Puerto Rico demonstrates long-term viability as domicile, says CapAlt

Despite the impact of Hurricane Maria, the long term viability of Puerto Rico as a domicile is in no doubt, according to risk management consultancy and captive manager Captive Alternatives.

Against a backdrop of tax court cases and more onerous captive regulations adversely impacting the captive renewals season, Captive Alternatives grew its gross premium 50 percent in 2017, and set up over 40 new small 'protected captives' in Puerto Rico - the firm's alternatives to 831(b)s. Furthermore, CapAlt's renewal rate on a premiums basis was over 80 percent.

The captive manager believes Puerto Rico has many advantages over both domestic and offshore jurisdictions, in not only efficiency and flexibility of operations, but it claims clients are starting to see additional advantages of Puerto Rico's international insurance sector, as well as the quality of CapAlt's protected captive structure.

"We are very pleased that CapAlt has grown by more than 50 percent again this year," said David Kirkup, chief operating officer of CapAlt. "While many captive managers have seen historic fall-off in small captive renewals, and very scarce new accounts, it has been the opposite experience at CapAlt. Despite tax reform confusion, and a year of bad publicity for small captives, we are very bullish on continued growth for Enterprise Risk Captives.”

2017 had been a challenging year for the 831(b) captives, due to the Avrahami tax case highlighting problems with many 831(b) insurance models.

In light of this case, CapAlt said that prospective owners and their advisors have been concerned about the quality of potential captive programmes.

CapAlt stated that its insurance model follows all safe harbour rules and best practices, ensuring that premiums are actuarially determined and reasonable, that coverages are insurable business risks, and that it works closely with its claims TPA to ensure that all claims are managed properly – given that every captive participates in these risks.

The 40 new small protected captives were set up in a range of industries including medical and other general business. CapAlt's coverages include enterprise risk such as loss of income covers, brand and reputation, cyber risk, administrative or regulatory actions, legal defence costs, and high deductible and excess covers on traditional commercial coverages.

Mark Jacobs, CEO of Captive Alternatives, said that 2018 will be another high growth year.  “Many of the initiatives in our distribution chain will mature this year.  We will be offering a Captive University in collaboration with several of our key advisors, and working closely with Morgan Stanley to educate more than 16,000 professional financial advisors.  We are also seeing growing interest from larger captives looking to move to Puerto Rico to take advantage of lower tax rates.”

CapAlt continues to work with organisations such as Morgan Stanley, B2B CFO and the California Medical Association. It is planning to expand its reach into niche industries such as sports, banking, private wealth and medical practices.