With a wealth management pedigree unmatched in the region The Bahamas is strategically cultivating captive insurance as an important addition to its growing and impressive array of financial services. The Bahamas, which marked 40 years of independence in 2013, offers a number of advantages as a jurisdiction of choice to captive insurance companies, including:

• 280 plus years of political and economic stability;
• An established and sophisticated financial services industry infrastructure;
• A commitment to grow captive business by both the public and private sectors, based on close consultation that ensures regulatory flexibility and a business friendly environment;
• Strong asset protection provisions;
• A favourable immigration and work permit policy regime;
• Luxury lifestyle for those looking to relocate or for a second home locations; and
• A tax-neutral environment for business.

With an internationally-lauded regulatory and legal framework, an exacting yet supportive regulator, and a world-class talent pool of professional service providers, including auditors, bankers and lawyers, The Bahamas is a jurisdiction that is second-to-none when it comes to captives.

Given today’s unpredictable insurance market, historically low interest rates and increased regulations, it is not surprising that captives are coming into their own as an attractive risk financing option. Fortunately, starting and operating a captive in The Bahamas has never been more straightforward.

Refocused efforts by The Bahamas on captives is seeing industry growth which can be attributed to a confluence of factors, including:

• More small and medium enterprises in the US looking to manage the cost of premiums
• The ability of many of those companies to utilize 831(b) of the Internal Revenue Code which allows up to $1.2M to be funded into a captive, tax free
• A more business friendly and proactive regulator in the Insurance Commission of The Bahamas
• Sustained commitment by the Government and private sector to develop the domicile
• Just 30 minutes off the coast of Florida, US preclearance, idyllic surroundings for board meetings, The Bahamas is an ideal location for an offshore captive
• A competitive pricing structure for the cost of formation and on-going regulation which encourages growth

The statistics speak for themselves. Since 2011, following the enactment of The External Insurance Act 2009, and the External insurance Regulations 2010 which govern the establishment, licensing and business operations of captive insurance companies, The Bahamas experienced an average annual growth of 50% in the number of captive cells and stand-alone captives licensed.

The Bahamas - Captivating Advantages

When The Bahamas became a destination for capital investment, it was based on the needs of winter residents of colder northern climates. Since that time, the depth and expertise of the country’s financial services has created an industry that is no longer just a destination for capital but a place for real and substantive businesses; indeed, a location from which one can invest and manage ones businesses all around the world. The captive insurance market is a case in point. A dedicated effort has been made to ensure that the legislative and regulatory environment awaiting new arrivals is proactive and recognises the real business needs of entities. Minimum capital requirements which are competitive with other jurisdictions are in place. While potential licensees are encouraged to work through an insurance manager who is familiar with The Bahamas, this is not mandatory. At the same time the Insurance Commission of the Bahamas (ICB) carries out due diligence on risk managers and directors of the companies interested in coming here to ascertain that policy holders have adequate protection. From The Bahamas’s perspective, its effective regulatory regime is very much a competitive advantage.

The captive environment in The Bahamas is supported by a highly experienced and diversified asset and wealth management industry. The jurisdiction has developed a reputation as a leader in these areas, which has enabled it to facilitate synergies with the insurance market.

There are any number of jurisdictions that have similar positive attributes, but few of them will have all of the combined advantages of The Bahamas as a long-established international financial services centre.

Segregated accounts (cell) legislation is a prime example of the jurisdiction applying its wealth management experience to the captive market. The Bahamas’ cell legislation provides robust statutory protection to ensure that the assets and liabilities of each account are truly separate and distinct. Cell captives benefit from the natural economies of scale created within such structures, and the regulatory regime in The Bahamas is a clear response to the demand for cost effective means of entering into the captive markets.

The Bahamas - Business Advantages

The country’s mature financial services industry, established infrastructure, progressive government, tax neutral environment, political and economic stability, progressive regulations, work permit and immigration policy and luxury lifestyle all have been carefully cultivated to create advantages for doing business in The Bahamas.

Location: Location is an asset that weighs heavily in The Bahamas’ favour as a hub for insurance business. Located just off the coast of Florida, the country, comprised of 700 islands, cays and islets in the Atlantic Ocean, is easily accessible from almost every city in the US and Canada. There is also direct flight access into Latin America, as well as across the Atlantic towards European destinations.

