Number of Captives
4,936
per Captive Insurance Company Directory
A Changing Captive Landscape
- Significant to Captives
- Major External Event
- Tax & Regulatory Matters
2006
Hugh Rosenbaum is awarded CICA's first Distinguished Service Award
Each year thereafter, another individual received the award, a practice that was imitated by other organizations and led to a plethora of such awards. Some, like Mike Lusk, won them from several different awarding groups.
IAIS Position Papers on Captives
In October 2006, the International Association of Insurance Supervisors (IAIS) brought out an Issues Paper on Regulation and Supervision of Captive Insurance Companies. It was directed toward insurance supervisors. Alan Fleming and Diane Colton, then regulators in Guernsey, influenced key sections of this document. In 2015, IAIS produced a further guidance paper, Regulation & Supervision of Captive Insurers. It didn't seem to matter much to captives, though.
2007
Number of Captives
5,120
per Business Insurance
XXX Captives
Triple X "captives" used by life companies are not really captives but are licensed as captives. Heavily criticized by some regulators (e.g., New York) and some journalists (The New York Times, for instance), these were developed in response to overregulation of life reserves.
Cell Captive Estimate
First estimate of the number of cells to be made indicates 1,700. This is a very low number that only counted those considered micro-captives. As we learned later, there are many more cells that actually numbered in the thousands.
CRADD Appears
Another captive directory created, this one by Pageant Media. It didn't last in hard copy, is only available electronically, and is considered incomplete by many.
IRS Withdraws Regulations Threatening Captives
The regulations would have eliminated loss reserve deductions and were a threat to most single-owner captives for domestic and electing offshore captives. Industry effort spearheaded by a CICA/VCIA coalition, with technical support from Tom Jones and Bruce Wright, succeeded in neutralizing this initiative (a good omen for future bad regulation proposed by the IRS).
2008
IRS Rev. Ruling 2008–15
The "cascading principle" for assessing Federal Excise Tax (FET), it would have tried to follow and apply a 1 percent FET to retrocessional reinsurance all the way to the last reinsurer. Considered unworkable and unenforceable, it lasted for 7 years. Then the IRS appeared to abandon it after losing the Validus case.
Reciprocal Risk Retention Groups (RRGs)
Used for nonprofits, notably medmal captives, they offer advantages over classic RRGs, plus offshore reinsurer models. Reciprocals began to be used by more medmal captives owned by nonprofit hospital systems.
Marsh Captive Benchmarking Report
The first annual edition reports on 800-plus captives (1,000-plus by 2015). Marsh, the largest captive management company worldwide, managed about 25 percent of captives, most of the very large ones. The Report's analysis and conclusions are therefore indicative.
Clive Thursby Predicts Regulation
"Risk-based regulation of capital adequacy is a myth," he said. Working for A.M. Best at the time, he was in a good position to know. Soon thereafter, Solvency II came on the scene, with a whole lot more risk-based regulation than even Thursby could have imagined.
Subprime Crisis
The crisis sparked turmoil in all major financial markets, lasting several years. Insurance companies, though, were relatively unscathed. For a few years, they gloated that they were more secure than major banks.
AIG Bailout
Its financial guarantee business almost bankrupted the whole company. Once the fronting company of choice, AIG's reputation dipped, even though its insurance operations remained solid.
IAIS Guidance Paper on Captives
The International Association of Insurance Supervisors (IAIS) followed up on its 2006 principles. The IAIS Guidance Paper on the Regulation and Supervision of Captive Insurers should be required reading for all supervisors in captive domiciles.
CICA Publishes Captive Best Practices Guidelines
A broad-brush of three topics (business alignment, corporate governance, and regulatory compliance), the Captive Insurance Companies Association (CICA) would later follow up with more prescriptive guidelines for captive service providers.
2009
Number of Captives
5,525
per Business Insurance
Reinsuring Pensions (2009–13)
The first non-US pensions reinsured to a captive; Coca-Cola does it for the United Kingdom, Ireland, Germany, and Canada. Could have been a door-opener for many others, but the practice was slow to catch on.
International Financial Reporting Standards (IFRS) Takes Hold Outside United States
The accounting standards gain support. Differences with the Financial Accounting Standards Board (FASB) are a cause for consternation among captive owners, as regulatory compliance becomes more and more onerous for captive owners, increasing costs.
Bermuda's Special Purpose Insurers (SPIs)
Bermuda created and started licensing SPIs as Class 3. By 2015, there were 75–80 of them. Not captives at all, they are short in duration and participate as sidecars or stand-alone property CAT reinsurers. Also, they are much more lightly regulated than captives and typically owned by hedge funds.
2010
Captive Premiums Reach $60 Billion
Per Swiss Re, but there's no indication how that figure was determined.
Federal Insurance Office (FIO) Created
Many feared FIO was supposed to take over regulation from the National Association of Insurance Commissioners (NAIC). It didn't, though, and has remained mainly an information-gathering office.
Captives Increase Despite Soft Market (2010–)
The number of new captives in the United States is primarily from mini-captives (831(b)s).
