10 August 2015Accounting & tax analysis

The new era of captive waves

The British Virgin Islands (BVI) prides itself on being a ‘one-stop shop’ for financial services including fiduciary services, trust and estate planning, fund establishment, administration, ship, mortgage and aircraft registration services, and the formation and management of captive insurance companies. With such a comprehensive offering, the BVI as a jurisdiction is excited about its ability to provide a wide flexible range of captive solutions.

BVI is a compliant, well established and highly sought-after internationally recognised insurance centre. Pioneering, innovative and leading the way in global business solutions, the BVI is known for connecting markets, empowering clients and facilitating investment, trade and capital flow.

The lines of business are wide-ranging due to the flexibility of a captive. Typical risks run from property and casualty and D&O through to unusual risks that cannot be insured in the traditional marketplace (such as a pandemic, pollution, cyber attacks). As businesses expand into North American and other markets, insurance programmes are framed to provide cover to multinational and jurisdictional risks and new exposures.

The rise in interest for risk transfer programmes offshore can be directly attributed to a number of factors and the need for more sophisticated products to address growing risk appetite. However, one of the main hurdles is increasing awareness of the risk management solutions available so that shareholders and managers understand the benefits and operations of a captive.

For example, a large multinational with a risk profile to manage can benefit from a captive, with direct access to the reinsurance markets. A company may also need a suitably rated fronting carrier acceptable to the jurisdiction and access to skilled professionals, and may also wish to consult with experts and conduct a feasibility study. As an internationally recognised jurisdiction embedded in the global economy, the BVI remains well-positioned to offer solutions for employee benefits in varying industries worldwide.

From a regulatory standpoint, BVI legislation allows for the formation of BVI business companies to carry out regulated activities with the relevant approval from the Financial Services Commission, the BVI’s regulatory body. With respect to insurance licensees, the legislative provisions allow for the formation of legitimate captive insurance structures that meet the captive owner’s needs in properly mitigating and managing risk.

In preparation for the wave of captive opportunities on the horizon in the US market, the BVI has managed to propose two (2) new categories of licences:

Category E: Pure captive—related party business-only lightened regulations (notifications for changes such as shareholder, director and senior officer, audit exemptions, etc).

Category F: Captives writing related party business with a maximum unrelated party (third party) business in order to qualify as an insurer for any purpose under the laws of a foreign jurisdiction.

Removal of the strict arrangement between general and long-term insurance, ie, strictly segregated and classified—to be classified as property and casualty or life and health—provides the Commission with the ability on a case-by-case basis to issue a licence to an insurer to carry on property and casualty and life and health insurance business.

Segregated portfolio or cell formations will require the Commission’s written approval. Currently, segregated portfolio companies (SPCs) may be formed under the BVI Business Companies Act, 2004 to carry on insurance business.

Why the BVI?

The BVI offers a number of advantages for captives considering it as their domicile of choice.

Maintenance of strong international regulatory standards

BVI has signed a numerous tax information exchange agreements in recent years that place the domicile on the OECD’s ‘white list’ of favourable global domiciles. The legislation and regulation are flexible in their application, and compares favourably to the main competing jurisdictions.

Comparatively low unit costs of labour

It is relatively easy to get affordable support staff. If one compares jurisdiction costs with those charged in other domiciles, the BVI remains very competitive.

No requirement to hold board meetings in the BVI

Board meetings can be held in another jurisdiction as long as proper minutes are taken and those minutes are then filed with books and records. This can save an entity significant cost, time and effort.

No requirement to capitalise a captive in the territory with a BVI bank

Funds can be deposited in an account in the US and—provided the entity’s captive manager receives bank statements and evidence that there is capital in accordance with the law in the bank account—there is no requirement to have the account in a bank situated in the BVI.

No statutory requirement for directors

Directors do not have to be in the BVI and the captive can have professional and back office support anywhere to suit its business.

Politically stable environment

BVI has a very stable political and economic jurisdiction based on UK common law or in the case of financial services, international law, making it an internationally recognised, business-friendly jurisdiction in which to carry out captive business.

The domiciliation of a broad range of international captives

The domicile is more global in terms of captive formations, with a significant portion of captives being from East Asia and Russia. This again helps to strengthen the reputation of the BVI’s offering internationally.

Sound legislation

Clients of the BVI continuously benefit from our evolving legislation which ensures international standards are applied, our reputation as a trusted and reliable jurisdiction is upheld and our products remain competitive and at the cutting edge.

For those considering a captive domicile, the availability and flexibility of local expertise can be a major deciding factor in choosing a particular jurisdiction. In tune with this important consideration, the BVI is well-positioned to attract captives to its shores, with the domicile boasting a sizable bench of captive talent.

A quick visit to the BVI regulator’s website (www.bvifsc.vg) provides some indication of the level of talent resident in the islands. Among the insurance entities that call the BVI home are an impressive array of 13 insurance managers and 17 insurance agents all of whom work closely with the captive market.

There are also four brokers and five loss adjusters servicing the market and a growing pool of captives—most with parents based in the US—that have opted to domicile in the BVI.

The BVI plays host to a number of leading accounting and fiduciary firms and international law firms with truly global footprints, offering captive owners a diverse range of world-class insurance, accounting, claims handling and legal expertise to satisfy all their captive needs.

Tiered fee structure* for captive insurers, based on gross
written premiums similar to those of domestic insurers.

The proposed tiers are:

• GWP of $500,000 or less

• GWP of $500,001 up to $999,999

• GWP of $1,000,001 to $4,999,999

• GWP of $5,000,000 to $9,999,999

• GWP of $10,000,000 and above

*Fee amounts have not been finalized

About BVI Finance

BVI Finance is the marketing and promotional arm whose mandate is to project the jurisdiction’s position
as a pioneering, innovative leader in global business solutions, and as an internationally respected finance centre.
For more information visit www.bvifinance.vg