Paul Shimomoto, president of the Hawaii Captive Insurance Council, explains how the Aloha State is building on its experience to continue being a captive domicile of choice
With captive insurance legislation originating in 1986, Hawaii is one of the oldest and most established captive domiciles in the US. The success of the state has been built on a conservative but relaxed approach, with a positive attitude to problem solving. However, with more states competing for captive business, the Aloha State’s captive insurance industry is remaining proactive. To find out more, Captive Review spoke to Paul B. Shimomoto, partner at Goodsill Anderson Quinn & Stifel and president of the Hawaii Captive Insurance Council (HCIC).
Captive Review (CR): As a captive domicile, how has Hawaii been growing in recent years? What trends have you seen in the companies forming captives in the state?
Paul Shimomoto (PS): When assessing growth, there’s a tendency to overemphasise licence count as the pre-eminent measure of a captive domicile’s success. In Hawaii, we consider this metric, but our mantra has historically been “slow and steady wins the race;” or at least “it keeps you in the race”. It’s a measured approach to growth, and by extension, how we tend to define “success”.
In the last few years, our new formation growth has been around 6 to 10% per year, and we are pleased with that, in large part, because of the quality that’s come along. However, there are other metrics we prefer to highlight, such as gross written premiums. In 2023, Hawaii captive insurance companies wrote $17.5 billion of gross written premium – that’s an approximately 11.3% increase from 2022, or an average of almost $64 million per captive.
Another metric we value is the amount of investments made by our captives in local financial institutions. Our captive insurance companies invested about $2.15 billion in our Hawaii banks; approximately 14% more than they did in 2022. And that doesn’t count what they’ve invested elsewhere. We consider the total economic value contributed to our state. Since 2012, we estimate the Hawaii captive insurance industry’s economic benefit to the state has more than tripled from about $39.5 million in 2012 to approximately $121 million today.
In terms of trends, we have seen increased interest in protected cell captives (PCCs) for a variety of reasons. Many of your readers will recall that last year we assisted Meta with converting its Hawaii pure captive into a PCC facility. We believe this evidence of innovation will help us draw more captive companies (large and small) to our shores.
CR: How has legislation been enhanced for the benefit of captives?
PS: In June, two new captive-related bills were enacted into law. The first was an amendment to our insurance holding company laws. This change results from the National Association
of Insurance Commissioners’ (NAIC) accreditation standards, and it will impact risk retention groups licensed here.
The second piece of legislation is more state specific and does two things – first, it amends our PCC laws to provide additional clarity and flexibility with respect to business that can be insured in protected cells. Second, the legislation now statutorily recognises dormant captives. This will allow certain captives that have never written, or no longer write, business to be exempt from examination and certain annual filing requirements, and they will be able to reduce their minimum capital to a nominal level while in dormancy.
CR: The competition between states for captives has intensified – how is Hawaii standing out?
PS: Captive owners routinely tell us that our experience and maturity are key factors for choosing Hawaii. Being in the business for nearly 40 years and having formed and operated every type of captive, we have largely seen it all. Our captive owners appreciate the perspectives, support and advice we can offer because of that experience. We believe this experience makes it more likely than not that we can help a captive owner achieve and realise its goals and objectives with the captive.
Regulatory stability and predictability are also hallmarks that Hawaii captive owners appreciate. We don’t change our laws every year, but that doesn’t mean we don’t constantly evaluate whether they can/should be changed. When there is a compelling need that we think benefits the greater industry, it will be vetted and considered bearing in mind the core values that have made our domicile successful for nearly four decades. That gives captive owners a sense of calm and ease knowing they aren’t adjusting to fluctuating laws and regulations year over year.
The depth of local service provider talent is important to our owners. We have very experienced local attorneys, accountants, auditors and captive managers – many of whom have been in the business for 20 years or more. And, we have a growing pool of talent in younger generations who will be able to sustain our industry going forward.
Our geographic location continues to be tremendously advantageous to captive owners. We are uniquely positioned between Asia and the mainland US. This ensures that, in the same day, we can work in every time zone where our clients are located – from Japan to Hawaii and in every US time zone.
Finally, and perhaps most importantly, owners often tell us that there is a unique “feel” to doing business with and in Hawaii. Partnerships seem stronger, relationships seem more valued and there is warmth, approachability and a sense of “family” in all that we do. We residents know it as the Aloha Spirit. It’s our culture, and we are proud of it.
CR: In terms of strategy, what will we see from the HCIC in the coming months?
PS: We expect to be more proactive and visible. For starters, we want to increase our strategic partnerships and alliances throughout the world. This will provide us with opportunities to contribute what we can to advance the global captive insurance industry. That said, we are also looking at ways to assist our local insurance industry as it faces many obstacles following the Lahaina, Maui, wildfire last year.
This might sound a bit contrary to the slow and steady approach I mentioned, but we don’t think it is. At day’s end, we believe we can be a bigger fish in the proverbial pond. We still have a lot to learn, but we also have a lot to offer.
CR: For anyone who doesn’t know much about Hawaii as a captive domicile, what do you want to tell them?
PS: Captive owners, whether current or prospective, seek solutions by utilising a captive. And everyone wants to do business in a place where technical expertise resides, but where it’s friendly and welcoming from business and personal standpoints.
We know people have many choices, and Hawaii is truly appreciative of the investments that companies make in our state. We are committed to providing the most sophisticated service with the warmest, welcoming attitude. It’s our Aloha Spirit, and it is alive and well.
