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Several jurisdictions around the world are vying with more established captive insurance domiciles for new business, though growth is non-existent for most.
In addition to relatively long-established centers like the Turks & Caicos, there are a host of new domiciles, including the Aland Islands, Guam, Montenegro, New Zealand, New Brunswick and Panama.
Reports on this handful of domiciles follow:
Turks & Caicos
The Turks & Caicos Islands is slowly expanding its captive insurance business while remaining primarily a domicile for credit life reinsurers.
The domicile finished last year with 61 licensed captive insurers, a net gain of five from year-end 1995, according to Superintendent of Insurance Colin Holder.
Most of the captives have been set up by North American companies and many have been formed to fund deductibles for their parents' workers compensation programs, he reported.
Some captives have also been formed to write high excess environmental liability coverages for non-U.S. operations of companies that need coverage to meet local legal requirements, he said.
In contrast to the relatively small number of captives, the Turks & Caicos had licensed 1,855 credit life companies by the end of last year, with 194 new licenses issued during 1996, Mr. Holder said.
Credit life companies may be set up by auto dealers, for example, to assume life insurance written for car buyers who finance their purchases.
Licensing requirements under the Turks & Caicos Insurance Ordinance of 1989 have changed little in the last year. Under the law, an insurer must submit a business plan that describes: its risk exposure and asset base; types, sources and volume of business; its retentions and proposed reinsurance relationships; its loss ratio projections; and its reasons for choosing the Turks & Caicos as a domicile.
The superintendent can set minimum capital and solvency requirements based on an insurer's business plan. However, regulators follow some general guidelines:
General insurers should have a minimum of $100,000 in capital and may have to add more based on expected premium volume, types of business to be written, retentions and loss and expense ratios.
Although not mandatory, the government has encouraged non-domestic insurers-those writing business outside the Turks & Caicos-to keep at least $100,000 in assets within the domicile to ensure the funds are accessible to regulators in case an insurer is wound up.
Insurers writing up to $5 million in net property/casualty premiums should maintain a net worth equal to 20% of premium volume. Those writing more should have a net worth equal to $1 million plus 10% of net premiums over $5 million.
Those writing life business should have a minimum net worth of $180,000.
Those writing both life and property/casualty premiums up to $5 million should maintain a net worth equal to 20% of premiums, and those writing more than $5 million should have a net worth equal to $1 million plus 10% of net premiums over $5 million.
Annual fees are $2,000 for captives, $3,500 for insurance managers and $1,000 for brokers.
For more information, contact Colin Holder, Superintendent of Insurance, P.O. Building, Front Street, Grand Turk, Turks & Caicos Islands; 809-946-2791.
By Douglas McLeod
British Virgin Islands
The British Virgin Islands, which enacted its first international insurance law in 1994, saw a net gain of 10 new captive insurers last year, bringing its total to 54 captives by year-end, according to Peter Bates, supervisor of insurance.
So far this year, the domicile has added another five captives and one insurance manager, bringing the number of managers in B.V.I. to eight.
Most of the captives are U.S.-owned single-parent entities and many are relatively small, generating $4 million to $5 million in annual premiums, Mr. Bates said.
"We aren't aiming at small companies particularly," but that is the business B.V.I. has attracted, he said. "We are happy to have them because a lot of them make very sound sense."
At the same time, the islands saw a dramatic decline in the credit life reinsurance sector after the government imposed a $1,000 annual license renewal fee on credit life companies in January 1996 and scores of companies left for other domiciles.
B.V.I. ended last year with 69 credit life reinsurers, losing 300 to 400 such companies, Mr. Bates estimated.
The government is now considering several changes to its insurance law that may become effective later this year. Among these are allowing captive managers to serve as directors of their captives, a service that is currently not permitted; and giving managers more time to make annual insurer financial filings, Mr. Bates reported.
Last year, the government considered proposals from managers to reduce minimum solvency margins for property/casualty insurers, but ultimately decided against any loosening of the requirements, Mr. Bates said.
B.V.I.'s insurance law, The Insurance Act, 1994, sets several minimum solvency requirements, including:
$200,000 for property/casualty insurers writing up to $1 million in net premiums. The minimum for those writing $1 million to $5 million is 20% of net premiums, and for those writing more than $5 million is $1.2 million plus 10% of net premiums exceeding $5 million.
$250,000 for insurers writing life/health business only.
$250,000 plus the amounts required of property/casualty insurers for those writing both life/health and property/casualty.
Captive insurers must pay a $500 license application fee and a $2,000 annual fee for license renewal.
Responding mainly to tremendous growth in its other financial services sectors-notably the expansion of B.V.I.-based international business companies-the government is preparing a package of new anti-crime legislation.
