Captives find a home in The Bahamas

17-07-2020

Captives find a home in The Bahamas

Tanya McCartney, Bahamas Financial Services Board

As a jurisdiction The Bahamas offers unique advantages when it comes to providing a home for small, private captives: a well-regulated insurance sector and a collaborative public-private sector approach, says Tanya McCartney of the Bahamas Financial Services Board.

Research indicates that there are over 6,500 captives operating worldwide and more than 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.

In a report titled Captive Insurance in Bermuda, published in January 2019, Deloitte suggest that 47 percent of captives are owned by private entities. This helps to dispel the myth that only Fortune 500 or Fortune 1000 companies use captives.  

Captives in The Bahamas

The Bahamas’ captive insurance environment largely comprises small to medium-sized international enterprises which seek to establish a captive insurance presence through a standalone or segregated account entity. The Bahamas’ growth in the captives 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 insurance 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:

  1. A scheduled pre-application meeting to discuss the proposed business plan
  2. Submission of a completed application which includes, but is not limited to, the following:
    1. Detailed business plan
    2. Actuarial review or feasibility study
    3. Projected financial statements for three years (inclusive of balance sheet, income statement and solvency calculations)
    4. Sample policies to be marketed and sold by the applicant
    5. Details of the reinsurance programme
    6. Due diligence documents for proposed shareholders, directors and senior officers
  3. Application review and consideration for approval by the Board of Commissioners. An approved application receives approval in principle; the applicant is given 30 to 60 days to meet the conditions of approval.

Once the conditions of approval are met, a certificate of licence is issued to the applicant. 

The benefits of captive to domiciles

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:

  1. It’s 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 tend to be increased incorporations and thus a greater demand for insurance.
  2. It promotes growth in the overall insurance sector: specifically, with captives, markets tend to experience increase 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 Lloyd’s of London began early in 2018.
  3. It 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 such as attorneys and accountants.
  4. It creates employment and can attract foreign direct investment: many captives ultimately become full standalone insurance companies and they often establish such 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 t 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 advantages of doing business in The Bahamas include: 

Strategic location

The Bahamas is situated at the crossroads of the Americas, just 65 miles from the east coast of Florida. It is an ideal hub for regional investment and business in the Eastern US 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 offers 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-for-purpose infrastructure with the singular 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. 

High standards

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, and 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 which 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 three attributes. The Bahamas’ value proposition and continued success as a leading international financial services centre is framed by these distinguishing factors. 

Expertise

With an 80-plus-year track record in financial services, few jurisdictions offer the wealth management experience that 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 more than 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 international financial centre, 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. 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 and Central and South America places The Bahamas in an enviable position to serve both our traditional and our emerging markets and presents an opportunity to link commercial and financial interests. 

In recent years, as 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. 


Tanya McCartney is chief executive officer and executive director at the Bahamas Financial Services Board. She can be contacted at: info@bfsb-bahamas.com

 

 

Tanya McCartney, The Bahamas Financial Services Board

Captive International