DAN REYNOLDS, senior editor of Risk and Insurance®
The way the trade winds are currently blowing, Hawaii's captive domicile has two major factors that are retarding growth.
One, according to Jason Palmer, the managing director of Willis Management (Hawaii) and the president of the Hawaii Captive Insurance Council, is a soft insurance market that has been dragging on for a couple of years now.
The second is the dynamic that Hawaii is a major captive domicile for construction companies that are either based on the West Coast or do a lot of business there.
According to the Hawaii Department of Commerce and Consumer Affairs, construction and real estate companies are the leading owners of captives in the island state, with 48 registered captives as of the end of 2008.
With many sectors of the construction trade on the West Coast severely slowed by recent economic conditions, Hawaii's captive industry is correspondingly feeling the pinch, according to Palmer.
"Hawaii has traditionally attracted a lot of construction captives, and of course, because of our location, a lot of those companies would be, if not West Coast-based entirely, then certainly a good portion of their business would be on the West Coast," Palmer said.
"And with the downturn in construction on the West Coast, it has aided in the downturn of premiums that are pushed through Hawaii captives," Palmer added.
Total gross and written premiums generated by Hawaii captives was $1.52 billion in 2007, a 10.51 percent drop from the 2006 level of $1.70 billion.
The state's Department of Commerce and Consumer Affairs estimates that gross and written premiums for 2008 will be somewhere in the range of $1.41 billion, a drop from 2007 of an additional 7.38 percent.
Even 2006's figures represented a 9.09 percent drop from the 2004 gross written and assumed premium of $1.87 billion.
But Palmer, who started his career with Willis in the leading U.S. captive domicile of Vermont, said there is a lot to be optimistic about Hawaii as a captive domicile.
Although it competes as a captive domicile with Western states like Nevada, Arizona and Utah, Hawaii does have the advantage of a mid-Pacific location, and it is continuing to educate Japan and other Pacific Rim locations about the advantages of owning a captive.
"There is a lot of interest from Japanese companies in looking at the captive vehicle, it is just a slow-moving process," Palmer said.
Palmer said Hawaii also stands to benefit from regulatory changes made on the island of Singapore about six years ago. As a result of those changes, Singapore, which at the end of 2007 housed 62 captives to Hawaii's 163, is looked on as a tax haven by Japanese authorities. Palmer said that dynamic will act as a deterrent for Japanese companies that might have previously considered Singapore as a domicile.
Recognizing that it has serious competitors among the Western states, Hawaii has also made some changes to its regulatory structure that Palmer points to as some of the more significant moves he has seen in the domicile since he was asked to launch a Honolulu office for Willis in 2003.
"Traditionally peer captives, single-owner captives were restricted to the investment code that is the same here in Hawaii for traditional insurance companies," Palmer said. "And in the 2007 legislation, the captive law allows for a strategic investment policy to be filed with the insurance division. which allows you out of the insurance code and allows you to invest pursuant to that policy," he said.
Although things are tough all over for captives because of the soft market, Palmer said he believes that, as companies look to cut insurance costs by taking larger self-insured retentions, the captive industry could see growth as companies turn to captives to fund those self-insured retentions.
And specifically, Palmer said he has "100 percent" faith in Hawaii, which he compares favorably with Vermont, the domicile he cut his teeth in.
"I would say that they are very similar in nature. They have both been in the business for over 20 years," Palmer said.
"They both have dedicated staff within their insurance division dedicated to captive insurance companies, which is extremely important," Palmer added.
March 3, 2009
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