2006

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Number of Captives

4,936

per Captive Insurance Company Directory

Captive Insurance Companies Association white and red strip logo in black gradient box

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

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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.

Plant Cells Close Up

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.

A small black bucket laying on its side with coins and dollar bills spilling out of it

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), CICA would later follow up with more prescriptive guidelines for captive service providers.

2009

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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 NAIC. It didn't, though, and has remained mainly an information-gathering office.

Line Graph With Red Arrow Line Edging Upward

Captives Increase Despite Soft Market (2010–)

The number of new captives in the United States are 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

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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

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Number of Captives

6,125

per Business Insurance

A glass soda bottle with a plain red label with no visible writing and a red cap containing brown liquid

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

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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

Gavel and base behind three building blocks that spell the word TAX

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.

Bruce Wright

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

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Number of Captives

6,939

per Business Insurance

Late afternoon New York city skyline with the World Trade Center Twin Towers in focus

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.

Shape of the State of Delaware colored in its flag

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.

Group photo diverse doctors and nurses in a hospital in teal scrubs and white coats

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."

Out of a stack of labels with words and a magnifying glass focuses on the label with the word DATA

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

Gavel and Bible

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.

Multicolored Abacus

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

The Enter key on a computer keyboard is green and has the Washington State seal

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 statues.

Wooden blocks numbered 1 through 6 with white background

Number of Captives

6,337

per Per Business Insurance. This number excludes cells and series.

2019

Number of Captives

6,160

per Per Business Insurance

2020

COVID-19

Worldwide COVID-19 pandemic caused turmoil in insurance markets and rising rates, encouraging uptick in the formation of new captives, and an increased interest in expanding existing captives to cover additional risks.

Number of Captives

6,027

per Per Business Insurance

2021

Virtual Captive Coferences

Virtual captive conferences continued to replace in-person gatherings. Although the World Captive Forum showed over 1,000 registrations, a significant increase from previous years, other virtual conferences showed a decline in registrations from 2019, the last year of the in-person conference model, with some associations and domiciles opting to cancel their annual conferences completely.