Bermuda Shorted as More U.S. Captives Form Onshore, Aon Reports

June 27, 2007

Bermuda’s reign as the undisputed global leader among captive domiciles is being challenged by U.S. companies that are increasingly leaning toward onshore domiciles for their captive insurance companies.

That is among the findings of Aon’s new Global 1500 (G1500) research report on captives and their owners.

The latest Aon report indicates that the gap between onshore and offshore captive growth in the Americas has narrowed. While Bermuda remains the domicile of choice for the G1500 (with over a quarter of all G1500 captives), Bermuda’s biggest growth as a captive domicile was between 1995 and 2000. Between 2000 and 2005 Bermuda grew by just 21 percent, whereas Vermont grew by 60 percent.

Large U.S. companies clearly more often favor establishing an onshore U.S. captive — about two-thirds of U.S. parented captives established in the last five years have been based in U.S. onshore domiciles.

Among the domiciles within the U.S., Vermont has been and continues to be the location of choice. The Green Mountain State has more than four times the number of G1500 captives as all the other U.S. onshore domiciles combined. Hawaii is the next most popular with 20 captives, followed by New York, Arizona and South Carolina.

Findings show that U.S. companies account for more than a third of the G1500 and account for nearly half of all captives owned. Of the ten G1500 companies with five or more captives, seven have their parent companies in the U.S.

The research also highlights that contrary to popular belief, the captive market remains underdeveloped with over half (53%) of the current global 1500 companies not currently owning a captive. The outcome is that insurance buyers within the world’s largest companies are failing to achieve a better quality of cover as well as cost savings of typically 10-15%, through economies of scale, efficient use of capital, leverage and more efficient use of senior management time.

Sectors missing an opportunity include manufacturing and communications, where 55% and 62% respectively do not have captives. Even sectors that have greater take-up still show room for growth. For example, 44% of the largest financial and insurance companies and 39% of mining companies still do not use captives.

Andrew Tunnicliffe, group managing director, Business Development, Aon Global Risk Consulting, said the report shows that growth in the captive market is not slowing down — there is still a long way to go before companies are truly managing risk effectively.

“The message to some specific sectors such as financial services, communications and retail trade is clear — you are missing out on significant cost savings by not using captives as part of your risk management program. The captive market is set to grow further. G1500 companies currently have 1,061 captives, as the benefits of captives become clear, I believe that this figure will rise to at least 1,200 by the year 2010,” Tunnicliffe said.

Source: Aon

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