Barbados has been attracting international insurance companies to its shores for decades. Barbados is ranked in the top ten captive domiciles (Business Insurance).
Advantages of Locating an International Insurance Company in Barbados:
The benefits of operating an international insurance company in Barbados include:
- Flexibility in solvency requirements:
- Deferred acquisition costs can be treated as assets
- After the company's first financial year, the required margin of solvency (i.e. the excess of assets over liabilities) depends on the level of the company's premium income for the previous financial year
- Minimum capital requirement of US$125,000
- Speed of incorporation and licensing
- No restriction on insurance business written
- A full-time and responsive Financial Services Commission to whom the function of approval has been delegated by the Minister of Finance
- Special incentives including:
- The reduced corporate tax rate for EICs and QICs
- No capital gains tax
- Exemption from withholding tax on dividends, interest, management fees or other income paid to non-residents
- Exemption from taxes on transfers of securities and assets to non-residents
- Exemption from exchange controls
- Income tax concessions for specially qualified non-residents whose services are required for the business
- Provision for incorporation of mutual insurance companies, that is, companies whose share capital is owned by their policy holders
- The US/Barbados DTA, pursuant to which business convention expenses incurred by US corporations and organizations are deductible against US taxes
- The Canada/Barbados DTA, which allows for 'exempt surplus' treatment
- A GAAP accounting system, which is less burdensome than the imposition of requirements to produce local statutory filings
- Freedom to acquire real estate compared to other jurisdictions that impose restrictions on real estate ownership
- Good infrastructure for international insurance companies, including local availability of experienced management companies, banks, investment companies, auditors and lawyers
- No requirements for a captive to hold board meetings or have a local director in the jurisdiction.
Types of Insurance business: Captive and Reinsurance
- Captive - Captive Insurance companies are created to insure and re-insure the risks of their owners, subsidiaries and affiliates. In its purest applications, captive insurance is a means of self insurance but many captives in Barbados ("non-true captive" or "captive plus" companies) carry out a proportion of their business with third parties.
- Reinsurance - International reinsurance companies are companies which do not deal with general insurance but with the risks of other insurance companies and large firms.
Forms of insurance companies
- In Barbados, international insurance companies can take two forms:
- Exempt Insurance Companies (EICs) - These entities are registered under the Exempt Insurance Act 1983 and can be used to insure risks originating outside of Barbados. They are taxed at a rate of 0% of profits and gains for the first 15 financial years. After the first 15 years an EIC is taxed at a rate of 8% on the first US$125 000 of taxable income and at a rate of 0% in respect of all other taxable income in excess of US$125 000.
- Qualified Insurance Companies (QICs) - This type of insurance company is registered under the Insurance Act and may also insure a certain amount of local risk. A QIC is taxed at the same rate of corporate taxation as a local company. However, the rate of tax may be effectively reduced to 1.75%. A rebate of up to 93% of income tax can be claimed, depending on the percentage of total premium income that is earned from foreign insurance business.
Under the Companies Act, insurance companies can operate as segregated cell companies. Under this corporate structure, the risks and rewards of one cell are kept separate from those of other cells.
Number of Companies
As of December 31, 2015, there were 192 active EICs and 44 active QICs in Barbados (Source: Financial Services Commission). Of the total number of active companies, approximately 56% originated from Canada and almost 30% were US-owned.
Other Insurance Structures
Segregated Cell Companies - A Segregated Cell Company (SCC) is an entity containing assets and liabilities legally segregated from the company’s general account and those of the other segregated cell accounts. An existing Barbados company may be converted to a SCC and an external company may be registered as a SCC or continued as a SCC in Barbados. A SCC must maintain records for the preparation of financial statements.
Advantages of Segregated Cells:
• Legally protected from the adverse experiences of other cells, and the individual cell benefits accrue only to it.
• May be transferred to another segregated cell company or to an incorporated cell company (ICC).
• Enjoy the benefits of a captive insurance company without having to form their own captive.
Separate Account Companies - These are legal entities comprising separate accounts that are segregated from the Insurer’s accounts and other segregated cell accounts. The separate account company differs from a SCC in the following ways:
• There are no multi-shareholder requirements
• An SAC does not place the core capital at risk like the SCC does
• The SAC is cost effective but less versatile
Incorporated Cell Companies - An incorporated cell company (ICC) comprises incorporated cells as part of its legal corporate structure. Each cell of the ICC is a separate legal entity with its own directors who may be different from those of the ICC. As separate entities, the cells within an ICC can transact business with each other and can sue and be sued. However, incorporated cells must have the same registered office as their ICC but may not own shares of the ICC.
• An external company may be registered as an ICC or continued as an ICC in Barbados
• An existing Barbados company can be converted into an ICC
• ICCs must submit annual returns for each of their incorporated cells
• An incorporated cell may be transferred to another ICC or to a SCC. The latter can also transfer cells to an ICC
• Use of a common framework and central management can result in savings
• Assets/liabilities can be segregated according to class and risk
• Provision of a more robust segregation of assets than the SCC and the SAC