Middle market spurs captive growth

Captive insurance domiciles both in the U.S. and offshore have begun reporting their 2011 year-end results, with most posting nominal growth despite an uncertain and still stagnant global economy. There were 5,745 captives worldwide at the end of 2011, up from 5,587 the previous year, according to the annual Business Insurance survey of captive domiciles. In the U.S., many states reported little growth in new captive formations. However, one bright spot in an otherwise flat 2011 has been the continued growth of the Section 831(b) captive or "small" property & casualty captive, which has become the risk planning vehicle of choice for middle market companies.

"The small captive's growth is a natural continuation of the captive market's expanding to the mid market from one dominated by the Fortune 500 companies," says Clete Thompson, VP for Capstone Associated Services, Ltd., and member of the Institute For Captive Insurance Planning (ICIP)(1). "Captive insurers have been around for decades and are no longer considered an unusual or innovative planning tool. An estimated 90% plus of Fortune 500 companies already utilize captives, and a significant number of U.S. states now license captive insurers," reports Thompson.

As more middle market companies incorporate alternative risk planning into their operations, the result has been an uptick in formations of small captives and the U.S. domiciles that regulate their operation. For example Delaware, a top 10 U.S. domicile for captive formations, breached the 100 captive mark in 2011, with most new formations being Section 831(b) captives. As reported in Captive Review's 2011 survey of leading captive domiciles, "Many of the emerging domiciles are growing off the back of 831(b) captives." (2)

Capstone Associated Services, Ltd. is among the top sponsors of Section 831(b) captives in the nation and is among the top two captive sponsors in both Delaware and Anguilla. Capstone continues to realize continued growth among its middle market clientele. "Growth in small captives for us is driven by the middle market which we serve," says Stewart A. Feldman, CEO and General Counsel for Capstone. "In today's challenging economy, a captive insurance company offers middle market businesses multiple benefits in protecting against loss contingencies." Captives provide middle market companies many advantages, including lowering insurance costs, enhancing control over cash flows and investments, improving risk management and loss control, and providing a tax-efficient mechanism for funding future losses.

Footnotes:

(1) The Institute for Captive Insurance Planning (ICIP) is composed of professionals whose practice is largely devoted to alternative risk/captive insurance planning. See the organization's website at www.captiveinsuranceonline.org

(2) Captive Review, March 2011, p. 32

SOURCE: Capstone Associated Services, Ltd.