Professional Services: Corporate registry and legal and accounting services are at the core of the multitude of services available in The Bahamas. All of the top global accounting firms have significant operations in The Bahamas and there is also a wide range of mid-size and boutique firms. Like the Bahamas Institute of Chartered Accountants, the Bahamas Bar Association has seen its membership expand. In the case of the Bar Association its membership has expanded to approximately 1,000 members who work in a wide range of law firms based in New Providence and other parts of The Bahamas.

Major Banking Institutions: With more than 260 banks and trust companies located in The Bahamas, many of the world’s largest and most prestigious financial institutions have branches or subsidiary operations in the jurisdiction, taking advantage of the country’s stable political and economic system. Likewise, the role of niche banking and trust operations to grow new areas of business such as international insurance is recognized and encouraged.

Highly Developed Workforce: With personnel committed to the local community, continuity of service is more predictable and secure in The Bahamas, and is the basis of its many longstanding institutional and client relationships. A work permit policy that is cognizant of the needs of financial institutions and their clients has been the mainstay of the jurisdiction. This policy is refined through a collaborative approach by the public and private sectors.

Capacity: The jurisdiction has a high capacity to meet the needs of institutions through the existing financial institutions and professional service firms, and availability of qualified professionals and infrastructure. Office premises and land remain available. Fiber optic and last mile infrastructure provide for competitive delivery of telephone and data communications. The Bahamas’ location just 50 miles off of the coast of Florida also makes it ideally situated for access to North America. With international airports throughout the country, served by international airlines and over 60 flights into the capital city each day, there is easy access to the United States, Europe and other parts of the world.

Lifestyle: The Bahamas’ tropical environment offers lifestyle benefits that more and more individuals are finding attractive as they increasingly choose to “follow their money” and acquire second homes, or relocate permanently in the country. Residential development has been simplified by expediting the processing of applications for the development of second homes, townhouses, condos and resort development. As a result, second home and condominium development is noticeable throughout all areas of the country, especially the Lyford Cay and Cable Beach areas in Nassau, Paradise Island, Grand Bahama, the Abacos, Eleuthera and Exuma. It has also become easier for non-Bahamian investors and homeowners to obtain residency permits.

Captive Insurance Requirements

Principal features of the external Insurance regulatory requirements are:

• Captives must be registered as External Insurers under the Act - registration is renewable annually
• Company name subject to approval of the Commission
• Minimum of two directors
• Captives must appoint an insurance manage
• Annual audit of all captives to be submitted to the Commission
• Actuarial valuation of life insurers at least every 3 years
• Every insurer must appoint a Resident Representative in the Bahamas. This person must be able to represent the insurer
• Audited Financial statements must be submitted to the Commission 4 months after the fiscal year end.

Capital, Solvency and Fees

A Restricted External Insurers’ Licence (single parent captive) may be issued where that company has capital as approved by the Commission. The Commission applies the minimum applicable to Unrestricted Insurers.

• Insurers carrying on long-term insurance business - US$200,000
• Insurers carrying on general insurance business - US$100,000
• Insurers carrying on both long-term and general insurance - $300,000

There may be additional regulatory capital requirements depending on the business plan submitted. Insurers must maintain a positive net worth (assets in excess of liabilities). General insurers are required to maintain a net worth based on net premium income as follows:

NET PREMIUM INCOME: Up to US$5,000,000 - MINIMUM NET WORTH: 20% of net premium income

NET PREMIUM INCOME: Over US$5,000,000 - MINIMUM NET WORTH: US$1,000,000 plus 10% of net premium in excess of US$ 10,000,000 in the preceding year

Fees

Fees are payable to The Insurance Commission of The Bahamas as follows:

Application fee (non-refundable): US$100

Annual registration fee (including Registrar General Department fees):

• Restricted Insurer (Captive) - US$2,500
• Unrestricted Insurer - US$3,500
• External Insurance Manager - US$1,000
• External Insurance Broker - US$1,000

Application

Applicants should allow approximately 30 - 60 days for a restricted (Captive) license or 60 - 90 days for an unrestricted license after a complete application package (including business plan and projections) has been received by The Insurance Commission of The Bahamas. For complete details of application requirements visit the website of the The Insurance Commission of The Bahamas.