Magazine article Risk Management

On Choosing a Captive Domicile

Magazine article Risk Management

On Choosing a Captive Domicile

Article excerpt

REDUCED INSURANCE costs, direct access to the reinsurance market, individually tailored policies, coverage for non-insurable risks, improved risk management control, potential tax benefits and improved cash flow are but a few of the reasons many organizations choose to form a captive insurance company. Once the decision to form a captive becomes clearer, however, the choice of where to establish it comes to the fore. Should it be offshore or onshore? If offshore, in the Caribbean or Europe? Or perhaps Singapore? These were some of the issues addressed at the Massachusetts Risk and Insurance Management Society's 25th Annual Spring Conference, held in March at Bentley College in Waltham, Massachusetts.

There are several fundamental factors to take into consideration when selecting a captive domicile, including location, infrastructure, legislation, taxation, economic and political stability, and the regulatory environment, stated Joyce MacRedmond, general manager for Rollins Hudig Hall (Ireland) Ltd. in Dublin. For example, what is the potential domicile's accessibility? Is it easy to get to physically In Vermont, as in some other domiciles, a captive's board of directors is required to hold at least one of its meetings in the domiciliary state, according to Leonard Crouse, the director of the captive insurance section of Vermont's Insurance Department in Montpelier. Whether or not this is the case, is the domicile at least easy to reach by telephone? Bear in mind that the parent organization's management would probably desire its captive to be geographically situated in a time zone that is convenient for communication, Ms. MacRedmond added.

Domiciliary Attributes

ANOTHER FACTOR in selecting a captive domicile is its infrastructure. Apart from the communications capabilities, does the domicile represent, in the words of Michael J. Bums, corporate attorney with Appleby, Spurling & Kempe in Hamilton, Bermuda, a "one-stop shopping jurisdiction?" That is, does the domicile encompass professional support services such as captive insurance company managers, actuarial, banking and investment services, and law firms? In addition, a well-educated and/or trained local work force could be advantageous, as would the local inhabitants' ability to speak the same language as the parent organization's staff, Ms. MacRedmond noted.

Understanding the relevant legislation and tax issues is also important, particularly for U.S. companies with international operations, Ms. MacRedmond noted. According to Mr. Bums, Bermudians tend to resist taxes on any level, personal or business. Reflecting this attitude, the Bermudian government issues a "tax protection certificate" to international businesses, which is good up to the year 2016 (and is periodically reviewed and extended) so that there is no corporate income or capital gains tax of any kind," he said. By contrast, captives domiciled in Dublin, Ireland, are subject to a 10 percent concessionary tax rate on corporate income, noted Paul Cronin, the manager of the financial services program of the Industrial Development Agency of Ireland, in Dublin. Therefore, a domicile's particular tax structure and laws concerning foreign exchange, profit repatriation and fund transfer must be taken into consideration. …

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