Competition among captive domiciles is not news, though it seems like the concept of redomestication is gaining traction among risk managers and captive owners, as is the concern that domiciles could be making it too easy for them to avoid regulation and auditing.
A few dozen international domiciles operate around the globe, and as many as 26 U.S. states have laws on the books that allow companies to create their own insurance company subsidiaries. Of course, not all of these are real players. Many states on that list, for instance, might have created laws years ago that since have accumulated dust. Take Colorado.
"If you talk to the regulators in some of these states, they sort of scratch their heads," said P. Bruce Wright, partner at law firm LeBouef, Lamb, Greene & MacRae LLP.
However, enough states are active in the arena, and becoming more active, that there is a strong sense of change and competition in the industry.
"It seems like every state in the Union, or the state next door, has a captive," said Paul Smith, manager, insurance and actuarial services, at Ernst & Young's Chicago office.
And with change comes wariness.
"I hope we don't see a race to the bottom," said Tim East, director of risk management for the Walt Disney Co. and vice president of the entertainment giant's two captives, with "bottom" referring to looser regulation.
East added captive owners should not base their domicile choice on this lax regulation alone. A lot of other decisions should factor into the decision.
When "domicile shopping," said Paul Smith, manager, Ernst & Young, captive owners might consider such other factors as what lines their captive will write, the stability of a domicile's work force, personnel changes within their own company or within their captive manager's outfit, and the perception given off by their current domicile.
A captive on a tropical island, for instance, still might possess the stigma of tax evasion and underhanded dealings to many in the public and in the parent companies themselves.
This perception might not be fair in 2007, said Smith, where such domiciles as Bermuda and Cayman have strong regulatory frameworks. But Robert J. Flannery, manager of captive operations for Verizon Communications, admitted that he's felt "unwritten" pressure to move the company's Bermuda captive onshore.
Yet for all the talk about redomestication and onshore trends, domicile competition, at least stateside, might not be sustainable. "I don't think there's a way for 30 states to have a captive program," said Flannery.
The captive experts spoke at the 2007 Vermont Captive Insurance Association conference.
The 22nd annual Vermont Captive Insurance Association conference proved to be the biggest yet, with as many as 1,400 attendees, including the state governor. Risk & Insurance was there as well to provide a daily play-by-play on all the important goings-on at the show.
Take a gander at our Show Dailies from the event to see what you missed if you didn't happen to make the trip to Burlington this year. Or if you did attend the event, take a look to remind yourself about all the informative sessions and meetings you had there.
For a look at Day 1 of the Show Daily, please click here. For Day 2, please click here.
September 15, 2007
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