It was a far cry from the sand and sun of Nevis when Denzil Douglas announced his intention to introduce captive insurance legislation. In the more brisk climes of Switzerland, the prime minister assured his audience that the new captive insurance vehicle would be “extremely competitive”, with low licence fees for small captives.
It was a far cry from the sand and sun of Nevis when Denzil Douglas announced his intention to introduce captive insurance legislation. In the more brisk climes of Switzerland, the prime minister assured his audience that the new captive insurance vehicle would be “extremely competitive”, with low licence fees for small captives.
In July 2004, the Nevis Ministry of Finance and Development announced the passage of the Nevis International Insurance Ordinance (NIIO). It was divided into six sections, and provided for the licensing and regulation of general insurance, captive insurance and reinsurance companies.
The ordinance made it compulsory for insurance companies to have a physical presence in Nevis with adequate knowledge, and two years later, lawmakers tightened up certain sections of the legislation to combat fraud.
Under the changes, certain provisions of interest included the warning that companies could not adopt a “deceptively similar” name to an existing business, and they must provide evidence of the “expertise, experience, and character of the person or persons who will manage it.”
According to Martin Eveleigh, chairman of Atlas Insurance Management (Nevis), for many years Nevis was a popular home for PORCs (producer owned reinsurance companies), which were formed predominantly to cover various warranty and credit insurance products that were offered by car dealerships. “While these reinsurance companies were not formally regulated, they gave Nevis a clear insight into the potential of establishing itself as a captive domicile. Additional impetus was probably provided by the visible success of the British Virgin Islands in the early 2000s and by encouragement from some in the industry. The Nevis International Insurance Ordinance 2004 is the foundation of Nevis as a properly regulated captive jurisdiction.”
“The main provisions of the NIIO legislation are in line with that in other offshore jurisdictions although, statutory minimum capital requirements are relatively low,” says Eveleigh. “A unique provision of Nevis’s legislation is the ability of an insurer to form any number of statutory funds. A statutory fund is a risk segregating mechanism somewhat similar to a protected cell. However, the insurer has great flexibility in how assets and liabilities are allocated to statutory funds and they are easily formed without cumbersome regulatory requirements. The statutory fund provisions can usefully be applied to group captives, various types of programme business and situations where one insured business has several owners who prefer to own separate captives.”
Derek Lloyd, director of AMS Insurance, says: “Most legislation follows a similar theme and generally speaking the offshore jurisdictions provide greater flexibility to the captive owner as to what risks may be underwritten within the entity, and also greater variety on the types of structures that can be utilised within Nevis.”
As for types of business lines, Lloyd adds that AMS has seen a wide diversity of both industry types and also the geographical location for the parent, as Nevis has “continued to mature and rise up the ranks of the leading captive domiciles around the world.”
“For sure, there are particular sectors such as ‘MedMal’ that have their own specific issues in the conventional market but generally speaking the spectrum is, indeed, very broad and diverse.” Regarding type, Lloyd states that from his own experience, the majority are pure single parent captives.
“But as the conventional insurance market continues to let down its longstanding and loyal clientele, we are certainly seeing an increased volume of enquiries from groups or associations seeking to take control of their insurance overhead with a combination of a captive and appropriate reinsurance as opposed to being at the mercy of the extreme market cycles commonly seen in the traditional insurance marketplace.”
All about the money
The primary benefit of setting up a captive in Nevis seems to be the cost. Under Nevis law, an insurance company must be a company formed according to the Nevis Business Corporation Ordinance 1984, with meager licensing fees of US$1000, 2000 and 5000 respectively for single person captives, less than five owner captives and five or more owner captives respectively.
“The cost of doing business in Nevis is low with very modest government fees,” says Eveleigh. “In addition, statutory minimum capital requirements for captives are low. Perhaps more importantly, the regulators in Nevis have been responsive and flexible. There is a very real sense that Nevis is open for business.”
Paul Mason of Trust Services Nevis, a subsidiary of CHCL Fiduciary, says that the major challenge facing prospective captives is that a Nevis captive insurance company must have a licensed insurance manager, who may not be a shareholder in or provide the services of directors or officers to the captive.
Lloyd says that there are no specific challenges to setting up shop on the island. “A complete and detailed submission supported by appropriate financial and due diligence information is undoubtedly a pre-requisite to a successful licence application but where isn’t it these days? Furthermore, the Registrar of International Insurance (Hazel Brandy-Williams) and her staff are very diligent in the vetting process of any potential beneficial owners and directors and officers of a licensed insurance entity in Nevis. It is also fair to say that significant due diligence is required for any licence application but in this day and age that is no different to establishing any business relationship or opening a bank account or whatever, with the necessity for open and transparent disclosure. If any individual has an issue with such criteria, then Nevis is not the place for them to have their captive!”
But a hurdle for the island could be its ‘offshore’ tag and the associated reputation.
“I would suggest that the overall numbers speak for themselves in that regard with consistent growth in the number of licensed and regulated captive insurance entities in Nevis in the last few years, with many of these entities being of US parentage,” says Lloyd. “I do believe certain captive owners have elected to take their captives back to the US in odd instances from offshore jurisdictions, maybe out of a sense of patriotism as their local state has subsequently enacted captive legislation or whatever but generally speaking, Nevis has fared very well and continues to grow and mature as a recognised captive domicile including entities with US parent companies.”
“As several of the leading onshore tax lawyers have suggested at industry conferences this year, there is no ‘right or wrong’ with regard to the so-called ‘onshore or offshore debate. Different trigger factors in different circumstances will lead to the determination of the domicile of choice for individual captive owners as to whatever may suit the proposed captive best and the increased volume of captive business generally and the growth in many jurisdictions, offshore or onshore, would suggest to me that any current debate is more media-generated than a reflection of the true position for either side.”
Eveleigh says: “The vast majority of captives in Nevis take an election under S.953(d) of the Internal Revenue Code to be taxed as US domestic companies. There is, therefore, complete transparency from a tax standpoint. While some US owners prefer to form their captives onshore in an environment that is more familiar to them, costs and minimum capital requirements are considerably lower in Nevis, it is an easy place in which to do business and there may be some asset protection advantages to domicile offshore.”
In a recent article, lawyer Jay Adkisson retold the tale of Richard Joseph Solomon, who schemed with two Panamanians to form shell “insurance” companies in Nevis, or what Adkisson refered to as “effectively unregulated jurisdictions”.
However, Mason points to the island’s possible amendments to its international insurance legislation during 2013 as an illustration of the jurisdiction’s dedication to making itself versatile and “user friendly”, despite not seeking equivalency with Solvency II.
Lloyd takes a more open view on the directive, and concludes that the islands are doing much to ensure they have a viable and credible offering.
“As with a number of the jurisdictions, I believe that Nevis is waiting to see when, and if, ‘the pendulum stops swinging’ with regard to Solvency II and I note only [recently] that further delays have been suggested to the implementation of Solvency II so we will see what evolves over time in that regard.”
“Nothing stands still in life anymore and, at the time of writing, various legislative amendments are presently under review by government and the private sector that I would anticipate would continue to keep Nevis’s progressive development on track moving forward into 2013 and beyond. It is also anticipated that a formal insurance advisory committee will be established between the public and private sectors to further develop the legislation and product range available within the jurisdiction as Nevis seeks to continue to provide a viable, credible captive insurance offering that is acceptable to both the purchasing public and the external supervisory bodies.”
