British Virgin Islands: BVI Captives - Virgin On New Heights

There’s a little caption that features on all the vehicle licence plates in the BVI which proclaims the BVI as " Nature’s Little Secret" and anyone who visits the islands quickly comes to appreciate its significance. Until quite recently the caption might just as easily have read "Captive World’s Little Secret" but its changing as the BVI’s popularity as an offshore domicile gathers momentum.

In 1999 fifty new ‘pure’ captives were registered in the BVI taking the total to 131 and placing it firmly in the top ten domiciles with every expectation of climbing beyond its present ranking of ninth. (There were also 6 new credit-life companies formed taking the total for those to 59).

Companies are attracted to the BVI as an offshore domicile for its blend of modern legislation, sound yet straightforward regulatory controls and its highly competitive fee structure. The BVI has attracted many US companies looking for a cost-effective domicile to take advantage of the IRS 501c(15) exemption and we are now seeing more enquiries for larger and more sophisticated programs. The BVI’s Financial Services Department (FSD) has worked hard to create a responsive infrastructure for captives and offshore companies generally. The FSD are members of the International Association of Insurance Supervisors (IAIS) and exhibit at the Risk & Insurance Management Society (RIMS) conference every year – The BVI has now won the best stand prize in it's class for the past four years running.

The BVI is a self-governed English speaking dependent territory located 60 miles east of Puerto Rico and with a population of 17,000 inhabitants of which 14,000 live on the principal island – Tortola. The topography is typically Caribbean with lush mountain terrain. The capital Road Town sits at the foot of Great Mountain. It is a peaceful country with a distinctive Caribbean character, a stable US$ economy and a low crime rate and the islands were the inspiration for Robert Louis Stevenson’s "Treasure Island".

Generally considered the sailing capital of the Caribbean it attracts much tourism for both bare-boat and crewed sailing craft. The tourism market is definitely upscale and the majority of the island’s visitors have an annual income of more than $100,000. The tourism industry still accounts for the majority of the workforce but its income has now been surpassed by the financial services sector. Those entering the BVI from the air generally do so via Puerto Rico which is the regional hub served by American Airlines with many flights to Tortola each day.

The movement towards financial services is best exemplified by the fact that since the introduction of the International Business Companies Act (IBC) in 1984 the Government has had an extra US$40 Million a year to spend on infrastructure, health and education and has taken GDP from US$81 Million in 1986 to US$320 Million by 1994.

The Financial Services Framework Financial services in the BVI are headed up by Robert A. Mathavious who as Director of the FSD regulates the international business companies including trust companies, captives and banks. Captive insurance regulation falls within the department under the direct supervision of the Supervisor of Insurance. Bill McCullough ACII who was formerly the head of insurance supervision in the Cayman Islands.

The Insurance Act 1994 governs the licensing and monitoring of insurance companies in the BVI. Its a modern purpose written act with a single class of licence enabling parental and third party business to be written. Licences are issued for either General Business or Long Term Business but not generally both together. There is no taxation of companies in the BVI and there need be no meetings held in the territory although they are encouraged. Policy documents need not be produced since the captive’s Business Plan is usually sufficient to note the classes of risk being written provided they are supported by premium and loss records. Bank accounts need not be held in the BVI. Where reinsurance has been arranged there must be evidence of it and the Supervisor is also keen to review documents where there are risks borne by any third parties.

The Act is geared to ensure that captive parents are committed to running their captives professionally but with perhaps less onerous requirements than many domiciles. There are due diligence requirements but a legitimate enterprise providing the necessary references would have nothing to fear. The effect on on-costs of service providers is marked and the cost base of having a BVI domiciled captive is a major plus for the smaller entrepreneurial companies who may have looked at establishing a captive but were deterred by the initial and ongoing costs of other domiciles.

Since meetings need not be held parent companies are spared the travel and opportunity costs of losing senior personnel from their everyday responsibilities. In this sense the BVI is an ideal domicile choice for those companies who wish to appoint their insurance manager and allow them to ‘get on with it’. When AMS hosts client meetings we generally get the entire service team including the auditors around the table at our offices in Sea Meadow House.

Captives in the BVI must appoint an Insurance Manager in the territory under the Act and there are ten licensed managers of which AMS is the dominant player with over half of the registered captives in the territory. AMS Group is an integrated offshore financial services company providing services in the areas of corporate, trusts, mutual funds, partnership, accounting, insurance and most recently e-commerce services. Last year AMS was awarded ‘BVI Business of the Year’ – not that we plan to rest on our laurels!

Captives must be licensed under the Act before they may trade and there are audit requirements for financial statements to be prepared within three months of the end of the financial year. Captive insurers are required to meet the prescribed capital and solvency requirements of the Act which briefly are:

For a General Business company the requirement is $100,000 and for a Long-Term company it is $200,000. (The requirements for a credit life company are lower at just $10,000 capital.

Allowable assets for solvency calculation purposes are cash, bonds, premium receivables, reinsurance receivables, Letter of Credits and securities (maximum 20% of total assets).