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QUEST BERMUDA

BERMUDA AS A CAPTIVE DOMICILE FOR THE LATIN AMERICAN MARKET

BY DANIEL MESSAGE, R&Q QUEST MANAGEMENT SERVICES LIMITED

INDEPENDENT GLOBAL EXPERTS WITH LOCAL EXPERTISE

www.rqquestbermuda.com

BERMUDA AS A CAPTIVE DOMICILE FOR THE LATIN AMERICAN MARKET

Bermuda as a captive domicile for the Latin American market1

Since the idea of a captive insurer was first conceived in the 1960s, Bermuda has been a leading jurisdiction in providing innovative captive and alternative risk transfer solutions. Indeed, Bermuda was at the forefront in creating the original captive framework and it continues to lead the way in developing new structures to serve the needs of an ever-changing market.

There are currently over 800 pure captives domiciled in Bermuda. Some of the largest companies in the world, including the majority of Fortune 500 companies, have a presence in the domicile.

Over the past several years, Bermuda has seen a significant increase in interest from Latin American entities and ‘Multilatinas’. The reasons for this, together with conjectures concerning the future direction of the market, are explored in this paper.

Why the increase in momentum from Latin America?

While there are undoubtedly a number of factors to consider, it could be argued that the main reason for the increase is an insurance market which is now approaching maturity in some parts of Latin America. When combined with Bermuda’s significant investment in enhancing its presence, transparency and range of services offered across Latin America, the job of understanding the shift in momentum becomes that much more straightforward.

Market maturity

Much in the same way as the European and US insurance markets have developed over the last few decades, there is now a noticeable shift in attitudes towards more sophisticated approaches to risk management in Latin America. This has been spurred on by the success of a number of the biggest entities in Latin America domiciling their captives in Bermuda. Sectors involved have included oil & gas, natural resources and significant Multilatinas.

While Mexico continues to be a large source of captive business, there has recently been a significant number of vehicles created for Colombian entities, as well as interest in and captive incorporations from across Latin America including Chile, Peru, Venezuela, Bolivia, Ecuador and Brazil. As the attitudes of risk managers in Latin America develop in favor of more comprehensive risk management tools, so too does the range of alternative risk transfer mechanisms available. It’s here that captives can play a significant role; creating solutions for circumstances where the cost is either too high or the availability of insurance to cover particularly large, complex or non-traditional risks is insufficient in the traditional insurance market.

Bermuda’s proactive approach

Bermuda has regularly been represented at events across Latin America, and at the same time the captive concept has started to gain traction. The benefits of this representation are twofold. Firstly, adopting a more educational approach to introducing captives as a viable alternative risk transfer mechanism has allowed the concept to be more widely marketed in the region. Secondly, it has placed Bermuda in the limelight in the region, increasing awareness of the availability and viability of Bermuda as a domicile of choice.

BERMUDA AS A CAPTIVE DOMICILE FOR THE LATIN AMERICAN MARKET

900

800

700

600

500

400

300

200

1000

Bermuda*1

2

3

4

5

6

7

8

9

10

Cayman Islands*

Vermont*

Guernsey

Utah

Delaware*

Anguilla

Nevis

Barbados

Luxembourg

World’s Largest DomicilesRanked by number of captive licenses at year-end 2013

* R&Q Quest management capabilities

Source: Business Insurance’s Captive Domiciles 2014 report

“Bermuda’s exchange of information

practice is in line with the international

standard of transparency and exchange

of information for tax purposes.”

OECD

BERMUDA AS A CAPTIVE DOMICILE FOR THE LATIN AMERICAN MARKET

Bermuda as a captive domicile for the Latin American market

Increasing transparency

The perception of Bermuda by Latin American countries as a viable source of business has been a key point in gaining a foothold in the market. The Organisation for Economic Co-operation and Development (OECD) points to the strength of Bermuda, stating that “Bermuda’s exchange of information practice is in line with the international standard of transparency and exchange of information for tax purposes.” Rigorous anti-money laundering procedures, together with steps taken towards Solvency II equivalence are both favorable in reinforcing Bermuda’s reputation. Perhaps one of the most significant indicators of success in this regard has been the removal of Bermuda from Colombia’s tax blacklist. A key point to note and one that exemplifies the practical approach taken in Bermuda is that captives will be excluded from the equivalency requirements of Solvency II.

