|
NEVIS beckons smaller captives
Bill Lumley speaks to captive managers placing captive business in Nevis and finds its attractions as a domicile include competitive fees, an efficient regulator and low capitalisation requirements.
April 2008
Since becoming independent in 1983, Nevis has made great strides in developing its financial services sector and structuring new legislation and financial products. It first emerged as an offshore jurisdiction after enacting its Nevis Business Corporation Ordinance in 1984, based upon the corporate law of the US state of Delaware.
And 20 years later, in 2004, it passed legislation providing it with a regulatory framework for captives. According to managers who handle captive business on the island, the hallmarks of Nevis as a captive domicile are a competitive and efficient regulatory environment with the flexibility to accommodate the very smallest end captives.
There are a number of positive marketing advantages for Nevis, including the relatively low capitalisation limits, with just $10,000 capitalisation required for a single-owner pure captive. “In reality, there are not a great number of clients capitalising their company at the minimum level and, in fact, the majority of captives under our management capitalise well in excess of that figure,” says Derek Lloyd, director and insurance manager at AMS Insurance Management Services Ltd, which provides captive insurance administration in the British Virgin Islands (BVI) and Nevis, with other group offices in Hong Kong and London.
“Whilst the capitalisation limit is low, and undoubtedly attracts certain business to the domicile, the combination of low limits with a 20 percent solvency criteria for premiums of up to $5 million compares favourably to the statutory financial security required for regulated entities in most onshore and offshore jurisdictions,” he comments. He goes on to add that his firm is seeing more formation activity in Nevis at present than in the BVI, with a variety of business lines including construction and medmal risks. One of the larger recent cases he has dealt with, for example, involved a sizeable loss-of-key-customer cover for a series of healthcare providers around the US with an income of approximately $1.1 billion.
Nevis captives have the advantages of unimpeded access to the regulator and a competitive professional and regulatory fee environment. “It’s a relatively painless process dealing with the authorities in Nevis, which can turn round an application in six to eight weeks or less, depending on the complexity of the captive. That makes dealing with them a very smooth journey. It is still a comparatively young captive domicile, but it is making good progress and certainly I would envisage that continuing,” he says. “One of the most enjoyable things about Nevis is the access to the regulator and a quick and efficient decision-making process when specific issues require clarification.”
The majority of parent companies whose captives are domiciled in Nevis are still typically US-based, although that is starting to change. “We are seeing more variation in both the clientele and the structure of the companies seeking insurance licences in Nevis, where the legislation permits a wider range of entities than certain other domiciles. We are also evidencing more interest from mainland Europe and Eastern Europe, although the latter has traditionally been associated with Nevis International Business Companies,” says Lloyd.
He says a further indication of the attraction of Nevis as a regulated captive domicile is the fact that long-standing companies that existed there prior to the introduction of legislation in 2004 have remained in situ and have gone through the licence application process. The expansion of the number of licensed entities in the domicile is therefore very much due to a combination of new and old. Like neighbouring captive domiciles in the Caribbean, Nevis’s provision of a lower entry point widens the scope for companies to consider the whole issue of establishing a captive for themselves.
“In my four years in the offshore industry, there’s been an increasing awareness among parent companies, wherever they are based, of the range of benefits that establishing your own captive can potentially bring, and there is now a far wider general understanding and awareness from the business sector of the overall captive proposition,” says Lloyd. “No two enquiries are ever the same for us—we get a variety of initial contact from prospects that range from individuals with a vague notion about captive insurance who need their hands held through the entire application process, through to the guys who have done the feasibility study, looked at the various issues arising and are merely evaluating the domicile of choice from maybe three or four options. I believe that as Nevis matures as a regulated insurance domicile, and gains further credibility and recognition on the international stage, the jurisdiction will figure increasingly as the selected domicile of choice in such instances.”
