Henry Brandts-Giesen and Jackson Tu’inukuafe of Dentons explain to family office and family business executives about the Cook Islands captive insurance regime
Family offices and associated businesses are typically dependent on the commercial insurance market for risk assurance, and are not aware of or understand alternatives such as captive insurance. Even so, the minimum capital requirements may be prohibitive. The Cook Islands has a captive insurance regime for family offices and businesses where a licensed insurance company (or captive) is set up to provide insurance to its non-insurance parent company and other related subsidiaries. This can enable family offices and businesses to fulfil their risk financing needs outside of the commercial insurance market, without the more onerous capital requirements of some other captive insurance domiciles.
Captive insurance in a family office ecosystem
Conventionally, captives have been utilised by major multinational corporations. However, industry innovation has also enabled captives to be utilised by high net-worth individuals to underwrite the unique risks of their family, their various businesses, and, if applicable, their associated family office.
Often, family offices have esoteric assets like air and marine craft, operating companies in developing nations, diverse real estate portfolios, art and antiquities, etc.
Because the operations of a family office can be broad, obtaining insurance that meets the family office’s risk financing needs, and is appropriate from a cost and coverage perspective, can be difficult.
Often, family office assets are subject to idiosyncratic risks (eg currency, sovereign, geographic, and climatic) and are difficult and expensive to insure. Captives can provide a solution to this problem, assisting a family office in the preservation of intergenerational wealth.
Captive domiciles
In the Asia Pacific region, the key domiciles for captives are New Zealand, Labuan, Hong Kong, Singapore and the Cook Islands.
More broadly, captives are popular in most offshore jurisdictions, including Guernsey, Bermuda, the Cayman Islands, as well as some states in the US.
Determining the domicile of the captive is crucial for evaluating its viability.
Its domicile has a significant influence on the factors that will impact a captive’s administration, such as ease of formation, regulatory environment, flexibility of regulators, cost of administration, accessibility, communication, and convenience.
The Cook Islands captive insurance regime
The Cook Islands captive insurance regime is widely used for risk financing outside the commercial insurance market. Captive insurance in the Cook Islands is governed by the Captive Insurance Act 2013 (CIA) and the Captive Insurance Regulations 2013 (CIR), and is regulated by the Cook Islands Financial Supervisory Commission (FSC).
The CIA and CIR were enacted due to market demand and have been specifically designed to provide flexibility and administrative ease to organisations and individuals who want to establish and administer a captive in the Cook Islands. The Cook Islands captive insurance regime has several special features, including a low statutory minimum capital requirement. The Cook Islands require NZ$100,000 (US$58,800), whereas other key domiciles have much higher minimum capital requirements.
The abundance of experienced professional service providers is also noteworthy. The Cook Islands financial service industry has been operating since the 1980s, and has an experienced and knowledgeable fiduciary services industry.
Furthermore, the rule of law is strictly applied in the Cook Islands, and its judges are often current or former New Zealand judges. In addition, the FSC takes a pragmatic and sensible approach to captive regulation.
In the Cook Islands, captives must meet the following essential requirements:
- A company registered in the Cook Islands must act as the captive.
- There must be at least two directors who are natural persons, as well as one who is resident in the Cook Islands. All directors and shareholders must meet the ‘fit and proper person’ test.
- The Cook Islands Insurance Act 2008 requires the appointment of an approved insurance manager or an approved external manager.
- Individuals, corporations, unincorporated bodies, groups, and associations may own the captive.
- The fee required for a captive insurance licence is NZ$1,100, with an annual licence fee of NZ$3,100 being payable in advance.
- A Cook Islands international company incorporated after 18 December 2019 and acting as a captive must pay Cook Islands company tax of 20 percent on profits.
Countering money laundering, tax evasion and financial crimes
The Cook Islands has enacted laws and regulations aligned with international requirements.
It has integrated the Foreign Account Tax Compliance Act and the Common Reporting Standard into its legal framework for automatic financial information sharing, and bolstered its anti-money laundering and counter-terrorist financing regime with the Financial Transactions Reporting Act 2017, ensuring compliance with the Financial Action Task Force’s recommendations.
By joining the OECD’s Inclusive Framework on base erosion and profit shifting and eliminating preferential tax regimes, the Cook Islands is also recognised as a cooperative tax jurisdiction.
