traditional market hardens, prices increase, capacity decreases and coverage terms constrict and become narrower. Often, this hard-earned familiarity leads to permanent, more sophisticated use of the alternative market.