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Jersey has a new insurance director and law designed to attract new captives and offshore insurance companies, though additions to date have been limited.
Last autumn, the Insurance Business (Jersey) Law 1996 was enacted to update the provisions of a similar law passed in 1983. The changes were designed to remove restrictions to setting up captives in Jersey, said Sarah Ferguson, senior professional assistant in the banking and insurance divisions of the States of Jersey Financial Services Department.
For example, a variety of legal entities-such as partnerships-can now own captives under the new law, unlike the prior law.
Also last autumn, Nigel Woodroffe became the first deputy director of insurance for Jersey. Mr. Woodroffe, formerly an accountant for Provident Mutual Life Assurance Assn. in London, is in charge of the newly created insurance division.
The new division has been developing various marketing initiatives to raise the profile of Jersey as an offshore captive and insurance company market and so far "we're getting a fair bit of interest," said Ms. Ferguson.
Jersey is one of the most developed offshore financial centers in the world, with 78 banks handling more than 90 billion pounds ($147.96 billion) in deposits. However, Jersey lags far behind its neighbor Guernsey in terms of captive insurance.
At the end of last year, Jersey had nine captives, unchanged from the end of 1995.
Jersey will announce the captives' 1996 results in May or June, but estimates that captives wrote at least the same amount of gross premiums as in 1995, when captives wrote 85 million pounds ($139.7 million), said Ms. Ferguson.
Also last year, AIG Combined Risks Ltd., an investment bank wholly owned by American International Group Inc., placed catastrophe-linked bonds through a special-purpose vehicle set up in Jersey. The bonds, placed by specialist reinsurance broker Benfield Ellinger Ltd., would respond if there were catastrophic industry losses in any of five geographic areas: the United States, Japan, Australasia, Caribbean and Western Europe.
Minimum capitalization to set up a Jersey captive is 100,000 pounds ($164,400) but it may be larger depending on the portfolio of business to be written. Solvency margins for non-life business is 17.5% of net premium income. Application fees range from 1,500 to 5,000 pounds ($2,466 to $8,220) depending on the business written. A captive also must pay a stamp duty of .5% of the authorized capital up to a maximum of 2,500 pounds($4,110).
A Jersey company can choose a variety of income tax levels, from zero to 30%, depending on what suits its parent company.
For more information, contact Nigel Woodroffe, Deputy Director: Insurance Division, Financial Services Department, P.O. Box 267, Cyril Le Marquand House, The Parade, St. Helier, Jersey, JE4 8TP; 011/44-603647; fax: 011/44-89155; e-mail: email@example.com.; WWW: http://www.itl.net.jersey.gov.uk.
Gibraltar is one of the most talked about captive domiciles at the moment in Europe.
This British territory on the tip of Spain is awaiting a ruling from the British Department of Trade and Industry on the competence of its Financial Services Commission following a recent government review.
If it passes DTI muster, Gibraltar also will be automatically recognized by regulators throughout the European Union. Captives located in the territory would then be able to offer cross border insurance services, as in other E.U. domiciles.
The DTI's decision may not be known, however, until after the United Kingdom's general election May 1.
"As a government, we are wholly committed to the development of Gibraltar as a credible and responsible financial center providing cross-border services," stated Peter Caruana, chief minister of Gibralter last month. "The development of the insurance sector forms a very important part of our plans."
If Gibraltar captives can write business directly in the European Union, "the potential is certainly there," said Michael C.R. Baddeley, executive director of captive development for Willis Corroon Group P.L.C. in London. "If you look at niches, you've got the Latin influence (and) the languages there, and the perceived permanence."
Though Spanish is spoken regularly in Gibraltar, business is conducted in English and the local currency is the British pound.
Gibraltar is not new to the captive scene.
In fact, there are 13 insurance companies incorporated in the territory, including six captives.
But Gibraltar has had a stigma attached to it since a series of financial scandals in the late '80s and early '90s in which offshore funds were diverted through the territory.
This reputation is "undeserved," contends Chris Johnson, senior insurance director for Norwich Union Fire Insurance Society (Gibraltar) Ltd., which manages four captives.
In all cases, Gibraltar only played a small part in major worldwide problems that stretched from the United States to the United Kingdom, he said.
To address concerns, however, the Gibraltar government in recent years has beefed up its financial services regulation and sought the DTI's stamp of approval. New insurance regulations have been passed to implement the European Union's life and non-life insurance directives.
Last October, Gibraltar's financial services commission hired its first insurance supervisor, Jim Costin, who previously served with the DTI for 10 years involved in life insurance regulation.
"If there is a stigma attached to Gibraltar, then the only way to overcome that is to make sure we have an acceptable standard of regulation," said Mr. Costin.