The continued commitment to Latin America has been strongly supported by the authorities in Bermuda, with the signing of a number of Tax Information Exchange Agreements (TIEAs). While tax savings are not typically stated as an explicit primary objective in captive creation, it is nevertheless something that should be fully considered in assessing captive feasibility. Increased transparency and the signing of such agreements will only serve to make Bermuda a more attractive place for Latin American companies to establish captives.

Notably, Eduardo Fox, Latin America Manager at law firm Appleby highlights that “the first TIEA between an offshore jurisdiction and a Latin American country was between Bermuda and Mexico.” He also notes the importance of Latin America to Bermuda, stating that “2013 alone saw nearly a third of all newly-formed captives in Bermuda having a LatAm parent. Bermuda has more TIEAs with Latin America and the Iberian countries than any other jurisdiction of its kind, with the latest coming in to effect with Colombia in October of 2014.”

What does Bermuda have to offer?

First and foremost, Bermuda is truly a one-stop-shop: the availability of insurance, reinsurance and captives all in one place is something particular to Bermuda as a captive domicile.

Within Bermuda, there is a strong public/private forum for communications. While Bermuda captive legislation is robust, the regulators are pragmatic with a very business-minded approach. They work closely with service providers to make sure legislation is relevant and the available structures adequate to maintain the quality and integrity of business in the jurisdiction, while providing the best portfolio of solutions for entities doing business on the island. Tim Faries, Partner and Head of Latin America at Appleby, Bermuda points out “what differentiates us from other jurisdictions is the market’s accessibility to the regulators and their sensitivity to the needs of the marketplace.”1 This is of particular benefit when exploring new markets such as those in Latin America, which commonly need a different, bespoke approach.

Further, Bermuda has a well-developed infrastructure and its concentration of intellectual capital is second to none, with Spanish speakers now available at a number of service providers on the island. The breadth and depth of experience in a single location means that those choosing to do business in Bermuda have convenient access to some of the best resources in the industry. This is made even easier with daily flights connecting to Bermuda from Latin America through the East Coast of the US and Canada, as well as a direct flight daily to London.

“What differentiates us from other

jurisdictions is the market’s accessibility to

the regulators and their sensitivity to the

needs of the marketplace.”

Tim Faries, Partner and Head of Latin America at Appleby

MexicoArgentinaColombia

Signed, in effect

Negotiations finalizedChileSpain

Signed, yet to take effectBrazil

Bermuda’s Latam TIEAs:

CAPTIVES

REINSURANCE INSURANCE

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BERMUDA AS A CAPTIVE DOMICILE FOR THE LATIN AMERICAN MARKET

Bermuda as a captive domicile for the Latin American market

With all of this, Bermuda has the tools to provide everything Latin American entities are looking for when considering a captive and other ART structures and to continue to offer the optimal solutions as the market evolves further. ASW Law corporate counsel Frederico Candiolo, originally from Argentina and now based in Bermuda, summarizes “because captives are not as commonly used in Latin America as they are in North America, I think going to the leading jurisdiction gives them a comfort that is difficult to obtain going to other jurisdictions.”

What next?

With Bermuda’s continued commitment to the Latin American region, a steady stream of new captives being created in Bermuda over the coming years from across the region is expected.

Nick Frost, President of R&Q Quest Management Services in Bermuda notes “Traditionally, it has been the larger corporations from Latin America looking to establish captives. However, there has been a trickle-down to smaller and medium sized firms, as well as more private companies now enquiring about captives, which we see as being an indicator of the shape of things to come.”

It is anticipated that there will be an increase in the use of cell structures in ‘rent-a-captive’ companies, which typically have lower barriers to entry than a pure captive. Cells may prove to be a viable route for many Latin American entities, allowing them to enter in to the captive space with a smaller capital outlay and initial financial commitment. Of course, the optimal structure will always be very client-specific and the captive advisor should perform a thorough analysis of the best solution for every client before making recommendations.

