International Insurance Companies
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.
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