Captive Insurance Domiciles

Featured Captive Domiciles

What Is a Captive Domicile, and How Do You Choose a Captive Domicile?

A captive domicile is the state, territory, or country that licenses a captive insurance company, and has primary regulatory oversight over that captive insurer. A captive domicile may or may not have special purpose legislation under which it licenses special purpose insurers referred to as "captives." Selecting a captive domicile is one of the first issues to consider when forming a captive insurer. There are many captive domicile choices, and the list is growing as more states and countries seek the economic benefits that come with building a solid infrastructure of supporting financial services. The list below identifies various captive domiciles around the world.

US Captive Domiciles

Non-US Captive Domiciles
  • Abu Dhabi
  • Anguilla
  • Australia
  • Bahamas
  • Bahrain
  • Barbados
  • Bermuda
  • British Columbia
  • British Virgin Islands
  • Cayman Islands
  • Cook Islands
  • Curacao (Netherlands Antilles)
  • Cyprus
  • Denmark
  • Dubai
  • Germany
  • Gibraltar
  • Guernsey
  • Hong Kong
  • Island of St. Christopher (St. Kitts)
  • Ireland
  • Isle of Man
  • Jersey
  • Labuan
  • Liechtenstein
  • Luxembourg
  • Malta
  • Mauritius
  • Micronesia
  • Nevis
  • New Zealand
  • Panama
  • Qatar
  • St. Lucia
  • Singapore
  • Sweden
  • Switzerland
  • Turks & Caicos Islands
  • Vanuatu

Active Captive Insurance Domiciles

While comprehensive captive domicile lists may vary across sources, the above list includes locations that provide a platform for captive insurance.  As such, not all of the captive domiciles listed above have active captives. For instance, at the end of 2018, there were 30 US states with active captives managed in their domiciles, however, there were over 35 US states with captive laws.

Each year, Business Insurance surveys captive domiciles around the world and ranks the world's largest captive domiciles by the number of captives licensed in the domicile. The captive counts for the end of 2018 are provided by Business Insurance

Disparity in such statistics will always exist and estimates of the number of captive insurance arrangements are somewhat misleading because different captive domiciles may count certain types of captives that other domiciles do not. Depending upon the arrangement, an insurer included in one domicile's captive count may be excluded from another captive domicile's count. In addition, protected cell captives can have individual cells numbered in the hundreds or more, which may or may not be included in total counts.

Regulatory Review

A prospective captive's business plan is most likely to succeed if the captive is formed in a domicile with regulators that can understand the proposed program and possibly provide constructive comments. Among other considerations, regulators should not require captive insurers to hold the extraordinary amounts of capital required of an insurer that sells insurance to the general public. However, regulatory requirements and other domicile-related details vary significantly with the jurisdiction selected.

Review by Panel of Experts

Some captive domiciles rely on a panel of industry "experts" to review a captive's initial business plan. The review board is generally composed of insurance, legal, accounting, or actuarial professionals who may also be principals in captive management firms. Those structuring innovative risk financing programs therefore have to consider whether a captive domicile’s application review process reveals too much information to business competitors.

Review by Paid Actuarial Consultants

The preferred alternative may be to select a captive domicile where paid actuarial consultants conduct the license review process. In these domiciles, a higher level of scrutiny may be given to the business plan's assumptions. Successful captive domiciles have regulators and professional reviewers that approve or reject a license application based on sound business sense and experience in insurance company operations.

Regulatory Oversight

There are four basic approaches to the regulatory oversight of captives. Some captive domiciles use a combination of these methods.

Solvency, Liquidity, and Profitability Ratios

The first approach to regulatory oversight uses three basic types of ratios, with legally defined asset classes for satisfaction of the ratios. The advantages of regulating captives by ratios is that the rules are clear to everyone, and they are easy to administer.

  • Solvency Ratios. These monitor whether the captive is adequately capitalized to absorb adverse development of loss reserves. They look at the amount of capital in relation to reserves or premium in relation to capital.

  • Liquidity Ratios. These look at whether the captive will have assets available to pay losses. For example, they look at liquid assets in relation to gross reserves and the net retained risk in relation to premium.

  • Profitability Ratios. These monitor the amount of loss, loss adjustment expense (LAE), and operating costs in relation to premium and investment income.