One provision-expected to go into effect later this year-will establish a "code of conduct" for B.V.I.-licensed service providers, requiring them to subject all business referred by overseas professionals to due diligence and "know your client" reviews.
Another bill would criminalize all acts of money laundering.
Mr. Bates, a former Cayman Islands regulator, was named B.V.I.'s insurance supervisor in May 1996 under a two-year contract paid for by the British Overseas Development Authority, a British government agency.
He reports to Robert Mathavious, director of financial services and commissioner of insurance.
For more information, contact Mr. Bates at the Financial Services Department, Road Town, Tortola, British Virgin Islands; 809-494-4190.
Douglas McLeod
Although Sweden isn't a traditional captive domicile, Swedish companies are forming captives under the country's insurance laws.
At the end of last year there were 34 captives in Sweden, up six from the prior year.
The 34 captives wrote 991 million Swedish krona ($129.6 million) in premiums, up 16% from 1995.
Swedish companies have set up captives domestically because "the insurance law is good," says Bo Goranpersson, deputy managing director responsible for the Nordic market at captive manager SINSER A.B. in Stockholm.
The law, which does not differentiate between insurance companies and captives, allows insurers to maintain an untaxed "security reserve" as a buffer against adverse claims results. The amount allowed in the reserve varies depending on the type of business written.
The reserve for a property insurer, for example, can be 150% of net retained premium, but if it is writing credit insurance, the reserve can be up to 600% of net retained premium.
Premium and claim reserves also must be maintained as well as equalization reserves for credit insurers.
Swedish companies have set up captives in other domiciles such as Luxembourg because they can maintain higher retentions than in Sweden, said Mr. Goranpersson, who noted that several companies with captives elsewhere have formed second captives in Sweden.
To obtain a license to set up a non-life captive, a company must submit a business plan to the Swedish financial regulators. The plan should include: the type of risks to be written; reinsurance arrangements; estimated premiums, claims, and technical reserves over the first three years of operations; and the estimated set-up administrative costs.
A captive must have a minimum capitalization of 200,000 to 1.4 million ECU ($232,260 and $1.6 million), depending on the class of business written. An application fee of 24,800 SEK ($3,244) is required.
The other Nordic countries of Norway and Finland have similar arrangements, according to Mr. Goranpersson.
For further information on setting up a captive in Sweden, contact Finansinspektionen, Regeringsgatan 48, Box 7831, S-103 98 Stockholm, Sweden; 46-8-787-8000; fax: 46-8-24-13-35.
Stacy Shapiro
British Columbia
British Columbia is seeing some new interest in captives with one formation in 1996 and one so far in 1997, after several years of no activity.
However, hoped-for growth as a result of a federal tax law change designed to make offshore captives less attractive to Canadian companies has yet to materialize.
Under the change that began with the 1995 tax year, any third-party Canadian business written by an offshore captive that is as little as 10% owned by a Canadian parent is subject to a foreign accrued business income tax of up to 45%.
The only exemption from that tax is income on non-Canadian business that is related to the parent, such as the risks of a Canadian parent company's foreign affiliates.
British Columbia captive management experts had hoped the tax assessment would induce many Canadian-owned offshore captives to come ashore. While British Columbia captives are not subject to the accrued business income tax, they are subject to regular federal and provincial income taxes that can total as much as 45%.
But so far the only new business to materialize was a single-parent captive launched by Alexander Insurance Managers (Canada).
Though Concrete Casualty Inc. was formed as a single-parent captive in 1995, it did not begin writing until last year. The captive will write property coverage for concrete trucks owned by its parent company, Atlas Concrete Inc. of Alberta, according to William Morgan, managing director of Alexander Insurance Managers in Vancouver.
The captive manager also just
received approval for another single-parent captive, which began operations April 1. That captive, West Fraser Captive Inc., was formed by West Fraser Timber Co. Ltd. of Vancouver to write property and environmental impairment liability.
At year-end 1996, British Columbia had a total of 17 captives, up from 16 at year-end 1995. To enhance growth in the domicile, the British Columbia Captive Insurance Assn. is lobbying for legislation that would make B.C. captives eligible for a refund of the provincial income taxes they pay on business related to non-British Columbia risks, said Mr. Morgan.
Under current regulations, an international captive that writes non-Canadian risks with its British Columbia captive would pay 30% in federal income tax and 16% in provincial income tax. But under the proposed change, the portion of the 16% tax that is not related to British Columbian risks would be refunded.
Captive managers believe the exemption would attract Asian companies to the Pacific domicile.
