Companies today operate in an uncertain environment in which new risks can emerge with greater frequency. It takes agility to manage such exposures as they can have detrimental impact on a firm’s bottom line: For example, losses due to cyber-attacks; a cash strain resulting from a legal claim crystalizing; or supply chain disruptions caused by the Coronavirus.
However new technologies and methodologies continue to emerge that can help with modelling and managing such exposures – to the advantage of firms of all sizes.
What is a captive insurance company?
A captive insurance company is a company that is established with the primary objective of insuring or reinsuring the risks arising from the operating business of its owners. Captives are considered a part of what is often called the “alternative market,” or “alternative risk transfer (ART) market.
What are the benefits of pursuing a captive strategy?
A captive insurance company can give its owners more control over their risk transfer costs – i.e. amounts paid in premiums in the traditional commercial market. This can be very important during times when premiums increase unexpectedly or when no provider can be found for certain risks.
Owning your own insurance company gives your business the opportunity to retain favorable, i.e. profitable, risks within the captive, and transfer the less favorable risks to the traditional insurance marketplace.
In addition, a captive insurance company allows for a more tailor-made policy that covers the exact risks of your business at a much lower cost than traditional commercial insurers – e.g. without extensive exclusions in a cyber risk contract.
Other Advantages of a Captive Insurance Company
- Access to Reinsurance: Owning an insurance license allows the captive to access the reinsurance market directly. This allows its parent to maintain the amount of risk it is comfortable with and transfer the excess exposure at much more competitive rates.
- Control: With a captive you can tailor an insurance policy to cover the real risks threatening your business, which the retail insurance market might not be willing to cover or may not do so at a reasonable cost.
- Inter-Company Financing: As underwriting profits accumulate within your captive it can issue a loan to your underlying business at much more favorable terms than those of a traditional business loan from the market.
Why the Bahamas as a captive domicile?
The Bahamas is a leading financial services jurisdiction with robust regulatory compliance standards and a solid legal landscape comparable to those of the major financial centres across the globe. It is one of the Caribbean’s most experienced financial centres, having being committed to business and finance since the 1930s.
The captive insurance environment of The Bahamas has evolved significantly over the past few years, resulting in several 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 and talented staff overseeing the establishment and ongoing regulation of numerous captive insurance companies.
Some specific examples of the benefits of The Bahamas as a captive domicile include:
- Accessibility to regulators
- Industry expertise – including actuaries, lawyers, auditors, insurance managers etc.
- Scope of permitted insurance business
- Reduced operating costs
- No insurance premium taxes
- Being an international gateway: The island chain is strategically located 50 miles from the United States with global connection(s); direct flights from 18 US cities, Canada, UK, Europe and Latin America