Filing a Plan of Operations

The second method of regulatory oversight does not use ratios. A plan of operations is filed, and the captive's managers must then ensure that the captive operates in accordance with that plan. The captive's managers must obtain prior approval for anything that could be deemed a material change to the plan and report everything else. The relationship between the captive regulators and the captive managers becomes very important, and many captive managers are in constant communication with regulators.

Regulation by Examination

Instead of ratios, or relying on the expertise of captive managers as a way to keep regulators informed of any potential regulatory issues, some captive domiciles conduct periodic examinations to ensure compliance with domicile laws. This provides a greater degree of regulatory flexibility than the ratio approach, but it adds to the cost of doing business. To have regulators adequately trained to examine the sophisticated operations of many captives, insurance departments have to hire qualified staff. Fees and taxes must be collected to offset regulatory expense, thereby reducing some of the benefits of operating in the alternative insurance marketplace. There is always a danger, once a government bureaucracy has been created, that it will cease to serve the regulated and instead will take on an existence and purpose of its own, generating fees to survive.

Monitoring Based on the Insured's Sophistication

The key to efficient captive regulation lies in determining which captive owners and insureds need regulatory oversight and which do not. Under a truly risk-focused regulatory approach, provided captive insurance is used by sophisticated insurance buyers, and provided background checks have revealed no history of criminal activity or regulatory problems with the captive's shareholders, participants, or service providers, there might be no need for captive examinations, nor any requirement for detailed business plan filings. This approach would also eliminate the need for compliance with arbitrary ratios, which in many cases do not ensure solvency and in some cases lead to an inefficient use of capital. However, the less sophisticated insured—one that does not have the financial ability to survive the failure of its insurance company to pay its losses—needs regulatory protection.

The key differences in captive laws that should be considered in selecting a captive domicile are summarized below.


Refers to the minimum initial amount of money required to commence operations. These requirements vary widely from jurisdiction to jurisdiction. Some locales allow part of the capitalization to be in the form of letters of credit.

The minimum written premium-to-surplus ratio allowed by captive domiciles varies significantly (e.g., from 1:1 to 10:1, depending on the location). A lower minimum premium-to-surplus ratio means less money (surplus) will support a higher volume of insurance written. This is especially important at the early stages of captive formation when funds may be limited.

Certain jurisdictions prohibit various types of investments; others mandate specific maximum percentages of funds that can be placed in a given investment vehicle, while others have more or less restrictive definitions of what constitutes "admitted assets."

Stipulate the types and frequency with which reports must be filed with local regulatory authorities. Some domiciles require much more frequent and detailed reports than do others.

A few domestic domiciles require captives to post loss reserves based on minimum loss ratios. For example, captives writing workers compensation insurance may be required to post initial loss reserves of no less than 65 percent of written premiums.

Domiciles vary as respects the taxability of total written premium, underwriting income, and investment income. Some domiciles even offer certain tax credits. Also, the need to pay federal excise taxes, a key financial consideration, varies from jurisdiction to jurisdiction.

Many domiciles levy an annual assessment on all captives operating within their jurisdictions.

Varies widely from domicile to domicile. In the past, onshore domiciles generally were stricter than their offshore counterparts, but this is changing as major U.S. domiciles are more aggressively trying to attract captives to their states.

Competition between domiciles has dramatically reduced the amount of time required to gain regulatory approval.

Certain jurisdictions require that rates and policy forms first be submitted for approval; others specify that only certain types of coverage may be written; still others prohibit the writing of "unrelated" business except through reinsurance pools.

Often influenced by where a captive is located. Naturally, reinsurers and fronting insurers prefer domiciles that offer the most growth potential for their operations, such as those with the most captive-friendly regulatory environment.

Include items such as a stamp tax (for offshore domiciles), registration fees, and incorporation expenses. In the aggregate, these amounts can vary considerably, which significantly affects the cost of forming a captive and making it operational.

This article is based on information in Chapter 11 of Captives and the Management of Risk, Third Edition, by Kathryn A. Westover, section IV. of Risk Financing authored by Steven T. Bird, and Chapter 5 of Construction Risk Management, all three published by International Risk Management Institute, Inc.

Copyright © 2018 International Risk Management Institute, Inc.