Trends Begin to Emerge As Captive Industry Grows.

Despite changes in tax laws, low prices from commercial insurers and companies' concerns about assuming their own risk the captive insurance industry is growing unabated, two experts agreed.

Hugh Rosenbaum of Tillinghast-Towers Perrin, London, estimated that there are more than 4,000 captive insurance units worldwide. Captives are special-purpose risk entities formed to insure the risks of a company, group of companies, association or group. Rosenbaum spoke at the Ninth World Captive and Alternative Risk Financing Forum.

Companies began forming captives in earnest two decades ago, Since then, several trends have emerged:

* The number of captives worldwide has reached 4,135,according to Captive Insurance Company Reports. Most captives are formed offshore in places such as Bermuda, the Cayman Islands, Barbados and the British Virgin Islands.

* The range of captive domiciles is expanding. Lloyd's has announced its first captive, and France has declared itself a captive-friendly nation.

* More than 14 U.S. states have adopted regulations encouraging captives, but states differ in their ability to attract the business of captive insurers. For instance, Vermont alone now accounts for 339 captive entities, while all other U.S. states combined account for 174 captives. The most recent states to lay out welcome mats to captives are Nevada and Rhode Island.

* Top captive domiciles continue to attract the biggest share of new business. That's because the people forming captives are seeking experience and infrastructure, so they migrate to regions that have proven records, speakers said.

* The growth of risk-retention groups, strictly a U.S. phenomenon, appears stalled. Risk-retention groups cover only commercial liability, are owned by the insureds and can't be based offshore. Up to 80 risk-retention groups exist.

* Vermont has formed a new type of captive called "reciprocals," which may fuel new captive growth. In reciprocals, earnings are distributed to owners within 75 days of being declared, and at least one of the organizers must be based in Vermont. Reciprocals are best for for-profit companies, said Nicholas Dove, president of Skandia International Risk Management, Bermuda.

* Since the 1980s, most taxing authorities have treated captive insurers as equal to traditional insurers, removing some tax advantages formerly enjoyed by captives.

* Covering credit-life insurance is the leading reason to form captive insurers. The next leading uses are for small-business companies or groups, particularly to provide workers' compensation coverage.

* Today's start-up captives are more likely to be initiated by agents and brokers. That's because they know their clients' business needs, have control of the business and may resent insurance companies' moves toward lower commissions.