Sir Trevor Carmichael
Global Captive Management
Has the increased competition between Caribbean captive domiciles helped or hindered your domicile’s progress?
Kenneth Campbell: Barbados remains one of the leading captive domiciles in the Caribbean and the world. A number of factors including an expanding treaty network, qualified insurance managers, a wide range of business support services, right-sized regulation and transparency, among other attributes, all combine to ensure that Barbados continues to be a leading domicile of choice for captive business. A mature domicile, Barbados is committed to continually enhancing its business environment and the solutions offered to clients.
Trevor Carmichael: The often stated competition is not present in the literal sense of the word.
A more accurate perspective is that each domicile stresses its comparative advantages while recognising that other domiciles may be more appropriate for structures other than those better suited to the home domicile.
Jennifer Reid: Caribbean captive domiciles face fierce competition, but their main competitor is the onshore market rather than each other.
When boards decide to utilise the offshore market for their captive domicile, they seek a jurisdiction with an established infrastructure, knowledgeable professionals and regulatory capital requirements that are consistent with the risk being undertaken.
In this regard, the Cayman Islands has proven time and again that it is a captive domicile leader.
The history of the industry, vast array of captive types and risks insured, and willingness of both the regulator and government to update the laws associated with the industry has helped in its competitiveness with other domiciles.
How important are tax agreements to your domicile in terms of facilitating new business? What are the most productive agreements?
Reid: At time of writing, the 35 signed and 28 in force bilateral agreements and arrangements continue to be very valuable in facilitating new business. While our captives are predominately US-based, and so utilise the Cayman/US tax information sharing and inter-governmental agreements, the sheer number of tax agreements that Cayman has entered into certainly helps to refute the offshore tax haven stigma.
Curiously, most new captive owners are generally unaware that Cayman has actually had a tax information exchange agreement with the US since 2001.
In the days of increased domicile competition for US-based captive business, the agreements have certainly demonstrated Cayman’s continued focus on tax transparency in an effort to minimise any perceived reputational risks.
Carmichael: Barbados has, from the inception of its active international financial service industry, always relied on its tax treaty network.
Its double tax treaty partners continue to grow rapidly and in the case of Venezuela, Mexico, Canada and the US in particular, there are regular ongoing insurance transactions.
Campbell: It is a well-known fact that Barbados’s double taxation agreement with Canada has been mutually beneficial. Barbados continues to be a preferred jurisdiction for Canadian businesses seeking to expand and enhance their global presence and global competitive advantage.
In 2013, Barbados moved from third position to be the second largest recipient of Canadian foreign direct investment, a position which it maintained in 2014.
Currently, Barbados has a network of double taxation agreements in force with 36 countries.
How helpful is the captive insurance industry in terms of providing more tax transparency in the Caribbean region?
Carmichael: In the case of Barbados, there has always been substantial tax transparency because of the presence of exchange of information protocols under its many treaties. Furthermore, its insurance legislation has always contained many elements that engender transparency.
Campbell: Barbados continues to make sure that international best practices are observed. Barbados’s commitment to transparency, information exchange and the enactment of anti-money laundering legislation led to this country being recognised by the Organisation for Economic Co-operation and Development (OECD), in April 2009, as the only independent Caribbean nation that had substantially implemented the tax standard.
Barbados continues to cooperate to ensure that the country maintains its longstanding reputation as a transparent, credible and well-regulated low-tax jurisdiction.
Additionally, Barbados has signed a Foreign Account Tax Compliance Act Model 1 A intergovernmental agreement with the US. Barbados has also formally committed to signing up to the OECD’s Multilateral Convention on Mutual Administrative Assistance in Tax Matters.
Transparency International’s Corruption Perception Index 2014 confirms Barbados’s place as one of the most reputable financial centres in the world, having ranked the country as the least corrupt in Latin America and the Caribbean and seventeenth among 176 countries.
Barbados is also ranked by the World Economic Forum’s Global Competitiveness Report 2014-2015 as having the fourteenth most stable banking system in the world.
The Caribbean has long been accepting of healthcare captives. How much business in your particular domicile is thanks to that and what other areas have you seen/do you expect to see growth?
Reid: Cayman is the second largest domicile for captives and holds the number one position worldwide for healthcare captives, which make up 45 percent of all captive insurers in Cayman.
The four other largest industry segments are financial services (25 percent), construction (8 percent), tertiary services (6 percent) and transportation (6 percent).
At Global Captive Management we manage 34 healthcare captives, accounting for 51 percent of the captives we manage. Although we have not seen a significant increase in the number of healthcare captives over the past few years, premium values have increased significantly with a 13.5 percent increase from 2013 to 2014.
Mergers and acquisitions of the healthcare captives’ parent entities have resulted in a smaller number of healthcare captives across all domiciles. However the remaining captives are larger in size and retain more risk resulting in significantly higher premiums.
Campbell: Barbados continues to place priority on attracting businesses of substance. In addition to the traditional property and casualty exposures, Barbados captives are being used to insure environmental liability, product recall, weather risks, intellectual property rights and other business risks. Healthcare captives are also a growth area.
Since your domicile began licensing captives, how does today’s rate of growth compare? Do you have any plans that could improve this?
Reid: In the current soft rate market, we are seeing a decline in the rate of new captives being licensed. We are seeing the expansion of existing group captives and segregated portfolio companies (SPCs) as the main growth areas within Cayman.
The number of members joining group captives continues to increase as these captives have begun to focus on attracting smaller insurance premium members.
Group captives also continue to appeal to those niche industries that are not adequately catered for in the commercial market. Regardless of the insurance market cycle, a group captive is an attractive alternative to those entities that wish to have a greater level of control over their insurance programme and claims management, and whose loss performance is better than the industry average.
We are also seeing an increase in the number of cells being added to existing SPCs, which allow small and medium-sized companies to access many of the benefits of a standalone captive. This allows the cell owner to retain and manage their own risk without the cost of operating their own standalone captive.
The enactment of the portfolio insurance company regulations earlier this year in Cayman also sets the stage for continued growth in this line of business and positions it as a market leader.
Campbell: Barbados is ranked among the top 10 insurance domiciles in the world, with 231 active captive insurance companies. The US and Canada account for 81 percent of the total number. Barbados will continue to position itself as a treaty-based, soundly regulated jurisdiction, focused on attracting businesses of substance.
Carmichael: The rate of growth for Barbadian captives has been steady with peaks at times of market favourability and appropriate available treaty usage. Barbados plans to improve its numbers by way of continuing use of its available advantage as well as strengthening the capacity of the jurisdiction.
Some new-style insurance managers have emerged who are bringing to the jurisdiction new types and lines of insurance business previously absent in Barbados.