AMS Financial Group
AMS Insurance director Derek Lloyd discusses the reasons behind captive formations, re-domiciliations and liquidations
How often are captives re-domiciling these days? Is it common? And which domiciles are they gravitating towards?
In our experience to-date, captive re-domiciliation is not commonplace. One AMS Insurance client in 2014 elected to re-domesticate its captives to a US state for a combination of reasons, while one or two others are presently looking at their options this year, although not one has commenced the process so far.
Equally though, we continue to see a movement of business from other jurisdictions to the international finance centres.
In your opinion, why do re-domiciliations typically happen?
I believe that several factors drive the movement of captives from one domicile to another. Some of these factors apply in tandem, while others may be specific to the captive itself and the current or new domicile.
Undoubtedly, there is far more choice available to today’s captive owners than there were some years ago. Secondly, and as above with North Carolina as an example, some of the more recent US states enacting captive legislation are offering significant incentives to both existing and new captive entities to re-domicile or set up in the their state.
Domiciles such as Texas and Missouri appear to be specifically targeting parent companies located in their own states that may have been domiciled elsewhere in the US or in the established international financial centres.
With competition on choice normally comes competition on pricing. Again, captive owners that may have had limited choice originally are now becoming more discerning in evaluating the operational expenditure for the captive and that may ultimately result in a change of domicile.
In certain quarters, there is also a view held with regard to US business in particular that the revenue authorities are much less likely to audit a US-based captive than a similar entity in an international finance centre. Whether that perspective is true or not, time will tell.
I certainly do not share that view but it would be naïve not to appreciate that since the global economic meltdown in 2008, the governments of the leading nations, their revenue authorities and international regulatory watchdogs have certainly sought to impose and enforce higher regulatory standards on some of the smaller members of the global financial community than they are willing to implement in their own backyards.
What about captive liquidations?
Within a management portfolio of around 150 companies, we would typically expect to see three to five liquidations per annum offset each year by perhaps 15 to 20 new captive formations.
Looking purely at our own book of business and the typical lifecycle of a captive, I would say that 2014 was a little higher than average in terms of liquidations, but equally, new formations and continuances were up and significantly exceeded the number of liquidations.
This year has reverted to type with a couple of liquidations to date, one ongoing continuance in from the US and eight new approvals or ongoing applications.
Typically much of the new business formation also takes place in Q4 and all the indications are that the end of 2015 will mirror previous years, with a flurry of new business activity anticipated over the coming weeks.
How common is consolidation, when a parent has multiple captives?
Over the years we have probably had no more than five or six parent companies of sufficient size and diversity to warrant the establishment of separate captives for their diverse operations.
While you see the occasional consolidation through mergers, it is not commonplace at all.
