Bahamas is wooing insurance companies back to its shores
Multinational insurance companies are slowly but steadily returning to the Bahamas. A decade after quitting the country to avoid legislative controls, they are being wooed back by an aggressive campaign put out by the government and private sector. The campaign is designed to ward off competition from a growing number of other Caribbean banking centers.
The multinationals getting this support are captive insurance companies. These companies, owned by industrial or commercial firms, insure the business risks of their owners. A growing trend in the insurance industry, captives have spun a $7 billion premium market.
Responding to insurance industry recommendations, the Bahamian government has already started work on a new and more comprehensive Insurance Act that will clarify the status of captive insurance companies.
Some waivers and exemptions granted the companies in separate legislation will be wrapped up in the new act. The act will also allow the same provisions for secrecy that banks and trust companies enjoy.
''We don't expect to steal any business from Bermuda, but there are a lot of companies looking for domiciles,'' says Charles Donaldson, manager of Bahamas Underwriters Services, a captive management subsidiary of the Charter Company of Jacksonville, Fla.
Next month Prime Minister Lynden Pindling will head a delegation of nearly 100 representatives from the financial sector and the legal profession taking part in a Risk Planning Group conference in Florida. The delegation will spotlight the Bahamas among the alternative Caribbean islands now vying for some of the captive business held mainly by Bermuda. For the first time, the government will circulate a brochure spelling out the advantages of the Bahamas for captive companies.
Ironically, efforts by Bahamians to clean up the domestic insurance industry over 10 years ago provided the catalyst that has since made their rival, Bermuda , the world's leading captives center.
When the 1969 Bahamian law required insurance companies to publicize their financial statements and have their investments monitored, most of the 200 captives left. Largely because of inexperience with the captive concept, the controlling legislation failed to distinguish between offshore companies insuring only parent risks and the scores of fraudulent companies that had given the country a bad name.
Lingering fears about the possibility of income tax were reinforced by the introduction in early 1976 of a 1 percent tax on the gross premium of all insurance companies licensed in the Bahamas. In practice none of these requirements were ever applied to captives, but it took nine years to change the law.
The 1978 exemptions put the Bahamas on a more competitive footing with Bermuda. The government, however, took no further action to encourage captives. The administration revised its position about a year ago when it became obvious that the Bahamas' leadership position as an offshore financial center was being challenged. Newer centers in the Caribbean and New York's establishment of international banking facilities were tough competition.
With strong backing from the Central Bank, representatives from the insurance and banking industries were able to convince the government of the economic benefits to be gained from a captive insurance industry. They pointed out that the Bahamas was in a position to provide captives with the investment expertise they needed but were not getting elsewhere.
Their joint efforts have already produced dividends. Six new offshore insurance companies as well as two brokerage firms have been licensed in the past 18 months, and several other companies are awaiting approval.
Strong government assurances of no income tax and the prompt treatment of requests for work permits have helped convince the industry that the Bahamas is serious about wanting captive business.