British Virgin Islands: Offshore Business Sectors
See Offshore Business Review – Insurance for a more general treatment of captive insurance companies.
The British Virgin Islands insurance sector offers one of the very few examples of an IOFC which deliberately took the axe to a thriving business sector in order to clean it up. In 1990 there were 2,000 captives in the BVI, of which many were known to be 'shell' operations possibly engaged in doubtful or even illegal activity or money-laundering. By applying minimum capital regulations and other measures, the Government reduced the number of captives to a mere 125 acceptable companies, and installed new legislation designed to maintain a solvent and well-regulated insurance sector.
Since 2005, the number of captives in the BVI has remained more or less static at around 250 but had dropped to 174 by the end of the second quarter of 2011.
The United States continues to be the region of origin of parent companies for most BVI-licensed captives. However, the jurisdiction has global appeal and captives originating from countries such as Switzerland, Guernsey, Taiwan, the Middle East and South America have also been formed in the BVI. The construction industry accounts for the most BVI captive licenses, with 21% of the sector. Finance/insurance (18%), Real Estate (16%) and Healthcare (16%) are the other major industries represented.
Segregated Portfolio Companies (SPC’s) continue to gain momentum in the Territory, sparked by the introduction of SPC Regulations at the end of 2005 and expanded SPC provisions in BVI’s enhanced Business Companies law regime.
The Insurance Act 1994 and the Insurance Regulations 1995 established the regulatory and supervisory regime for insurance, including captives, in the BVI. Insurance licenses distinguish between Long Term, General and 'Credit Life' insurance companies. Insurance professionals (agent, broker, adjuster, etc) are also licensed. The sector is regulated by the Financial Services Commission. See Law of Offshore for further details of the regulatory regime.
The new insurance regime allows for a wide range of insurance activities, including single-parent and group-owned captives for direct and reinsurance business, rent-a-captives, underwriting for risk purchase and risk retention groups, alternative risk transfer, protected life policies etc. There is now once again a flow of new insurers arriving in the BVI. Although obviously it is far behind Bermuda and Cayman, its two local competitors, it is considerably cheaper as a jurisdiction and has legislation which is at least as good.
The Insurance (Amendment) Act, 2002 makes provision for segregated portfolio companies. A segregated portfolio company (sometimes referred to as a protected cell company) is an entity that allows each portfolio or cell to have legal separation of assets. Thus, the assets and liabilities within a segregated portfolio would be segregated from the assets and liabilities of other segregated portfolios and those assets and liabilities of the company that are not held in any segregated portfolio. The creation of segregated portfolios is subject to the approval of the Financial Services Commission. Most captives and other insurers in the BVI use the Business Company form, which is exempt from taxation. See Offshore Legal and Tax Regimes for details of the taxation of captives and the license fees payable.
The Insurance Act 2008 and Insurance Regulations 2009 replaced the Insurance Act 1994 and Regulations 1995 on February 1, 2010. The new bill developes and enhances the framework of the previous Act in order to achieve full compliance with the international association of insurance supervisors. Describing the bill, then premier Ralph T. O'Neil said that: "the bill seeks to reform the legal and regulatory regime on the licensing, administration and supervision of insurance businesses in the British Virgin Islands, and reforms of the regime relating to insurance managers, intermediaries and loss adjustors."
One of the measures introduced in the new bill are financial penalties of between US$10,000 to US$75,000 for non-compliance with the Act by Insurers, Insurance Managers and Intermediaries, Actuaries and Auditors.