Patrick Ferguson, senior vice president at Marsh Captive Solutions, dissects the key factors that make the Canadian province Alberta a viable option for market participants, and considers how the domicile needs to develop to invite further offshore and onshore participation
What key factors make Alberta an attractive captive domicile option for Canadian companies compared to offshore jurisdictions?
Onshore options for Canadian companies resonate well with some clients’ board of directors, who would prefer to keep subsidiary companies, and funds, onshore.
I view this more as an optic item given the sometimes negative perception of companies moving funds offshore. There is no tax advantage for Canadian risks in a captive by being offshore versus in Alberta.
Alberta’s capital regime, regulatory framework and licensing time frames are consistent with offshore domiciles, making Alberta an attractive option.
How do Alberta’s regulatory approach and licensing time frames compare to other onshore captive domiciles in Canada?
Minimum capital requirements are similar to offshore domiciles. For pure captives, Alberta has introduced minimum capital to be a percentage of premiums written or reserves — depending on which is higher.
This is a significant improvement over the previous actuarial target capital model and is consistent with how capital is assessed for single parent captives in all offshore domiciles.
Alberta has consistently licensed captives within six weeks from the application being submitted, which is as fast as, if not faster than, offshore domiciles.
What challenges could Alberta face in maintaining its competitiveness as it grows its captive portfolio?
As Alberta matures, it will need to assess whether it can amend its legislation to permit both third-party business and life or pension business. These are two key growth areas in offshore domiciles, where the current Alberta captive legislation does not permit this business.
Alberta will also need to ensure its regulatory department is well staffed to maintain the current licensing time frames which are key to its success.
How might evolving market conditions in the commercial insurance and reinsurance sectors impact captive utilisation and growth in Alberta over the next few years?
Commercial insurance remains expensive for some lines of business and industries which should continue to promote growth in the Alberta captive sector over the next few years. Certainly, the idea of an Alberta captive being able to access reinsurance is appealing to some of our clients — this type of structure will only increase in usage going forward.
For companies evaluating Alberta, what factors should drive their decision between an onshore versus offshore captive domicile?
It is a combination of the company’s current tax status - CCPC versus public company, for example - their geography location of risk (Canada versus non-Canadian), recognising offshore captives still have a tax advantage for non-Canadian risk over Alberta and the desire of the company’s board of directors to maintain the captive onshore (Alberta) versus offshore. We have seen several instances where companies, despite the financial advantages being greater offshore, chose Alberta.
How does having an onshore Canadian option like Alberta affect the overall captive landscape and decision-making for Canadian companies?
It provides another option and a Canadian option at that. Canadian companies traditionally have been conservative in moving down alternative risk paths, such as captives, and a part of that stems from the fact that the main domiciles for Canadian companies were offshore. With Alberta, we have a viable captive option in our country, which can be the difference between a company starting a captive or not
What role could Alberta play in driving more widespread captive adoption among Canadian companies across different industries and sizes?
All of the above plays into Alberta helping to push captive adoption among Canadian companies. I do not believe there is an industry specific play yet for Alberta, and setting up a captive is more about retained premium volume than it is about the size of the company.
As a relatively new entrant, what strategies might Alberta employ to differentiate itself and capture more captive business?
Alberta is off to a great start and continues to do the right things to increase its visibility in the captive market. The revised capital guidelines released recently are one example of Alberta continuing to evolve to meet company needs.
To the extent Alberta can continue to be nimble from a regulatory licensing perspective, that will be a big factor in continuing to make Alberta a viable captive option for companies.
