Captive insurance industry wins change of attitude from Bahamas
The Bahamian government has abandoned its reservations about the benefits of a captive insurance industry and is making an intensive effort to woo back lost business.
"We made a conscious decision to encourage the establishment of captive insurance companies and are prepared to offer whatever assistance and encouragement is necessary to foster their growth," Finance Minister Arthur Hanna said recently.
The new initiative has been spurred by concern over the impact of rising competition on the country's offshore banking industry.
Prime Minister Lynden Pindling's presence at a recent Risk Insurance Managers Society (RIMS) meeting in San Francisco was intended to convince skeptics that the government is indeed serious about reestablishing the Bahamas as captive insurance center.
Most of 200 captives domiciled in the Bahamas prior to 1969 fled when legislative controls were imposed on the activities of insurance companies operating in the country.
"In fact the Insurance Act was not intended to place onerous restrictions on any legitimate insurance companies but rather to evict the fraudulent 'suitcase' companies which had settled here," Mr. Hanna maintains.
However, tight restrictions on work permits and worry over the possibility of income tax have perpetuated captive fears about the government's intentions.
Mr. Hanna admits that much of the problem in the past has been the administration's unfamiliarity with captives. "Nor were we convinced that any substantial benefits could accrue to the Bahamas from the operation of such companies," he said.
Beyond amending the insurance regulations three years ago to exempt captives from publication of their financial statements and from the 1 percent gross premium tax on domestic business, the government took little action to encourage these companies.
The growing challenge from other Caribbean banking centers and the prospect of international banking facilities (IBFs) in the US has underscored the need, however, to diversify the financial sector. Central Bank Gov. William Allen has strongly supported development of a captive insurance industry.
As part of the fence-mending process, industry leaders were invited by the governor to express their views at a joint meeting with government officials, including the prime minister and the minister of France. Among those attending were representatives from six of the seven largest insurance brokerage firms in the US.
The consensus was that the Bahamas would never make any headway in acquiring captive business unless the government was prepared to make a long-term commitment not to impose income taxes and could guarantee companies five-year work permits for expatriate staff.
New insurance legislation was also necessary, it was felt, because of the failure of the present Insurance Act to recognize captives.
The government seems ready to agree. Addressing an international bankers' conference four days later, the prime minister said his administration took the "momentous decision" not long ago to maintain the country's tax haven status.
"Considering the tremendous beneficial effect this decision has had on international banking and our own domestic economy, there is no doub t that we made the right decision," he said.