Marsh Issues Captives Report At RIMS
New captive insurance company owners continued to gravitate toward onshore domiciles in the US and European Union in 2012 although the “ease of doing business in more mature offshore domiciles like Bermuda” means the island retains its longstanding edge in this field, according to a new report from Marsh.
And the market is not seeing a large number of existing offshore captives re-domesticating to onshore jurisdictions, Marsh found in its annual captive benchmarking report, released yesterday [Apr. 23] at the 2013 Annual RIMS Conference in Los Angeles.
The report, “Discovering Opportunity in the Shifting Captive Landscape”, is based on the activities of 886 captive insurance companies — primarily single-parent captives — managed by Marsh. It found that at the end of 2012, 55 percent of companies had onshore captives versus 45 percent domiciled in offshore locations.
This compares to 52 percent and 48 percent respectively, in 2011 and varies significantly from the 1991 to 2000 period where 35 percent of new captives formed onshore versus 65 percent offshore. The onshore movement can be attributed to a number of factors including travel cost savings, changing insurance regulations, insurability of certain coverages, new onshore jurisdictions, and potential premium tax savings.
The report found, however, that while formation of new captives is trending toward onshore domiciles, large scale re-domestication is not occurring among existing captives. Of the more than 1,220 captives under management at Marsh, only 16 re-domesticated to a new jurisdiction in 2012. While a majority of those moved from offshore to onshore locations, the moves were not based on any one fact or set of circumstances.
“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 captive owners would re-domesticate their offshore captives to the US. That has not happened,” said Arthur Koritzinsky, Marsh’s North American Captive Advisory Leader.
“Part of the reason may be the regulator experience, broad infrastructure, and ease of doing business in more mature offshore domiciles like Bermuda and Cayman Islands, which are home to 78 percent of all offshore captives,” he said. “Others may be waiting for a final decision as to the applicability of NRRA to the captive insurance industry.”
Not only are new captive formations more likely to be located onshore today, they also are more likely to be a smaller company. Marsh’s report found that 44% of the captives benchmarked had premium volume of less than US$5 million and half of those had premium volume of less than US$1.2 million.
“We are seeing a huge uptick in interest among smaller companies interested in forming captives, especially Section 831(b) captives,” Mr. Koritzinsky said. “There is no ‘one-size-fits-all’ today when it comes to captive formations. The premium spend required to support a captive is attainable by small, midsize, and large organizations.”
Other highlights from Marsh’s report include:
- A significant number of captives — 35 percent — enter into intercompany investment or loans with their parent companies — a growing trend since the economic crisis of 2008, as companies need access to cash and cannot maintain large amounts of cash in captives, earning relatively low returns.
- Ten percent of the captives benchmarked insure some amount of third-party risk, such as customer credit insurance, extended warranty, pooling facilities, or employee benefits.
- Financial institutions remain the largest users of captives, representing 19% of those benchmarked, followed by health care organizations, which represent 17 percent of all captives.
Great reporting.