The years of dominance enjoyed by offshore captive domiciles may be coming to an end as more captive formations move onshore into the United States and Europe, says a report from the Insurance Information Institute (I.I.I.).
In an update to its research of alternative-risk vehicles, I.I.I. says more than half of the captive formations in 2011 were located within the European Union and the United States, up from 35 percent of formations in 1991.
But still only one of 2011's Top 5 captive domiciles was onshore: Vermont. The state's 590 active captives ranked third overall for captive domiciles, placing behind the 862 captives located in Bermuda and the 707 in Cayman.
Guernsey, a captive domicile with 343 captives, placed fourth, with Barbados rounding out the Top 5 with 270 captives.
In the U.S., a number of states have passed laws permitting the formation of captives, with Oregon being the most recent to open to single-parent (set up by an individual company), association and reinsurer captives.
In June 2011, Tennessee passed legislation enabling captives to write Workers' Compensation policies and permitting protected-cell, branch and special-purpose finance operations.
In July 2012, Connecticut licensed Thomson Reuters Risk Management Inc. as its first captive insurance company. The risk-management vehicle of Thomson Reuters moved from its prior location in Delaware.
Vermont is the largest U.S. captive domicile, followed by Utah (239 captives), Hawaii (172), South Carolina (159) and the District of Columbia (157).
A.M. Best said that in 2011, 209 U.S. captive insurance companies saw a decrease in net income of 21 percent due to lower: underwriting income, net investment income and realized capital gains. The ratings agency attributed the results to a continuing soft market, low investment yields and a sleepy worldwide economy. However, single-parent captives outperformed the commercial market last year in profitability.
In Europe, Solvency II presents a regulatory issue of concern. The regime could boost regulatory capital requirements for EU's captives by up to 400 percent when it is implemented between 2013 and 2014. Additionally, it is not clear yet, under the proposed Solvency II rules, if a captive will have regulatory equivalence if it is owned by an EU business or association but domiciled outside of the EU.
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