A reading of the leading publications in Barbados makes it clear that the international business sector is an integral component of our economy. Its historic contribution to economic growth, corporate tax and the employment of our highly educated and professional workforce has been well promoted, particularly under the annual spotlight of International Business Week in October. As a result more and more people are becoming conversational in things like International Business Companies and the impact of changing global regulations; this helps us all as we continue to build on our collective capabilities in order to grow.
One of the key components of Barbados’ international business sector is the captive insurance company – though their numbers are fewer, and the companies less widely understood, captives are a critically important segment, and one that also brings many visitors to our shores every year.
A captive is an insurance company that is established to insure the risks of its owners; it is like formalized self-insurance and there are several reasons why companies seek to establish one. When buying conventional insurance there is a component of the premium that pays for the overheads and profits of the insurer but by owning the insurance company the ‘group’ can derive efficiencies in costs while capturing and retaining the profits for themselves. Captives can provide a higher level of cost stability to a company’s insurance program versus conventional insurance which can be subject to cyclical changes with the potential for sudden increases in cost. Some captives have been formed to cover risks for which conventional insurance is either unavailable or prohibitively expensive; others provide the benefit of direct access to the global reinsurance market – the wholesale market for insurance. For these and other reasons, companies around the world are interested in captives.
Barbados has met the needs of companies seeking an international jurisdiction in which to establish a captive since the 1980s and continues to be major player despite a higher level of competition in recent years. According to the Financial Securities Commission there were a total of 231 active Exempt Insurance Companies and Qualifying Insurance Companies at the end of 2014 and the economic impact is felt through an extensive network of professionals and local service providers. The caliber of our professionals is further testament to the strength of the jurisdiction; from the lawyers at incorporation, to the management companies that look after day-to-day operations, to the auditors, local corporate directors and regulators that provide various forms of effective oversight, our experience is broad and our capabilities are deep. Beyond these compelling reasons, Barbados offers a wonderful environment to conduct business and corporate board meetings and annual general meetings, which already leverage our tourism infrastructure, often lead into vacations.
There is also a role for locally-based Investment Advisors as insurance companies need to invest premiums in anticipation of paying future claims. Large, traditional insurance companies use a broad array of investments, from cash and tradable securities to real property; some have even diversified into alternative investments including hedge funds and private equity. The typically smaller and less diversified captive insurance company will typically seek the assistance of an Investment Advisor to help determine and implement suitable investment strategies. Traditionally this has meant short-term, high quality fixed income portfolios but low-interest rates and expectations for below average returns are causing captives to increasingly consider diversification opportunities into other areas. We work with captives of all sizes to gain a thorough understanding of their objectives and constraints, assist in their understanding the implications of different investments, advise them on suitable asset allocation strategies and implement investment portfolios all from within this jurisdiction.
Captives have been an integral part of the development of our international business sector and with the continued hard work and determination of the many local professionals involved in the segment, it will surely remain a key pillar of our future prosperity.
This article is supplied by Kevin Armstrong, an Investment Advisor with RBC Dominion Securities Global Limited. It is intended for information purposes only and based on information that is believed to be accurate at the time of writing, and is subject to change. All opinions are solely of the author, may not reflect the opinions of RBC Dominion Securities Global Limited, are subject to change without notice and are provided in good faith but without legal responsibility. Interest rates, market conditions and other investment factors are subject to change and past performance may not be repeated. RBC Dominion Securities Global Limited, RBC Dominion Securities Inc. and Royal Bank of Canada are separate corporate entities which are affiliated. RBC Dominion Securities Global Limited is licensed by the Financial Services Commission of Barbados, the Securities Commission of The Bahamas and the Cayman Islands Monetary Authority. ® / ™ Trademark(s) of Royal Bank of Canada used under license.