Bermuda Captive Crown Shaky

Bermuda's reign as the undisputed global leader among captive domiciles is being challenged by U.S. companies, according to a new report from Aon.

Such carriers are increasingly leaning toward onshore domiciles for their captive insurance companies, the report noted.

The latest Aon report indicates that the gap between onshore and offshore captive growth in the Americas has narrowed.

While Bermuda remains the domicile of choice for the Global 1500 (with over a quarter of all G1500 captives), Bermuda's biggest growth as a captive domicile was between 1995 and 2000.

Between 2000 and 2005 Bermuda grew by just 21 percent, whereas Vermont grew by 60 percent. Large U.S. companies clearly more often favor establishing an onshore U.S. captive — about two-thirds of U.S. parented captives established in the last five years have been based in U.S. onshore domiciles.

Among the domiciles within the U.S., Vermont has been and continues to be the location of choice. The Green Mountain State has more than four times the number of G1500 captives as all the other U.S. onshore domiciles combined. Hawaii is the next most popular with 20 captives, followed by New York, Arizona and South Carolina.

Findings show that U.S. companies account for more than a third of the G1500 and account for nearly half of all captives owned. Of the ten G1500 companies with five or more captives, seven have their parent companies in the U.S.

The research also highlights that contrary to popular belief, the captive market remains underdeveloped with over half (53 percent) of the current G1500 companies not currently owning a captive.

“The outcome is that insurance buyers within the world's largest companies are failing to achieve a better quality of cover as well as cost savings of typically 10 percent – 15 percent, through economies of scale, efficient use of capital, leverage and more efficient use of senior management time,” the report notes.

Sectors missing an opportunity include manufacturing and communications, where 55 percent and 62 percent respectively do not have captives. Even sectors that have greater take-up still show room for growth. For example, 44 percent of the largest financial and insurance companies and 39 percent of mining companies still do not use captives.