Healthcare Reform
The Patient Protection and Affordable Care Act (PPACA), shortened to "Affordable Care Act," began to have effects on healthcare captives as medical groups consolidated and gobbled up independent physicians. Healthcare captives grew substantially.
2011
Number of Captives
5,745
per Business Insurance
Dodd-Frank Act
On the section on premium taxes and who should pay them, there was a great deal of discussion about whether captives were affected or not; turned out not to be seriously affected. But, concern about self-procurement premium taxes began to mount.
2012
Number of Captives
6,125
per Business Insurance
Post-Retirement Benefits Reinsured to Captives
Coca-Cola sought approval for reinsuring US post-retirement benefits into its US captive. Finally cleared in 2016, it didn't spur a lot of other captive owners to try the same thing, though.
RIMS Conference
Only 7 domiciles exhibited, down from a dozen or more. The reason appeared to be conference fatigue and the high cost of exhibiting.
2013
Number of Captives
6,560
per Business Insurance
The New York Times Attacks Captives
Captives attacked as a "shadow industry" by New York's Insurance Commissioner, then the Times. The main thrust was against life insurance XXX "captives," but perception was of all captives. Industry sources reacted swiftly to neutralize, but it was too late.
NAIC Accreditation Standards
The National Association of Insurance Commissioners (NAIC) started accreditation standards for multistate reinsurer initiative. Originally intended for life insurance-owned "captives," the danger of captives getting caught up in NAIC restrictive regulation becomes real. The initiative was dampened following objections from captive-friendly state regulators. Many predict it will reemerge.
Non-Admitted and Reinsurance Reform Act
Part of Dodd-Frank for captives, it was mainly about premium taxes. Attention to self-procurement tax, which many had been ignoring, caused confusion and several captives to redomicile to state of home office.
2014
Favorable Tax Cases
In Rent-A-Center, Inc. & Affiliated Subsidiaries v. Commissioner, 142 T.C. 1 (2014), and Securitas Holdings, Inc. & Subsidiaries v. Commissioner, T.C. Memo. 2014–225 (2014), the uncorrelated risk entities argument was finally upheld. Ratio of premium to capital and surplus considered irrelevant to captives, and parental guarantees acceptable if not required by fronter.
FATCA Requirements Begin
In the Foreign Account Tax Compliance Act (FATCA), the US Treasury continued to attempt to collect information on foreign financial activities. The result was more paperwork for offshore captives and higher fees to managers. Even non-US captive owners of non-US captives must report US risk premiums. This was "last straw" for some captives that redomesticated to avoid it even though 953(d) electing offshore captives could avoid most of FATCA.
Captive Investment Portfolio Indices Launched
Launched by London and Capital, the portfolio indices specialized in investment management for offshore captives. Three indices, from low to higher risks, allowed captive owners to compare performance every quarter. This was another stone in the pile of developing captive standards.
NY State Tries To Tax Captives
Rolled back to status quo ante by industry efforts and led by Bruce Wright, the initiative would have required the income of a captive of a corporate group located anywhere that was doing business in New York (even if headquartered in another state), to be included in calculating the income for New York State income tax purposes if the premium income was exceeded by the investment income.
2015
Number of Captives
6,939
per Business Insurance
Terrorism Backstop Renewed
Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) passed. Captives could access it, since they were considered licensed insurance companies. When originally enacted as TRIA, the law was touted as a reason to form or own a captive. Few captives actually did, though. Marsh reported only 23 percent of its 375 US captives did. In the United Kingdom, Pool Re provided a similar backstop, with similar low participation by captives.
Study of Examination Costs Revealed High Cost
Some risk retention groups, not the largest ones, paid up to $350,000. Average costs revealed in this study for all captives were about $25,000. Some states no longer require them for single-owner captives.
Attack on BEPS
Organization for Economic Cooperation and Development (OECD) included captives in attack on basis erosion and profit shifting (BEPS), also known as "tax avoidance." Overly clever schemes for shifting massive profits from royalties and payment for intellectual property rights to tax-free places, such as Luxembourg and Bermuda, started with international pronouncements and then hit the headlines. Big names like Starbucks and Google were implicated. Captive spokesmen reacted vociferously, but it didn't help.
Micro-Captives (831(b)s) Rules Changed
Maximum increased from $1.2 million to $2.2 million, but acceptable ownership definition reduced interest in forming them. A lower number of micro-captives formed in 2015 in anticipation.
Micro-Captives (831(b)s) Included in IRS "Dirty Dozen" List
Captives, specifically micro-captives, were included in the Internal Revenue Service (IRS) "Dirty Dozen" scams to watch out for. Tax shelters were always on the list, and this year abusive 831(b) captives were included as scam tax shelters. The IRS repeated the warning in its 2016 list. The IRS has always had it in for captives in general, but this listing of 831(b) captives specifically showed how tax-planning abuse of captive insurance does not go unnoticed for long. Worse than inclusion on this "Dirty Dozen" list were listed transactions. In 2002, agent-owned captives (or producer-owned reinsurance companies, nicknamed "PORCs") were included as listed transactions but removed again in 2004.
