Despite a growth in interest in recent years captive insurance companies continue to face challenges in Latin American countries, according to Juan Pablo Cuartas, JLT Re vice president of Latin America.
In his insight into the Latin American captive market, ‘Captives in LatAm: A look at the current and future landscape’, Cuartas predicted the region would see a renewed interest in the creation of captives by the end of 2018 and the beginning 2019, maintaining the steady growth of previous years.
According to Cuartas, there are still a number of challenges for the captive insurance industry in the region.
He suggested that the range of potential companies that would establish a captive was limited as many Latin American companies lack the size and volume of premiums necessary for a captive to generate meaningful benefits for their parent companies.
The Panama Papers scandals and the EU’s blacklist have made the past few months particularly difficult, but Cuartas argued that captives have overcome the situation caused by the impact of this challenging news on regulators, companies, and local insurance companies.
He explained: “Captives have overcome this situation, proving themselves to be an excellent risk-management tool for the government regulators, clients and especially among local insurance companies.”
Another of the issues impacting captive insurance highlighted by Cuartas is the “mechanisms implemented by local governments to protect themselves from base erosion and profit shifting, which in some cases indirectly affect captive insurance structures”.
Additionally, Cuartas stated that as non-admitted insurance is not allowed or not practical in the majority of Latin America, it is necessary for a local insurer or reinsurer to be involved to issue policies that retrocede the risk to the captive.
Further complexities for the captive insurance model are also created by local restrictions on premium tax, reinsurance tax and withholding tax.
Cuartas said that from a positive perspective both these aspects “make it a ‘bulletproof’ model”, reaffirming it as a non-tax-related scheme.