This month we examine Nevis and speak to key players in the domicile including Timothy Caines, registrar of insurance at Nevis Finance, Martin Eveleigh at Atlas and Derek

Lloyd at AMS Insurance to discover a domicile whose attractions appeal to the needs of many prospective captive owners, including its attractive fees, responsive regulatory body and well-balanced legislation.

In recent years Nevis has become home to a significant number of reinsurance companies, which have been established there without any licensing requirements. In the past three years however, the Nevis Island Government, as part of an overall policy of ensuring that the jurisdiction, has put in place a regulatory regime and regulatory standards in keeping with international best practices, with the enactment of the International Insurance Ordinance, which came into effect in November 2004.

Attractive feature As a result, all international insurance companies established in Nevis must be registered under the Ordinance.

As Derek Lloyd at AMS Insurance points out below, the minimum capitalisation requirements are perceived as an attractive marketing feature for smaller captive entities considering Nevis as the domicile of choice.

The introduction of legislation and the

march towards an improved reputation has attracted much new business to the island, predominantly from the US.

For over 20 years Nevis has been a popular jurisdiction for investors in search of a powerful tax and investment vehicle. Its international business corporations (IBCs) are on par with those from the neighbouring domiciles and other popular IBC jurisdictions and the Nevis international exempt trust and the Nevis LLCs are viewed as two of the best-drafted and managed products in the offshore world.

An IBC is tax exempt on all income earned from anywhere in the world excep Nevis island.

An IBC need not file annual returns. Corporate records may be kept anywhere in the world and annual general meetings or meetings of the board of directors are not required to be held in Nevis. An IBC also has a number of other very attractive advantages:n There are no income taxes, social

security taxes, capital gain taxes, withholding taxes, stamp, or duty taxes.

n There are no gift, death, estate, dividend, distribution, or inheritance taxes.

n No minimum authorised capital; bearer shares permitted.

n A business license is not required.n Officers, directors, and members are

not identified. Plaintiff bringing civil suit must post US$25,000 bond.

n Statute of limitations for civil suits is one year.

www.CaptiveReview.comCaptive & ART Review August 200742

Three prominent members of the Nevis captive community talk to Bill Lumley about recent reglulatory changes and the domicile’s attractions to captive owners

A winning formula

tDerek Lloyd is director of AMS Insurance (Nevis) Limited

tMartin Eveleigh is chairman of Atlas Insurance Management

tTimothy Caines is former registrar of insurance at Nevis Finance and now heads up QCP Consulting

[Roundtable

The domicile is asociated with US landmark history. Alexander Hamilton, the first Secretary of the Treasury of the US, and a signer of the Declaration of Independence and participant in the drafting of the US Constitution, was born in Charlestown, the current capital of Nevis.

From a physical perspective, miles of beaches facing onto aquamarine and turquoise seas encircle the island. Tourism is a major revenue source and the Nevis Four Seasons Resort has recently been rated the number one resort in the world for the third straight year in a row.

The legal system is based on English common law, served by a high court of justice and court of appeals. A Nevis offshore company is known as an International Business Corporation (“IBC”) and although formed in a British Commonwealth country, corporate structure is based on the US State of Delaware model.

Martin Eveleigh, chairman of Atlas Insurance Management

Nevis’s capital requirements are generally in line with other Caribbean domiciles but it offers benefits to pure captives which are required to have between US$10,000 and US$50,000 of capital depending on the number of owners.

The wider tax regime in Nevis is attractive to those considering domiciling there, not least since captives pay no tax in Nevis and government fees are very reasonable with fees in the first year at US$2,105 and in subsequent years at US$1,220.

Apart from well-developed company laws and a responsive regulatory body, one almost unique feature of Nevis is the risk-segregation opportunity afforded by

Section 17 of the Ordinance. This allows for the establishment of statutory funds that enable an insurer to ring-fence the assets and liabilities of risks allocated to a statutory fund. Accounting for a company employing statutory funds should be less onerous than for a cell company and such a company probably also lends itself to multi-insured programmes more easily than does a cell company.

Nevis’s captive regulation and legislation manage to strike the right balance. The legislation is sensible and provides the regulator with adequate powers of oversight and control. For his part, the regulator is working towards establishing Nevis as a prudently regulated rather than over-regulated jurisdiction that is appropriate to the needs of a range of captives – although perhaps not the very largest.

