Derek Lloyd outlines the development of Nevis's insurance sector.
The third anniversary of the enactment of the Nevis International Insurance Ordinance, 2004 (NIIO) has seen significant strides made by the domicile, both in terms of the number of insurance companies licensed, and also with regard to increasing recognition and awareness on the international stage for the jurisdiction.
Nevis has long held a reputation as the domicile of choice for some of the smaller reinsurance companies around the world, and, prior to the implementation of the NIIO 2004, a company engaging in Nevis merely had to register as an International Business Corporation with limited supervisory constraint over the specific business being conducted by that company.
The passing of the insurance legislation has changed all that, and has also extended the attraction of the jurisdiction to other types of insurance entity, especially for the smaller to medium sized captive insurance companies. Their parent companies are affected by the vagaries of the cyclical underwriting fluctuations of the conventional insurance market just as much as the larger multi-national conglomerates, but perhaps do not have the same operating budgets to afford the level of professional and regulatory fees associated with the major captive domiciles. Nevis provides another option for such companies who are seeking a competitive, but balanced, regulatory environment to operate from within, and establish their captive insurance company.
Minimum capitalisation requirements for the single-owner, pure captive compare favourably to other jurisdictions, starting at US$10,000 and rising to US$50,000 dependent upon the ownership. However, that is balanced by minimum solvency requirements that are on a par with many of the leading offshore jurisdictions and newly created onshore captive domiciles in the US. Higher minimum capitalisation requirements are sensibly in place for other licensed insurance entities, such as re-insurance and general insurance companies. For captives, the minimum solvency requirements are 20 per cent of net written premiums up to the first US$5m and 10 per cent of the surplus thereafter.
Regulatory fees are also attractive to the prospective new captive-owner, with first-year licence application and annual insurance licence fees payable to the government starting at US$1,880 for the pure captive.
The insurance legislation requires a minimum of two directors, but neither has to be locally based, nor does the company have to hold the annual board meetings in the domicile, although many captive-owners will take advantage of the splendour and beauty of the island to combine business and pleasure at one of the many high-quality resorts in Nevis.There is no statutory requirement either for local legal representation, local bank accounts, or local auditors, although the latter must be pre-approved by Nevis Financial Services.
Ultimately, all these facets provide the captive-owner with a wider choice and greater control of how he runs his own business, with resultant time and cost benefits to the operation.
Combine the competitive cost environment with mature and established company laws, a legal system based on English Common law (with the Privy Council in England as the ultimate court of appeal), and a regulatory body that is communicative and responsive, and you have a formula for success. This is clearly evidenced by the expansion and development of Nevis as a credible and regulated insurance domicile over the last three years.
Beneficial Tax Regime
As with most captive insurance domiciles, onshore or offshore, it would be naïve to believe that a beneficial tax regime was not a factor in the decision-making process for clients’ selecting their domicile of choice. Nevertheless, it should never be the primary or motivating factor, as tax rules around the world can be subject to change, often at short notice, which could feasibly undermine the economic viability and existence of the captive if that was the sole purpose in establishing the entity in the first place.
However, any commercial enterprise looking to establish a new operation should always evaluate the political, geographical, and economic elements in advance of making that selection, and the fact that no taxation is levied from within the domicile for licensed insurance companies that make underwriting profits must be an advantageous factor in selecting Nevis as the ultimate domicile of choice for the parent company.
Furthermore, no income tax, direct, or indirect tax shall be levied in Nevis upon transactions, contracts, securities or other dealings, profits, or gains of a registered insurer. No tax is levied on dividends or earnings attributable to shares or securities of the registered insurer. There is also an exemption from stamp duty, and from all currency and exchange control restrictions.
The legislation itself is modern, pragmatic and innovative, and section 17 of the Ordinance encapsulates this. This allows for statutory funds to be established by the licensed insurer that in turn enable that insurer to ring-fence the assets and liabilities allocated to each individual statutory fund. The proviso to this is that all parties must be made aware at the outset that section 17 provisions are being utilised in the formation and operation of the company.
If structured in the correct manner, it can be argued that, under section 17, the licensed entity is granted greater flexibility than the more traditional cell structure for multi-insured programmes, with the accounting function at least far less onerous.
To progress from limited regulatory super vision to the enactment of legislation and the imposition of a compliance regime can be an elongated and arduous task for the regulator, the insurance manager, and the newly licensed entity alike, but Nevis has made significant progress already in a relative short space of time.
Additional legislation is anticipated to further enhance the growing reputation of the domicile on the international stage, and the future for Nevis as a regulated insurance jurisdiction looks very encouraging indeed.
Derek Lloyd, Director and Insurance Manager of AMS Insurance (Nevis) Ltd