The Republic of Vanuatu is reinventing itself as a financial center for captive insurance after a year-long push to enact new legal and regulation frameworks in line with international standards.
Vanuatu, which is among the South Pacific islands, experienced a significant drop in captive activities after it imposed new insurance regulations in 2005. This led to the removal of some captive licenses, said Joshua Tari, supervision and compliance manager with the Vanuatu Financial Services Commission.
The number of captive insurers plunged from about 150 operators to about 30 a decade ago.
Vanuatu introduced captive insurance rules between 1975 and 1977. It had then drawn corporations from the United States, Australia, New Zealand and Hong Kong to form captives. Captive classes mainly came from medical liability, legal and life insurance and income and employee protection.
Today, Tari said there are about 10 captives, which have owners from Australia, New Zealand, the Pacific islands and the United States. They cover medical, legal, aviation and hotel risks and include protected cell companies.
"Vanuatu is poised to be the largest offshore captive domicile in the South Pacific region. New legislation has created a major opportunity for captive and insurance protected cell companies to be established," said Kevin Lindsay, chairman of Vanuatu Captive Insurance Association, in a presentation.
The priority is to enhance global awareness of the credible and stable position of Vanuatu in captive insurance, backed by pro-active legislative and regulatory measures, said Lindsay in an interview.
The country has adopted legislative initiatives to provide "maximum protection" for international clients "while maintaining compliance with all major international instruments to which Vanuatu is a party," said Lindsay. Money laundering prevention, anti-terrorism and confidentiality were cited as key government priorities, according to a survey of Vanuatu's statute book a few years ago.
As an international financial center in South Pacific since 1971, Vanuatu had evoked images of laissez-faire regulation, dogmatic bank secrecy and tax avoidance. "Combating that erroneous perception has demanded that Vanuatu tread a paradoxical fine line," said Lindsay in the report.
Now, Lindsay said "a combination of thoughtful legislation and pro-active administration has enabled Vanuatu to strike an intelligence balance between legitimacy and growth."
Looking for a Comeback
With enhanced regulatory and legal systems, Vanuatu is looking to attract new captives through promotion by the Vanuatu Captive Insurance Association.
Vanuatu imposed new laws on protected cells companies, insurers and incorporated cell companies after 2005. The legal system uses an English common law framework.
The regulatory regime follows the principles of the International Association of Insurance Supervisors, with emphasis on capital solvency and risk reference, said Tari.
Tari said that, given the newly established regulatory regime, incentives related to taxes and administrative costs and a stable environment, Vanuatu is optimistic about expanding its captive business. In the Asia-Pacific region, natural disaster risks such as earthquakes and tropical storms also drive demand for captive insurance as an alternative risk management tool. The country is promoting captive insurance in the United States and Asian countries.
Located in the South Pacific Ocean about three hours flight from Brisbane, Australia, Vanuatu has a geographic attraction for Australian corporations. Tari said Vanuatu sees potential in Australia, such as mining companies in western Australia and hotel operators in Queensland.
Although the new regulation led to a drop in captives, Lindsay said this provides a sound governance footing to draw businesses. Looking at the growth of captives in other jurisdictions, Lindsay said Vanuatu should be part of the trend. Vanuatu has good potential for captive insurance, with its opening up to business to all countries, classes and types of captive insurance.
While the domicile has been strong in captive aviation insurance, it is doing business for most classes. Vanuatu has received a steady flow of enquires from various countries around the world, including from Europe, said Lindsay.
The Asia-Pacific region and the United States are two promising markets for the domicile. Vanuatu is promoting captive insurance from large corporation to small and medium-size enterprises, said Lindsay. Small to medium enterprises offer market potential for development in the region.
Vanuatu has four local captive managers while multinational managers such as Willis, Marsh and Aon have no direct business operations in the country, said Tari. The country offer captives options, including incorporated insurance company, protected cell company and rent-a-captive facility.
Cost is one attraction for captive formation in Vanuatu as the captive insurer is free from various taxes including corporate, capital gains, capital or estate transfer, death and inheritance.
With a population of about 200,000, Vanuatu became independent in 1980. Previously known as New Hebrides, Vanuatu was jointly ruled by France and the United Kingdom prior to independence.
(By Iris Lai, Hong Kong bureau manager: Iris.Lai@ambest.com)
