Selecting the domicile for your captive is a very important decision that should never be made in a vacuum. Many factors that can have a significant impact on whether your captive will (or even can) meet your risk-financing needs, must be considered. A detailed analysis of the many nuances of the wide variety of domiciles is beyond the scope of this book; however, this chapter will raise some of the most important issues anyone making a domicile choice should consider with competent professional guidance. Generally, domicile considerations align under three categories:
Although the legislation in the leading domiciles may be similar in many ways, there are some differences that may be very significant to any one particular organization so it’s very important that you are getting good advice from an advisor who has no special interest in any one particular domicile.
One of the biggest initial considerations for companies evaluating different domiciles for their captive insurance company is how much capital and surplus will be required. When a company sets up a captive, it is required to “fund” it. Every insurance authority wants assurance that captives formed in their domicile will be able to meet the financial requirements of the risks they are underwriting. They therefore require evidence that the captive can pay claims made against the policies that are written.
In addition to the capital requirement, domiciles have surplus minimums. Surplus is an amount that is additional to what the captive needs to meet its financial responsibilities for policies it has underwritten. It represents additional capacity for the captive to write new policies.
Each domicile has specific guidelines for minimum capital and surplus. Based on those guidelines, one domicile may emerge as a better fit for a company’s particular risk profile. A careful reading of each domicile’s captive law is important.
When you are evaluating domiciles for your new captive insurance company, infrastructure is one of the most important immediate and long-term considerations. It is important to recognize that simply enacting legislation that recognizes a captive insurance structure does not make a domicile appropriate for each captive’s needs. The domicile must have adequate infrastructure in place to support that legislation, and the support must be adequate for your particular needs. This is increasingly important to understand as more and more domiciles enter the captive insurance business and some may not be fully prepared.