The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas should offer work permit and licence fee waivers to “sweeten the pot” for captive insurers, a leading financial executive yesterday expressing hope that Marsh’s capture would have “a snowball effect” for the jurisdiction.

Aliya Allen, the Bahamas Financial Services Board’s (BFSB) chief executive, told Tribune Business that while enticing one of the world’s largest captive managers to licence in this nation had been “a great coup”, it had yet to use this as a marketing tool to attract others and build “critical mass”.

Explaining that the delay had been caused because Marsh’s licensing process ad yet to complete, and its Bahamas growth prospects were currently unknown, Ms Allen said the company’s mere presence represented a “reputational boost” for this nation.

The Bahamas, she said, had to now build on this by attracting global captive insurance players of all sizes, and encourage them to go beyond writing business through a local registered representative by establishing a physical presence in the Bahamas.

“We have to continue to attract captive managers, and we have to ensure that all processes aid this effort – Immigration being one of them,” Ms Allen wrote in a note to BFSB members.

“At present, many of the captive managers are utilising registered representatives to fulfill physical presence requirements. As the industry grows, however, there is no reason why they would not put bricks and mortar on the ground to service the captives themselves.

“If we are serious, and I believe that we are, the Government should look to offering incentives for such operations – including waiver of work permit fees, and even perhaps a waiver of the initial licensing fee for the first few years of operation once a firm has satisfied employment criterion.”

Expanding on this theme in an interview with Tribune Business, Ms Allen said the total number of captives formed in the Bahamas was “certainly expected to have increased” during the 2014 first quarter.

While starting from a very low base, the Bahamas has seen the number of licensed, standalone captives in this jurisdiction grow from seven in 2011 to 11 in 2013.

The greatest growth, though, has been in ‘captive cells’, different parts of segregated accounts companies (SACs), which jumped from 22 in 2011 to 65 by year-end 2013. This took the total number of captive insurance entities in the Bahamas from 31 in 2011, and 50 in 2012, to 80 by year-end 2013.

“We are largely seeing growth in cells, which makes sense because they tend to be very efficient from a cost perspective, and have the ability to really achieve economies of scale with that,” Ms Allen said.

“They’re very attractive for a captive insurance environment. Captive managers writing different risks, with each captive having a different owner, can manage those cells very effectively under these structures.

“I think we’re going to see steady growth in cells and standalones as well.”

Ms Allen said the growth, while coming off a low base, had shown the BFSB and Insurance Commission there were “doing something right”.

“There’s always some improvements that can be made, and I’m not saying we’ve reached the absolute pinnacle of efficiency,” the BFSB chief executive said, although she added that there was no comparison between the insurance regulator and its predecessor, given its enhanced legislative and regulatory framework.

Ms Allen predicted that most of the Bahamas’ initial growth would come from the US market, as penetrating Latin America on captive insurance will take time, due to unfamiliarity with the product.

“We have been somewhat subdued in the promotion of Marsh initially, not because we don’t think it’s a great coup for the jurisdiction, but because we want to get a sense of the prospects for growth of their business,” Ms Allen explained.

“Once we get a sense of that, we will be much more able to talk about Marsh and the prospects for the jurisdiction. They’re still in the process of licensing - they’ve got their preliminary licence, but it’s still in the process.

“Simply having attracted Marsh is a reputational boost. Marsh is not in every domicile that offers captives. They evaluated the domicile and decided to be licensed here.”

Ms Allen said this reflected well on the Bahamas’ regulatory and operating environment, and also sent a message to the financial services industry that had been “somewhat sceptical about being able to see some green shoots in the industry”.

She expressed hope that Marsh’s arrival would have a “snowball effect” on the Bahamas’ captive industry growth, encouraging other players to follow it here and create “critical mass”.

“That can certainly be developed by the Bahamas ensuring it’s aggressively going after captives and a presence at different captive insurance conferences,” Ms Allen told Tribune Business.

The BFSB has for the past three years focused on re-establishing the Bahamas as a captive insurance domicile, targeting both managers and their clients with large, unique risks that are difficult to place in the normal insurance market.

Captives are, at their simplest, a mechanism for self-insurance.

In her note to BFSB members, Ms Allen said: “We have to make the process as clear and efficient as possible for the formation of captives and captive managers.

“In this regard, the Insurance Commission of the Bahamas has taken great strides and have been very responsive to revisiting their position on standards that do not assist in development or aid in regulatory oversight. They have also invested in the human resources necessary to assist the growth of the sector.

“Finally, the legal and audit fraternity must get firmly behind, and perhaps even in front of, the industry. We were encouraged by the number of applications we received for the BFSB/ICB funded ICCIE captive insurance designation scholarship, but we have to commit further resources in developing the expertise within the jurisdiction and much of that expertise will necessarily come from outside.”