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.