Gibraltar's government also is putting efforts into marketing the territory as an offshore insurance market and has asked Mr. Johnson of Norwich Union to spearhead these efforts.
A captive in Gibraltar must meet the same criteria as any other insurance company in the United Kingdom and be licensed by the insurance division of Gibraltar's Financial Services Commission.
In particular, to gain exempt insurance company status in Gibraltar, a captive must:
Pay an application fee of 500 pounds($822); a stamp duty of 0.5% on authorized capital; and an annual fee of 2,000 pounds ($3,288).
Maintain solvency margins along E.U. standards of 18% of net premiums for the preceding year up to 10 million ECU ($11.6 million) and 16% above the first 10 million; or 26% of net losses based on the average over the last three years up to 7 million ECU ($8.1 million) and 23% after the first 7 million.
Maintain a guaranty fund of not less than one third of the solvency margin or a maximum of 200,000 to 400,000 ECU ($232,260 to $464,520), whichever is the greater.
An exempt insurance company is given a tax exemption certificate for up to 25 years and pays only 1,000 pounds ($1,644) per annum in tax regardless of the profits. However, a captive can opt out of this and become a "qualifying company," paying tax of between 2% and 35% of profits to maintain maximum compatibility with the parent company's tax regime.
There are three captive managers in Gibraltar, said Mr. Costin, namely Norwich Union, SINSER (Gibraltar) agy and AIG Insurance Management (Gibraltar) Ltd.
For further information on how to set up a captive in Gibraltar, contact Jim Costin, Insurance Supervisor, Financial Services Commission, P.O. Box 940, Suite 943, Europort, Gibraltar; 350/40/283.
Captive insurer growth in Australia has been virtually non-existent despite tax reforms that may make the country more attractive than other domiciles for Australian companies.
In February, the Australian government proposed removing Singapore from the domiciles on its "white list," which allows a captive insurer to pay taxes in the domicile rather than in Australia. Singapore has a tax rate of 26%; Australia has a rate of 36% (BI, Feb. 24).
Australia's finance and insurance industries also are awaiting a major report on Australia's financial system. There is speculation it may recommend significant changes, such as merging various regulatory agencies, including the Insurance and Superannuation Commission, which oversees insurers and captives.
Meanwhile, there has been only one additional captive registered in Australia in the past 12 months. As of Dec. 31, 1996, there were five captives, plus four Section 37 insurers and three medical defense insurers.
Under Australian law, captives generally have the same capitalization requirements as other non-life insurers. An exception is companies licensed under Section 37 of the Insurance Act 1973. Section 37 insurers are restricted to writing personal injury and property damage insurance for members or employees of an organization who are engaged in a common trade or business.
The additional captive, registered on March 8, 1996, was set up by the Queensland Law Society to write professional liability coverage for its members (BI, April 22, 1996).
According to the latest figures available from the ISC, which are for the year-ending Dec. 31, 1995, Australia's captives wrote $125.2 million Australian ($97.7 million) in gross premiums, with a captive owned by Melbourne-based BHP Ltd., Australia's biggest mining and resources company, responsible for the majority, $111.5 million Australian ($87.4 million). That was little changed from the previous year.
Risk managers say one reason for the limited growth is uncertainty over the tax status of captive premiums in Australia.
Last year, an Australian Federal Court ruled that premiums paid to an offshore captive are fully tax-deductible and ruled the Australian Tax Office had to refund $7.4 million Australian ($5.8 million) to Sydney-based cigarette company WD & HO Wills (Australia) Ltd., which made the tax payment in June 1993, for its Singapore-based captive, Matila Insurance Pte. Ltd. (BI, April 15, 1996).
However, before the ruling, the ATO had been preparing a report clarifying its stance that captive premiums were not deductible. ATO officer Elliott Reich, who last year said the rewrite would be finished by year-end 1996, said it will "still be reconsidered in light of the Wills decision." He estimated the redraft would be finished by June, and may be made public in September.
For more information on Australian captives, contact the Insurance and Superannuation Commission, GPO Box 9836, Braddon, Australian Capitol Territory, Australia, 2601; 011-616-247-2299; fax: 011-616-257-1639.
The future of the Aland Islands as an offshore financial center remains in limbo as the local authorities await a Finnish government decision on whether the islands may continue to set a local corporate tax rate.
The islands remain home to one captive insurer.
Karin Holmquist, head of the Trade and Industry Department in the Aland Islands government, said a new "tax border" was created between the Finnish mainland and the islands earlier this year.
Visitors to the islands may buy goods on the islands at reduced sales tax rates from those on the Finnish mainland. A decision on corporate taxes is expected by the end of the year, Ms. Holmquist said.
