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Guide to the Bermuda Insurance Market PDF

314 Pages·2007·1.39 MB·English
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(VJEFUPUIF #FSNVEB*OTVSBODF.BSLFU (VJEFUPUIF#FSNVEB*OTVSBODF.BSLFU GUIDE TO THE BERMUDA INSURANCE MARKET GUIDE TO THE BERMUDA INSURANCE MARKET APPLEBY i GUIDE TO THE BERMUDA INSURANCE MARKET GUIDE TO THE BERMUDA INSURANCE MARKET © 2007 Appleby. ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of Appleby, application for which should be addressed to Appleby at: Appleby Canon’s Court 22 Victoria Street PO Box HM 1179 Hamilton HM EX Bermuda Tel +441 295 2244 Fax +441 292 8666 GUIDE TO THE BERMUDA INSURANCE MARKET TABLE OF CONTENTS CHAPTER 1 OFFSHORE INSURANCE......................................................................................................1 CHAPTER 2 CAPTIVE INSURANCE COMPANIES...................................................................................7 CHAPTER 3 RENT-A-CAPTIVES AND THE USE OF SEGREGATED ACCOUNTS..................................15 CHAPTER 4 SPECIALISED INSURANCE VEHICLES ............................................................................23 CHAPTER 5 LIFE AND WEALTH ACCUMULATION PRODUCTS IN BERMUDA.........................................39 CHAPTER 6 PRIVATE ACTS...................................................................................................................47 CHAPTER 7 HOW TO FORM A BERMUDA INSURANCE COMPANY......................................................55 CHAPTER 8 DERIVATIVES AND SECURITISATION...............................................................................119 APPLEBY iii GUIDE TO THE BERMUDA INSURANCE MARKET CHAPTER 9 RAISING PRIVATE EQUITY/FINANCING..........................................................................125 CHAPTER 10 PUBLIC OFFERINGS...........................................................................................................129 CHAPTER 11 ESTABLISHING A PHYSICAL PRESENCE IN BERMUDA.................................................143 CHAPTER 12 INSURANCE LEGISLATION.............................................................................................167 CHAPTER 13 INSURANCE ACT COMPLIANCE.......................................................................................189 CHAPTER 14 INSURANCE REGULATORY ACCOUNTING .......................................................................211 CHAPTER 15 COMPANY LAW IN BERMUDA..........................................................................................243 CHAPTER 16 THE SEGREGATED ACCOUNTS COMPANIES ACT 2000..................................................259 CHAPTER 17 THE PRINCIPAL REPRESENTATIVE ................................................................................267 CHAPTER 18 KEY REGULATORY BODIES IN BERMUDA ........................................................................275 CHAPTER 19 ALTERNATIVE DISPUTE RESOLUTIONS FOR INSURANCE COMPANIES IN BERMUDA.....................................................................................................................283 GLOSSARY..............................................................................................................................295 APPLEBY iv GUIDE TO THE BERMUDA INSURANCE MARKET APPLEBY v GUIDE TO THE BERMUDA INSURANCE MARKET APPLEBY vi OFFSHORE INSURANCE — CHAPTER 1 CHAPTER 1 OFFSHORE INSURANCE A. INTRODUCTION It is fair to say the perception of the offshore financial world varies tremendously. On the one hand, a layman in Ohio or deepest England would have little or no understanding of the important role of offshore companies and would naively view any ‘offshore’ jurisdiction with suspicion. Sadly, this narrow observation is fuelled by sections of the international press which view any offshore jurisdictions as ‘tax havens’ or, worse, as somehow ‘dodgy’. On the other hand, this view can be starkly juxtaposed against professionals and large corporations throughout the world who are intimately knowledgeable and familiar with the crucial role of offshore jurisdictions in the world of finance. Notwithstanding the contradictory perceptions of offshore jurisdictions, it is clear they are major players and a key element in international finance. Nowhere is this more clearly apparent than in Bermuda. Over the years, Bermuda has grown from a captive hub to the second largest reinsurance market in the world. Truly, Bermuda is a vibrant and competitive market where underwriters and executive officers are on the ground and actively binding risks in Hamilton. In the face of the negative press coverage the question arises, how is it that a sector comprised of jurisdictions which are often painted as ‘tax havens’ or ‘dodgy’, should not only survive but thrive in the face of tremendous international public scrutiny? The truth is simply that every Fortune 500 company, most of the Fortune 1000 companies, and thousands of other enterprises and associations of individuals (or simply wealthy private persons and trusts) take advantage of the facilities offered by small islands and purpose-made international financial centres around the world. One has only to examine the annual reports of most listed companies to discover in the notes, or in the list of subsidiaries, that there are affiliates in Bermuda, Guernsey, Dublin or Luxembourg. However, APPLEBY 1 GUIDE TO THE BERMUDA INSURANCE MARKET even that does not tell the whole picture. The sophisticated transactions to which offshore companies are frequently a central cog are not readily apparent from their public documents, but it is real, and it is very important to the financing of international