Captive news

Cayman sees return to captive growth in 2013 The Cayman Islands Monetary Authority has reported growth in the islands' insurance sector in 2013. The number of international insurers grew by 1.9% from 741 in December 2012, to 755 in September 2013, compared with a a half per cent decline during the same period last year. Last year saw higher levels of cancellations relative to new issues. New registrations for the first three quarters of 2013 amounted to 29. Of the 755 international insurers regulated by CIMA as at September 2013, there were 714 Class Bs, 39 Class Cs (special purpose vehicles) and two Class Ds (reinsurers). At 44%, healthcare captives account for the majority of these international insurers. The next largest industry segment is Financial Services at 27%. By line of business, 33.6% of international insurers were for medical malpractice, followed by workers' compensation (21.1%), property (12.0%), general liability (9.8%) and professional liability (9.1%). At 90.2%, the risk location of captive parents continued to be dominated by North America. The next most important geographical source of captives is the Caribbean and Latin America collectively.hideAt the end of the third quarter of 2013, the total premiums of international insurers had expanded by a robust 16.9%, up from $11.8n in December 2012, to $13.8bn in September 2013. Total assets as at September 30 2013 were $85.8bn, down from $88.1bn as at December 31 2012. During that same period, net income expanded by 66.7% from $2.1bn in December 2012, to $3.5bn in September of 2013. Speaking at the recent Cayman Captive Forum 2013, Patrick Bodden, Deputy Managing Director - Operations, Cayman Islands Monetary Authority, said, "In the face of a very challenging international market environment, Cayman's insurance industry has remained resilient...As we look to the future, there are challenges and opportunities for the captive sector in general, and in particular for the Cayman Islands as a captive jurisdiction. There remain some global challenges in the insurance sector, and in particular for captive growth. These involve limited collateral options and, indirectly, the competitively priced primary markets which have a knock-on effect for captive owners." In March 2013 an Amendment to the Insurance Law was passed in Cayman which allows a Special Purpose Company (SPC) to incorporate one or more of its cells by establishing a Portfolio Insurance Company (PIC). According to Mr Bodden, the development and use of PICs enhances the Cayman insurance markets by providing increased capacity for risk management and additional flexibility in risk transfer between cells within the SPC. He explained that regulations for PICs are currently under development at CIMA, with a target for initial drafting instructions to be completed by December 31. "CIMA is confident that the new Insurance Law and associated regulations will significantly strengthen the already rigorous supervisory framework," he said. "We believe too that it will also present new business opportunities and allow for innovation. Going forward, CIMA will continue to assess and update its risk-based regulatory regime, continue to encourage open communication with our licensees, and service providers and international agencies associated with the Cayman Islands." Cayman signs tax information agreement with US The Cayman Islands and the US have signed an agreement that paves the way for automatic exchange of tax information under US FATCA. The two governments also signed a new tax information exchange agreement (TIEA), which replaces the original TIEA signed in 2001. The new TIEA stipulates the legal channels through which information will be automatically exchanged. Cayman has signed a FATCA Model 1 intergovernmental agreement (IGA) which enables financial institutions in Cayman to directly report information to Cayman's Government regarding accounts and non-financial entities that are substantially owned by US citizens and residents. Government will then relay the information to the IRS. In addition, the Cayman Islands and Poland have signed a TIEA in support of global transparency and tax initiatives. With this signing, Cayman now has agreements with 33 countries. Texas enacts captive relocation law The Texas Department of Insurance has announced that it has begun accepting applications from captive insurance companies located in other jurisdictions that would like to relocate to Texas. The Department will license the companies under a law change approved earlier this year. Senate Bill 734 provides TDI with the ability to license captives to insure the risks of parent companies and affiliates, as well as controlled unaffiliated businesses. In the past, Texas-based companies wanting to self-insure through a captive were forced to form the operations outside of Texas. "I am pleased that the Texas Department of Insurance is moving forward with the implementation of SB 734, which authorises the creation of captive insurance companies in Texas," Senator John Carona said. "My hope is that this legislation will encourage businesses to form captive insurance companies within the state and also provide incentives for those companies with existing captive insurance companies to re-domesticate in Texas." Fitch on protected cell captive ratings criteria Fitch Ratings has said it believes the legal separation of the protected cells, the credit profile of the protected cell sponsor and the credit profile of the protected cell company are important considerations when analysing a captive insurer organised as a protected cell. It added that accessibility, if any, to the assets in the general account is a potential credit positive. Cell company legislation has been enacted in several jurisdictions throughout the world. "Clearly the legislative intent is that the assets of each cell are segregated and not available to satisfy the creditors of another cell in the event of that second cell's insolvency. However, in most jurisdictions the cells are not organised as separate legal entities. Further, there is not a substantial history of these structures being successfully defended, or even challenged, in court. This introduces uncertainty into the rating process for protected cells," said Fitch. "It may be helpful to borrow insight from structured finance," said Don Thorpe, senior director of the Insurance group at Fitch. "In structured finance, it is common to obtain legal opinions regarding the enforceability of contracts and the non-consolidation of the transaction parties in the event of one transaction party's insolvency. This is often referred to as bankruptcy remoteness." Fitch said it believes the financial strength of both the captive sponsor and the entity that sponsors the protected cell company could affect the credit profile of the individual protected cell: "this will depend on the degree of linkage between the entities and structural mitigants, if any," it said. Fitch concluded, "Some protected cell credit profiles may benefit from access to the assets of the protected cell company's general account. However, this will require a thorough analysis of the applicable regulations, and agreements between the protected cells and the protected cell companies, if any. Thus, this determination would rely heavily on the individual circumstances." Oklahoma enacts new captive law A new insurance law has been enacted in Oklahoma. The law, HB 1108, aims to make Oklahoma more attractive as a home state to captive insurance companies. Several Oklahoma businesses own captives, but they are based in other states. "The captive market is growing rapidly. As a result of this new legislation, Oklahoma is well-positioned to take advantage of that growth," said Oklahoma Insurance Commissioner John D. Doak. "As the market grows here, we hope to bring some of those Oklahoma companies home. We want them doing business in our state. This means jobs for Oklahoma." Changes to Oklahoma's captive law include lower premium tax, less restrictive surplus requirements for pure captives, availability of a 60-day provisional license, use of generally accepted accounting principles, and the ability to hold board meetings outside Oklahoma. Aon highlights captive impact of UK CFC changes Aon Global Risk Consulting and BDO have outlined the commercial and taxation impacts and opportunities available to captives as a result of the UK controlled foreign companies (CFC) regulatory changes. According to Aon, the key issues raised by these changes are: The non-UK income of captives may not be assessed for corporation tax in the UK Profits of EEA-based captives may not be subject to UK tax assessment Distributions of captives will not be subject to tax in the UK Captive owners should carefully consider the domicile, business lines and operating protocols to ensure that their captives deliver maximum value "The UK CFC changes offer an opportunity for captives to offer some new financial benefits to their owners. We expect many of our captive clients to consider the structure of their captives, the lines of business in which they participate and, in some cases, whether to commence utilising a captive," said Charles Winter, Head of Risk Finance, Aon Global Risk Consulting. Angela Foyle, Head of Financial Services Tax, BDO, added: "Whilst there is significant negative public perception in the UK around offshore activities and notwithstanding the introduction of the General Anti Abuse Rule, in fact the new CFC rules together with the falling rate of corporation tax are additional steps towards making the UK a highly favourable regime from which to headquarter international operations. The premise that all profits of CFCs remain outside the UK tax net unless brought within, is a positive and welcome change from the obverse position under the old regime."

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