Interest is still high among corporations in setting up captive insurers in Bermuda, despite growing competition from rival domiciles in the US.

But competition in the industry is heating up, as more US states pass laws aimed at making themselves domiciles of choice for corporations establishing captives.

That became clear to Roger Gillett, chairman of the Bermuda Insurance Development Council, when he was greeted by a standing-room-only audience of 72 risk managers at a meeting near Philadelphia last month, when he went last month to talk about incorporating and operating captives on the Island.

Mr. Gillett is the chairman of the Bermuda chapter of the international Risk and Insurance Management Society (RIMS). He was asked by RIMS’ Delaware Valley chapter to hold the workshop-style seminar, entitled “Financing Retained Risks”.

Interest from Pennsylvania in setting up captives in Bermuda is sufficiently strong that Mr. Gillett has been asked to return to the state on April 10, when he will stage a similar meeting in Pittsburgh.

Captive insurance companies are partially or wholly owned entities, established to provide insurance to their owners and have been a staple of the Bermuda insurance market for decades.

In recent years, certain US states, including Hawaii, South Carolina and Vermont, which have set themselves up as captive domiciles, have attracted a growing share of new business.

David Riggs is the vice-president of the Delaware Valley chapter of RIMS and organised Mr. Gillett’s visit.

The first attempt to stage the meeting had been in January, when 70 people registered and despite a severe snowstorm, 35 of them braved the elements to attend. The meeting was rearranged last month by popular demand.

He said risk managers, who are responsible for buying insurance for their companies, saw both advantages and drawbacks in choosing Bermuda as their captive domicile. The Island’s insurance expertise was a major plus, but work permit time limits were considered a negative factor.

“The meeting was held to give general information to risk managers about the benefits of forming captives in Bermuda,” Mr. Riggs said. “I believe 72 risk managers attended.”

Competition in the captive market was growing, he said, and risk managers would need solid business reasons for choosing Bermuda over US-based domiciles.

“Bermuda has a great infrastructure for the captive industry, but places like Vermont have got a lot of that infrastructure too,” Mr. Riggs said.

“More and more states are pursuing programmes and initiatives to lure captives to their state. Hawaii and South Carolina are growing rapidly.”

Mr. Riggs knew of one risk manager who was in the process of forming a captive in Arizona and felt that more states would attempt to get their slice of industry in coming years.

Some risk managers had problems with accessibility to the Island, when compared to onshore domiciles, Mr. Riggs said.

“Turnover is also an issue,” Mr. Riggs added. “What I mean is that Bermuda has the six-year rule, meaning that companies have to change their foreign staff.

“My own company (Asplundh Tree Expert Company) has a captive in Bermuda. We have had to change key people working there. And certainly, people could view that as a deterrent to choosing Bermuda.

“But work permit issues would rank behind tax implications and infrastructure on the list of deciding factors.”

Mr. Gillett said he had been pleasantly surprised by the level of interest at last month’s meeting, indicated by the depth of questions put to him, as well as by the numbers attending.

He added that there had been “considerable debate about the relative advantages of Bermuda and US domiciles”.

Mr. Gillett said Bermuda could not afford to ignore the captive market and had to stay proactive to hold down its lead role in the industry.

“We are still the largest captive domicile in the world, by far,” Mr. Gillett said. “But competition is increasing because of all the states which have passed domicile legislation.

“Every US company has a captive domicile state close by. It’s very difficult to differentiate, but our big differentiator is the Bermuda market. Places like Vermont and South Carolina have many lawyers and banks which can service captives, as does Bermuda, but we also have a great depth of expertise in the industry.”

And Mr. Gillett warned against complacency. “We must put effort into growing our captive market. It would be easy to neglect it, as we now also have a large insurance and reinsurance market, but that would be a mistake.”