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Offshore insurance companies are one of the most successful offshore strategies. Based on the type of license acquired, businesses may provide services to a wide rage of clients; including the general public, multinational corporations, and high risk individuals. Offshore insurers may also provide family insurance services for risk reduction and tax deferral.
The most common business example of a licensed insurance entity is the captive insurance company. These entities are limited purpose insurance companies which provide self-insurance to a controlled group of companies. They provide commercial, economic and tax advantages to their sponsors by reducing insurance costs, centralizing risk management, and providing legitimate tax deferral on the cash they generate.
Because of the significant benefits, both in business and tax, offshore insurance has been increasing at astounding rates. These are most commonly formed in Bermuda.
Captive Insurance Companies
Captive insurance companies are formed by businesses to insure against operating risks. Companies primarily form captives to: (1) achieve a greater ability to direct and control available funds; and (2) to provide a more effective and efficient benefit delivery system. However, the advantages of captive insurance reach far beyond the ability to self-insure.
In addition to reducing reliance on commercial insurance, captive insurance companies allow businesses to: lower the cost of risk management; control fixed costs and thereby stabilize prices; access coverage which would be otherwise unavailable; access reinsurance markets; generate investment income from unearned premiums; and manage deductible allocation for self-insurance retention.
Perhaps the most important benefit provided by captive insurance companies is the ability to tailor coverage to the specific needs of a unique business. For example, a captive allows better access to historical claims information, thereby providing a significant underwriting advantage. Moreover, a captive may establish its own claims handling policies and procedures.
Captive insurance may also provide significant tax benefits including tax-advantaged accumulation of underwriting and investment income, deductibility of premiums, deduction of a "reasonable and fair" loss reserve for unpaid actual losses incurred, and reduction of state premium taxes. All of the aforementioned benefits depend on, among other factors; income source, domicile of the captive, and citizenship of the captive's owners.
While captive insurance companies provide unsurpassed benefits to many companies engaged in international business, numerous factors must be analyzed when considering captive formation. For example, merger and acquisition activity may be complicated by a company's use of a captive. Additionally, in some situations, a captive's reinsurance risk premiums may increase sooner than a commercially insured risk because reinsurance premiums closely reflect an insured's loss history.
Active Insurance Company Licensing:
Unrestricted License
This is a full international offshore insurance license, which has no restriction of activities. Therefore, it is possible to offer insurance or reinsurance without limitation, including providing life policies or policies for other insurance companies. Such companies are often combined with Swiss Trust Companies to offer products from Switzerland and other jurisdictions.
Restricted License
This license will typically have specific restrictions, such as an upper limit for the maximum amount of insurance policies, not providing life policies, and some may have marketing restrictions.
Restricted In-house License
The Restricted In-house License allows its holders to provide insurance services exclusively to a group of persons or entities who are named in the license. This is commonly used by international holding companies, banks, insurance companies and tax optimization funds. The largest provider of these licenses is domiciled in Bermuda, which is the third largest jurisdiction for insurance products worldwide, after London and New York.
Re-Insurance License
A reinsurance company is one that sells an insurance product to its client and then secures that policy (at a lower cost, of course) through a fully licensed provider. A reinsurance company does not underwrite its own policies and are most commonly formed in Bermuda, Panama, or Nevis.
The most common business example of a licensed insurance entity is the captive insurance company. These entities are limited purpose insurance companies which provide self-insurance to a controlled group of companies. They provide commercial, economic and tax advantages to their sponsors by reducing insurance costs, centralizing risk management, and providing legitimate tax deferral on the cash they generate.
Because of the significant benefits, both in business and tax, offshore insurance has been increasing at astounding rates. These are most commonly formed in Bermuda.
Captive Insurance Companies
Captive insurance companies are formed by businesses to insure against operating risks. Companies primarily form captives to: (1) achieve a greater ability to direct and control available funds; and (2) to provide a more effective and efficient benefit delivery system. However, the advantages of captive insurance reach far beyond the ability to self-insure.
In addition to reducing reliance on commercial insurance, captive insurance companies allow businesses to: lower the cost of risk management; control fixed costs and thereby stabilize prices; access coverage which would be otherwise unavailable; access reinsurance markets; generate investment income from unearned premiums; and manage deductible allocation for self-insurance retention.
Perhaps the most important benefit provided by captive insurance companies is the ability to tailor coverage to the specific needs of a unique business. For example, a captive allows better access to historical claims information, thereby providing a significant underwriting advantage. Moreover, a captive may establish its own claims handling policies and procedures.
Captive insurance may also provide significant tax benefits including tax-advantaged accumulation of underwriting and investment income, deductibility of premiums, deduction of a "reasonable and fair" loss reserve for unpaid actual losses incurred, and reduction of state premium taxes. All of the aforementioned benefits depend on, among other factors; income source, domicile of the captive, and citizenship of the captive's owners.
While captive insurance companies provide unsurpassed benefits to many companies engaged in international business, numerous factors must be analyzed when considering captive formation. For example, merger and acquisition activity may be complicated by a company's use of a captive. Additionally, in some situations, a captive's reinsurance risk premiums may increase sooner than a commercially insured risk because reinsurance premiums closely reflect an insured's loss history.
Active Insurance Company Licensing:
Unrestricted License
This is a full international offshore insurance license, which has no restriction of activities. Therefore, it is possible to offer insurance or reinsurance without limitation, including providing life policies or policies for other insurance companies. Such companies are often combined with Swiss Trust Companies to offer products from Switzerland and other jurisdictions.
Restricted License
This license will typically have specific restrictions, such as an upper limit for the maximum amount of insurance policies, not providing life policies, and some may have marketing restrictions.
Restricted In-house License
The Restricted In-house License allows its holders to provide insurance services exclusively to a group of persons or entities who are named in the license. This is commonly used by international holding companies, banks, insurance companies and tax optimization funds. The largest provider of these licenses is domiciled in Bermuda, which is the third largest jurisdiction for insurance products worldwide, after London and New York.
Re-Insurance License
A reinsurance company is one that sells an insurance product to its client and then secures that policy (at a lower cost, of course) through a fully licensed provider. A reinsurance company does not underwrite its own policies and are most commonly formed in Bermuda, Panama, or Nevis.