Risk Financing Through Captive Insurer: Economic Influences of Captives on Corporations and the First Domicile in Japan

This paper discusses whether or not and to what extent captives as corporate risk financing tools potentially provide benefits for Japanese corporations and the first captive domicile, Nago City of Okinawa. The success story of the city of Dublin City, Ireland, illustrates that captives have significant influences on the domicile such as increasing local employment, creating chances for financial education, enhancing information and improving transportation infrastructure. Our simulation indicates that one hundred captives and their related firms over a ten-year term add around 210 billion yen to the local economy, 233 billion yen to the prefectural tax income and 2,200 new jobs. This paper shows that captives provide benefits for corporations and the domicile in Japan in varieties of ways. There is a concern, however, that the Nago City initiative can end up as a failure due to the emergence of strong internal and external resistance as exemplified by the cases in Germany, Italy and France, countries in which the insurance business styles are rather conservative, similar to the style in Japan.