Without the exemption, British Columbia is likely to remain a domicile primarily for B.C. risks, said David Self, vp-global captive management at J&H Marsh & McLennan Inc. in Vancouver.
The captive association is also lobbying for amendments to the International Financial Business Act to permit captives to write some third-party business. However, no new legislation has been drafted.
The British Columbia Insurance (Captive Company) Act of 1987 permits the formation of three types of captives: single parent; association; and "sophisticated insureds," which, unlike association captives owned by companies in a related industry, are owned by unrelated companies with insurance expertise and minimum combined premiums of $500,000 Canadian ($359,000).
Applicants must pay a non-refundable application fee of $500 Canadian ($359) and an initial registration fee of $2,500 Canadian ($1,795). Annual renewal fees are $2,500 Canadian. Minimum capitalization of $200,000 Canadian ($143,600) and $100,000 Canadian ($71,800) in reserves are required.
Captives may write property and liability insurance including product liability, directors and officers liability, and marine insurance. They cannot write life, health, accident or motor vehicle insurance on a personal lines basis, though such risks can be written on a commercial lines basis. Annual reports including audited financial statements and actuarial reports are required.
For information, contact Larry A.W. Neilsen, Deputy Superintendent, Insurance and International Financial Business, Suite 1000, 1050 West Pender St., Vancouver, B.C. V6E 3S7; 604-660-2947.
Joanne Wojcik
Netherlands Antilles
There are 17 captives currently domiciled in the Netherlands Antilles, unchanged from year-end but one more than last year at this time.
Two new captives formed in the Caribbean domicile last year and one is being liquidated.
In 1995, captives in the Netherlands Antilles wrote $101 million in gross premiums, up from $93 million the previous year. Premiums for 1996 have not yet been calculated.
There are no minimum capital and surplus requirements and no premium-to-surplus requirements in the Netherlands Antilles. "The amount of initial capital is determined by the amount of funds necessary to start up operations according to the business plan and the minimum solvency margin applicable," said Raynold Nivillac, superintendent of insurance at the Central Bank, which regulates captives.
The minimum amount of assets a captive must maintain is $225,000 for life insurance and $170,000 for non-life insurance.
Captives must pay a one-time license fee of $3,400 and an annual fee of $1,700. Captives must submit an audited financial statement within six months after the end of the financial year.
Most of the captives in the Netherlands Antilles are association captives.
There are 17 management companies currently operating in the Netherlands Antilles, according to a bank official. Management companies do not need a license.
Captive insurers are governed by a Special Insurance License Decree that was enacted in May 1992. No changes have been made to the law since its enactment.
For further information, contact Raynold Nivillac, Superintendent of Insurance, Bank van de Nederlandse Antillen (Central Bank), Breedestraat 1(P), Curacao, Netherlands Antilles; 599-9-461-3600; fax: 599-9-461-5004 or 599-9-461-7425.
Deborah Shalowitz Cowans
The Bahamian Legislature is revising capitalization requirements set under its 1983 law for all new and existing captive insurance companies.
Under that law, minimum capitalization is $100,000 for non-life companies and $200,000 for captives writing life insurance. The amended law will require a $1 million minimum capitalization for non-life companies and a $2 million minimum capitalization for life companies.
"In keeping with the amount in premiums the captives write, we had to increase it," said Beryl Roll, an analyst with the Bahamian Ministry of Finance and Planning's Insurance Section in Nassau.
The amended requirements are expected to become law at the end of this year, but Ms. Roll said that the Bahamian regulators are already requiring the higher amounts for new companies.
All existing captives in the Bahamas will be given "adequate time" to build up their capital, if needed, she added.
Three new captives were formed in the Bahamas in 1996, three were lost and no new companies have been licensed so far in 1997.
At year end, 11 true captives were operating under the Bahamas' 1983 captive insurance law, the same as in 1995 and down from 14 in 1994.
Fees set under the 1983 law will remain unchanged. Captives are required to pay a $2,500 annual fee, a $650 fee for the captive manager, and a $100 business fee.
Captives also must file an audited annual financial statement with the registrar's office.
Seven captive managers are licensed in the Bahamas: British-American Management Ltd.; Captive Managers Ltd.; Corporate Captive Management Ltd.; Johnson & Higgins (Bahamas) Ltd.; Russian Investment Insurance Management Ltd.; Beta Management Ltd.; and Equitable Underwriting & Sales Agency (Bahamas) Ltd.
For more information, contact Telzena Coakley, Insurance Registrar, Bahamian Ministry of Finance and Planning's Insurance Section, P.O. Box N-3017, Nassau, Bahamas; 242-328-1068; fax: 242-328-1070.
Sally Roberts