Insurance Company Formation
Captive insurance companies are primarily distinguishable from other insurance companies in that they are generally owned or associated with companies that they are insuring and that they underwrite risks on a restrictive and selective basis only.
Captives may be used to underwrite 100% of a risk or alternatively the captive may re-insure, partially or wholly, through conventional underwriters. Captive insurance companies, like exempted banks, are prohibited from doing business within Vanuatu and are thus freed from the financial requirements that apply to local insurance companies.
Advantages of Captive Insurance
Firstly, the directors of IFTC recognise the global hardening of the insurance market in virtually all areas of risk. Some solutions, like captive insurance, are available to soften the impact of this global hardening. Captive insurance companies are used where you have a corporate client with a substantial insurance need. Just some of the advantages of establishing your own captive insurance company are:
• Lower insurance premium costs through access to reinsurance market
• Improved cash flow management
• Opportunity to minimise global taxation liability
• Insurance regulations in a high tax home jurisdiction are often complex
• Ability to obtain insurance cover which may not otherwise be available
• Closer monitoring of risk management
Applying for a Vanuatu Captive Insurance Company
To establish a Vanuatu Captive Insurance company requires the incorporation of an exempt company under the Vanuatu Companies Act. That company then makes application to the Vanuatu Financial Securities Commission (VFSC) for an insurance licence. The VFSC’s licence approval policy is conservative and the following requirements must be addressed in the application and subsequently complied with:
• A minimum paid up capital sufficient to adequately fund operations is required. The VFSC have prescribed a minimum capitalisation of USD150,000, although this does not need to be by way of cash – loan is acceptable.
• Evidence that the day-to-day managers of the insurance company have sufficient insurance knowledge and experience.
• There must be a minimum of one local (ie Vanuatu resident) director, who may be a sole director. We can assist with the provision of director/s to fulfil this requirement. There is no practical upper limit on the number of directors.
• A written undertaking that the companies activities will be strictly of an in-house or captive nature and that the insurance company will not insure risks within Vanuatu nor solicit premiums from the general public in or beyond Vanuatu.
• A brief business plan.
• Details of the beneficial owners of the proposed insurance company must be submitted, including details of shareholders of corporations which will have a beneficial interest in the insurance company.
• Independent references as to the character and bona fides of the beneficial owners of the insurance company must be provided, together with evidence of their financial substance. Copies of passports and police reports must be provided for all beneficial owners. References from solicitors, accountants, bankers or persons of standing are acceptable. An independent statement of net worth is of assistance.
• Prior approval of the Minister of Finance must be obtained for any change in the beneficial ownership of an exempted insurance company.
Vanuatu levies no income tax or capital gains tax on the earnings of the captive insurance company. There is a statutory requirement that an audit of the annual financial statements be undertaken. The financial year can be as selected by the directors. Subject to whether you require us to provide a director, PKF Vanuatu are happy to provide the audit services required.
The Rent-A-Captive (RAC) Solution
We are pleased to advise that we provide what is known as the “Rent-A-Captive solution”. The RAC is an existing insurance company which insures or reinsures risks of several unrelated 3rd party insurers by renting its capital out to them as a captive for the purpose of returning to each insured the profits from each program.
Our RACs have their own insurance managers, lawyers, actuaries, accountants and auditors. The advantage of the RAC over the traditional captive arrangement is such that there is no establishment fee and company capitalisation required.
If you are interested in obtaining more information about using this option then we invite you to contact us. Costs for the RAC are by negotiation, but are usually based on a percentage of premium. There is also generally a retention requirement for the RAC. In other words, the insurance company retains some of the premium to assist in negotiating claims. The amount of the premium is again subject to negotiation but 10% may be used as a guide.
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