Why Hawaii is a contender for captive insurance

Paul Shimomoto, president of the Hawaii Captive Insurance Council, highlights the benefits of making the Pacific islands home for the sector.

 

Captive Review (CR): What is your role at the Hawaii Captive Insurance Council?

Paul Shimomoto (PS): I’ve worked at the Hawaii Captive Insurance Council (HCIC) for over 20 years in a variety of roles including as an officer, director, chair of the marketing committee and as industry and government liaison for the organisation. This is my first time serving as HCIC’s president, and I am very grateful for the trust the HCIC board and my colleagues have in placing me in this position. I’ve been actively working to drive our ideas and vision for Hawaii as a domicile. Hawaii is the premier domicile of the Pacific Rim, and we want to maintain, enhance and showcase it as such. I am still chair of the council’s marketing committee and, more specifically, its Japan marketing committee. Some 12 years ago, I helped the organisation re-establish its presence in Asia by restarting our annual captive educational seminars in Japan. Those efforts have been tremendously successful as Hawaii is now the world’s leading jurisdiction for Japanese-owned captive insurers, with nearly 40 of them being actively licensed and operating here. Our marketing and legislative efforts have helped Hawaii become second in the world in terms of captive insurance premiums received. We maintain a continued focus on providing a conducive environment for the single-parent captive interests of Fortune 500 companies to succeed.

CR: What are the council’s goals for supporting the captive insurance industry in Hawaii?

PS: For much of the pandemic, Hawaii was one of the most restrictive places on the planet to travel to, which not only impacted our visitor industry, but also those of us who routinely travel outside of the state to conduct business. As the world has largely reopened, one of the council’s main goals is to re-establish Hawaii’s presence and visibility as a world-class domicile; we want to get back in front of people as much as possible. Compared to Japan, the US has been wide open for normal business for quite some time. Japan just recently announced the reopening of its borders to visa-free travel. This allows us to reinstitute our two-day educational seminars in Tokyo this coming November. Since Japan is a key market for us, we are eager to reconnect and build on the tremendous success we have already experienced there. The HCIC has worked very hard over the years to broaden its participation and collaboration with other US domicile associations and industry advocacy groups like CICA. This year, for the first time, we will also be participating and presenting at the 2022 European Captive Forum in Luxembourg. We have seen the value and benefits of building these relationships with our colleagues across the globe, and we look forward to developing them even further.

CR: How is HCIC supporting legislative changes to progress Hawaii’s credibility in the captive community as a ‘gold standard domicile’?

PS: We are proposing new legalisation that will encourage our pure (single-parent) captive insurers to be ‘gold standard’ clients. If enacted, that new legislation would allow so-called ‘gold standard’ captives (those who can demonstrate certain levels of financial performance and self-governance) to apply for exemption from regulatory examination. We believe this would not only benefit the captive licensees, but also our insurance division which regulates them. Hawaii is like many other captive jurisdictions that are welcoming a spike in new formations, but which are also having to manage and regulate that growth. We think this proposed legislation will go a long way to helping us do that.

CR: What are the current issues impacting captives in Hawaii and the broader captive industry? How important is collaboration between HCIC and the State of Hawaii Insurance Division to produce information and education on this?

PS: Managing growth is a key issue. Hardening commercial insurance markets have greatly contributed to the formation of new captives all across the US, despite Covid-19. Captive regulators in the country need to find ways to handle that growth, all the while maintaining proper and responsive oversight. Hawaii is one of only a few jurisdictions that has a dedicated office within its larger insurance division that only regulates captives. Many other jurisdictions do not have the same resources, experience and staff that we do, which is why managing all the growth we have seen can be a challenge for many. These kinds of issues require coordination and collaboration between regulators and industry. That’s something we’ve always done very well in Hawaii – having a strong partnership with our regulators. Our private and government sectors have often worked together to develop business plans and unique opportunities for our captive clients. It’s definitely been a key ingredient in our recipe for success.

CR: What are the main benefits of Hawaii as a captive domicile?

PS: I don’t think many people realise this, but in 2021, Hawaii was second in the world in terms of gross premium written by its captives (up 21% from 2020). Also in 2021, Hawaii captives invested approximately $1.6 billion in assets in Hawaii (up 10% from 2020). This means we have some very large and complex captives operating in Hawaii, which makes it a thriving industry. There are many advantages Hawaii has to offer as a captive domicile, such as no premium taxes on reinsurance assumed, the ability to use foreign currencies as the functional currency of the captive, and its optimal location for conducting business with every part of the world in the same day. On this last point, it is noteworthy that I can communicate with the UK and Europe in my early morning, the US in the middle of my day and Japan/Asia in my late afternoon. There aren’t many places in the world where one can do that. And, while Hawaii can seem inaccessible, there are literally hundreds of daily direct flights from multiple cities in Japan and at least 27 US mainland cities. Hawaii also has the longevity, stability and experience that many domiciles lack. Our domicile has been around for 37 years, giving us deep breadth of experience. We were early to the game in terms of entering the captive insurance industry, and there really is no substitute for experience. As mentioned, we have a dedicated section within our insurance division that only deals with captives. We also have a tremendously large pool of experienced, bilingual captive professionals in Hawaii, which has been particularly appealing to our Japanese captive clients. Lastly, our ‘Aloha Spirit’ – this is how we, as Hawaiians, culturally and ethnically approach life. It’s hard to explain in words what that Aloha Spirit is, but when you’re here you will know what it means and how it feels. In a nutshell, it describes a life lived (as well as business conducted) with respect and humility. We firmly believe that this is what makes our jurisdiction truly unique.

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