Delaware Captive Count Up by 750
This was due to a change in statutes putting business units of series limited liability companies (LLCs) on the same footing as captives, further muddying the captive statistical waters since some analysts rejected the notion of including cells in counts of the number of captives.
2016
Internal Revenue Service (IRS) Notice 2016–66
Took aim at micro-captives (831(b) captives) as "transactions of interest," requiring disclosure by owners, managers, and material advisors within 90 days. Seen by many as an attempt to snuff out abusive use of micro-captives.
Solvency II Implemented
It affected captives domiciled inside the European Union. Europe's biggest domicile, Guernsey, is not inside the European Union, but fronting was affected for reinsuring EU risks to captives located outside the European Union.
US Healthcare Reform
"US healthcare reform (also called "Obamacare" by many) is stimulating a massive health provider consolidation trend, which means fewer but larger hospital-owned captives. In particular, this affects Cayman as the largest domicile for healthcare captives."
Number of Captives
6,618
Per Captive Review, the count includes 616 captives formed in 2016, of which 478 (78 percent) are in US domiciles. Most of the new US captives were small 831(b)s. The count still does not include cells. Business Insurance showed 6,700 at the end of 2016, which shows the kind of disparity that will always exist in these types of statistics.
2017
Avrahami v. Comm'r Decision
The case, Avrahami v. Comm'r and Feedback Ins. Co., Ltd. v. Comm'r, 149 T.C. 7 (2017), won hands down by the Internal Revenue Service, involved a micro-captive (831(b) captive) in an offshore domicile, whose facts, circumstances, and pooling mechanism were so irregular that the outcome was no surprise.
Number of Captives
6,500–6,700
Business Insurance counted just under 6,700 captives in 2017, a smidgen below its final 2016 count. For the domiciles that share such data, there has been an increase in terms of captive premium and total assets—in short, captives are taking on more business. By comparison, Captive Review reported its total number down to below 6,500, a decline from 2016, and the first reported decline since it began counting them. However, both counts are a significant understatement of the total number because they don't include cells, which is where a lot of the growth in captives is happening.
2018
Microsoft Capitulates
Microsoft gives in without appeal to a demand for premium taxes by Washington State on premium directly paid to its Arizona captive on its Washington risks. Most had thought that if rules laid down in the Todd Shipyards case were followed, regulators would not prevail in such demands for premium taxes. Captive managers are very concerned about whether the Washington regulatory initiative would spread to other states that don't have self-procurement tax statutes.
Number of Captives
6,337
per Business Insurance. This number excludes cells and series.
2019
Number of Captives
6,160
per Business Insurance.
2020
The Year the COVID-19 Pandemic Took Hold
Although it slowed down economic activity, it encouraged captive formation and an increased interest in expanding existing captives to cover additional risks.
Number of Captives
6,027
per Business Insurance.
2021
Number of Captives
6,074—as with prior counts, this excludes cells and series—
per Business Insurance.
A Big Year for Captives
The hard market encourages significant increase of new captive formations. However, the uptick in numbers, especially in those domiciles reporting cells in their number of new formations, is masked by many domiciles reporting closing of smaller captives.
Virtual Captive Conferences
Virtual meetings become the norm for video conferences, another holdover from the pandemic. This facilitation contributes to the increase in new captives as well.
2022
Number of Captives
6,191—as with prior counts, this excludes cells and series, per Business Insurance.
Based on the number of active captives licensed in a domicile, Vermont becomes the top captive insurance domicile in the world. The data shows Vermont at 639, Bermuda at 633, and the Cayman Islands at 559 captives at the end of 2022.
2023
Number of Captives
6,161—per the Business Insurance 2024 Captive Managers and Captive Domiciles Rankings + Directory that excludes cell and series captives, which have gained popularity in recent years.
For both large and middle-market insurers, captive insurance continues to be normalized as a strategic, long-term approach instead of an "alternative" or transactional arrangement.
Expansion of Cell Captives in a Challenging Property Market
Continued difficulties in the property insurance market led many organizations to place their coverage in cell captives. This strategy allowed companies to quickly access reinsurance and manage costs effectively. The trend highlighted the growing role of cell captives in navigating the tough property landscape, with many organizations eventually transitioning to wholly owned captives as they became more adept at managing their risks.
Proposed Micro-Captive Regulations Stir Industry Concern
The US Treasury and Internal Revenue Service proposed new regulations targeting micro-captive arrangements, causing widespread concern across the industry. Despite receiving 110 comments from various stakeholders and holding a public hearing, these regulations have not yet been finalized, leaving the future of proposed tax filings related to many micro-captives in limbo.
Court Affirms IRS Authority in Captive Insurance Case
The US Court of Appeals for the Third Circuit ruled that the Delaware Department of Insurance must comply with an Internal Revenue Service (IRS) subpoena for documents related to captives taxed under section 831(b) of the Internal Revenue Code. This marked a significant precedent, as it was one of the first times a regulator was compelled to provide such confidential information.