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DOUGLAS, Isle of Man-The Isle of Man recorded its third consecutive year of captive growth in 1996, helped in no small measure by a change early in the year to its 1986 Insurance Act to allow virtually free movement of captives between qualifying jurisdictions.
In 1996, the Isle of Man had a net gain of eight captives, taking its total number to 158 by year-end. Year-end financial figures have not been released.
Bill Hastings, chief executive of the Isle of Man's recently created Insurance and Pensions Authority, is confident the law change easing redomiciliation will work in the Isle of Man's favor. Redomiciliation allows captives to move more easily between domiciles by removing the requirement for them to shut down in one location before re-starting in another.
As of Jan. 1, Mr. Hastings' role has expanded, too. He now heads the Insurance and Pensions Authority, which replaced the previous, less-encompassing Insurance Authority, of which he was also chief executive. The expansion shows the domicile's determination to expand its role as an insurance center, he said. Whereas the previous authority dealt just with captive and life insurance business, the enlarged body will spearhead development of the pension industry.
One goal of the IPA is to make the Isle of Man a "one-stop shop" for insurance and pensions business, with the new regulator acting "as a conduit for all contact in respect of both the providers and consumers of insurance and pensions services on the island," says the Authority's promotional material.
SINSER (Isle of Man) Ltd. last year became the Isle of Man's 35th approved captive manager, though it does not yet have any captives on its books. Irene Ryan, managing director of SINSER (Ireland) Ltd. in Dublin, who oversees the new office, says the Isle of Man office was started because SINSER wanted to gain access to the U.K. insurance market and because SINSER wanted to be able to offer the Isle of Man to clients in its range of domicile choices.
The first captive to transfer to the Isle of Man last year under the redomiciliation rules was L.S. Reinsurance, which had been based in Bermuda since 1963. It is owned by Manchester, England-based London Scottish Bank P.L.C., which also set up a second, new Isle of Man captive, London Scottish Reinsurance Ltd., with a goal of providing greater flexibility.
Caledonian Management Ltd., also relatively new to the domicile, manages the two captives. David Brown, managing director, said the one captive's switch from Bermuda was to enable U.K.-based directors of the insurer to take advantage of direct flights between Manchester and Douglas to save on time and travel costs when attending meetings in the Isle of Man.
Another captive manager, Willis Corroon Management (Isle of Man) Ltd., the domicile's largest manager with 42 active captives on its books, has two captives with British parents that transferred to the island from Bermuda. Willis Corroon Director Peter Foulger says other potential transfer clients are "in the pipeline."
He said he believes that as Bermuda is second only to the Isle of Man in hosting captives belonging to the U.K.'s "Top 100" companies, the redomiciliation legislation is bound to prompt further movement of captives nearer to home.
About 80% of the Isle of Man's captives have U.K. parents. For the past few years, Mr. Hastings also has been trying to increase growth from other countries.
The risks inherent in being too dependent on one territory were highlighted last year when the United Kingdom passed legislation requiring Controlled Foreign Corporations to remit 90%-rather than the previous 50%-of their profits after expenses back to their U.K. parents, for which it would be subject to U.K. tax rules.
To help overcome this, the Isle of Man passed its International Business Act 1996, which allows any captive with U.K. parents to register as an international business. This means that rather than pay tax at the Isle of Man's standard 20% corporate rate, it would pay tax at 75% of what it would pay in the United Kingdom. This met a provision of the CFC legislation that exempts an offshore insurer paying tax in the United Kingdom if it pays tax elsewhere of at least 75% of what it would be liable for in the United Kingdom.
While the Isle of Man so far has not lost any U.K.-parented captives as a result of the CFC legislation, it is too early to tell if the measures in the domicile's International Business Act 1996 help it prevent any losses or win more U.K. business.
However, Mr. Hastings maintains with regard to the CFC legislation that "the perceived threat has not materialized."
Mr. Foulger said "none of our clients has closed as a result," though he acknowledges there is a general feeling of uncertainty about how the tax will be applied. And while he is "cautiously optimistic there will be modest growth" overall in the Isle of Man's captive number this year, he adds that "until the uncertainty of CFC legislation is resolved, selling new captives will be more difficult, at least as far as U.K. companies are concerned."
Graham King, general manager of Marsh & McLennan Management Services (Isle of Man) Ltd., said that as a result of the United Kingdom's CFC legislation, "We'll have to look to other markets for captives."
Mr. Hastings and most captive managers on the Isle of Man say that in the drive to win business from other geographic areas, a major source of recent business has been South Africa, which over the past couple of years has contributed seven Isle of Man captives. Continental and eastern European countries are another growing source of business.
Last year, Willis Corroon set up Gallium Insurance Co. Ltd. for ESKOM, South Africa's public utility. It also manages Interbuild Insurance Ltd., a captive of the South African company Murray & Roberts, which last year transferred to the Isle of Man from Bermuda.
Sedgwick Management Services (Isle of Man) Ltd. last year set up ABSA Manx Insurance Co. Ltd. for ABSA Bank, the biggest in South Africa.
The Isle of Man is closely watching developments at rival Guernsey, which in January introduced legislation allowing a form of rent-a-captive known as a "protected cell company" (see story, page 38). A PCC can involve any number of participants whose assets are protected in individual "cells," with the main attraction being that creditors of any one cell have no recourse to assets of any other cell. So far, though, Guernsey has yet to attract any new business under this facility.
Colin Kniveton, account manager at Sedgwick Management, which manages 33 Manx captives, said the move by Guernsey is being closely studied in the Isle of Man. He added that he does not think it will be very long before the Isle of Man authorities, which already have sought the views of captive managers on the topic, introduce similar legislation