The Bahamas Investment Authority / Insurance Industry

Insurance Industry in The Bahamas

In 1994, the Government of The Bahamas listed "Captive Insurance" as one of the areas especially targeted for overseas investment. The thrust is a cooperative movement between Government and the private sector, represented by The Bahamas Association of International Insurance (BAII), which encourages the formation of captive insurance companies.

The insurance industry in The Bahamas is divided into two distinct and separate sectors:

The Domestic Market (the insurance of local risks by locally-owned or foreign-owned insurers) and
The International [Captive] Market (the insurance of foreign risks by foreign-owned insurers working through The Bahamas).

The domestic market is relatively large and supported by seven locally-owned and 49 foreign-owned insurers. Business is written directly or through a variety of brokers and agents. In 1992, total accounted gross premiums amounted to $203.5 million (62% Life and Health insurance and 38% Property and Liability insurance). Life insurance is dominated by subsidiaries of Canadian and US companies. They account for about 78% of the market, while Bahamian-owned companies account for 20%, with UK companies accounting for the balance.

Property insurance is provided predominantly by British companies. There is only one Bahamian-owned company in this category.

International Insurance in The Bahamas

In the early 1960s, a number of major US companies began to form their own insurance subsidiaries which today are known as "captives," primarily in offshore financial centres like The Bahamas. The aim of the captives was to insure the risk of the parent or subsidiary companies.

The International [Captive] Market is small, but growing. There are some 3,500 captives worldwide. A number of such companies are currently located in The Bahamas. The majority of the captives have a USA origin and the others are from Europe. Total premiums written with respect to all foreign risks amounted to $121 million in 1985. Local services for these international insurers are provided by a variety of offices, ranging from underwriting manager to trust companies.

In 1994, the Government of The Bahamas listed "Captive Insurance" as one of the areas especially targeted for overseas investment. The Government is beginning a new thrust to substantially develop the role of The Bahamas in the International (Captive) Insurance business. The thrust is a cooperative movement between Government and the private sector, represented by The Bahamas Association of International Insurance (BAII).

Benefits of Bahamian Captives

Among the many advantages of operating through The Bahamas are the following:

Strong professional infrastructure; financial, legal, and accounting services are readily available.
Responsive, well-informed regulatory department able to react promptly and intelligently to new proposals.
Excellent communications with the United States and Canada; full telephone and telex services, plentiful airline services, including many direct flights daily to major US and Canadian centres.
High-quality, world-famous leisure activities and facilities, including sport fishing, sailing, snorkeling, championship golf and tennis, and a glittering nightlife.

The outlook for international insurance in The Bahamas is very positive. The supportive infrastructure already exists, the legal framework is similar to that found in other jurisdictions, and the supervisory system is well-equipped to handle the demands arising without losing the personal touch, which is so important in fostering good relationships with market participants.

The Regulatory Framework

The country has two insurance laws, theInsurance Act of 1969 as amended and the External Insurance Act of 1983. Legislation governing this sector is currently being revised with the goal of making The Bahamas one of the premier offshore insurance centres.

Both insurance laws lay down statutory minimum net worth figures and net premium to capital and surplus ratios, notwithstanding the minimum figures (ranging from $100,000 under the 1983 Act for general insurers to $300,000 under the 1969 Act for life insurers). Applicants should be realistic in their determination of a suitable financial base for operations; the Registrar would not normally expect to see any application with less than $250,000 initial capital and, in any event, the proposed amount should be more than adequate to support the proposed volume business. Likewise, working ratios should be established in the light of current market thinking and practice; a net premium to capital and surplus ratio of not wider than 3:1 being considered a good starting point.

Initial capitalization, certainly to the statutory minimum, should be by way of cash. Letters of credit are not likely to be acceptable, unless they represent amounts over and above the working capital level. There is no legal requirement for capital funds to be held locally, but most companies do use the extensive local banking system. In that regard, companies planning to act as direct insurers (excess or surplus line) may be required by the Registrar to place deposits either locally or in the state where business is being transacted in order to provide the necessary level of comfort.

Ongoing reporting requirements are minimal, but their importance cannot be overstated. Basically, the requirements are that each company should continue to carry on its business in the manner described in the business plan and that an audited financial statement should be filed annually, within six months of the close of the financial year (which may be set by the company).

Companies registered under the 1983 Act are also required to furnish certain statutory statements indicating compliance with terms of registration. One such statement requires countersignature by the Underwriting Manager.

This sector is overseen by the Ministry of Finance, through the Office of the Registrar of Insurance. All information handled by the Registrar is treated in confidence (but it should be noted that the share register held by the Registrar General may be inspected by the public). The 1983 Act reinforces the confidentiality aspect by incorporating a special provision in that regard. Nevertheless, it is anticipated that as The Bahamas develops into an insurance centre in its own right, confidentiality will become less and less significant to market participants, which may well find it advantageous to release certain information, e.g. ownership and/or financial standing.

The Application Process

Given a satisfactory application, licenses are eventually issued on authority of the Minister of Finance, following recommendation by the Registrar of Insurance Companies. Detailed application forms are to be found in the Regulations attaching to the respective laws.

There are certain basic areas in which the Registrar needs to be satisfied before a positive recommendation can be made. These are as follows:

The identity of all key parties involved (sponsors, shareholders, directors, officers and managers).
The fitness of those key parties to engage in the proposed operation.
The business ethics involved.
The feasibility of the planned business.
The security of any outward reinsurance.

It would be useful for applicants to meet with the Registrar and Advisor at the earliest opportunity to expedite the application process and provide an opportunity to resolve any potential problem areas.

Fees & Taxes

Fees for offshore insurance companies are:

(1) On registration - $2,500
(2) Annually - $2,500
A $650 fee is imposed per underwriting manager employed.
The offshore company obtains a 15-year tax holiday from the date of registration.
Resident insurance companies writing local business pay a premium tax of 2% of gross premiums collected each quarter, or $25, whichever is higher, plus an initial registration fee of $1,000.

Further information can be obtained from the regulatory office dealing with insurance matters:

The Office of the Registrar of Insurance
P.O. Box N3017
Nassau, N.P., The Bahamas
Tel: (242) 328-1068

Copies of The Insurance Act, 1969, as amended, and The External Insurance Act, 1983, may be obtained from:

Government Publications Office
P.O. Box N7147
Nassau, N.P., The Bahamas
Tel: (242) 322-2410

The Bahamas Association for International Insurance can furnish background information and details of attorneys, accountants, and underwriting managers:

Bahamas Association for International Insurance
P.O. Box N3029
Nassau, N.P., The Bahamas