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Hawai'i in the world of international insurance

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Hawai'i in the world of international insurance - State more inviting to 'alien insurers'

International insurance companies now will find Hawai'i a friendlier place to do business.

In a bid to become the leading center for insurance in the Pacific, Hawai'i has enacted a law to make it easier for insurers based out of the country to set up their main U.S. offices here. These "alien insurers" would then be able to launch their entry into the broader Mainland market from the Islands.

"It elevates the status of the state of Hawai'i in the world of international insurance," said state Insurance Commissioner J.P. Schmidt. "It provides an opportunity for additional capital investment and economic diversity in the state."

Signed in June, Act 120 already has attracted an inquiry from a major South Korean insurer, Schmidt said.

The new law would treat alien insurers as if they were out-of-state insurance companies, which are called "foreign insurers" in industry parlance. As such, the application and licensing process would be simpler and less costly, he said.

In turn, the state benefits from the taxes paid, jobs created and capital brought in by these non-American companies.

Hawai'i is one of about a dozen states that have passed laws enabling them to become ports of entry for alien insurers, Schmidt added.

The overall goal is to develop "clean" industries, such as financial services, in the Islands, a path that has been successfully taken by island economies such as Bermuda, the Cayman Islands and the British Virgin Islands. International business brings in significantly more revenue for Bermuda than tourism.

"It's a knowledge-based industry, it's a very clean industry and it provides well-paying and highly skilled jobs," Schmidt said.

Hawai'i also has had success in attracting a segment of the domestic insurance industry known as "captive insurance." This sector consists of corporations that set up subsidiaries to insure themselves.

"Because of the experience of captive insurance, everyone jumped on board," state Rep. Ken Hiraki, chairman of the House Consumer Protection and Commerce Committee, said of Act 120.

"This is the next logical step," said Hiraki, D-28th (Iwilei, Downtown, Makiki).

In 1986, Hawai'i passed a law that gave captive insurers tax breaks and greater flexibility in setting up their policies, said Craig Watanabe, the captive insurance administrator for the state's Insurance Division.

Today, Hawai'i is second in the country in the number of captive insurers calling the state their headquarters, trailing only Vermont. The state is among the top 10 in the world.

At the end of 2003, there were 122 captive insurers in Hawai'i with total assets of $3.9 billion. They included companies such as Nike, Clorox, Occidental Petroleum, Washington Mutual, Marriott and Nissan. About $741 million of the assets are managed by local banks, Schimdt said.

About 26 states have captive insurance laws, but Hawai'i charges a 0.25 percent tax on premiums versus 5 percent in other states, he said. Hawai'i also gives insurers more flexibility in creating different types of coverage, while states such as New York are more strict.

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