International links: tax agreements
How much interest has the BMA received from Canadian firms considering establishing or re-domiciling their captive to Bermuda?
The Bermuda Monetary Authority (BMA) continues to see interest from Canadian firms in finding captive solutions in Bermuda—in terms of both setting up new captives, and re-domiciling existing captives from other jurisdictions.
In 2011 we spent a significant amount of time as part of a jurisdictional initiative to educate Canadian firms about the benefits of establishing a captive in Bermuda. In 2012 this outreach work will continue. This initiative began subsequent to Bermuda’s signing a tax information exchange agreement (TIEA) with Canada in June 2010. It is evident that the TIEA has helped generate even more interest in Bermuda.
What captive structures are available to Canadian firms in Bermuda? What are the benefits and considerations parent companies need to take into account when weighing up each type of structure?
Canadian firms that register in Bermuda can access any and all of the captive structures that are permitted under Bermuda’s regulatory framework—indeed, the full suite of Bermudian insurance company structures are available to them. Broadly, companies can elect to establish a captive that writes only its parent’s risk; or to form a captive that writes a combination of related and third party business.
"Bermuda remains unique as the only market that offers captives easy access to commercial reinsurance on the ground."
In terms of what a parent company should consider when setting up a Bermudian captive, I would say that it depends on the risk management strategy of each particular firm. Obviously the parent will consider the cost and administration of a captive and whether a captive fits into the structure of the firm’s overall claims management process. Firms should also consider whether they want to be in a market with ready access to reinsurance.
There are also fiscal considerations in terms of maximising the use of and returns on capital. Perhaps they wish to insure a type of risk that is too expensive to buy in the commercial market, or perhaps that type of coverage just does not exist. These are all factors for a firm to take into account prior to choosing a jurisdiction from which to operate a captive.
Bermuda’s regulatory environment and professional services infrastructure to support captives accommodate these considerations. Bermuda remains unique as the only market that offers captives easy access to commercial reinsurance on the ground, and our long history of experience with the captive sector also means there’s a depth of intellectual capital to support this business.
What is the present make-up of Bermuda captive structures?
Bermuda’s captive sector is not a niche market—it is global in scale. Our register has a long history and contains many different captive structures including: single-parent captives; group captives; association captives; agency captives; captives writing third party business; captives writing connected business; health care captives; rent-a-captives and segregated account companies.
Bermuda has always been seen as a jurisdiction that allows for innovation and creativity—we have definitely seen this in the captive space as well.
Which structures have attracted the most interest of late and how do you see this developing going forward?
We are seeing a range of captives being registered here, from singleparent captives all the way to segregated cell captives.
In addition, generally, we are seeing plenty of interest in the area of special purpose insurers (SPIs) and there has been a lot of innovation in these fully collateralised insurance-linked security (ILS) products.
Having put in place the framework to accommodate SPIs in 2009, the Authority is pleased to note market interest in these vehicles translating to more registrations. Additionally, effective April 1 2012, all new SPI’s licensed in Bermuda have paid $6,000 for annual registration—a significant reduction from the previous registration fee of $11,600.
The BMA applies a proportionate level of supervision to all regulated entities. Our fees are directly related to the cost of supervision and this fee adjustment reflects our review of the level of supervision required for SPIs.
How is the BMA planning to maintain Bermuda’s position as the leading captive domicile?
Bermuda remains the world’s premier captive jurisdiction. As such, all parties related to captives in Bermuda continue to recognise the significant value this sector brings to the jurisdiction.
From the regulatory perspective, the BMA maintains its pragmatic approach to regulation generally by setting regulatory requirements that are appropriate to the risk profiles of the various firms it supervises.
By maintaining this practical, risk-based approach, the BMA will remain a responsive regulator that understands the kinds of business being conducted here and that seeks to maintain the appropriate balance between fostering business development while maintaining adherence to international standards. Accordingly, proportionality is a key principle underpinning how we apply our supervisory regime.
The key to Bermuda maintaining its position as a leading international financial centre is applying a practical regulatory regime that remains workable for the captive sector while effectively meeting our regulatory objectives.
Shelby Weldon is director, licensing and authorisations at the Bermuda Monetary Authority. For further information on the BMA visit: www.bma.bm