A serious place for captives to innovate

After some 35 years as a captive insurance domicile, Hawaii’s captives professionals are no strangers to changes in the industry—its evolution and the innovation taking place. But it remains cautious on moving too fast, keen to protect its reputation as a serious place to do business, something valued by its core clients based in the US and Japan.

That is the caution offered by Paul Shimomoto, president of the Hawaii Captive Insurance Council, offering an overview of the domicile’s recent growth and continued attraction to clients. He notes that while the domicile has not seen the strong growth in new formations others have seen, many of its incumbent captives grew their programmes significantly last year. And 2023 has started very well for new formations, with five in the first three months of the year and a total of 11 so far this year.

“During the course of 2022, many of our businesses expanded their programmes and wrote additional lines of coverage; some also underwent significant structural changes to accommodate future growth,” he says. “The activity and growth within the domicile were noticeable on that front more than new formations.

“That said, 2023 is starting off much better in terms of new formations. At mid-year, we were close to matching the total formation numbers from last year. That’s positive news, which would suggest we’re on track to double the number of formations we did last year.

“That reflects well on us and what captive owners are looking for from our domicile: strong regulations, experienced regulatory staff able to understand their needs and a long term partner to make their business strategies a reality. Such companies are looking for a domicile that has the ability to be progressive and innovative, but at the same time maintain its regulatory reputation and stability.”

Shimomoto cites the domicile’s very “strong bench” of service providers, many of whom have been involved with captives for decades.

He notes that it is significant that many of these individuals are also very experienced in dealing with Japanese entities. Many are bilingual and familiar with the cultural, business and regulatory environment in both countries. “Japan is clearly an area where we have a significant advantage over other US jurisdictions,” he says.

He says the geographic proximity of Japan is important, as well as its strong cultural ties. “With these strong connections, Japan has increasingly stepped into the captives world with both feet; we are the perfect location.

“We’ve seen that change. Japanese companies have been better educated, and their demand for captive insurance alternatives and solutions is similar to that of the US maybe 15 years ago.”

He notes there are 40 Japanese-owned captives now based in Hawaii—and he suggests more will come. “We’ve been seeing increased demand. Obviously, in the US, it’s different—US companies have 40 US jurisdictions to evaluate. The competition is a lot tougher. But Japan remains a growing market for us.”

Steady as she goes

The Hawaii Captive Insurance Council continues to explore ways to assist the domicile with managing future formations.

“With future growth, there will be increasing demands on our regulators to maintain their standards for monitoring and regulating those companies,” Shimomoto says. “We believe flexibility in our legislation can be implemented that encourages growth and improves efficiencies and responsiveness; while at the same time, not sacrificing regulatory standards. We do believe this is achievable.”

Not that the domicile wants to grow too much, too quickly. “We are very careful about growing too fast or growing in the wrong way. We want to do things the right way, to be sensible, practical, and reasonable, but we also want to be forward-thinking and innovative as that will continue to make us an attractive domicile,” he explains.

“The location and what Hawaii has to offer sells itself, as it always has. But we’d like more people to understand and realise that Hawaii is a serious place to do business, particularly with respect to captive insurance.

“We’ve been in the business for 35 years now. We know what we’re doing; we’re here to stay and hoping to continue our march forward,” he concludes.