The Aland Islands are a largely autonomous group located in the Baltic Sea between Finland and Sweden. Under 1995 regulations, captives are taxed at 16.8%, compared with 28% for other Finnish companies. The Finnish government has been considering whether to change the islands' status so that it could not set a separate tax rate.
For more information on Aland captives, contact Alandlanskapsty-relse, P.O. Box 60, 22101 Mariehamn, Aland, Finland; 358/180; fax: 358/185.
Although Labuan has yet to register a second captive, the Malaysian island is developing the infrastructure of a modern financial center.
Izzuddin Tajudin, director/general manager of MNI Offshore Ins. (L) Ltd., said only one captive, with a French parent, is currently domiciled in Labuan, unchanged from 1995, though an application has been received for a second captive.
The Malaysian Government established the Labuan Offshore Financial Services Authority early in 1996 to encourage greater development of the island as a financial center.
In addition to its one captive, the island now hosts 11 insurance companies and several insurance brokers.
Proposals for reducing the capital requirements for captives in Labuan have not yet been implemented, Mr. Tajudin said. MNI Offshore drafted such a proposal and submitted it to the Malaysian government last year.
Altogether, it costs about 20,200 ringgit ($8,157) to register a captive in Labuan, plus another 16,600 ringgit ($6,690) in annual fees, including auditing fees.
A captive is not subject to Malaysian income tax, but is required to pay a "business activity tax" of 20,000 ringgit ($8,060) or 3% of the disclosed profits in the captive's audited accounts.
Captives must have capital and a solvency margin of 1 million ringgit ($403,000).
For more information on Labuan captives. contact Awang Hadek, Director-General, LOFSA, Level 17, Main Office Tower, Financial Park, Jalan Merdeka, Labuan 87000WP; 60; fax: 60.
Risk managers forming captive insurance companies have a new domicile to consider in the Pacific.
Legislation passed in Guam and effective Jan. 1 is aimed at establishing the U.S. territory as the financial and insurance hub of the Pacific, according to the law. It allows for abatement of all taxes levied on insurance premiums and investment income earned by underwriters.
All other taxes required by the Guam government will be rebated to captives and other insurers. The law calls for underwriters who locate in Guam under the new legislation to invest at least 50% of the amount of abated or rebated taxes in the local economy for at least five years.
The law, passed last summer, states that its intention is to broaden the base of the Guam economy "to include more than tourism and military base employment."
It also states that the island should capitalize on its "unique geographic location to become a financial/insurance capital of the Pacific, much like Bermuda is in the Atlantic."
The legislation says that apart from the tax exemptions, Guam offers insurers "the advantage of being located in a modern American community with some of the world's finest communications tools, with access to American courts and to the American school and health systems."
The tax exemptions are available through the Qualifying Certificate Program of the Guam Economic Development Authority. More information is available from the authority at 590 S. Marine Drive, Suite 511, Tamuning, Guam 96911; 671-647-4332; fax: 617-649-4146.
Malta still is awaiting its new insurance legislation to become law and thus far no captives have set up in the domicile.
The new insurance legislation was expected to be passed through Malta's Parliament last year, but an election and a change in government last October put all efforts on hold, according to John Bonett, director of insurance.
The proposed Insurance Business Act and Insurance Brokers and Other Intermediaries Act are expected to be published for comment in the next few weeks.
Under the proposed law, captives would have to have a minimum of $250,000 in capital to become licensed. Solvency margins will be in line with European Union legislation for insurance companies, which is the greater of 18% of gross premiums or three years' claims performance.
Captives must pay an annual fee of 1,000 Maltese lira ($2,650), but this may change after the law is passed.
Captive manager Willis Corroon Management (I.O.M.) Ltd. has been in Malta for two years on a "speculative" basis, said Michael C.R. Baddeley, executive director of captive development for Willis Corroon Group P.L.C. in London. The territory could be especially interesting to companies based in Mediterranean countries, he said.
For more information, contact John Bonett, director of insurance, Malta Financial Services Center, Attard, Malta: 356/44/11-55; fax: 356/44/11-88.
The Republic of Montenegro, part of the Federal Republic of Yugoslavia, was declared an offshore financial center Nov. 16, 1996.
Montenegran Prime Minister Milo Djukanovic said the project demonstrates the government's intention for the republic to join the world economy.
The move is a response to interest from Romanian, Austrian, Hungarian, Italian, Russian and former Yugoslav companies to establish offshore businesses in Montenegro. Captive insurance companies are among the types of businesses eligible to be established in the domicile, though regulations specifically governing insurance do not exist.
The Republic of Montenegro has been trying since last year to distance itself from Serbia. The two republics are the only ones remaining in the Yugoslavia federation.
