Dr Tanya McCartney explains why The Bahamas is a perfect home for captives.
Research indicates that there are over 6,500 captives operating worldwide and over 1,000 global companies successfully using captives.
A common misconception is that captives are only for and formed by large public companies, but there is a growing trend for small private companies to own captives.
Data suggests that 47% of captives are owned by private companies and this helps to dispel the myth that only Fortune 500 or Fortune 1000 companies use captives.
This is where jurisdictions such as The Bahamas offer a unique advantage with a well-regulated insurance sector and a collaborative public/private sector approach.
Captive insurance environment in The Bahamas
The Bahamas’ captive environment is composed largely of small to medium-sized international enterprises seeking to establish a captive insurance presence through a standalone or segregated account entity.
The Bahamas’ growth in the captive space continues to be attributed to the use of segregated accounts (cell captives) given that their cost effectiveness is more favourable than operating a standalone captive.
The Insurance Commission of The Bahamas, the insurance industry’s supervisory authority, continues to enhance the captive industry by streamlining the application process and maintaining a robust regulatory and supervisory framework which meets international standards.
As a result, The Bahamas has registered captives insuring risk emanating from various industries, such as medical and healthcare administration, retail and wholesale distribution, agriculture, construction and real estate.
All captives are licensed in accordance with the External Insurance Act 2009. The captive insurer application process includes:
- A scheduled pre-application meeting to discuss the proposed business plan
- Submission of a completed application, which includes, but is not limited to, the following:
- a detailed business plan
- an actuarial review or feasibility study
- projected financial statements for three years (inclusive of balance sheet, income statement and any solvency calculations)
- sample policies to be marketed and sold by the applicant
- details of the reinsurance programme
- due diligence documents for proposed shareholders, directors and senior officers.
- An application review as well as a consideration for approval by the board of commissioners.
An approved application receives approval in principle where the applicant is given 30 to 60 days to meet the conditions of approval. Once the conditions of approval are met, a certifi cate of licence is issued to the applicant.
How captives benefit domiciles such as The Bahamas
While the primary purpose of a captive insurance company is to insure the risks of its owner(s), The Bahamas, engagement of the captive insurance sector provides a few benefits to its overall economy. These include:
- An economic stabiliser: Insurance, overall, is an economic stabiliser. During difficult economic times, companies tend to buy more insurance, which results in a better return on capital for those who have put up capital in the insurance sector. Through economic growth, there tends to be increased incorporations and thus a greater demand for insurance.
- Promotes growth in the overall insurance sector: Specifically, with captives, markets tend to experience increased growth through hard insurance markets, where premiums are rising and available limits are being reduced. We are seeing this trend currently with the clamping down that Lloyds of London began in early 2018.
- Creates opportunities for professionals such as accountants and attorneys: As the sector grows, employment numbers will grow as will the revenue of existing service providers like attorneys and accountants.
- Creates employment and can attract foreign direct investment: Many captives ultimately become full standalone insurance companies, and often they establish these full insurance companies within the domiciles of the former captive. Therefore, they have a physical presence. This means investment in real property, which gives them a long-term relationship with the domicile.
The Bahamas advantage
It is not by chance that The Bahamas is the most diverse and successful international financial centre in the Caribbean region today.
More than 80 years of thought, effort and cooperation have produced ideal conditions for captives, investment by and relocation of (ultra) high-net-worth individuals, efficient management of wealth by families and businesses in comfort and style.
The country’s mature financial services industry, established infrastructure, progressive government, tax-neutral environment and luxury lifestyle have all been carefully cultivated to satisfy the specific needs of this most exclusive clientele.
The many advantages of doing business in The Bahamas are as clear as the crystal waters surrounding the 700 islands of the archipelago, these include:
- Strategic location: The Bahamas is situated at the crossroads of the Americas, just 65 miles off the east coast of Florida. It is an ideal hub for regional investment and business in the Eastern United States and Canada, and much of Central and South America.
- Political and economic stability: The Bahamas has an outstanding record of political and economic stability, progress and stewardship. With more than 280 years of uninterrupted parliamentary democracy, it has been an independent nation since 1973 and retains a Westminster-based system of government and an English-based legal system.
- Wealth and asset management options: The Bahamas offer owners of capital a broad choice of financial institutions that deliver myriad services, including banking, private banking and trust services, investment fund administration, capital markets, investment advisory services, accounting and legal services, e-commerce, insurance and corporate and shipping registries.
- Physical resources: The Bahamas has developed its land, premises and fit-forpurpose infrastructure with the focus of facilitating international business.
- Human capital: The Bahamas has a highly educated local workforce and a long tenure in financial services excellence which has created a deep pool of skill and experience that is recognised and trusted worldwide.
- Investment policy and incentives: The Bahamas’ government is committed to building an economic environment in which free enterprise can flourish.
The Bahamas is simply captivating
The Bahamas has always sought to provide superior financial products and services and a world-class client experience. It has proved itself to be nimble and responsive to global changes – always mindful of the need to adhere to international standards with respect to compliance, cooperation and transparency.
Any country heavily engaged in financial services bears the responsibility and a commitment to the international community of which it is intricately involved, the financial institutions operating within its borders, the clients which it serves and its citizens who rely on the sustainability of the industry for continued economic development. The Bahamas is such a country.
Three vital features at the heart of what distinguishes The Bahamas as an international financial centre of significance are: expertise, innovation and location.
Everything The Bahamas offers is defined by these words. Everything that comprises The Bahamas value proposition and continued success as a leading international financial services centre that is guided by these distinguishing factors.
- Expertise: With an 80-plus-year track record in financial services, few jurisdictions offer the wealth management experience The Bahamas has to offer. This heritage is the basis for the strong legal framework that has been cultivated for financial services, an investment climate that has been nurtured through years of maturity and a stable and predictable business environment anchored by the thousands of Bahamian wealth management professionals who work side-by-side with expatriate colleagues in the 250+ financial institutions that call The Bahamas their home.
- Innovation: Market responsiveness has long been a part of The Bahamas’ DNA as a forward-thinking IFC, and has been the basis of legislation creating innovative, client-centric products and services in a modern, compliant regulatory regime. Such innovation can be seen in the country’s evolving and often ground-breaking trust legislation. And with this innovative spirit it should come as no surprise that the country’s once dormant insurance business has re-emerged as a sought-after destination for captives.
• Location: Our proximity to the US, Central and South America places The Bahamas in an enviable position to serve both our traditional and emerging markets and presents an opportunity to link commercial and financial interests. In recent years, as more and more individuals have chosen to ‘follow their money’ with respect to where they live and work, The Bahamas, with its tropical environment, has become the preferred choice for many who yearn for an excellent quality of life while being able to manage their financial affairs.