COMPLETE, COMPLIANT & COMPELLING
With its progressive yet competitive captives legislation, The Bahamas is increasingly attractive to entities seeking to be registered as segregated accounts, writes Carl R. Culmer Jr of the Insurance Commission of The Bahamas.
“The Commission is intent on maintaining a robust regulatory and supervisory framework which meets international standards.” CARL R. CULMER JR, INSURANCE COMMISSION OF THE BAHAMAS
Over the past 10 years, The Bahamas has demonstrated its consistency in the number of licensed captive insurance entities conducting insurance business from within the jurisdiction. The Bahamas’ growth in the captives environment has been attributed to the use of entities seeking to be registered as segregated accounts. For small to medium-sized companies (SMEs), this option has been cost-effective with the additional benefit of outsourcing administrative and operational oversight to locally registered insurance managers and other independent financial services professionals.
SMEs interested in the captive insurance space are pursuing risk strategies that maximize cost savings arising from their assessment of past and expected loss trends associated with their companies’ operations. These companies may establish a captive entity by opting to be licensed as either a standalone company or segregated account. A standalone entity is incorporated, while a segregated account (or cell captive) forms part of a registered Segregated Accounts Company.
The decision on which structure best satisfies a company’s strategy will be determined based upon the size, nature, and complexity of the proposed captive entity. Nevertheless, given the Bahamas’ progressive insurance legislation and professional financial services providers, each category of license can be effectively facilitated to achieve the business purpose of a proposed captive shareholder.
Despite negligible fluctuations in the aggregate number of segregated accounts over the past three years, the ten-year growth trend in this arena has remained stable. Presently, all captives are licensed in accordance with the External Insurance Act, 2009 as external insurers. Figure 1 outlines the number of external insurers identified as captives for the period 2019–2021.
As part of the Insurance Commission of the Bahamas mandate to ensure that its legislation remains progressive yet competitive, in 2021 the Commission commenced a review of its two principal pieces of legislation, the Insurance Act, 2005 and the External Insurance Act, 2009. The purpose of the review is to amend and amalgamate the legislation to streamline regulatory and supervisory requirements and better facilitate insurance structures.
The Commission has partnered with industry associations and professionals along with the general public as part of a consultative strategy to ensure broader participation and feedback. From these discussions, more individuals and companies are seeking to garner knowledge regarding the captive insurance space and consider establishing a captive given its practical use as part of its medium to long-term risk management strategy.
While the present legislation has satisfactorily facilitated the growth trend in this sector, the Commission is intent on maintaining a robust regulatory and supervisory framework which meets international standards in both effectiveness and competitiveness.
The Bahamas continues to register captives that insure risk associated with various industries such as medical and healthcare administration, retail and wholesale distribution, agriculture, construction, and real estate. It is envisioned that a byproduct of this ongoing engagement will yield the capacity for the jurisdiction to form diverse company structures that will provide insurance coverage for today’s innovative industries.
Despite the ongoing impact of the global COVID-19 pandemic, there continues to be expressed interest by international companies to establish a captive presence within The Bahamas. The insurance industry continues to demonstrate its financial resilience to shocks within the economy. The effective use of captives can also serve as an additional absorber to companies who may find themselves adversely impacted by such global shocks.
Local insurance managers and other financial services intermediaries remain active in exploring opportunities to promote their services and the jurisdiction as the premier option to establish a captive presence.
The promotional support championed by the Bahamas Financial Services Board (BFSB) has been instrumental in highlighting the jurisdiction as a competent and competitive international financial center that promotes synergies amongst the industries within its financial services sector.
The Commission along with BFSB and other captive insurance professionals continue to actively participate in the captive industry’s events and training seminars, including CICA’s Annual Conferences, events and webinars. As insurance and financial services professionals our participation in these events is paramount to ensuring that we remain well acquainted with trending industry topics, challenges, and opportunities.
The Commission’s engagement with CICA as a participant and a co-sponsor with the BFSB has expanded the promotional outreach of the jurisdiction as a captive domicile and has provided a forum in which meaningful discussions can take place. Moreover, captive industry professionals use forums such as CICA to obtain continuing education goals that assist in maintaining captive industry designations.
BFSB and the Commission will continue to work with the government of The Bahamas to target captives and the reinsurance industry as an area of economic interest.
Figure 1: External insurers in The Bahamas 2019–2021
Companies seeking to conduct insurance business from within The Bahamas may consider the following key factors.
The captive insurer application process includes:
1. A scheduled pre-application meeting to discuss the proposed business plan;
2. Submission of a completed application which includes, but is not limited to, the following:
- a. Detailed business plan;
- b. Actuarial review or feasibility study;
- c. Projected financial statements for three years (inclusive of balance sheet, income statement and solvency calculations);
- d. Sample policies to be marketed and sold by the applicant;
- e. Details of the reinsurance program; and
- f. Due diligence documents for proposed shareholders, directors, and senior officers.
3. Application review and consideration for approval by the Board of Commissioners (an approved application receives approval in principle where the applicant is given 30 to 60 days to meet the conditions of approval).
Once the conditions of approval are met, a certificate of license is issued to the applicant.
Additionally, the general company requirements to establish a captive include:
A minimum of two directors;
The appointment of a resident representative in The Bahamas at whose office books and records shall be maintained;
A minimum of US$100,000 in share capital (additional regulatory capital may be required depending on the nature, size, and scope of the proposed entity);
Application fee of US$100 (standalone) and US$250 (per segregated account); and
Annual renewal fee of US$2,500 (standalone).
Why The Bahamas?
The Bahamas has always sought to provide superior financial products and services and a world-class client experience. It has proved itself to be nimble and responsive to global changes—always mindful of the need to adhere to international standards with respect to compliance, cooperation, and transparency.
Any country heavily engaged in financial services bears the responsibility and a commitment to the international community of which it is intricately involved as well as the financial institutions operating within its borders, the clients which it serves and its citizens which rely on the sustainability of the industry for continued economic development. The Bahamas is such a country.
Three vital features are at the heart of what distinguishes The Bahamas as an international financial center of significance: expertise, innovation and location. Everything that comprises The Bahamas value proposition and continued success as a leading international financial services center is guided by these distinguishing factors.
Expertise: With an 80-plus year track record in financial services, few jurisdictions offer the wealth management experience that The Bahamas has. This heritage is the basis for the strong legal framework that has been cultivated for financial services, an investment climate that has been nurtured through years of maturity and a stable and predictable business environment anchored by the thousands of Bahamian wealth management professionals who work side-by-side with expatriate colleagues in the more than 250 financial institutions that call The Bahamas their home.
Innovation: Market responsiveness has long been a part of The Bahamas’ DNA as a forward-thinking international financial center, and has been the basis of legislation creating innovative, client-centric products and services in a modern, compliant regulatory regime. Such innovation can be seen in the country’s evolving and often ground-breaking trust legislation. And with this innovative spirit it should come as no surprise that the country’s once dormant insurance business has re-emerged as a sought-after destination for captives.
Location: Our proximity to the US, Central and South America places The Bahamas in an enviable position to serve both our traditional and the emerging markets and presents an opportunity to link commercial and financial interests.
In recent years, as more individuals have chosen to “follow their money” with respect to where they live and work, The Bahamas with its tropical environment has become the preferred choice for many who yearn for an excellent quality of life while being able to manage their financial affairs.
Carl R. Culmer Jr, ACI, is manager, policies and practices, at the Insurance Commission of The Bahamas. He can be contacted at: email@example.com