TITLE THE BERMUDA ADVANTAGE Captives & Insurance NOVEMBER 2014 1 BERMUDA BUSINESS DEVELOPMENT AGENCY (BDA) Jereme Ramsay Business Development Manager - Risk Solutions & LatAm Portfolio 2 Why Bermuda? Largest captive domicile Access to reinsurance market; Bermuda is one of three leading reinsurance centres in the world One-stop-shop for risk management solutions Strong legal and regulatory framework Proven track record of insurance capacity and claims payment when it really counts: 80’s Capacity Crunch, Hurricane Andrew, World Trade Center, Hurricanes Katrina, Rita, Wilma, Sandy… etc. 3 BERMUDA REGULATORY ENVIROMENT, REPUTATION & TRANSPARENCY Eduardo Fox Economist (Appleby) & Head of BDA LatAm Committee 4 What is a Tax Information Exchange Agreement (TIEA)? A bilateral agreement For the purpose of exchanging tax information To assist administration and enforcement of domestic tax laws To combat tax evasion and tax havens and to address harmful tax practices 5 International Information Exchange Today, Bermuda has information exchange agreements with over 80 countries, including 41 TIEA agreements in place with 90% of G20, 76% of OECD and 52% of EU member states. In September 2013, Bermuda joined the OECD Multilateral Conversation on Mutual Assistance in Tax Matters (i.e. the Multilateral TIEA “the Convention”) to facilitate cooperation between over 80 jurisdictions in the assessment and collections of taxes, in particular to combat tax avoidance and evasion. Bermuda's 80 partner jurisdictions in the Convention include all G20 countries, and all OECD countries except for one, and all EU countries except for two because those three countries have not yet signed the Convention. 6 Information Exchange with Latin American Region Mexico TIEA in force Colombia TIEA in force Argentina TIEA in force Brazil TIEA signed; awaiting ratification 7 Bermuda Monetary Authority Overview The Bermuda Monetary Authority is the integrated regulator of the financial services sector in Bermuda Established in 1969 by an Act of Parliament Functions independently from the Bermuda Government, however, the BMA often advises the Ministry of Finance in matters pertaining to financial services 8 Pragmatic Approach to Regulation Captive vs. Commercial Risk-Based Approach Role of Principal Representative Role of Insurance Manager Insurance Manager On-sites Captive, Segregated Accounts Companies (Rent-a-Captives), and other forms of reinsurance. 9 CAPTIVE 101 Daniel Message AVP, Captives | R&Q Quest Management Services Limited 10 Introduction: What is a Captive? A special purpose (re)insurance vehicle A SEPARATE COMPANY, set up by the parent company Sophisticated risk management tool and designated profit centre May be established onshore or offshore Different layers of coverage can be retained or transferred Captive owners actively participate in decision making Captive = integral part of an Enterprise Risk Management strategy 11 Introduction: Captive Uses The captive (re)insures some or all risks of parent and/or related parties. Many structures exist, including: PURE CAPTIVES 12 SEGREGATED CELLS AGENCY CAPTIVES GROUP CAPTIVES ASSOCIATION CAPTIVES Introduction: Typical Lines (Re)insured Lines (re)insured via a captive are multitude. Depend on entity, line of business, location, loss history, amongst other things. Typical lines insured include (but are not limited to): Property Political risk Auto Professional liability Credit risk Cyber Difference in conditions Non-traditional and highly specialized lines 13 Summary – How it Works INVESTMENT INCOME PREMIUMS CAPITAL LOSSES CAPTIVE REINSURANCE INVESTMENTS 14 DIVIDENDS EXPENSES Number of Captives: Continual Growth 6,000 Source: Best’s, Business Insurance 15 The Key Reasons 16 1 2 3 4 COST REDUCTION COVERAGE: ACCESS TO REINSURANCE CASHFLOW: INVESTMENT INCOME CONTROL: ADMINISTRATIVE TOOL Bermuda’s Captive Regulation: Classes of General Insurance CLASS 1 CLASS 2 Pure Captives Group / Association Captives CLASS 3 Captives writing up to 50% unrelated business Captives writing less than 20% unrelated business CLASS 3A 17 Small Commercial Insurers CLASS 3B Large Commercial Insurers CLASS 4 Property Catastrophe / Excess Liability Bermuda’s Captive Regulation CLASSES OF LONG-TERM INSURANCE Class A • Pure Long-Term Captive Class B • Class 2 type Long-Term Captive Class C, D, &E 18 • Varying commercial LongTerm insurers classified by asset size SPECIAL PURPOSE INSURERS (SPIs) SPI Assumes insurance or re(insurance) risks and fully funds its exposure to such risks through a debt issuance or some other financing New Business from the LatAm region Formation of new Latin American captives continues in 2013, most recently from Colombia, Brazil and Peru. Additional applications currently in progress New captives were formed by quality (Fortune 500 sized) businesses from Latin America Formed ‘pure’ captives / for ‘traditional’ uses Located in Bermuda to access reinsurance market Used to improve risk management practices, to move deductibles across entities/jurisdictions 19 CASE STUDY Javier Mirabal 20 For more information about The Bermuda Advantage, please contact: Jereme Ramsay Business Development Manager [email protected] Eduardo Fox Economist (Appleby) & Head of BDA LatAm Committee [email protected] Daniel Message AVP, Captives | R&Q Quest Management Services [email protected] Javier Mirabal Executive Director | Fundalarys [email protected] 21 THANK YOU!