Where to Establish a Captive Insurance Entity?
Offshore locations such as Bermuda, the Cayman Islands, and Barbados have long been associated with captive insurance companies.
However, onshore locations have become increasingly popular in the past decade. In fact, the US recently replaced Bermuda as the top captive domicile in the world, with more than 1,000 active captive insurance companies.
The increasing popularity of onshore locations has resulted in an explosion of the number of states allowing captive formation, with roughly half having some form of a captive statute on their books. Vermont has been the leader, but a handful of other states have more than 50 active captives along with a dedicated regulatory staff.
The decision to locate a captive onshore or offshore is fraught with complexity. For this reason, a prospective captive owner should always perform a rigorous Domicile Analysis as the cornerstone of its Captive Feasibility Study.
Arriving at the optimum location for a captive invariably results from a careful analysis of each organization’s particular needs and situation. The analysis is accomplished by ranking locations and options using pre-determined, weighted variables such as:
- Reputation and perception
- Regulation and infrastructure
- Cost of operation
- Tax implications
- Logistics and ease of operation
With the growing number of location options available, the “right” choice of a captive domicile is likely to be different for every firm. For a host of reasons, getting it right can have a major impact on a captive’s ability to minimize risks and costs. In this all-important first step, engaging professional assistance in a domicile search is money and time well spent.
Wilmington Trust neither claims to nor provides legal or tax accounting services. Clients should consult professional tax and legal advisors regarding favorable tax treatment of any particular strategy.