The British Virgin Islands (BVI), a quaint group of islands located in the Caribbean, is currently home to 153 captives of all shapes and sizes. Despite the motto ‘be vigilant’, the British overseas territory has been a welcoming host of alternative risk transfer vehicles for nearly 20 years.
The British Virgin Islands (BVI), a quaint group of islands located in the Caribbean, is currently home to 153 captives of all shapes and sizes. Despite the motto ‘be vigilant’, the British overseas territory has been a welcoming host of alternative risk transfer vehicles for nearly 20 years.
According to Matthew Gilbert, an associate at Maples and Calder, captive insurers have always been attracted to the BVI for its familiar legal principles, administrative simplicity and the ability to ring-fence liabilities.
To sustain the development and progression of captives BVI passed the Insurance Act 1994, together with the Insurance Regulations, 1995. BVI is also tax neutral, as it doesn’t add extra layers of taxation to the taxes that a parent company pays in its home country.
Gilbert says: “As a result of the risk-based regulatory approach taken by the BVI Financial Services Commission (BVIFSC), BVI captive insurance companies can be extremely flexible in their structure and handling.”
“The BVIFSC recognises that the range of captives commonly used includes pure captives, group and/or association captives, rental captives, and diversified captives, and so it applies the requirements of BVI’s regulatory code on a case-by-case basis, depending on the risk profile of the particular captive.”
Conor Jennings, managing director of Captiva Insurance Managers, describes BVI’s modern legislation as the “gold standard in the region”.
“[BVI’s] regulatory environment is prudent and pragmatic. The regulator is approachable to discuss plans and problems, and is keen to work closely with its clients to the benefit of all parties.”
Earlier in its history, BVI was known somewhat for its acceptance of micro captives or 831(b) electives, a niche which Jennings feels somewhat restricts the islands’ potential audience.
He says: “Although BVI does have a number of micro captives which have taken the 831(b) election, it also has many other larger and older captives on its books. The 831(b) market is very price driven, and will tend to go to the most cost-effective jurisdiction. BVI was popular a number of years ago before the US onshore jurisdictions became established.”
“BVI has been a popular offshore financial services centre for many years, and over that time has built up a good and steady book of small to medium sized captives long before the micro captives became popular.”
Gilbert says that the pure captive formation is the cornerstone to the islands’ success. “BVI is open for business to all types of captives but it should be noted that pure captives are most likely to be in a position to benefit from the risk based emphasis of the BVI regime. Captives that write unrelated party business or that write third party liability risk would be considered as much closer to full service insurers.”
According to Jennings, Captiva manages the captives of parents based all over the world, with annual premiums ranging from $500,000 to $100 million. “These companies insure mostly property and casualty risks with some doing unit linked life.”
“Based on its huge success as a global centre for corporate services, with close to 60,000 new companies being incorporated there every year, BVI is well known and respected as a centre for financial services around the world, and particularly in Asia. Prospective clients take comfort from this fact.”
Gilbert also notes that unlike other domiciles, a single BVI company’s assets and liabilities can be segregated among various portfolios in a way that binds third parties as a matter of BVI law.
“This structure has proved very advantageous and flexible in the structuring of captives. Notwithstanding the segregation of assets and liabilities within portfolios, the segregated portfolio company is a single legal entity and only one insurance licence is required. This structure creates flexibility for an insurer as it enables a segregated portfolio company to maintain complete segregation between different classes of business if they are written for and on behalf of a segregated portfolio.”
“In such instances, each applicant benefits through economies of scale as there is a central management function but the assets and liabilities (underwriting profit and loss) accounted for at the level of each segregated portfolio are separated and may only be used to meet liabilities due to the creditors of that segregated portfolio.”
However in BVI’s 2010 total number of captives declined, with an industry estimate claiming that the islands lost 66 captives over a 12-month period.
According to Gilbert, the decline was due in part to regulatory changes.
He says: “2010 saw the introduction of the Insurance Act, 2008 and the Insurance Regulations, 2009, which modernised the insurance regime in the BVI. A number of other updates to the regulatory and compliance laws of the BVI also took effect around that time.”
“The current regulatory regime has now had time to bed down, and 11 new captives were incorporated between Q1 2012 and Q1 2013.”
Jennings on the other hand feels the fall in numbers could be attributed to promoters moving their books of micro captives from BVI to alternative domiciles with lower costs.
As for Jennings, he jokes that the main drawback is the lack of direct flights between the US and BVI!
“This means that getting to BVI takes times and can be expensive. However, as the BVIFSC does not insist on board meetings being held in its territory, the travel is more an inconvenience than a problem. The BVIFSC visits the US on a regular basis to attend conferences, and is happy to meet its clients then.”
From a BVI law and practice perspective, Gilbert feels that there are no particular downsides, “given the robustness of the legal and regulatory regime and the strength in depth of local service providers who are experts in the insurance field”.
“As ever, tax and regulatory advice must be taken in the operating jurisdiction(s) before committing to incorporate a captive in any domicile.”