An important roleCaptive managers now have a role to play, which they did not prior to the enactment of the ordinance. The introduction of legislation and the march towards an improved reputation has seen new

business attracted, predominantly from the US. Some other business has been weeded out by the licensing process and I suspect that some of this has been from further afield.

Nevis has not established an industry niche although there are a number of medical malpractice liability captives there and it is hard to see why it would suit any one industry rather than another as a captive domicile. More importantly the key factor is the size of the parent as opposed to its industry classification that is likely to determine whether or not Nevis is considered as a domicile for its captive.

Timothy Caines, formerly of Nevis Financial Services Department, now head of QCP Consulting

Following enactment in Nevis of the Insurance Ordinance in October 2004, about 35 companies registered as ‘existing entities’ with Nevis Finance. As of March 31 2007 there were 73 active captives registered.

From the growth realised over the first

Independent federation

Nevis and its sister island St Kitts form the Independent Federation of StKitts and Nevis. They are located in the Leeward Islands approximately 1,200miles southeast of Miami, Florida.

Although an independent two-island nation, they retain many traditions of the British, who settled and developed them.

St Kitts was founded in 1623, the first British colony in the Caribbean. Nevis was considered “the richest jewel” of the Caribbean and St Kitts was known both as the Mother colony and the cradle of the Caribbean.

www.CaptiveReview.com Captive & ART Review August 2007

Roundtable[

43

two and a half years of operation under the Ordinance, reported interest in the jurisdiction, and the recent upsurge in insurance manager applications (foreign and domestic), we expect even more explosive growth over the next two years.

Business typesPrior to the implementation of the 2004 Ordinance a company engaging in insurance business was only required to register as an International Business Corporation. The Ordinance brought procedures, practices and minimum standards that had to be met and adhered to if a company wished to be licensed as an international insurer.

Under the provisions of the Ordinance there are distinct classes of insurance business into which companies fall, depending on their business activities.

Operationally, we now know how many companies we have doing a particular type of insurance business, the scope of the various businesses, where risks are being underwritten, and the types of risks being underwritten.

What this allows us to do is to ascertain the size, type and lines of insurance business that we are attracting as an international finance centre, which facilitates us tailoring our legislation, policies and practices to meet the needs of all stakeholders.

In May of 2006 the Nevis Island Assembly passed an amendment to the 2004 Ordinance. The primary achievements and benefits of the amendment are the creation of two new classes of insurance business – allied reinsurance companies (ARCs) and allied annuity companies – to account for and regulate the activities of insurance brokerage and/or adjusting conducted from Nevis, and to streamline the reporting requirements of captives, decreasing the costs to captives while providing the information we require.

In Nevis we had about 35 companies that registered as ‘existing entities’ once the Ordinance was enacted in October 2004. On March 31 2007 there were 73 active captives registered with this office. From the growth realised over the first two and a half years of operation under the Ordinance, the reported interest in

the jurisdiction, and the recent upsurge in insurance manager applications (both foreign and domestic) we expect even more explosive growth over the next two years. We expect to register 12-18 captives in each of the next two years.

The other class showing dramatic growth is the ARC. An ARC is essentially a captive insurer writing only reinsurance cover to a named primary carrier. Less than a year after the passage of the amendment we have registered 15, and from discussions with some of our insurance managers we expect as many new applications over the next two to four weeks.

Additionally, the 2006 amendment provides for the establishment of an insurance advisory committee to investigate, report to and advise the Minister on matters connected with the development and regulation of the Nevis

International Insurance Industry. The full amendment is available in the law library on our website: http://www.nevisfinance.com.

Currently most of the captives domiciled in Nevis have parent companies that are based in the US, though we do have companies with parents based in Canada, Malta and Georgia. Nevis is keen to extend its appeal as a domicile to a wider geographical area as its status and reputation improves further. Though the marketing of the jurisdiction is done through a separate department, we are most responsive on the regulatory side to technical inquiries into the workings, privileges and obligations of insurers domiciled in Nevis. We have serious inquiries from Germany, Australia and Russia of late, so we are coming into our own transitioning to a premier international finance centre.

Our legislation is flexible so there is not a primary industry to which we tailor. However, most of the captives we have registered so far have parents belonging to the medical and construction industries. This, I believe, is a reflection of the growth and developments within these two industries in the US over the last three to five years.

