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Domicile choice is key to captive success.

Domicile Choice is Key To Captive Success

To ensure that your proposed captive is successful, it is best to begin by putting together a comprehensive three- to five-year plan. The most important decision to be made when examining the feasibility of your proposed captive is where it will be established.

Malcolm Butterfield, managing director of Betterley Risk Consultants (Bermuda) Ltd., explained, "Since it is already an established fact that a captive is expected to lose money during its first one to three years," Mr. Butterfield said, "your most important concern is to project in which domicile your captive will lose the least amount of capital."

Once you have narrowed the field down to two or three prospects, the next step is to chart their captive legislation for the past three to five years. While three domiciles may now offer fairly equal benefits to your prospective captive, their record of legislation may show that they are actually all moving in different directions with regard to the type of captives they would prefer.

With regard to offshore domiciles, Mr. Butterfield discussed legislative directions in Bermuda, the Cayman Islands, Barbados, Vermont and Colorado. Bermuda, the world's largest domicile with more than 1,300 captive insurance companies, is currently amending legislation to require captives to report more information on classes of business being written, premiums and principal reinsurers. "These amendments are primarily aimed at captives writing third-party business," added Mr. Butterfield.

The near future holds little promise for any significant changes for captives in the Cayman Islands. Overall, the Cayman Islands government is continuing to promote itself as a viable captive insurance center. According to Mr. Butterfield, as its regulatory environment becomes more solidified, the Cayman Islands would seem to be more suited for mature, rather than new, captives.

As 1989 draws to a close, the attention of the captive insurance market must focus on the Barbados-U.S. Tax Treaty. There is the potential for Barbados to lose its federal excise tax exemptions now featured in that tax treaty. "There is a `sunset' clause that brings this treaty up for negotiations and review, and there is some school of thought that the FET benefit will go out the door," explained Mr. Butterfield. "This situation has the potential to bring about a negative impact on Barbados as a prospective domicile, but I think it creates a challenge for Barbados to keep its growth pattern going in the right direction."

The leading U.S. domicile, Vermont, according to Mr. Butterfield, has recently reexamined the availability of information pertaining to its captives and is moving toward developing and implementing a stronger degree of confidentiality with regard to its resident captives. Vermont also continues to seek users for risk retention groups by considering to reduce the premium taxes paid by captive insurance companies.

Colorado, meanwhile, is trying to make its captive laws more flexible by exempting captives and their parent companies from submitting policy forms and information on certain rating benefits, according to Richard Betterley, president of Betterley Risk Consultants, Inc. "Colorado has made a commitment to attract new captives and to keep captive advisory committee."

It is only by being armed with information on recent trends in captive legislation that you can begin to make intelligent decisions regarding the place of residence of your prospective captive.

PHOTO : Consultant Robert Hessel gives registrants an update on Caribbean and Pacific captive

PHOTO : domiciles.
COPYRIGHT 1989 Risk Management Society Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1989 Gale, Cengage Learning. All rights reserved.

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Title Annotation:insurance captive companies
Author:Furino, Lou
Publication:Risk Management
Date:Jun 1, 1989
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