GIM11020 - Captive insurers: tax havens and local organisation

Tax havens

Captives are generally located in tax havens (see ITH1705). The most popular location is Bermuda because of the number of American companies which use it.

Many UK groups choose Guernsey or the Isle of Man. Luxembourg is popular with Continental groups, and Dublin has attracted a number of captives. A location needs a developed infrastructure with political stability and good communications. Favourable tax and insurance legislation is also important. Captive business is important to the local economy of the territories, which vie with one another to acquire and retain it.

A few captives are, by choice, resident in the UK.

Local organisation

To maintain a presence in the tax haven a captive will employ a local management company, which may be a subsidiary of one of the major UK brokers (see ITH1703). The fee charged will depend on the range of services provided. The local management company will ensure compliance with local law, issue policies, collect premiums, pay claims, prepare reports and provide local directors. It may also offer investment advice.

Directors, normally about five, will probably consist of a representative of the management company, one or two representatives of the parent - the group risk manager, company secretary and finance director/Treasurer are popular candidates - and perhaps two or three other haven residents. Local accountants, retired bankers or insurance specialists are often used. The last may be the only ones paid by the captive.

The brokers may play a major part in the setting up and, via the local management company, the day to day running of the captive. They will probably prepare feasibility studies for the group parent board when it is considering establishing a captive and will continue to advise the risk manager on types and levels of risk which might be left with the captive.