- Gross premium up 11% year-on-year
- Popular domicile choice for Japanese and western US businesses
- Regulator open to innovative structures and new coverages
- Proposal in works to grant commissioner more discretion with captive examinations
Although Hawaii has not added the same headline number of new captives in recent years compared to some other US domiciles, its existing portfolio continues to increase in sophistication and premium volume.
The Aloha State licensed 14 new captives in 2023, but the gross premium written by its captives reached $17.65bn (up 11.3% from 2022), while total assets held amounted to $37.23bn including $9.22bn of capital and surplus.
In 2023, the average annual premium written by a Hawaii captive was $65m.
In the United States, only Vermont has higher annual premium and assets under management (AuM) volume from its captive portfolio than Hawaii.
At the end of 2023 there were 263 active captives in Hawaii and today there is 269.
The jurisdiction is a popular choice for large west coast technology companies, with multinationals including Alphabet, Meta, Uber, Lyft and Airbnb owning captives in the State.
Captive Intelligence covered extensively Meta’s groundbreaking Side A D&O cell company structure in 2022, which has since been replicated by another Hawaii captive and by a captive in Texas.
Japanese companies, particularly those with a US business presence, have a strong affinity for Hawaii, viewing it as an attractive and reputable domicile for their captives.
There are currently 44 Japanese-owned captives in Hawaii – 16% of the captives in Hawaii – while 145 (53%) are owned by companies based in the western United States.
“Japan is Hawaii’s main foreign market for captive insurance, largely due to the proximity between the two regions,” Tony Schmidt, president at Pacific Risk Solutions, told Captive Intelligence.
“Hawaii and Japan can even share the same time zone for part of the day, making communication and business operations more convenient.
“Additionally, Japanese companies have a strong affinity for Hawaii, viewing it as an attractive and reputable domicile for their captives.”
Andrew Kurata, deputy commissioner and captive insurance administrator at the Hawaii Insurance Division, stressed that it is not only technology firms that choose to domicile in Hawaii.
“It is more companies of a certain size and profile that are drawn to us as a captive domicile,” Kurata said.
“We work with a wide range of industries, including a significant number of tech companies that have chosen Hawaii.
“The reason for this is that these companies recognise and value the strengths Hawaii offers as a domicile, including our stability, expertise, and dedicated support for captive insurance.”
Schmidt said Hawaii’s captive insurance market includes a wide variety of industries.
“There are many captives related to construction, real estate, and medical malpractice, with a significant presence in the healthcare industry,” he said.
“While tech-related captives often get the most attention due to their large premium volumes, it’s important to note that Hawaii has a long history with medical malpractice captives.
“Many of these captives were formed in the 1990s and still remain active today.”
Hawaii has a number of regulatory staff that are employed solely to focus on captives, as well as an abundance of captive service providers operating within the State.
“Few jurisdictions have dedicated regulatory staff focused on captives, but Hawaii is proud to offer this, along with a robust service provider infrastructure that includes captive managers and attorneys,” said Matt Takamine, executive managing director and captive practice leader at Brown & Brown.
“Many well-known companies, such as Marriott International, which has had its captive here for over 30 years, as well as tech giants like Meta, Tesla, and Google, have chosen Hawaii as their domicile.
“This presence of reputable companies provides reassurance and legitimacy for other businesses considering establishing their captives here.”
Ohana
The Hawaii Captive Insurance Council (HCIC) Forum has been taking place in Kauai 14 – 17 October and Captive Intelligence spoke to three captive owning board members of the Association, to find out what makes the domicile successful.
Elaine Ziemba is CRO and SVP for Stanford Medicine, which has owned a captive in Hawaii since 2012 and already had a Bermuda captive that remains active too.
“We are located in California so the proximity was a good option and the service providers here are amazing,” she said.
“That was very important to us as a knowledgeable captive organisation. We knew what we needed and wanted and everything about Hawaii supplied that.”
David Beyer is director of risk management at Alaska Airlines and the current chair of HCIC. Alaska has owned a captive in Hawaii since 2016.
“It is the partners that are providing the services here that you need to operate your captive and then a regulator that is willing to talk to you, and sit down and understand what you’re doing and your business and create a true partnership,” he said.
Regarding the Forum specifically, Beyer said the atmosphere and sharing amongst captive owners across various industries and the service providers is highly valuable.
