US companies are increasingly choosing to set up captives "onshore" in US states, particularly Vermont, rather than go offshore to Bermuda or elsewhere.

And the trend is so significant that Vermont is now the closest rival to Bermuda for attracting large companies belonging to the Global 1500 (G1500) group.

That worrying news for Bermuda is countered in the same Aon report by evidence that there is still a vast number of large companies — more than 50 percent of the G1500 group (defined as the world's 1,500 biggest companies) — that have not yet created a captive at parent level.

If Bermuda can capture a sizeable share of that untapped market, it will be able to maintain its global captive dominance.

As of February this year, Vermont had 201 captives from the 1,061 created by members of the G1500 group, compared to Bermuda's table-topping 277.

Vermont, known as the "Green Mountain State" has a population of around 630,000 and is tucked away next to the Canada border between the states of New York, Massachusetts and New Hampshire.

It is comfortably the leading state for US companies to set up captive companies and significantly is enjoying the highest percentage growth of home-spun captives.

Many US companies are choosing to keep their captives on US soil rather than offshore.

"In recent years the gap between onshore and offshore captive growth in the Americas has narrowed and continues to do so. The trend for large US companies is clearly to favour establishing a captive onshore in the US," reports Aon's Global 1500: A Captive Insight.

"Around two thirds of US parented captives established in the last five years were based in US onshore domiciles."

Vermont is the dominant state, although Hawaii, New York, Arizona and South Carolina have started to see captive growth also.

The reason for US companies seeking to set up US-based captives is, the report suggests, because of the "perception that larger companies in the US are favouring onshore domiciliation because of perceived greater scrutiny over taxation and regulation, and growing corporate governance requirements.

"It may also simply reflect the growing number of US onshore state domiciles and the ease of establishment."

A similar trend to "go local" is emerging around the Asia/Pacific market, the Aon report shows.

Statistics reveal Bermuda dominating as the domicile of choice for G1500 captives with 26.1 percent of the action, next to Vermont's 18.6 percent and Luxembourg's 10.5 percent, the numbers tail off with the likes of Cayman having only a 2.6 percent of the large company captives.

During the past five years Vermont has attracted nearly half of all US parented captives established, some 61 compared to the 23 that were set up in Bermuda. In 2004 and 2006 Bermuda attracted just two US captives in each of those years and only one in 2005.

Bermuda's biggest growth as a captive domicile was between 1995 and 2000, it slowed to a 21 percent growth over the next five years compared to Vermont which grew 60 percent over the same period.

Speaking to The Royal Gazette, Aon's Philip Barnes, who is also the current chairman of the Bermuda Insurance Management Association, said it has to be remembered that Bermuda is a mature domicile for captives and its high "critical mass" of captives means its progress in terms of percentage increases attracting new businesses will generally be overshadowed by jurisdictions with lower numbers of captives who are doing well.

Back in 1980 Bermuda had 48 captives belonging to the G1500 group while Vermont had only two.

Aon's report was primarily to research and add validity to the view that there are a great number of G1500 companies yet to set up a captive — some 53 percent — and that is potential business that Bermuda is well placed to attract.

"Bermuda is the oldest and most established domicile and we have the insurance and reinsurance companies here on the doorstep. We think that Bermuda does have a very good selling point," said Mr. Barnes.

Andrew Tunnicliffe, group managing director of business development at Aon Global Risk Consulting said: "The captive market is set to grow further. G1500 companies currently have 1,061 captives. I believe this figure will rise to at least 1,200 by the year 2010."

[bul] Mr. Barnes pointed out that a news article originating from London suggested the Aon report had cited Bermuda's work-term permit limits as a reason for captives being set up elsewhere. He said this was not correct. There is no mention of the work permit issue in the 27-page report.