Captives that are owned by US citizens account for approximately 3,500 of the nearly 5,000 Captives that are currently in operation worldwide. Captives can be domiciled and licensed in a wide number of domiciles both in the US and off-shore. There are now approximately 24 US States and well over 35 countries with Captive Insurance legislation that serve as excellent Captive Insurance domiciles. Captive Insurance Companies that are formed outside the US or offshore can make an IRC section 953(d) election to be taxed as a Domestic US corporation to US Tax purposes. This allows a foreign based Captive Insurance Company to receive the same US Tax benefits and treatment as a Captive formed in any of the 24 US States with Captive Insurance Legislation. The big difference is that a foreign based Captive generally has a much lower costs of ownership and a far higher degree of flexibility for its US owners compared to a Captive which is formed in the US. For this reason most small Captive Insurance Companies with annual premiums below $1.2 million are formed offshore. The table below entitles " A List of US and Foreign (Offshore) Captive Insurance Domiciles" list the 24 US States with Captive Insurance Legislation as well as the 35 foreign countries which have Captive Insurance Legislation and serve as excellent Captive Insurance domiciles. By clicking on any domicile you can go to its government website for addition information including its Captive Insurance legislation and requirements.
A List of US and Foreign (Offshore) Captive Insurance Domiciles
|US Captive Domiciles||Off-Shore Captive Domiciles|
|District of Columbia||British Columbia||Sweden|
|Florida||British Virgin Islands||Switzerland|
|Georgia||Cayman Islands||Turks & Caicos Islands|
|Hawaii||Curacao (Netherlands)||U.S. Virgin Islands|
|New York||Isle of Man|
|Tennessee||London - Lloyd's of London|
|Virginia||Mauritius (South Africa)|
Captive Insurance History and development
In the last 20 to 30 years there has been phenomenal growth in the number of captive insurance companies so that today there are well over 5,000 captives worldwide writing more than $20 billion in premium. These companies have capital and surplus estimated at over $50 billion.
The captive insurance industry can be said to have its origins in the formation of mutual and co-insurance companies in the 1920s and 1930s. However, the start of the real growth of the captive industry can be traced to the early 1950s and the move by parent companies, to establish their captives offshore.
The greatest stimulus to the development of captives has been the expense or lack of availability of certain types of insurance coverage in the commercial market. Other considerations apply, however, and these have become so important in the minds of risk managers and finance directors that, even when commercial premium rates have been extraordinarily low, the interest in captives has been greater than ever.
Evidence of this interest is provided not only by the number of captives being formed but also by the increasing number of domiciles available for their incorporation. Long-standing domiciles, such as Bermuda, the Cayman Islands, Guernsey, the Isle of Man and Luxembourg have been joined by the likes of Vermont, the British Virgin Islands, Gibraltar and Dublin. In a move that demonstrates forcibly the emergence of captives into the mainstream of the insurance and risk management arena, the Council of Lloyd’s passed a byelaw in November 1998 permitting the establishment of captive operations at Lloyd’s.
Types of Captive Insurance Companies
There are several types of insurance captive, of which the most common are defined below:
Single Parent Captive - is an insurance or reinsurance company formed primarily to insure the risks of its non-insurance parent or affiliates.
Association Captive - is a company owned by a trade, industry or service group for the benefit of its members.
Group Captive - is a company, jointly owned by a number of companies, created to provide a vehicle to meet a common insurance need.
Agency Captive - is a company owned by an insurance agency or brokerage firm so they may reinsure a portion of their clients risks through that company.
Rent-a-Captive - is a company that provides 'captive' facilities to others for a fee, while protecting itself from losses under individual programs, which are also isolated from losses under other programs within the same company. This facility is often used for programs that are too small to justify establishing their own captive.
Two other types of insurance company which have developed recently are special purpose vehicles (SPV) and segregated portfolio companies (SPC):
SPV - Although used extensively in the past for various financing arrangements, recently they have been used for catastrophe bonds and reinsurance sidecars.
SPC - SPCs can be formed as a rent-a-captive facility to enable those companies who lack sufficient insurance premium volume, or who are averse to establishing their own insurance subsidiary, access to many of the benefits associated with an offshore captive.