In an increasingly fragmented captive marketplace, it's becoming more and more difficult for a domicile to differentiate itself from the competition. Gone are the days of a quick trip to offshore domiciles Bermuda or Grand Cayman, or onshore to Vermont or Hawaii.

As for a risk retention group solution, there's only one country to go–the United States–but captives and RRGs still must choose which state to set up shop.

While the first captive domicile was Bermuda–chosen by Ohio insurance agent Fred Reiss in 1955 (my uncle), who first developed captives–other early adopters include Cayman, Guernsey and Vermont.

These domiciles all passed captive insurance legislation, or had the necessary infrastructure to accommodate captive entities. They also have enjoyed a notable increase in their economic situation as a result of providing a serious and progressive business climate for captives–and, in some cases, RRGs.

Vermont's captive industry in 2003, in fact, represented 1,100 jobs and produced more than $14 million in taxes for that state's economy. When Vermont passed captive insurance legislation in 1981, it was primarily known for its timber industry. Hawaii's captive industry's contribution to the state's economy is $17 million.

The success of these domiciles in the captive market has motivated many other countries, territories and states to enact their own form of captive legislation. To attract business to their domicile, some leverage their location, infrastructure, tax or captive statutes as enticements–so many choices!

It's no surprise that there is such competition between domiciles for captives, especially since the alternative risk-transfer industry today amounts to more than $100 billion in premium and includes 4,500 captives worldwide.

Anyone looking to set up a captive will find no shortage of domiciles from which to choose–at last count there were more than 80, about 30 percent of which are in the United States.

The broadening choices in domiciles present both good and bad news for captive owners and corporate insurance buyers. The good news is more selection, less travel and competitive pricing and taxation.

The bad news–onshore and offshore–is a thinning of experienced regulators or supervisory bodies in some captive domiciles, and insufficient accounting and professional support services to manage captives.

Because of competition among domiciles to obtain the premium dollar, however, buyers can look forward to more innovation in the uses of captives and alternative risk-transfer strategies, speed to market, and–eventually–domiciles segmenting the marketplace to attract a certain type or size of captive owner.

In fact, insurance buyers are already benefiting from this marketing strategy.

o Cayman, for example, has become nearly synonymous with health care captives, yet it allows most types of captives and industries to domicile there.

o Bermuda, originally known for captives, is increasingly recognized for excess liability capacity and property reinsurance.

o Vermont, arguably the most well-known U.S. domicile, attracts large captive clients partly because of strong brand image.

Other examples include the District of Columbia (for its speed to market regarding captive legislation, giving its clients access to new risk transfer technology) and perhaps Arizona (for its “no tax” position on captives. This is quite a unique feature since most captive domiciles rely on some sort of tax to sustain their supervisory operations.)

Another strategy that appears to be effective, specifically for U.S. domiciles, is regionalization.

As more and more states enact generic captive legislation, the key difference among competitors will be location–which for some buyers is very important. Their time cannot be used to travel to and from their captive domicile, yet they still desire all the benefits. For them, innovation, taxes, or progressive captive legislation is not as important as time.

Historically, while most captive innovations are readily accepted, some can supersede the ability of certain regulators to accept a captive–either because those regulators do not intend to regulate that type of captive business, or they wish to focus their efforts on a segment of the marketplace.

Although some buyers may rebel against this type of selective acceptance of captives and RRGs, in the end this may provide them with the advantage of being able to intelligently choose a captive or RRG domicile.

“It's no surprise there is such competition between domiciles for captives, especially since the alternative risk-transfer industry today amounts to more than $100 billion in premium and includes 4,500 captives worldwide.”

Christopher L. Kramer

Special Reports /

As ART Market Continues Growing, Domiciles Compete To Catch Buyers' Eye

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