“What comes through here is that feeling of Ohana, the Hawaiian family. The service providers, captive owners, there is great sharing no matter what industry you are in.
“There is good willingness to talk to everyone. I feel energised about the captive industry every year at the conference.”
Webcor is a commercial construction contractor headquartered in San Francisco.
Matt Reece is CFO of Webcor, which has owned a captive in Hawaii for more than 20 years.
Commenting on what makes the Hawaii domicile strong, he said: “It is a family, and it is great to be a little part of that family.
“For us, our parent company is Obayashi, a Japanese corporation, so I can’t think of a place that makes more geographic sense.
“I would also add the spirit of working with the Hawaii Insurance Division as well. I have found them to be very helpful, we have built a very trusted relationship over those 20 years.”
Kurata said that Hawaii offers a strategically advantageous location for companies on the West Coast.
“While you might not immediately think of Hawaii in this way, our status as a major tourist destination makes travel here quite accessible, especially for companies based in the west coast,” he said.
Another unique benefit for captive owners in Hawaii is the time difference.
“Since we are three hours behind the West Coast, it essentially extends the business day,” Kurata said.
“For instance, if a company on the mainland is wrapping up their day at 5pm, they can still submit something or communicate with the State of Hawaii or a captive manager here, where it’s only 2pm.”
Hawaii captive trends
Takamine noted that since the hard market began, he has seen significant expansion not only of new captive programmes, but also existing ones.
“Property insurance, which companies previously hesitated to include in captives to some degree, has become one of the most discussed lines,” he said.
Takamine said that cyber is also a hot topic in Hawaii, and there’s also growing interest in directors and officers insurance, “particularly following Meta’s decision to include it in their captive”.
“This trend underscores the increasing utility of captives in managing a broader range of risks,” he said.
Schmidt said that property is increasingly being written in captives in the US due to rising premiums and growing difficulty in obtaining coverage.
“However, in Hawaii, captives cover a wide range of insurance needs,” he explained. “Hawaii’s captive insurance market includes lines such as workers’ compensation, general liability, property, cyber insurance, and employee benefits.”
Schmidt said one of the reasons Hawaii’s captive market is so successful is because of its flexibility.
“Unlike some jurisdictions that focus on just one or two types of captives or coverages, Hawaii’s captives are structured to handle a broad array of insurance needs. This versatility has made it a strong player in the captive insurance sector.”
Takamine said one of the most common topics in recent years has been the adoption of cell structures.
“While I would not say Hawaii has a reputation as one of the leading jurisdictions for this, we do have a sponsored captive law, which operates similarly to other cell structures,” he said.
“I’ve seen some of my clients convert their pure captives to cell structures to achieve various objectives, such as isolating specific risks within their programmes or onboarding other subsidiaries that they wish to keep separate from their legacy programmes.”
New legislation
In August, Hawaii Governor Josh Green signed HB234 into law, allowing certain captives to register as dormant in the jurisdiction.
“One of the more significant developments we have worked on is the legislation for dormant captives, which the Hawaii Captive Insurance Council (HCIC) helped draft,” Takamine said.
“This framework is not dissimilar to provisions found in other jurisdictions, such as Vermont and Nevada, and provides a useful regulatory structure for captives.”
The new law procedures for companies that have not yet written risks or are in the process of winding down but are not ready to shut down entirely.
Takamine said that with dormant captive provisions, companies in this situation now have a clear path forward.
“Previously, while there were dormant captives, they were handled on a case-by-case basis, lacking a uniform set of regulations,” he said.
“This new framework not only offers structure but also allows for lower minimum capital requirements.”
Takamine told Captive Intelligence that has been involved in discussions around possibility of altering legislation around captive examinations.
“Paul Shimomoto, HCIC president, and I are both members of the Hawaii Captive Insurance Council, where we collaborate on much of the legislation for the industry,” he said.
“Currently, we’re putting together a package to present to legislators in the next month or so.
“One of the proposals we’ve submitted over several legislative sessions is to grant the commissioner some discretion regarding the conduct of examinations for captives.”
Current law requires every captive is examined at least once every five years, regardless of the type of captive.
“We aim to provide the commissioner with the flexibility to tailor examinations based on the specific insurance programme or circumstances,” Takamine said.
“It’s not about eliminating examinations; rather, it’s about allowing the commissioner to use discretion and take a risk-based approach in deciding when and how to conduct them.”