The Insurance Information Institute has summarised important events pertaining to captives in August.
"On July 31, 2012 Connecticut licensed its first captive insurance company. The captive, Thomson Reuters Risk Management , a subsidiary of the media giant, Thomson Reuters, was formerly located in Delaware. Jobs legislation enacted by Connecticut in 2011 included revisions to the state’s 2008 captives law that expand the types of insurance transactions permitted by captives.
"A 2012 analysis by A.M. Best, based on a composite of 209 US captive insurance entities and alternative risk vehicles it follows, saw 2011 net income decrease by 21 percent in 2011, reflecting decreases in underwriting income, net investment income and realised capital gains. The declines are attributed to the continuing soft market, low investment yields and lethargic global financial conditions.
"The report notes, however, that the composite outperformed the commercial market in terms of profitability measures in 2011, with single parent captives showing the best results. Alternative market mechanisms now account for about 25 percent to 35 percent of the commercial market, A.M. Best reported at its “State of the Captive Insurance Market 2012" webinar."
The III finally noted that businesses in the US and Europe looking to set up captives are increasingly setting them up onshore rather than in offshore domiciles such as Bermuda and the Cayman Islands, according to a study by Marsh. In 2011, 51 percent of captive formations were in the European Union and the United States, up from 35 percent in 1991.
"The report attributes the shift to regulatory developments in both regions. The formation of the European Union allowed for captives in one jurisdiction to be admitted in any other jurisdiction. In the US, a surge of captives laws made state domiciles more attractive. Three of the ten top captives domicles worldwide are in the US: Vermont (ranked no.3 worldwide); Utah (ranked 8); and Hawaii (ranked 10).
"In April 2012 Oregon passed a law a making it the latest US captive insurance domicile. Beginning in July the state will permit the formation of captives, including single parent captives, association captives and captive reinsurers.
"In June 2011 Tennessee passed legislation intended to encourage captive formations. The law enables captives to write workers compensation insurance policies and permits the formation of a number of special types of captives, including protected cell captives, branch captives and special-purpose finance captives. While Tennessee enacted its first captive law in the 1970s, by 2010 the number of captives had dropped to four.
"Solvency II, European Union-wide standards for insurers set to take effect in 2012, will transform the EU captives industry, according to a May 2011 A.M. Best report. The new standards could boost regulatory capital requirements for EU-based captives by as much as 300 to 400 percent, according to the report. The impact on captives writing business in the EU but domiciled elsewhere, will hinge on whether the domicile has regulatory equivalence. A number of captive domiciles, both inside and outside the EU are seeking to achieve regulatory equivalence with Solvency II.
"There were 5,745 captives worldwide in 2011, up from 5,587 the previous year, according to a March 2012 report by Business Insurance. Bermuda had the most captives worldwide in 2011 (862) ,followed by the Cayman Islands (707), Vermont (590), Guernsey (343) and Barbados (270). Vermont was the largest US captive domicile in 2011 , with 590 captives, followed by Utah (239 captives), Hawaii (172) , South Carolina (159) and the District of Columbia (157).
"The European Commission is looking into how the European Union’s pending Solvency II regulatory directive will affect captives. Guernsey is the largest European captive domicile, with 343 captives in 2011, followed by Luxembourg (242), the Island of Man (133), Dublin (101) and Sweden (49)."
