Derek Lloyd observes that Nevis's insurance sector is well placed to face the challenges ahead.
It is now some four years since the enactment of the Nevis International Insurance Ordinance 2004 (NIIO). The jurisdiction continues to make significant progress as it climbs the international league table for numbers of licensed captive insurance companies and other regulated insurance entities within the domicile.
This is quite an achievement in its own right, let alone against the backdrop of increased competition for captive insurance business around the globe. Some 31 US States now have captive legislation of their own, and other offshore domiciles are aggressively competing for market share.
Indeed, much of this growth has been achieved in what is generally perceived as the ‘soft market’ cycle of the conventional insurance sector with many insurers on both sides of the Atlantic significantly reducing premium levels to retain business. Traditionally, less activity is witnessed in the captive industry during the soft market cycle but the converse applies as rates begin to harden and underwriters typically abandon loyal policyholders with distressed classes of business.
It is difficult to envisage quite what will happen in the financial markets over the next year or two as the full magnitude and implications of the current economic crisis gradually unfold.
However, Nevis provides a credible option for companies adversely impacted by the vagaries of the underwriting cycles that blight the conventional insurance market and will allow them to establish their captive insurance company in a competitive, but balanced, regulatory environment.
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 on ownership. However, that is balanced by minimum solvency requirements 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 companies. For captives, the minimum solvency requirements are 20 per cent of net written premiums up to the first US$5 million 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. However, 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 four 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. Nevertheless, it should never be the primary or motivating factor, as tax rules around the world are 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. The fact that no taxation is levied 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 on 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.
Over the last few years Nevis has moved from limited regulatory supervision prior to the enactment of the insurance legislation to the imposition of an increasing compliance and corporate governance regime for regulated insurance entities in the domicile.
The continued growth is testament that this has been achieved through fair but balanced regulation within a competitive environment that has made the domicile attractive to an expanding range of customers from an ever-widening geographical sphere. Parent companies from Europe, the Far East, the US and the former Eastern bloc countries have all made Nevis their domicile of choice in recent times, while other companies have elected to redomicile to the jurisdiction from other domiciles and that is envisaged to continue for the foreseeable future.
Derek Lloyd, Director and Insurance Manager of AMS Insurance (Nevis) Ltd