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Amendment to IBC Act could double business for captive insurance
WELCOME BAHAMAS - NASSAU, CABLE BEACH & PARADISE ISLAND - 2004
Amendment to IBC Act could double business for captive insurance
Captive insurance highly flexible vehicle, "People invent new ways of using them every day"
Thanks to amendments in the International Business Companies (IBCs) Act, The Bahamas? captive insurers have hopes of escaping from years of less-than-robust business.
The changes, finalized in February 2004, permit IBCs to be incorporated as external (captive) insurance companies subject to obtaining the requisite licence. If all goes well, at least one executive ? Martin Eveleigh ? sees an almost immediate doubling of the annual number of captive formations in The Bahamas over the next couple of years.
Eveleigh is managing director of Atlas Insurance Management Limited, an underwriting manager formed as a joint venture with Britannia Consulting Group. His optimism for increased business does have a caveat. ?Above all, the public sector must process applications more quickly than before? he says. ?The government claims it can now turn around an application in four weeks? time.?
He labels the new legislation as ?something that shows the marketplace The Bahamas is serious about what we?re doing in the captive sector. It indicates we?re up-to-date. You could call the IBC Act a good marketing tool.? (An IBC is a flexible form of corporate vehicle governed by the International Business Companies Act, 2000, which superceded the existing 1989 Act.)
If he?s not in his Bay Street office in Nassau, there?s a good chance Eveleigh is attending a conference in the US or elsewhere, promoting The Bahamas as a captive insurance domicile. ?Money out of my own pocket but money well spent,? he says of the cost of these trips.
The lure of captives
What exactly is captive insurance? Briefly, captive insurance companies ? alternative providers of protection against the risk of damage or loss and third party liabilities ? differ from traditional insurance firms in the nature of risks they underwrite or reinsure. They minimize the cost of risk management and may substantially reduce, or even avoid, other expenses such as administration and settlement of claims, loss control expenses, brokerage commissions and other acquisition costs and consulting fees.
The above is a textbook definition. Eveleigh and his colleague, Lester Turnquest, managing director of Britannia Consulting Group and a former Member of Parliament, view captive insurance as a highly flexible vehicle used for a wide range of purposes. The market has changed enormously, notes Turnquest. ?People invent new ways of using them every day. They are no longer the simple, straightforward products for Fortune 500s and other large corporations.?
In fact, Eveleigh says, ?it would be futile to depend on Fortune 500 business.? Aside from the majority having captives already, he doesn?t consider giant corporations a feasible target for Britannia. Instead, Eveleigh prefers to focus on the middle market. He claims that a number of small to medium-sized captives can create ?a vital industry in a relatively short period of time.?
Allyson Maynard Gibson, Minister of Financial Services and Investments, says that the industry contains ?the most advanced and innovative company and investor oriented provisions in company management and administration? available today.
In addition, red tape has been cut. When a captive company is being formed, the applicant no longer has to go through exchange control; it deals with the Registrar of Insurance only, and not the Central Bank as well. ?Theoretically, all this should push through licensing at a relatively speedy pace,? Eveleigh points out. ?We shall see. Right now I?ve got three applications submitted and should have three more in short order. To be able to tell my clients with confidence that the process will be completed in four weeks would be most gratifying, indeed.?
Now that Atlas Management and other captive insurers in The Bahamas can operate as IBCs rather than domestic companies, they have a major selling point, namely the elimination of red tape.
And then, of course, there are the fees. Compared to Bermuda and the Cayman Islands, The Bahamas is a more cost-effective place to establish a captive says Eveleigh. He claims annual government fees in Cayman, for example, are US$7,000.
Eveleigh is adamant in predicting that if the public sector responds properly, captives in The Bahamas could make a much bigger blip on the radar screen. ?I?m sure the government is fully aware of the great potential of this business,? he says. ?The IBC amendments demonstrate that.?
Captive insurance firms provide self-insurance for high-income individuals, including doctors, lawyers and builders, who may be subject to career-ruining legal suits.
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