What is all the buzz about captive insurance companies lately? What exactly is a captive insurance company? Why are the Bahamas embedded in the fabric of captive insurance companies? Wouldn’t it be fun to be the only person in the room each and every day talking about insurance companies with business executives, entrepreneurs, medical professionals, and so on? How about risk management or taxation? Who really wants to have discussions regarding insurance, risk management, and taxation with an attorney? Welcome to life as a lawyer who just so happens to assist business owners in the formation and implementation of insurance-based solutions such as captive insurance companies and whom also serves as the CEO of Hamilton Captive Management, Ltd., a Bahamian-based insurance management firm.
As it turns out, these days it seems that everyone is talking about captive insurance companies, what they are, why the Bahamas (one of the oldest jurisdictions), is quickly becoming the jurisdiction in which to license your captive insurance company.
Before we get to the buzz, let us first define a captive insurance company. Simply put, a captive insurance company is an insurance company established to provide a broad range of risk management capabilities to affiliated companies. The captive is owned by the business owner (or the underlying business itself) and can provide insurance to the business for potential future losses, whether or not the losses are already covered by a commercial carrier or are “self-insured”.
Successful implementation of a comprehensive risk management program often requires the combination of both commercial insurance and an alternative risk-financing vehicle, such as a captive insurance company.
Captive insurance is a strategy whereby your business purchases insurance coverage from an insurance company that you own and control, ie, a “captive” insurance company. Unlike traditional commercial carriers, when you purchase insurance from your insurance company, any premiums paid in to your captive and not ultimately paid out for losses are your profits to capture, provided you manage your risk appropriately. Year after year!
Thus, captive insurance can be broken down into a rather simple concept. Working with a law firm experienced in captive insurance, that utilizes the services of best in class, fully credentialed, independent underwriters and actuaries, as well as with a captive management services provider, you incorporate your very own insurance company. Again, we refer to this insurance company as a "captive" because it is owned and controlled by you. Also, unlike insurance companies that sell insurance to the general public, your captive only sells insurance to you and businesses that are affiliated with you.
This now begs the question as to why the Bahamas as a captive domicile? As it turns out, the Bahamas offers a number of advantages as a jurisdiction of choice to captive insurance companies. The Insurance Commission of the Bahamas (ICB) has enacted accommodating insurance legislation that facilitates a variety of captive structures, including group captives, pure captives and cell captives. The ICB has a dedicated staff overseeing the establishment and ongoing regulation of numerous captive insurance companies.
Specific examples of the benefits of the Bahamas include, but certainly are not limited to, reduced operating costs, industry expertise, accessibility to regulators, abilility to enter into intercompany investments, a wide scope of permitted insurance benefits, and a lack of insurance premium taxes. Additionally, the Bahamas offers an accommodating regulatory environment, asset protection, investment flexibility, and a serves as a world-class international financial center!
While the majority of business owners selecting the Bahamas as the jurisdiction of choice are from the United States, increasingly strong interest in both the financial and insurance benefits from Latin America has led to the formation of new captive management firms with the specific initiative of managing captive insurance companies located outside the United States. One such firm, Long Cay Captive Management, Ltd, provides turn-key management services to it’s customers. With an open architecture for asset management, close ties with various insurance regulatory bodies, as well as international financial services boards, and a vast network of internationally authorised and financially rated insurance and reinsurance companies, Long Cay Captive Management has positioned itself and the Bahamas to be the gateway to the world for captive insurance company owners. The Bahamas serves as the perfect location to capitalize on the strong captive insurance and financial service needs of business owners worldwide.
Peter Strauss is the Managing Member of The Strauss Law Firm, LLC Mr Strauss regularly speaks at public seminars, professional society meetings and Continuing Legal Education conferences. He is a graduate of the New England School of Law and holds a Masters of Law in Estate Planning from the University of Miami. He has authored three books on captive insurance planning, “Captive Insurance Companies for the Small Business Owner”, “The Definitive Guide to Captive Insurance Companies”, and “The Physician’s Guide to Captive Insurance Companies”. Peter J Strauss is an internationally recognised authority in the area of captive insurance companies, specifically those that are referred to as § 831(b) “captives” and § 806 “small life companies”. He has spoken before the American Institute of Certified Public Accountants, The Hawaii Tax Institute, and the Physician Hospitals of American among other groups regarding captive insurance.