Nevis: worthy of a top 20 place



Nevis: worthy of a top 20 place

A tough, but appropriate, regulatory approach has helped place Nevis at the forefront of global captive jurisdictions, as Bernadette Lawrence reports.

It is almost eight years since Nevis enacted its original international insurance legislation with the passing of the Nevis International Insurance Ordinance at the end of 2004.

Despite tough economic times around the globe, unsurpassed competition from new jurisdictions and increasing supervisory overview from external bodies such as the International Monetary Fund (IMF), the Organization for Economic Cooperation and Development (OECD) and the Financial Action Task Force (FATF), Nevis has continued to post impressive growth figures for its captive insurance industry.

Having made the list of the world’s top 20 captive insurance domiciles at the end of 2010, Nevis has continued to consolidate its position within the world’s elite and ended 2011 with a total of 222 licensed, regulated insurance entities operating from within Nevis. Last year there was further growth in the number of licensed insurance managers in the domicile as the upward momentum continues.

So how has this small island in the Caribbean continued to show such dynamic growth against such a difficult economic backdrop?

Derek Lloyd, director and insurance manager within AMS Group’s captive insurance management division, can explain why this growth has not only been achieved but is being sustained, and how, in his opinion, it can be maintained as competition and the external pressures affecting jurisdictions such as Nevis both continue to increase—the next impending cloud being the Foreign Account Tax Compliance Act (FATCA) looming large for 2013 and beyond.

“First, growth in any business is sustainable only if it is properly resourced and supported. As the captive sector has grown in Nevis, the regulatory resource within the supervisory body, Nevis Financial Services, has also evolved, so that consistency of service standards is maintained. This is undoubtedly vital to maintaining the long-term support of the professional service providers within the jurisdiction,” says Lloyd.

“Furthermore, additional resources within the department allow the appropriate level of regulatory overview for this industry sector, which also helps to cement the increasing reputation of Nevis’s captive business on the international stage.”

Combined with those factors is a competitive professional and regulatory fee environment that has enabled Nevis to expand its captive offerings, not just to its more traditional US clientele, but elsewhere in the world including Canada, South America and Europe.

“Many inaccurate perceptions are held and opinions expressed pertaining to the ‘dark, shadowy world of the offshore tax havens’. Indeed, in the last few years there have been an increasing number of attacks on offshore jurisdictions generally—often politically motivated—which seek to lay the blame for the financial woes of the world at the door of jurisdictions such as Nevis,” says Lloyd. This being an election year in the US, he has no doubt that such political rhetoric will again find favour in certain quarters as politicians seek to apportion blame anywhere other than themselves.

"If the proposed Nevis entity is owned by a corporate structure such as a US limited liability company, trust or foundation, the beneficial owner still needs to be clearly identified."

Equally, though, he is not naïve enough to believe that Nevis—similar to Bermuda, Cayman and many other offshore jurisdictions—has not had regulatory and transparency issues to address. So too have New York, London, Zurich and any other major financial centres around the globe. In Lloyd’s opinion whether you are offshore or onshore is not really the issue. “The financial world today is a totally different place from what it was only a few years ago, with many of the smaller jurisdictions having to try twice as hard to demonstrate that they have a justifiable right to dine at the same table as certain of their larger, more influential brethren.”

Two of the most popular myths about the captive industry relate to the veil of secrecy surrounding the ultimate beneficiary of any given captive entity, and to the illegal evasion of taxes by such companies wherever the parent company may be located.

As far as Nevis’s captive industry is concerned, to submit a captive insurance licence application to Nevis Financial Services for review and approval before any subsequent legal entity can be incorporated, the following due diligence documentation is required from the ultimate beneficial owner of the company and from all directors and officers of a licensed, regulated insurance entity:

  • Personal resume;
  • Professional reference;
  • Bank reference;
  • ID (notarised passport or driver's licence);
  • Criminal record/affidavit; and
  • Utility bill confirming residential address.

“In addition, AMS and Nevis Financial Services both utilise approved external vetting agencies to further verify the background of any individuals deemed to be ‘control persons’ with respect to the operations and running of any licensed captive entity,” Lloyd explains.

“If the proposed Nevis entity is owned by a corporate structure such as a US limited liability company, trust or foundation, the beneficial owner of that structure still needs to be clearly identified and supported to the satisfaction of the regulator, together with notarised support of the formation documents for that vehicle.

“Contrast that with the process in a number of US states, where companies can be incorporated with little or no due diligence or statutory requirements for the disclosure of beneficial ownership.”

Turning to the matter of taxation, and specifically for captives of US parents, Lloyd says that “within the AMS portfolio of clients, all such entities of US parentage are duly registered under the Internal Revenue Code in the US as ‘953(d) companies’. Section 953(d) involves election by a foreign insurance company to be treated as a domestic corporation for US tax purposes”.

“Many of those licensed, regulated insurance entities may then make a further election under 28 USC Section 831(b) to be taxed on investment income only, so long as the company receives less than $1.2 million in premium each year. The 831(b) election is filed along with the company’s first tax return, and cannot be revoked without the consent of the Secretary of the Treasury.

“This incentive is provided by Congress to encourage the formation of new insurance companies. The 831(b) election does not affect the deductibility of the premiums paid by the operating business to the captive. So long as those premiums are otherwise deductible, they may be deducted by the operating business just like any premium payments,” he says.

Such formal and ratified elections under the US tax code may provide beneficial and legitimate tax deferral situations for the respective companies making such elections, but ultimately any repatriation of underwriting profits to the US is then subject to taxation at appropriate rates.

It should also be noted that the 831(b) election is precisely the same status as that utilised by many of the licensed regulated captives operating in Utah, Montana, Kentucky, Vermont and numerous other states within the US which have passed captive insurance legislation in the last few years.

“At a time when the traditional insurance industry has had its own issues to deal with and has often, at best, imposed punitive terms and conditions on customers or, at worst, abandoned loyal, long standing policyholders and withdrawn cover, the captive alternative has allowed such businesses to continue to operate with a suitable safety net ofinsurance protection, tailored to the specific needs and requirements of that business,” says Lloyd.

“The cyclical nature of the conventional insurance industry, with its hard and soft market cycles moving ever closer together, has fuelled the recent expansion in captive activity around the globe among bemused policyholders. Understandably, concerned operating businesses have sought to take responsibility for their own economic wellbeing in terms of available insurance coverage, retention of underwriting profit and control of their investment portfolios, with a sense from many that they have been badly let down by local and national regulatory bodies and financial institutions that were, until recent years, generally perceived to be invincible and beyond reproach.”

Lloyd envisages continued growth in captive numbers within Nevis and other jurisdictions. “We can only deal with the challenges and issues put in front of us on a daily basis and strive to deal with these in a compliant, transparent and professional manner,” he says. “The global economic meltdown has undoubtedly created a lack of consumer confidence in many of the major financial institutions, whether they are insurance companies, banks or other investment entities, and the captive structure enables consumers to take somewhat greater personal control of their own destinies.”

Bernadette Lawrence is director of development and marketing at Nevis Financial Services. She can be contacted at:

Derek Lloyd is director of AMS Insurance (Nevis) Ltd. He can be contacted at:

Nevis, domicile, captive, insurance

Captive International