When the Bahamas became a destination for capital investment, it was based on the needs of winter residents escaping colder northern climates. Since that time, the depth and expertise of the country’s financial services has created an industry that is no longer just a destination for capital, but a place for real and substantive businesses. Indeed, it became a location from which one can invest and manage one’s businesses all around the world.
The captive insurance market is a case in point. A dedicated effort has been made to ensure that the legislative and regulatory environment awaiting new arrivals is proactive and recognises the real business needs of entities. Minimum capital requirements, which are competitive with other jurisdictions, are in place. While potential licensees are encouraged to work through an insurance manager who is familiar with the Bahamas, this is not mandatory.
At the same time, the Insurance Commission of the Bahamas (ICB) carries out due diligence on risk managers and directors of the companies interested in coming to the jurisdiction, to ascertain that policyholders have adequate protection.
From the perspective of the Bahamas, its effective regulatory regime is very much a competitive advantage.
Moreover, the captive environment in the Bahamas is supported by a highly experienced and diversified asset and wealth management industry. The jurisdiction has developed a reputation as a leader in these areas, which has enabled it to facilitate synergies with the insurance market.
With nearly 150 active captives as of the end of 2015, including direct writing captives, reinsurance captives, association captives and risk sharing arrangements, more than 15 licensed external insurance intermediaries, and three licensed variable life insurers, it’s hard to imagine that less than 10 years ago, the Bahamas was a virtually forgotten player in the external insurance marketplace. A key attraction is that the cost structure of these entities is more efficient than operating a standalone captive.
The number of external life insurance companies has been increasing at a steady pace over the last few years. Variable annuity and variable life insurance products, particularly unit-linked insurance policies, have been profitable lines of business for these entities, whose policyholders are based in various jurisdictions around the world.
The strong legislative framework around separate accounts and the financial service expertise of the jurisdiction is proving attractive for entrepreneurs and policyholders alike. The ICB anticipates that it will continue to receive applications to establish more of these types of insurance entities, as high network individuals are increasing their use of insurance products as a part of their wealth management strategy.
Other contributing factors include a sustained commitment by the government and private sector to develop the domicile, an ideal location 30 minutes off the coast of Florida, US preclearance, idyllic surroundings for board meetings, and ongoing regulation that encourages growth.
The ICB has continually added staff to accommodate regulation and supervision of the new formations and maintains an active interest in understanding the change in business plans and programme structures of the entities. The ICB provides unparalleled accessibility and strong support in prudently expanding the external insurance footprint of the Bahamas.
The commission also continues to cultivate human resources with the knowledge, exposure and skills to effectively and efficiently supervise the international insurance industry, which operates from within the Bahamas including the burgeoning captive market. Commission staff who supervise captives are at various stages of completing captive or risk management specific designations and/or certifications.
In parallel, the insurance expertise in the Bahamas is on the rise, as well as the level of understanding from various audit firms regarding the insurance transactions that are somewhat unique to captive arrangements.
The level of exposure among local legal professionals has also rapidly expanded with a number of law firms actively advising clients on external insurance matters.