Montenegran President Momir Bulatovic in July 1996 signed a law authorizing the creation of an offshore center and in October approved a package of regulations.
Corporate income tax on businesses in Montenegro will be just 2.5%, compared with the nearest offshore center, Cyprus, where it is 4.5%. The minimum capital investment for a limited liability company to be formed is $1,000 and for a shareholder company is $10,000.
For more information, contact Finance Ministry, Podgorice, Montenegro; 381/815; fax: 381/818.
Although New Brunswick has passed legislation allowing captives, the province has not promulgated any regulations because no one has indicated any interest in forming a captive in the coastal province, according to Reginald Richard, superintendent of insurance.
If anyone approaches the Insurance Department about forming a captive, regulations could be developed that would address the company's business plan, Mr. Richard said.
However, without any tax incentives, interest in the province is unlikely to grow, he conceded.
For further information, contact Reginald Richard, Superintendent of Insurance, Department of Justice, Province of New Brunswick, P.O. Box 6000, Fredericton, New Brunswick E3B5H1; 506-453-2512; fax: 506-453-2613.
Deborah Shalowitz Cowans
At least one captive manager expects New Zealand to become a successful captive insurance domicile-even though it currently has no captive regulations.
Tony Cope, general manager-risk advisory services with International Risk Management (Aust.) Pty. Ltd. in Melbourne, says New Zealand has "a lot of potential" as a domicile.
IRM is in the process of forming a captive insurer there, which would be managed in Australia by IRM. The captive's parent is Australian.
Singapore-based captive managers, however, downplay the attraction of New Zealand, which subjects captives to the same regulations as other insurers.
"My concern is that if there's no regulation at all, sooner or later something will be imposed, and that creates uncertainty," said George Tarabaras, managing director of Sedgwick Management Services (Sing.) Pte. Ltd.
"If the regulations are silent, that's not necessarily the best place to set up," he argued.
Despite the naysayers, Mr. Cope said IRM has established an office in Auckland, using Shaun Wilkinson, risk manager for Fletcher Challenge Ltd., a major paper, pulp and timber company, as a consultant. Mr. Wilkinson is responsible for Fletcher Challenge's Guernsey-domiciled captive.
Mr. Wilkinson's role is to encourage New Zealand companies to establish on-shore captives.
Mr. Cope said he was unaware of any captives currently based in New Zealand but said the insurance regulations are simple:
Insurers are required, under the 1994 Insurance Companies (Ratings & Inspections) Act, to be rated by Standard & Poor's Corp., Moody's Investors Service Inc. or another approved rating agency. Companies writing only first-party business are exempted from this requirement.
Under the Insurance Companies Deposits Act 1953, a captive would be required to deposit $500,000 NZ ($347,550) in government-approved securities.
The corporate tax rate is 33% and, because New Zealand retains its status on Australia's "white list" of approved domiciles, Australian captive owners would save 3% over Australian taxes.
Mr. Cope claimed that New Zealand's regulations are simpler than those in Bermuda, Singapore, and many other domiciles.
For more information, contact Mr. Cope at Level 5, 347 Flinders Lane, Melbourne, Victoria, Australia 3000; 61-3-9629-7655; 61-3-9629-6922.
Panama is the first and only domicile in Central America to allow captive formations, though no captives have taken advantage of that status yet.
Panama passed its captive law, called Law 60, on July 29, 1996. Under the law, captives insuring general lines must meet a minimum capital and surplus requirement of $150,000, while captives insuring life risks must meet a minimum capital and surplus requirement of $250,000. The premium-to-surplus requirement is 5-to-1.
The premium-to-surplus mandate fulfills the domicile's solvency requirement for captives insuring general lines; solvency requirements for captives insuring life risks are 6% of mathematical reserves.
There is a one-time application fee of $1,000 and an annual licensing fee of $2,000.
Captives must file an insurance or reinsurance risk report, an audited financial statement and any changes to information that was included in the original application.
There are no premium taxes or taxes on profits, and Panama holds no double taxation treaties. Captives must invest a minimum of 35% of reserves in authorized instruments in the country.
There are three licensed captive managers in Panama, and three other companies have applied to be licensed.
According to the superintendent of insurance, Panama is advantageous as a captive domicile for several reasons, such as it is located strategically between North and South America, it uses U.S. dollars as currency, and it is an international banking center with more than 100 banks.
For more information, contact Elisa M. De Carrizo, Superintendent of Insurance and Reinsurance, Ministry of Commerce and Industry, P.O. Box 9658 Panama Zone 4, Republic of Panama; 507-227-4754 or 507-227-3811 or 507-227-4717; fax: 507-227-0679.
Deborah Shalowitz Cowans