Nevis’s key competitors offshore remain the likes of the BVI and Anguilla, but increased competition is also emerging from onshore, with over half the US states now having some form of captive legislation, he says. US parent companies increasingly have the option to license captives ‘in their own backyard’, with certain newly regulated states such as Utah and Kentucky competing with the more established US captive domiciles such as Vermont, but the continued increase in licensed entities in Nevis is testament to the fact that Nevis provides a credible and economically viable alternative for parent companies seeking to establish their own captive insurer.
Atlas was one of the inaugural managers in Nevis after the 2004 captive legislation came in. Chairman Martin Eveleigh agrees that Nevis’s regulatory environment is sound and improving. “The challenge with captives is not within the legislation in Nevis but ensuring that the day-to-day regulation of insurance companies—and particularly the processing of licensing applications—is done efficiently. Our experience has been that, in the main, applications do get processed reasonably efficiently, sometimes extremely so, and that’s an important feature.”
Another key advantage of domiciling a captive in Nevis is price. “There is no question that Nevis is competitive. Among jurisdictions that offer a full insurance licence, government charges are as low as anywhere,” he says.
Nevis government fees for captive and reinsurance set-up are $2,105, and for annual renewals $1,220, which is cheaper than the annual licence fees in either the BVI or Anguilla, for example. “They’re not big differences in cash terms, but they do reinforce the fact that Nevis is very competitive,” Eveleigh says.
He is not, however, persuaded that newer onshore US captive domiciles such as Utah pose a significant threat to business in Nevis. “I think that, these days, some of the US domiciles have the regulatory touch absolutely right. I think DC is a good jurisdiction, for example. However, the cost of doing business there is likely to be higher for some captives than in places such as Nevis, because they require an actuarial report, for example. Nevis might like to see one in certain circumstances, but it is not essential to have one in order to get the company licensed.”
Other benefits come with the level of minimum capital requirements. “A pure captive comes in with a minimum requirement of just $10,000. We can argue about whether we can recommend that to anybody or not, but it’s there if they want it where, in certain circumstances, it might be right. Also a reinsurer need only capitalise at $75,000, and there are clear advantages there.”
He saves his highest praise, however, for Section 17 of Nevis’s captive legislation, which enables the establishment of statutory funds. “It’s a form of risk segregation that is not quite the same as setting up a cell. It’s absolutely terrific for programme business; it makes great sense for relatively low premium business where people nonetheless want to segregate, and we find it a very flexible tool,” he explains.
Life insurance companies have for a long time been able to benefit from being able to segregate risks through the use of separate accounts or segregated funds, particularly those operating in the private placement field. As non-life insurers, until recently, captives domiciled offshore needed to rely on non-statutory methods of segregating risk. The emergence in recent years of protected cell or segregated portfolio legislation has opened up new structuring possibilities within many domiciles worldwide.
However, Section 17 of the Nevis International Insurance Ordinance 2004 allows non-life insurers to segregate risks by establishing one or more statutory funds. It essentially allows for the creation of a new type of entity known as a Statutory Fund company.
The Nevis Statutory Fund company offers effective segregation risks and, for some programmes, has advantages over protected cell companies, particularly in terms of regulatory burden.
The differences between this and typical cell company legislation are, firstly, that there is no requirement to obtain regulatory approval prior to the formation of the Statutory Fund company and, secondly, that the policy is issued by the insurance company and not by the fund, with the policy being allocated by the company to the fund.
Barbados has a similar facility to Nevis, whereby there can be a segregated portfolio or protected cell on the one hand and a separate account company on the other. The main difference between the two domiciles is the way it is made available through legislation: in Nevis, it is part of the insurance law, while in Barbados, it is part of the company law.
Nevis is typically most suited to small 831B qualifying captives, which are taxed only on their investment income so long as the parent company receives less than $1.2 million in premium each year. “It may not be the class of or size of the business so much as the structuring opportunities that attract captives to the domicile,” says Eveleigh.
There are a lot of jurisdictions out there. Nevis is young and improving. It has certainly made a strong start, with a good platform for going forward after just three full years in business.
|
“Nevis captives have the advantages of unimpeded access to the regulator and a competitive professional and regulatory fee environment" |
