Over the coming years it is reasonable to expect foreign captives to be domiciled in Alberta, according to Rick Da Costa, partner and national leader at law firm Borden Ladner Gervais (BLG).
Since the inception of its captive statute in July of 2022, Alberta has proved a popular destination for Canadian businesses, and the jurisdiction now has 29 captives.
The Energy Province is the second jurisdiction in Canada to introduce captive legislation after British Columbia (BC).
“It’s possible, if not likely, because if you think about what Canada’s doing now on a macro level in terms of diversifying its trade— the US is obviously a very important trading partner, but we’re also trying to diversify,” Da Costa said.
“As a result, we have more and more trading partners from offshore—other jurisdictions without their own captive legislation or opportunities to form captives in their own domiciles.
Da Costa was speaking in a recent GCP Short, alongside Al‑Nawaz Rajan, Western Canada lead for captive fronting solutions at Zurich and Hector Plascencia, senior vice-president and national practice leader for the risk advisory practice at BFL Canada, focusing on the captive revolution currently taking place in Alberta, Canada.
“As they grow their operations here in Canada, maybe opening up warehouses, they have their own Canadian risks,” Da Costa said.
Da Costa believe it is “inevitable” that Alberta will become one of the top domiciles in the Western Hemisphere.
“The fact that it’s in Canada—a G7 country—all the stars are aligning, and I think Alberta, more broadly, is going to be a reinsurance hub as a result,” he said.
Da Costa believes that for Alberta to continue being an attractive domicile it should simply continue doing what it’s been doing.
“I do not think it’s a coincidence that, in less than four years, we’ve seen almost double the number of captives in Alberta than we see in BC,” he said.
Da Costa said cells are going to be a game changer ‘when— not if— they come into play’”.
Although Alberta does not currently have cell legislation, companies can create a similar structure by combining a limited partnership structure with an association captive.
Trends
Plascencia said that in Canada there is a broader mix of companies looking at captives than there was five years ago with interest ranging from sectors including real estate, agriculture and energy all looking at captive utilisation.
“Historically captives were mostly explored by very large organisations with sophisticated risk management functions, but that has started to change quite a bit, at least from what we can observe at BFL Canada,” he said.
“We’re seeing interest from mid-market organisations, industry groups, and companies with complex operational risk profiles that are not necessarily the kind of company that historically would explore this.
“The common thread is not necessarily size but more the frustration with volatility in the commercial market for the most part and a desire to have greater control over how their risk is financed.”
Rajan said he initially expected more oil and gas companies have domicile captives in Alberta due to its large oil and gas sector.
“They’re the kind of industry that is capital-intensive and carries a lot of risk,” he said.
Oil and gas companies have significant insurance requirements, but they also have substantial capital to take on risks within their own organisations.
“You would expect a lot of oil and gas companies to be setting up captives,” Rajan said.
“In fact, they already do have captives, and they seem to be working well wherever they are right now.
“However, we have not seen oil and gas companies move as quickly as I would have expected.”
Rajan said that most new entrants in the Alberta captive space are first time captive owners who likely could not justify a captive in other domiciles, “but they find Alberta’s captive structure quite attractive”.
‘’And with a new captive they’re often putting the big predictable exposures into the captives such as property, general liability, motor, construction, and those kinds of things,” he said.
“Also, industries that are facing rate pressure like transportation are especially active because the economics of a captive suddenly make a lot of sense given the shortage of capacity in the market.
“We are also seeing some more mature captive owners who already operate offshore and are now thinking of redomiciling certain risks to Alberta.”
Rajan added that looking ahead, he believes Alberta’s portfolio will diversify as the market matures.
“Alberta’s legislation is well-suited for association-based pooling and partnership models, and over time we may see more exotic possibly parametric style risks enter the space.
“We’ll see how regulators respond to some of these innovations and that’s going to shape the long-term evolution of Alberta domicile captives.”