business in a world of uncertainties about tax, creditworthiness, litigation and privacy in commercial transactions. Of particular interest are the booming offshore insurance markets. Increasing numbers of captives are being formed in Bermuda, the Cayman Islands, Guernsey, Isle of Man, Dublin and Luxembourg. Likewise, an ever-larger portion of the world’s reinsurance business is being placed in Bermuda. As noted earlier, Bermuda is the second-largest reinsurance market behind only New York, underwriting billions of dollars worth of premiums each year. This is because offshore jurisdictions have been able to offer a sound regulatory and low-tax environment, with sufficient controls to maintain investor and public confidence. But, what is meant by ‘offshore’? Surprisingly, this does not mean merely an island somewhere in the Caribbean or the English Channel. Indeed, there are a number of jurisdictions firmly anchored in a mainland somewhere, which, for some purposes, fall within the scope of offshore jurisdictions. For example, non-domiciled individuals resident in England enjoy a very favourable tax treatment and, for them, the United Kingdom is a tax haven! Further, Scottish limited partnerships can supply particular benefits to American investors by taking advantage of the double taxation treaty between the United Kingdom and the United States. In the Americas, land-locked states such as Vermont and Colorado and the Canadian province of British Columbia, have established themselves as captive domiciles giving special regulatory treatment to this category of company. Other places, such as Luxembourg, Dublin and Israel, are clearly physically onshore, but they have legislative facilities, which treat certain transactions differently from other major industrial jurisdictions and provide, to the residents of those other jurisdictions, an opportunity to profit. Indeed, Dublin is regularly considered an offshore jurisdiction, while clearly a member of the European Community. Obviously, however, the word ‘offshore’ must have come from somewhere and, indeed, it was coined to describe the islands off the shore of the United States which, as early as the 1930s, offered locations from which American business people could conduct their international affairs and thereby minimise their tax and regulatory exposure back home. The term ‘offshore’ has come to be extended to any jurisdiction offering tax or regulatory advantages which are significantly different from those in the major economies. In relation to insurance, the principal offshore jur isdictions are Bermuda, the Cayman Islands, Luxembourg and Ireland. However, in understanding what an offshore jurisdiction is, one needs to look at the reasons why they developed. APPLEBY 2 OFFSHORE INSURANCE — CHAPTER 1 B. REASONS FOR GOING OFFSHORE 1. Tax For the professional, ‘offshore’ is now a structural tool in the efficient management of a company’s affairs. The principal efficiency (and the one which has given rise to the loaded expression ‘tax haven’) is, obviously, taxation. However, going offshore for ‘tax reasons’ does not mean to the legitimate businessperson tax evasion, as many wrongly suppose it does. The governments of the onshore economies have made escaping the tax net extremely difficult where the activities of a business or an individual’s income are wholly connected with one jurisdiction. However, it is where businesses are multinational or where income comes from a variety of jurisdictional sources around the world that being in a tax-neutral or low-tax jurisdiction has a number of significant advantages. Increasingly, tax analysis is now properly focused on setting off against each other the provisions of the tax laws of different jurisdictions, all or parts of which may govern aspects of a company’s business or a division within its global group. Sometimes, this is known as ‘treaty shopping’ or arbitraging the differences in tax regulations between onshore jurisdictions. One simply exploits territorial limits of fiscal systems for legitimate international business purposes. That is to say, the lack of worldwide harmonisation of fiscal systems, particularly with regard to unilateral and treaty relief measures, produces a situation where connecting factors, connecting persons, places and events to a tax consequence, are not merely of jurisdictional relevance, but may also give rise to problems of double taxation or, through a deliberate change of one or more parameters, permit the reduction of the global tax burden. It is the lack of uniformity which highlights that there is no intrinsic sanctity regarding taxation; revenue authorities create devices and it is perfectly proper to determine whether the devices apply in given circumstances. In this context, offshore jurisdictions offer significant tax minimisation opportunities since the location of a taxable person or taxable event in an offshore jurisdiction may: • sever or interrupt the formation of a connecting factor with regard to one or more high tax jurisdictions; and/or • reduce the tax burden falling on a taxable person with regard to a taxable event by one or more high-tax jurisdictions. Notwithstanding the best efforts of the onshore governments, there are still ways in which residents can achieve some tax economies offshore, particularly where the legal form of the offshore vehicle, for example, a partnership, allows the enterprise to roll up profits, but the owners are treated as individuals for tax purposes so that they do not suffer double taxation; firstly, at the enterprise level and, again, at the personal level. APPLEBY 3

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