“Authorities are working hard to make themselves available and approachable.”
Solomon Teague

It has been another remarkable year for the US captive insurance industry, and I am proud to present the latest issue of US Focus, an issue that is packed full of interesting contributions. It is a huge issue which I believe does justice to the many fascinating developments that are currently taking place in the captives industry, in particular in the US market.

In the foreword for this publication in 2020 I spoke of a buzz around the industry. Most of the factors that contributed to that buzz are still in place: the market continues to harden, with prices increasing across many lines, and coverage still difficult to get on attractive terms, in some instances, in the commercial market.

The hardening market has always been the biggest catalyst for growth in the captives sector, and so it is proving again. US domiciles are reportedly seeing a lot of interest from companies looking to launch new captives, or expand the activities of existing ones.

A number of US states have really upped the ante in their efforts to entice captives in recent years. As our article on this subject in the following pages makes clear, they have forced captive owners to think long and hard about why they might choose to domicile their captives offshore, in the traditional captive insurance heartlands of Bermuda and Cayman.

Tax regimes have been refined to make them extremely competitive with anything that is offered elsewhere. Regulatory regimes have been adapted to address any pain points that captives may have experienced in the past when based onshore. Authorities are working hard to make themselves available and approachable, demonstrating their flexibility and their eagerness to work with the industry to solve any problems they might have. That is great news for the industry as a whole: competition drives up quality for everyone.

Twists and turns

There have been interesting developments at the US federal level too. As the excellent article by RH CPAs in this issue explains, President Joe Biden presented a new tax plan in 2021 that has some interesting—and positive—implications for the captives industry. Intriguingly, it looks especially advantageous for captives that have made the 831(b) election.

Speaking of which, no magazine about the US captives industry would feel complete without an article outlining the developments in the world of micro-captives. Readers will not be disappointed: we analyse the implications of the latest instalment of the IRS v micro-captives soap opera, in which the US Supreme Court allowed a challenge to the infamous Notice 2016-66. It sets the stage for another hugely important and consequential court battle that will determine whether Notice 2016-66 should be enjoined.

While these developments in Washington DC caused considerable cheer across the industry, events on the other side of the country, in the State of Washington, were more controversial. In May Washington State Governor Jay Inslee signed in legislation providing a framework for captive insurers doing business in Washington. In essence, the new rules will allow the state to collect taxes from captives operating in the state, even if they are domiciled elsewhere.

Supporters of the measures point out commercial insurers have been taxed this way for years. Detractors say it shows a complete lack of understanding of how the captive insurance industry works. Both sides acknowledge it could set a precedent for other states that are not themselves captives domiciles.

Again, there will be plenty more twists and turns in this story in coming months.

There is no doubt that things are hotting up in the US captive insurance market, and there is nowhere better to keep abreast of developments than in the pages of US Focus 2021. We hope you enjoy the issue.

Solomon Teague, editor, Captive International

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US FOCUS 2021