US captive market booming as domiciles report record figures
The US captive market has grown rapidly in the last few years, both in terms of the number of state domiciles and the number of captives. And in the last couple of years, as the hard market has started to bite, the number of new captives formed and the amount of premium written by captives have increased significantly.
The Business Insurance 2022 Captive Managers and Domiciles Rankings + Directory reveals that US domiciles account for 52.4% (3,133) of all global captives, while Canadian domiciles account for 0.3% (19). North American offshore domiciles, including Bermuda and Cayman, account for 33.1% (1,980).
The rankings show that the majority of US domiciles achieved solid growth in terms of the number of captive licences at year-end 2021.
TOP US CAPTIVE DOMICILES
(Ranked by number of captive licences at year-end 2021)
- Vermont: 620 in 2021 (589 in 2020)
- Utah: 384 (396)
- Delaware: 313 (288)
- North Carolina: 257 (250)
- Hawaii: 251 (242)
- South Carolina: 183 (175)
- Nevada: 161 (166)
- Tennessee: 153 (145)
- Arizona: 149 (131)
- District of Columbia: 112 (106)
Source: Business Insurance 2022 Captive Managers and Domiciles Rankings + Directory
Other US captive domiciles that showed strong particularly strong growth in 2021 were Texas (54, from 41 in 2020) and Connecticut (44, from 22 in 2020).
TOP NORTH AMERICAN OFFSHORE CAPTIVE DOMICILES
(Ranked by number of captive licences at year-end 2021)
- Bermuda 670* (680)
- Cayman Islands 661 (652)
- Barbados 253 (226)
* BI estimate
The onshore/offshore question for the location of US-parented captives is an ongoing one, but currently both are booming. Patrick Theriault, managing director, Strategic Risk Solutions east operations, says the firm has continued to see growth both offshore and onshore. “We are domicile neutral and there is no one size fits all. It has been interesting to see the activity around more entrepreneurial-type captives, and their focus often on third-party risk tends to make these structures a good fit for offshore jurisdictions,” he says.
He adds that offshore domiciles have also seen growth driven by non-US organisations (i.e. Canadian or Latin American-owned companies) where an offshore jurisdiction is more efficient.
He says that for the more plain-vanilla US companies with US-only risk, a majority of those have more recently elected to form their captive in a US domicile, with US Federal and state taxation being a factor for the decision. “While redomestications occur occasionally, overall we have not seen a significant number of redomestications from offshore to onshore. With more and more US states with adequate captive laws, some companies have found the ability to operate their captive locally versus having to travel to a remote domicile appealing,” he adds.
Has there been redomiciliation movement from offshore to domiciles like Vermont in recent years? “It hasn’t been a stampede,” says Rich Smith, former Vermont Captive Insurance Association president. “But a new trend has emerged in which more captives from offshore move stateside, and Vermont has seen a fair amount of business from this activity. Any benefits of putting your captive offshore have long since dissipated and the ability to license one’s captive onshore makes a lot of sense. Furthermore, international companies that once might have licensed their captives in an offshore domicile are looking to bring them onshore, especially for their North American risk.”
He notes that at least five of Vermont’s new captives in 2021 were formed by companies with international roots – including Japan, Germany, Russia, the UK and Australia.
Brittany Nevins, captive insurance economic development director, Vermont Department of Economic Development, adds: “Vermont does experience onshoring of captives at a pace of a few a year over the last few years… US companies have been looking and staying onshore for years, as evidenced by the growth in numbers of US domiciles when compared to the relatively flat growth in Bermuda and Cayman. So, redomestication is one aspect of the broader picture.”
Last year was Vermont’s fourth-highest year of growth in its 40-year history, in terms of new captive licences. Forty-five new captive insurance companies were licensed during 2021 in Vermont, including nine sponsored cell companies. The new captives were licensed in 17 different industries, including healthcare, real estate, manufacturing, insurance and transportation. Five of Vermont’s new captives in 2021 were formed by companies from Japan, Germany, Russia, the UK and Australia.
Vermont was not the only state domicile to report record figures for 2021. Arizona licensed 27 new captive insurance companies in 2021, a record number for the state, with captive regulators expecting continued growth amid hardening conditions in the traditional market. The licensing of 27 new captives in 2021 – more than double from the 12 captive insurance companies licensed in 2020 and the most in a year for the state – increased Arizona’s captive count to 149 at the end of 2021. And Connecticut doubled its number of captives, from 22 to 44 last year.
Mike Serricchio, a managing director within Marsh Captive Solutions, says: “It is neutral as to where a captive is domiciled because [for] most US companies, if they do go offshore, the vast majority will make an election that makes their captive a US taxpayer.”
He adds that Barbados, Cayman, Bermuda are still doing a lot of captive business and growing steadily, but they are not growing at the “massive rate” that Vermont, Delaware, DC, South Carolina and Hawaii are.
Nevertheless, many captives in those offshore domiciles are performing extremely well. AM Best notes that Bermuda, Cayman Islands and Barbados captives that it rated continued to outperform the US commercial casualty composite on underwriting and operating profitability in 2020.
According to Best, the operating results of the captives have been relatively consistent year over year, similarly to the rated captives domiciled in the US. Both captive groups have reported results that consistently outpace those of the traditional US commercial casualty insurers.