There are currently negotiations for a number of additional Tax Information Exchange Agreements (TIEAs) between Bermuda and Latin American countries, which will serve to further open the channels for captive and, indeed, other business.

Looking further ahead, Bermuda has also been selected to host the ALARYS Latin American Risk Management and Insurance Congress in 2016. This is a significant event for Bermuda and an excellent opportunity for Latin American entities to find out more about what Bermuda has to offer. Eduardo Fox notes the far-ranging impact: “Hundreds of delegates from Latin America and the Iberian Peninsula, as well as investors, brokers and administrators with interest in the region from as far away as the Far East, will travel to Bermuda for this event. It’s good for the Island, good for our captive industry, and good for the jurisdiction as a whole.”2

“Traditionally, it has been the larger

corporations from Latin America looking to

establish captives. However, there has been

a trickle-down to smaller and medium sized

firms, as well as more private companies

now enquiring about captives...”

Nick Frost, President of R&Q Quest Management Services

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BERMUDA AS A CAPTIVE DOMICILE FOR THE LATIN AMERICAN MARKET

Bermuda as a captive domicile for the Latin American market

Our approach

At R&Q, while we offer global service capabilities, we have seen a distinct shift in momentum in favor of Bermuda from Latin American entities. With clients in the region and having attended and spoken at events across Latin America, we have a substantial understanding of the market. A crucial consideration is that every country in Latin America needs an individual approach, due to the variations in regulation, taxation, attitudes toward risk and the unique business culture in each area. In turn, every client has its own distinct requirements. There is no one-size-fits-all captive structure. Our independent global expertise, combined with local specialization, gives us a unique ability to offer the solutions tailored to every client’s specific needs.

Our team has the right blend of experience to manage all stages of the captive life cycle. This includes the initial contact, pre-feasibility and feasibility studies, company formation and licensing, ongoing captive management, captive closure and run-off.

We understand that the captive idea may be something relatively new in Latin America. This is why we invest a lot of time in making sure our clients are fully aware of the available options. Our hands-on approach means that there is close, direct contact with the client from day one. Every step of the way, there will always be a direct contact available from our office to help resolve any queries with the maximum possible efficiency.

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RQ083/0115www.rqquestbermuda.com

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CONTACT

Daniel Message Assistant Vice President R&Q Quest Management Services LimitedE daniel.message@rqih.com T +1 441 247 8310

A qualified reinsurance professional and Chartered Accountant based in Bermuda, Daniel works closely with clients across Latin America. A fluent Spanish speaker with a degree in Economics, he was a Manager with an accountancy firm in his native UK before joining R&Q Quest. Daniel is a frequent attendee and speaker at conferences, as well as being responsible for business development in Latin America.

R&Q profile

R&Q is one of the largest independent captive managers with a reputation for innovation, flexibility, and specialized expertise. Our experienced professionals have substantial experience in managing captive insurance programs for Latin American companies and all clients are overseen by a Director who is also professionally qualified, with many years of experience dealing with complex and sensitive issues.

We provide Insurance and Captive Management facilities in Bermuda, US, Gibraltar, Cayman Islands, Isle of Man and the Nordic Region.

Disclaimer

This paper represents the views of the author (R&Q). Whilst the information and references in this report have been compiled from sources believed to be reliable, neither the author nor R&Q make any guarantee as to the accuracy and completeness and shall not be liable for any losses or damages arising out of persons’ reliance upon this information.

References and footnotes

1 http://www.applebyglobal.com/publication-pdf-versions/articles/articles-2014/one-of- a-kind---captive-review-(t-faries)-april-2014.pdf2 http://bda.bm/wp-content/uploads/2014/12/ALARYS-2016-release1.pdf

Randall & Quilter Investment Holdings Ltd. is registered in Bermuda No. 47341. Registered office: Clarendon House, 2 Church Street, Hamilton, HM11, Bermuda. Certain companies within the Randall & Quilter Investment Holdings Ltd. (AIM:RQIH) Group of companies are authorised and regulated by the UK Financial Conduct Authority, the UK Prudential Regulation Authority or other regulatory body.

© 2015 Randall & Quilter Investment Holdings Ltd

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