Nevis is internationally renowned within the hospitality industry for impeccable service. We have transplanted that same

great service to Financial Services. Coupled with our flexible and user-friendly legislation, our responsiveness to inquiries or concerns, and the efficiency of our systems in the processing of applications and renewals (in two to four weeks, once the applicant has submitted all required), we have created a formula that is unmatched. Besides which, can you think of a better place to have a ‘board meeting’?

Derek Lloyd, director of AMS Insurance (Nevis) Limited

The minimum capitalisation requirements are generally perceived as an attractive marketing feature for the smaller captive entities in selecting Nevis as the domicile of choice. However, many companies under our management do capitalise in excess of the minimum criteria in any event and minimum solvency requirements under the legislation are on a par or more stringent than a number of other jurisdictions including many of the US states with emerging captive legislation and regulation.

Beneficial tax regimeAs with the majority of captive insurance domiciles, both onshore and offshore, it would be naive to believe that a beneficial tax regime was not a factor in the decision making process for clients. It should never be the over-riding factor for captive formation as tax rules are liable to change but any commercial enterprise looking to establish a new operation will always evaluate the political, geographical and economical factors in that decision making process and insurance business is no different. No taxation is levied on Nevis companies which produce underwriting profits and this must be a significant factor in that process.

It is interesting talking to some of the people who were involved in Bermuda, Cayman and the British Virgin Islands in the early days of regulation and compliance and who contributed to the development of the captive industry in those territories.

To go from little or no regulation to the enactment of legislation and the imposition of a compliance regime can be a painful and arduous task for the regulator, the insurance manager and the newly licensed entity alike. Nevis is the same in that regard and yes, categorically, AMS very much share the regulator’s objectives and are working in tandem with Nevis

www.CaptiveReview.comCaptive & ART Review August 200744

[Roundtable

❝Nevis is keen to extend its appeal as a domicile to a wider geographical area as its status and reputation improves further❞

Financial Services and other professional service providers on the island to achieve those aims.

As with Bermuda, Cayman and the BVI

the ultimate objectives cannot be achieved overnight but will be attained far quicker with the public and private sector working together.

The legislation itself is modern, forward thinking and flexible and matches the increasing levels of regulation required as the domicile evolves and matures.

There is customarily prompt access to the regulator, which cannot be said of certain other domiciles and is an attractive feature for managers and clients.

Developing domicileCertainly we are under no illusions that Nevis as a regulated insurance domicile is still developing. For me personally, it is exciting to be involved in assisting that

development and contributing positively to the evolution of the domicile. To have greater appeal and respect on the world stage will take time and effort for all

concerned and, with the best will in the world, Nevis is never going to rival the major captive domiciles throughout the world. However, as the interest in captive insurance continues to grow each year then Nevis has a part to play as a credible, regulated marketplace for the expanding captive market.

Much of the business in this part of the world has traditionally been of US parentage but we are certainly seeing a widening of appeal to places further a field including Europe, Latin America and the Far East and would anticipate that this will continue as Nevis carries on improving its status and enhance its reputation on the world stage.

AMS Insurance (Nevis) Limited was established in 2005 as a result of

the enactment of the NIIO 2004 and complimented the presence of our sister company, AMS Trustees (Nevis) Ltd, which has been in situ in Nevis since the late 1990s.

We had no involvement with insurance management in Nevis prior to the beginning of 2005 so there are no changes in practice for us as such.

We have however implemented our own rigorous internal compliance and due diligence procedures for Nevis clientele on a par to those operated by AMS insurance division for captive business under our management elsewhere.

Overall I would say that it is more the size of the operation for the parent company rather than industry specific. I would suggest that Nevis is more suited to small- and medium- sized business enterprises, the so-called SMEs.

The make-up of business in the domicile will also reflect underlying trends and distressed classes of business in the traditional insurance market.

An example would be the healthcare sector in the US and while there has been an improvement in rating levels for many physician classes in the various states in the US in recent months, there remains considerable interest and growth potential in this sector to name just one.

45

Roundtable [

n

❝Beneficial tax regimes should never be the over-riding factor for captive formation as tax rules are liable to change❞

www.CaptiveReview.com Captive & ART Review August 2007