A Brief History of Captives

On both of these occasions, poor results in the insurance industry forced insurers to increase premiums, raise deductibles and tighten terms and conditions. On each occasion the increased costs and reduced cover gave forward-looking corporations the opportunity to address all of these issues through the formation of their own captives.

After each hard market and by the time that market conditions had eased, the captive approach had become an increasingly recognised method of self-insurance with distinct advantages to owners. Today there are estimated to be in the region of 3,500 captives in existence. Recognising the financial advantages of being able to provide captive domiciles, over the years a number of governments have passed legislation to allow captives to be established in their jurisdictions.

Smaller countries have the largest share of the captive market as they have the most flexibility in being able to legislate for captives and often are able to provide favourable tax climates. The main captive domiciles of today are Bermuda, Cayman Islands, Barbados, British Virgin Islands, Vermont, South Carolina and Guernsey. Being located within easy reach of the U.S. Bermuda enjoys the status of being the world's premier offshore domicile and over 50.00% of Fortune 500 companies' captives being domiciled there. The Cayman Island's are the second most popular domicile with Vermont third.