Jurisdiction comparison

The first table relates to captive domiciles in Europe with reference to Bermuda, Vermont and Nevada included for additional comparative purposes. Table 2 looks at the approaches taken by France, Germany, Italy, Spain and the UK. In addition, below is some additional explanation of the rules that domiciles apply in specific areas.

Assets

Asset classes vary significantly. Many captive owners want to know what types will be acceptable to regulators. This varies as to whether it is for minimum capital and solvency margin requirements or for general purposes. Typically, where the asset is being held to meet a regulatory minimum, the allowable asset type will be more restrictive.

Many captive domiciles, particularly those in the EU, will require that the minimum capital be held as cash. This means that it is held in an overnight deposit account, general bank account or similar such arrangement. Further, in order to reduce the counterparty risk, they will require that accounts exist with several such banks, for example at least three. However, offshore domiciles tend to be flexible in this regard and this can help reduce the administrative burden of operating several accounts.

For assets held above the regulatory minimums, the choice of assets widens. This would include equities and bonds, investment trusts and the like. Also, loan arrangements may be made back to the parent. This latter category invariably requires the approval of the regulator. Other assets classes may also be permissible. These can include property, receivables, debt and the like.

In assessing a request for alternative asset classes or at least those which are less ‘tradeable’, the regulator will always give due regard to the nature of business underwritten in the company as well as the total amount of excess capital held.

Actuarial, audit

“Balancing regulatory requirements with operational costs can be a fine balance for smaller captives.

All reputable domiciles require that a captive is audited at least once a year. This is clearly good governance. Some domiciles will allow the first audit to cover a slightly extended period. Equally, some domiciles will allow for a temporary extension on the filing of audited accounts. However, as with the main shareholder, the prompt filing of audit returns reflects a well managed company in control of its financial and risk records.

Some domiciles require that a captive have an actuarial review undertaken every year. Many limit the requirement based on the nature of business underwritten, for example general liability, professional indemnity. Balancing regulatory requirements with operational costs can therefore be a fine balance for smaller captives. Equally, it is important for captive owners to appreciate the need to be consistent in their reserving approach.

Disclosure, corporate governance, anti-money laundering

Increasingly, domiciles provide more information about the captives established in the domicile. For EU domiciles, locations such as Dublin publish detailed information about each captive which is freely available. In Luxembourg and Malta, the filed report and accounts for each captive can be obtained for a nominal fee.

For offshore domiciles, the level of public information is much reduced. In some cases, it is limited to who the immediate owner of the captive actually is. However, the level of transparency demanded of captives from a regulatory standpoint, is in high in all the major domiciles. Indeed, on-site investigations are increasingly common to determine that all records are appropriately maintained and that the captive is operating within its licence.

Many domiciles are seeking to formalise corporate governance procedures. This is occurring through ongoing risk assessments and/or the need to nominate someone with this specific responsibility. Given the scale, nature and complexity of individual captives, it is a fine balance between introducing an effective, business improving process and an additional bureaucratic hurdle.