Choosing the Right Captive Domicile

Choosing the Right Captive DomicileAn important consideration in forming a captive insurance company is the choice of domicile.  There are over 60 domiciles throughout the world that have enacted some form of specific legislation and a regulatory infrastructure to enable captive insurance company formation.  In addition to the international domiciles, 17 US states actively promote themselves as captive domiciles.Each domicile has strengths and weaknesses that must be evaluated to determine which best meets the needs of the captive.  Many of these 60+ domiciles are impractical when considering a captive for a middle market company.

Capstone considers the following factors.

Regulatory Environment - The domicile should have a pro-business reputation, political stability, and an established regulatory and support services infrastructure in place to service the captive's needs.  The domicile should have adequate resources dedicated to captive regulatory oversight in order to expedite the formation and ongoing regulation of the captives.

Image - The image of the domicile should fit the needs of the captive.  The domicile should not bring scrutiny on the captive or its reasons for formation.  The image of the domicile can also affect the availability of reinsurance and fronting companies.

Cost, Regulatory Factors, and Taxation - Jurisdictions that promote themselves as captive insurance domiciles do so in order to attract revenue for the domicile through fees and taxes as well as requirements to use local resources.  Differences in these regulatory provisions create implicit cost differences among domiciles.  Among these costs are capitalization and solvency requirements, premium taxes, incorporation and registration fees, investment restrictions, and owner/director reporting and requirements regarding the status of meetings.  Some domiciles even require that a director be a resident of that jurisdiction.

Fit - Domiciles often fit specific types of captives better because of the availability of specialty service providers, or because of specific enabling legislation.  Medical captives are a good fit for the Cayman Islands because of the number of reinsurers and captive managers that specialize in that market.  Segregated cell captives are a good fit for Bermuda, which in 2000 developed legislation permitting segregated cells.  The British Virgin Islands and Anguilla work well for captives for closely held companies because these two domiciles have an even balance of regulatory environment and a statutory scheme directed at captive (as opposed to conventional) insurers, along with a positive image among international regulators.

Other issues that can affect the choice of domicile include the local currency, distance and ease of travel to the domicile, any rate and form regulatory reporting requirements that places limitations on coverages, and any existing owner affiliations within the domicile.

We welcome the opportunity to meet with you and your clients about these issues and captive planning in general. Please complete the form


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