Captive Insurance

The BVI captive, or closely held insurance company (CHIC), is a great financial tool for middle market companies. These tax efficient structures are especially beneficial for estate planning purposes and to write some ‘difficult’ risks of the family business.

Our BVI insurance team has tax attorneys, CPAs, Chartered Insurers and risk managers able to take your enquiry, look at your risks, design a program and implement a BVI captive in just a few weeks.

With an international clientele drawn from different countries, we service a geographically broad and diverse client base. We provide a bespoke, turnkey service for clients designed to save you time. We’ll suggest what risks may be sensibly underwritten, draft your policies, form the company, manage the accounts and handle all the BVI paperwork for you. We’ll even introduce you to a bank and an auditor, experienced in handling BVI insurance companies.

Advantages of Captive Insurers

The use of captive insurance has many advantages. The reason for the success of the captive insurance industry has to do with some of the advantages available. These include:

Cost Savings

The risks taken on by a captive generally do not reflect the industry as a whole, but rather that of the parent. It is therefore possible to allow risk management to improve the profitability of the captive which enables the organisation to share in underwriting profits. Similarly the costs of traditional insurers can be eliminated including their overhead and the costs of commissions incurred in the retail market.

Investment Income

The retention of investment income is one of the major benefits of the use of captives. Due to the delay between premiums being received and claims paid, the investment income over time can be significant. This can be fed back to the parent group either as a dividend, be retained in the captive, or take the form of lower premiums.

Direct access to Reinsurance Market

A captive may have direct access to the reinsurance market which would be difficult or impossible for the parent itself to obtain. This ability to deal directly can lead to cost savings, as well as an ability to insure difficult risks.

Control of Investments

Although most jurisdictions, including the BVI, have admissible assets in which investments may be made, the use of a captive allows for some discretion as to the nature of that investment.

Smoothing of Costs

The use of a captive allows costs to be smoothed over a period of time, and a reduction of volatility caused by external factors to the business.

Insuring the Uninsurable

At certain times some risks are very difficult if not impossible to insure. Examples of these include professional indemnity issues. By utilisation of a captive, the parent can provide for the risks inherent in these claims which provides the protection needed.

Tax Advantages

The use of a captive historically allowed tax advantages to be obtained. These have reduced over time, but tax planning is still important. For example the US has particularly interesting rules contained in Sections 831(b) and 501 (c) of the Code, which has resulted in a number of captives being formed to fall under these provisions.

Licences and Capital Requirements

Licences may be awarded for both Long Term in the form of Annuity, health, accidental Death and Disability or for General which is anything other than Long Term.

The capital required for General is $100 000, and for Long Term is $200 000. Please bear in mind that these are minimum requirements, and that minimum levels of solvency must be maintained. Generally these are in line with 20% of net retained premium income up to $5m, and 10% for net retained income in excess of $5m.

All insurers must be licensed under the Act, and must appoint an insurance manager authorised to act in the BVI. The licence is renewable annually.

Admitted Assets

Certain categories of assets may not be included when calculating admitted assets. The Financial Services Commission is currently undergoing extensive discussions with the industry as to what this should constitute.

General Requirements

There must be at least two directors; Books and records must be maintained in the BVI, although the funds need not be; An application must include a detailed business plan; An annual audit is required.