DOUGLAS, Isle of Man-A major change in Isle of Man legislation affecting captives was enacted in February 1996, when the 1986 Insurance Act was amended to facilitate the transfer of captive business to and from other qualifying domiciles.

The law on "redomiciliation" makes such a switch easier and less expensive by allowing parent companies to move a captive insurance unit from one domicile to another without having first to liquidate it and reform it in the new domicile.

The Isle of Man last year also passed its International Business Act 1996 to allow captives to register as international businesses. The measure is an attempt to counter the potentially damaging effects on captive business of a change last year in U.K. legislation requiring Controlled Foreign Corporations to be taxed on 90% of their pretax profits, rather than the previous 50%.

The Isle of Man's new act allows captives to avoid meeting the U.K. requirement by paying tax in the Isle of Man at 75% of what they would pay in the United Kingdom-rather than the usual 20% Manx corporate tax rate-thus meeting a provision of the U.K. CFC legislation.

The Isle of Man also abolished from the start of 1997 its requirement for captives with an exposure ratio greater than 25% in any one contract of general business to make transfers to a statutory reserve.

Apart from these changes, requirements for forming an Isle of Man captive remain the same:

Single-parent captives must have a minimum paid-up capital of 50,000 pounds($82,600). For captives writing third-party business, reinsurance or life insurance, the minimum capital requirements range from 100,000 pounds ($165,300) to 500,000 pounds ($826,400).

The minimum capital requirements plus 10% of any amount above 50,000 pounds in capital must be paid in cash and deposited in an Isle of Man bank, though this requirement can be relaxed at the regulator's discretion.

Single-parent captives must maintain a solvency margin equal to the minimum capital requirement plus an amount equal to 10% of net written premiums up to 2 million ($3.3 million) and 5% of net written premiums exceeding 2 million pounds.

Captives that write third-party business must maintain a solvency margin equivalent to 15% of net premiums written but totaling not less than 150,000 pounds($247,900).

Captives must present to the insurance supervisor a three-year business plan. This must include the maximum net retention per risk or occurrence and the aggregate retention after all reinsurance is ceded; policy limits; details of the reinsurance program, including the names of the reinsurance companies; projections for claims; projections for the captive insurer's cash flow; and projections for its profits.

A "suitable" manager on the island must manage the captive. The criteria for suitability are determined by the domicile's insurance regulator.

A 1,000 pounds ($1,650) registration fee is required for all new captives.

Authorized insurance companies on the island also pay an annual fee of 500 pounds($826).

For captive insurers with tax-exempt status, there is an additional annual fee of 2,000 pounds ($3,300).

For more information on the Isle of Man's captive insurance industry, contact Dr. Bill Hastings, chief executive, Insurance and Pensions Authority, 12/14 Ridgeway St., Douglas, Isle of Man, 1M1 1EN; 00/44/1624-685695; fax: 00/44/1624-663346.