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UK urged to ensure captives are transparent
An insurance advocacy group has called on the United Kingdom government to ensure that captive insurers domiciled in the UK are held to a higher level of transparency than their US counterparts.
The Centers for Better Insurance, which describes itself as an independent organization committed to enhancing the value the insurance industry delivers to all stakeholders, issued the call in response to the UK Treasury’s November consultation on introducing a captive regime to the UK.
The UK is considering introducing captives and the Treasury launched a consultation on November 14 to “understand the potential of a new approach to captives to support the growth and international competitiveness of the UK’s insurance sector”. The deadline for submissions is February 7, 2025.
The CBI, which is founded and led by insurance veteran Jason Schupp, urged the UK to hold captive insurers to the same standards as other financial services, particularly in regard to beneficial ownership transparency and tax avoidance.
It estimated that almost 5,500 captives are domiciled in the US while a further 2,000 are domiciled in Bermuda and the Caribbean primarily serving the US market.
“CBI’s research suggests that most captive formations in the US market are significantly motivated by the corporate parent’s desire to access insurance-based tax and accounting rules as well as government sponsored programmes reserved for insurance companies,” the CBI said. “Further, the US captive market is highly opaque resulting in significant challenges to effective oversight, enforcement, and public scrutiny.”
It added that “the vast majority of US captive domiciles from divulging information regarding the captive insurance companies it licenses.
Noting that Vermont is by the largest captive insurance domicile in the US, it said: “The Vermont Department of Financial Regulation is prohibited from disclosing information regarding a Vermont domiciled captive including the captive’s beneficial ownership, organisational documents, financial statements, lines of business, and board members without the written consent of the captive.
“Further, Vermont purports to grant the Department of Financial Regulation the discretion to refuse to cooperate with criminal law enforcement authorities investigating a Vermont domiciled captive.”
The CBI added that US companies had formed captives to take advantage of the 831(b) tax election as well as how some companies had filled their captives with assets to minimise tax obligations while carrying out minimal insurance activity.
“HMT should carefully evaluate the potential use or misuse of UK domiciled captives to exploit the UK tax and accounting system as well as the tax and accounting systems of the jurisdictions in which potential captive owners do business,” the submission said.
“The US experience shows that in the absence of effective transparency, regulatory oversight, and public scrutiny, the corporate parent’s control of a captive’s insurance license can lead to (a) undesirable or inappropriate access to government sponsored programmes; and (b) tax and accounting schemes with adverse implications both inside and outside of the domiciliary jurisdiction.
“As it considers reformation of captive regulations, HMT should ensure that UK domiciled captives will be held to the same outcomes for transparency, governance, and supervision to which the UK holds all others granted the privilege of a financial services licence.”
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