DW labs Incorporated
The Financial Services Commission has been busy updating the BVI’s legislation to further improve the regulatory environment and the options available to potential captive owners. Helen Janes, TEAM BVI member for BVI Finance and chairman of the BVI Association of Insurance Managers, explains some of the new rules to US Captive.
The British Virgin Islands (BVI) is well known for its high regulatory standards. What developments are we currently seeing with the legislation?
The BVI continues to uphold its outstanding regulation, in place partly to protect captives and their owners, to ensure that the reputations of all stakeholders are not tarnished by association with the less scrupulous companies that might be allowed to thrive in lesser regulated jurisdictions.
At the same time, the BVI has listened to suggestions from the captive industry and monitored captive legislation worldwide, to adapt the rules to suit the needs of companies considering domiciling or already domiciled here.
The Insurance (Amendment) Act, 2014 and Insurance (Amendment) Regulations, 2014, which have been approved by cabinet but are not yet in effect, contain a number of key changes that it is hoped will help BVI captives do business even more efficiently.
What key changes can we expect to see in the amendments?
One key change is the expected introduction of category E and category F insurers. These categories are aimed at pure captives and those who write only related party business in order to qualify as an insurer under the laws of a foreign jurisdiction.
Pure captives present a lower risk to the public than those doing business with third parties so it is expected that there will be certain dispensation accorded to them.
What sort of advantages will there be for these new categories of insurer?
One such dispensation is likely to be a favourable fee structure if they have a relatively low level of gross written premiums (GWP). A tiered structure has been proposed whereby the lowest licence fee level will be payable by captives with GWP less than $500,000. The second level is expected to be from $500,001 to $1 million and the third for over $1 million and up to$4,999,999.
The fourth tier would be from $5 million to $9,999,999 and the final tier is for GWP over $10 million. We hope that the fees themselves will be finalised this year and that they will be a welcome change for many captives.
As well as the tiered fee structure, the legislation gives the regulators flexibility to consider applications in the context of the level of risk they pose to policyholders, other company stakeholders and the public as a whole.
Why are the definitions of General Business and Long Term Business being changed?
Each of the categories of insurance business currently falls under the definition of either General Business or Long Term Business. The amendments propose a change in the titles of these categories to ‘Property and Casualty Business’ (P&C) and ‘Life and Health Business’ (L&H). The health insurance category is therefore being moved from the General category to be included in the Life category. This will enable companies conducting L&H business to do so under one licence.
There is also provision in the draft amendment legislation for companies to request an exemption from the prohibition from doing business under both P&C and L&H categories under one licence. This increased flexibility should be good news for many insurers.
"Our captives will welcome the opportunity to have an experienced insurance professional who is expert in BVI legislation on their board of directors."
Do the amended regulations allow BVI insurance managers to enhance the service they provide to their captives?
There is provision in the draft Amendment Act for insurance managers to allow their designated representative to provide a director to a captive under management. We believe our captives will welcome the opportunity to have an experienced insurance professional who is expert in BVI legislation on their board of directors. It will protect the company from inadvertent breaches and should thereby increase compliance levels, further enhance the BVI’s reputation and decrease the workload for the Financial Services Commission (FSC).
Have there been any developments in the BVI’s international cooperation?
The BVI continues to finalise tax information exchange agreements (TIEAs) with other jurisdictions and is committed to transparency in this regard. Such agreements enable some countries, such as Canada, to have captives pay tax-free dividends, if derived from Canadian risks.
BVI corporation tax is zero-rated, so no tax is charged to the BVI resident company in the BVI, unlike many other jurisdictions, who generally tax the foreign affiliate before dividends can be paid back to the government of the parent’s country of residence.
The use of a BVI company as opposed to one in a taxed jurisdiction also provides an advantage to the parent’s government and to the parent’s home country as a whole. Usually, if a foreign affiliate pays tax in its country of residence, when this income does come to be taxed in parent’s home country, the tax already paid elsewhere is deducted from that paid in at home under a double taxation treaty. Through the use of BVI companies, the home country receives its full rate of tax rather than a reduced rate.
Can we expect any practical changes to the application process as a result of the amendments?
The overall BVI legislative framework is risk-based so applications are considered in the context of the risk level that they pose to the insureds and the public as a whole. The pure captives falling into the new categories of insurer may be afforded more flexibility than an insurer that is selling to the public. The legislation is drafted with the variety of insurers in mind in order to give the regulators the flexibility they need when considering different types of application.
A BVI resident insurance manager is a requirement and very much a necessity in ensuring that the application is up to sufficient standards prior to submission. The insurance manager will also ensure that the high BVI standards are adhered to on an ongoing basis and the Insurance Division of the FSC is committed to providing a prompt turnaround to requests once the request is complete with all the required information submitted.
How do we know that the BVI is going to be a stable jurisdiction to launch a new captive?
Recent International Monetary Fund and Caribbean Financial Action Task Force inspections of the BVI and the FSC’s response to their recommendations have raised standards to a point where there is unlikely to be significant further policy change imposed as a result of future inspections. In less well regulated domiciles, the legislation may be less stable and may be subject to change following recommendations arising from such inspections.
A domicile that currently seems to have very flexible requirements for captives might not be a long-term solution, as the requirements are likely to change in order to conform to international standards. Onshore tax authorities may also target those captives resident in less regulated jurisdictions more readily than those in the BVI.
How does the rest of the BVI infrastructure support captive formation?
From a corporate standpoint the process of incorporating a company in the BVI couldn’t be more efficient. The process is completed online and the incorporation documents received within a matter of days. As of the 2014 year-end, the BVI had more than 480,000 active companies registered, testament to its success and expertise in this area. The process of ordering copies of corporate documents and items such as Certificates of Good Standing is also streamlined and quick.
Are there any other developments to be expected in the future?
In terms of the future of the BVI, the legislation continues to evolve to meet the needs of captive owners. Although the legislation already provides for the establishment of segregated portfolio companies (SPCs) in the future we hope to consult on the draft Segregated Portfolio Regulations to accommodate the growing popularity of cell captives.
When will the new legislation come into force?
We hope to see the new legislative regime come into force this year and are optimistic that the changes will further enhance the reputation and efficiency of the jurisdiction and encourage more captives to establish themselves here in the BVI, and that numbers will continue to increase in the future.
Helen Janes is an insurance associate at Hyperion Insurance Management, TEAM BVI member for BVI Finance and chairman of the BVI Association of Insurance Managers. She can be contacted at: firstname.lastname@example.org
BVI Finance, North America, Helen Janes, The Financial Services Commission, Legislation, Insurance, Captives, Property, Casualty, Risk management