The Tribune

By NEIL HARTNELL

Tribune Business Editor

A BAHAMAS-based insurance executive is "optimistic" that differences with the regulator over a captive insurer providing coverage to 70-80 Bahamian physicians will be successfully resolved, telling Tribune Business it had reduced their premium costs by up to 84 per cent.

Guilden Gilbert, a principal with insurance brokerage Chandler Gilbert, told Tribune Business that the new Insurance Commissioner, Michele Fields, had pledged to "review the file" and resolve the issues raised by the regulator in relation to the captive insurer owned by Bahamas Medical Malpractice Company Ltd.

The captive is domiciled in the British Virgin Islands (BVI), and from August 2011 the Insurance Commission has been expressing unhappiness with its ownership structure. Mr Gilbert said the regulator had told the Bahamas Medical Malpractice Company that it should not have a foreign-domiciled captive, and needed to replace it with a domestic, Bahamian incorporated insurance company.

"For seven years I was running the captive owned by physicians in this market for Bahamian purposes," he told Tribune Business. "We have roughly between 70-80 physicians participating, but the Insurance Commission have advised the captive owner they could not have a captive, and that they have to create a domestic insurance company."

Noting that he created the captive structure for the Bahamas Medical Malpractice Company, Mr Gilbert added of the Insurance Commission: "They approached us only last year and said the captive needs to be registered in the Bahamas. My argument is that it does not need to be registered, as it's not a commercial market entity.

"It's an insurance company, but is owned by the participating physicians to support their claims. Everything the Insurance Commission asked us to do, they responded, but they keep moving the goalposts. Now they're saying they don't like the ownership structure.

"It was approved by the BVI regulator where the captive was domiciled. It's not the Insurance Commission's business. The new Insurance Commissioner has promised to review the file and get this matter addressed."

Saying he was "optimistic" that the issue would be resolved favourably for all concerned, Mr Gilbert said the captive in question had "brought the cost of insurance for physicians down tremendously".

Essentially, captive insurance is a means of self-insurance for companies or clients with large, peculiar risks, such as groups of doctors, who face huge premiums due to the nature of their business and potential for negligence/malpractice lawsuits.

The captive structure also meant that 25 per cent of the premium paid did not go to cover policy administration costs, as often happens in the traditional insurance world, while giving participants the chance to recover some of their premium payouts via dividend payments.

And, focusing on the captive structure's possibilities and benefits for the wider Bahamian insurance market, Mr Gilbert suggested it one could be used to negotiate the general insurance sector's reinsurance arrangements.

When it came to the captive owned by the Bahamas Medical Malpractice Company, Mr Gilbert said obstetricians and gynecologists normally had to pay $130,000-$140,000 in premium annually for malpractice coverage in the London market. But, via the captive structure, they were paying as little as $22,000 for $1m worth of coverage, an 84 per cent reduction.

"We've had no claims in the seven-year period," Mr Gilbert said. "When we put reinsurance together for this last year, the reinsurers did not talk to the entity directly. They wanted to speak to me directly, as they wanted to find out how we were operating a medical malpractice captive with no claims for five-six years."

Mr Gilbert said he performed the underwriting role, handling policy issuance and documentation, while a captive manager worked the back office.

Pointing to another benefit of the captive insurance structure, he told Tribune Business: "When you pay premium to a commercial market entity, 25 per cent of the premium goes to administrative costs.

"For a captive owner, that 25 per cent can be retained in-house, so it brings premium costs down. By having a captive, and paying premium to the captive, at some point the owner can make a decision to pay a dividend to himself after a number of years.

"The regulator monitors that to make sure there's adequate capital, but you can get a return for the premiums you pay."

Mr Gilbert described the captive insurance industry as "the ideal economic pillar" to develop Freeport on, noting the possible benefits for the Bahamian general insurance industry.

"There's a way for the domestic general insurance market to create a captive for negotiation of reinsurance terms," he added. "I already have a structure in mind. It comes down to whether the domestic market wants to work with us."