“Hawaii’s choice to invest in the captive insurance industry nearly four decades ago has proved itself many times over.”
Paul Shimomoto, Hawaii Captive Insurance Council

With much of the world in lockdown and international travel all but impossible, COVID-19 has created an environment that is not conducive to the formation of new businesses. Many have failed, and many more are still struggling to survive. Yet, Hawaii continues to see interest in the market for captive formations.

The human and economic cost of the pandemic has been astronomical, and concern about the welfare of colleagues and business has crowded out many other concerns over the last 18 months. Despite these conditions, hardening insurance markets have spurred captive insurance growth rather than inhibiting it. And, as the world’s vaccination efforts continue and social restrictions around COVID-19 ease, there is optimism that this could result in even more new captive formations in Hawaii and around the globe.

Hawaii licensed nine captives in the first six months of 2021. One of these was from Japan (via its European subsidiary), with the rest coming from the US. Historically, formations in Hawaii are backloaded towards the second half of the year. In 2017, for instance, Hawaii matched a domicile record when it licensed 30 new captives, with most of them forming in the second half of that year.

With our performance through June 30 of this year (COVID-19 disruption notwithstanding), we are cautiously optimistic that 2021 will prove to be one of Hawaii’s best years for new formations.

The only way is up

Japan is still a nascent market for captive insurance. It has many large and reputable companies that could benefit from captive insurance, but more time and education are needed.

Every year for more than two decades, the Hawaii Captive Insurance Council has been educating Japanese company executives and insurance professionals about the benefits of captives. Although those efforts stalled over the last 18 months due to COVID-19, we have experienced steady, solid interest from the Japanese market since 2005.

In the early days, our educational sessions were small and intimate; now they are standing-room only events in large hotel ballrooms. We have also developed deep relationships with a growing number of insurance consultants, tax and other service providers in Japan, and there is no doubt that the captive opportunity for Japanese companies has gained significant traction.

We hope to resume our educational sessions in Japan in spring 2022, and are very confident there will be high interest and attendance when that happens.

Hawaii’s ties with Asia are inherently organic. Geographically, it enjoys equal proximity to Asia and the US mainland. Also, many of Hawaii’s inhabitants are descendants of Asian immigrants from countries such as Japan, Korea, China and the Philippines.

Thus, it is no surprise that persons of Asian descent make up the largest ethnic demographic in Hawaii—and many of our residents are bilingual. For our Japanese captive owners, these are significant advantages and benefits that other domiciles simply cannot replicate.

A shining model

Japan’s pattern of captive formations has largely mirrored what we have seen in the US captive market over the last 20 years. We have seen a few very large multinationals form captives, which has naturally encouraged others to follow suit. But over time, as education and comfort with the concept have increased, mid-sized to smaller companies are more actively forming captives. The size and scale of the parent company often affects the speed with which captives are formed.

Formations for US-owned captives still outpace new formations from Japan. Most US companies that launch captives in Hawaii are based in western states such as California, Oregon and Washington, but Hawaii also has captive companies whose parents are in the Midwest and the east coast.

Although a sizeable majority of US states are captive insurance domiciles, few can match Hawaii’s history, reputation and experience in the captives space. We have been doing this for nearly 40 years. Companies appreciate and seek out domiciles that have all these traits, but also look to places such as Hawaii that have dedicated infrastructure, resources and personnel to support the industry.

Simply passing legislation and saying you are “open for captives business” does not mean you can appropriately regulate and support the industry. It takes significant investment and buy-in from the public and private sectors to be truly effective.

Hawaii’s choice to invest in the captive insurance industry nearly four decades ago has proved itself many times over—our captive insurance industry is a shining model of economic diversification for our state.

Hawaii’s natural beauty and charm cannot be dismissed. If you have to travel for work, why not travel to Hawaii? With direct flights to Oahu, Maui and the Big Island from countless US mainland and Asian cities, getting here is easy and efficient. Hawaii has always battled the perception of being a boondoggle destination (as have Bermuda, Cayman, etc), but as our domicile has grown and matured, that perception has largely disappeared.

Many of our captives have assets worth hundreds of millions of dollars, and some are billion-dollar enterprises. Substantive work definitely gets done here; just ask any of those captive owners.

Paul Shimomoto is a partner at Goodsill Anderson Quinn & Stifel, and president of the Hawaii Captive Insurance Council. He can be contacted at: pshimomoto@goodsill.com

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