Captive insurance refers to a subsidiary corporation established to provide insurance to the parent company and its affiliates not primarily engaged in the business of insurance. A captive may be a single-parent shareholder (pure captive), or a group of shareholders with similar captive risks (group captives). As the name implies, all or a significant portion of the risks written are "captive," related in some way to the risks of shareholders, or third-party risks which the shareholders control.
This approach provides an option for many corporations and groups who wish to take financial control and manage risks by underwriting their own insurance rather than paying premiums to third-party insurers. A captive may underwrite U.S. risks, foreign risks, or both. The coverage may include workers' compensation, property, liability, employee benefits or malpractice.
There are numerous advantages to forming a captive, however a company should conduct a feasibility study to determine whether a captive is the best means for the company to achieve its risk management objectives and other goals.
Captives are formed to provide necessary coverage at acceptable prices and for various good economic reasons that include the following:
Tailored coverage to a
company's specific needs Reduction of operating costs Improved cash flow Accumulated investment income
to fund losses Increased coverage and
capacity for risks uninsurable in conventional markets Direct access to wholesale
reinsurance markets In a collective effort between the public and private sector, Guam's legal and regulatory framework was established to provide for a stable, yet flexible environment for captive companies. Coupled with the presence of most international and national legal and accounting firms and insurance brokers, Guam is positioned to be the jurisdiction in the Pacific Rim to offer the greatest value and the most appealing environment for those considering the opportunities a captive has to offer.
Public Law 23-109 authorizes the Guam Economic Development Authority (GEDA) to offer tax incentives to the insurance industry through its Qualifying Certificate program. A qualifying certificate is a contract issued by the Governor of Guam on the recommendation of GEDA and grants abatements and rebates of all Guam taxes for periods not to exceed twenty (20) years; provided, that the entity remains in good standing under the laws of Guam and GEDA's rules and regulations. Beneficiaries may apply for an extension of the certificate for an additional twenty (20) years.
To apply for a QC, a Domestic Insurer must file certified copies of the following with GEDA:
Certificate of Authority or
Insurance License issued by the Guam Insurance Commissioner Application to the Insurance
Commissioner for a Certificate or License Complete and verified QC
application form (GEDA Form QC-1I) Complete and verified
affidavit of compliance (GEDA Form QC-2I) Insurance Commissioner's
certificate of compliance Current Summary of Fees for Qualifying Certificate Program:
| Application Fee: | $ 750 |
| Annual Surveillance Fee: | $1000 |
The incentives are available through the Qualifying Certificate Program of the Guam Economic Development Authority.
Guam's captive insurance law was created through the enactment of 22 Guam Code Annotated, Chapter 23 Captive Insurance Companies. This law was amended in 1997 in order to make easier the formation of a captive in Guam and to create the environment conducive to captive companies. The major provisions of the Amended Captive Insurance Law are as follows:
The law redefines captive
insurance and affiliated companies. No captive insurance company
may directly insure any risks arising in Guam. Pure captives are required a
minimum of $50,000 capital and $100,000 of surplus. Group captive companies
incorporated as a stock insurer are required $100,000 capital and $150,000 surplus. Incorporated industrial
insured captives as a stock insurer are required $150,000 capital and $200,000 surplus. Incorporated industrial
insured captives as a mutual insurer are required $200,000 surplus. Capital must be in the form
of cash deposited in a member bank of the Federal Reserve System licensed to do business
in Guam and approved by the Commissioner. Surplus may be in the form of
cash or an irrevocable letter of credit (LOC). The form of the LOC, or any other form of
surplus, must be approved by the Insurance Commissioner. All information pertaining to
Guam captive insurance companies are deemed proprietorial and confidential. Geographic location provides
a secure U.S. gateway access to international markets 100% tax rebates for
commercial, captive and reinsurers Established financial
services community Guam does not require an
annual board of directors meeting in the domicile There is no requirement for
proof of necessity Insurance risks are generally
allowed (writing direct Guam risks is prohibited) Reinsurance business is
allowed in Guam Start up costs include a
minimal application fee of $200 and a $2500 licensing fee Foreign tax credit
eligibility in certain cases for U.S. companies Details of captive insurance
companies on Guam are kept confidential The initial step in forming a captive in Guam involves an introductory meeting of the applicant and a representative of the Insurance Branch to discuss the captive insurance application process.
Once the application has been completed entirely as instructed by the Insurance Branch, it can then be submitted. The application will then be forwarded to an independent risk consultant for review, and within 28 calendar days, the applicant will receive notification from the Insurance Commissioner. Once the application has been approved and the company has been incorporated and funded, the applicant has 30 days following approval to submit the application fee to the Insurance Branch.
It is strongly suggested that companies seeking to form captives in Guam solicit professional assistance of risk consultants, and supporting professionals who are knowledgeable and familiar with Guam's captive insurance law and the application process in order to facilitate a successful application.
After receiving a certificate of authority from the Insurance Commissioner, the following must be complied with on a yearly basis:
Principal place of business
must be established in Guam. An annual report of financial
condition and an audited annual financial statement by a Guam approved actuary, must be
submitted on or before March 1 of each year. Captive companies must be
examined by the Insurance Commissioner every three years. Current incorporation and annual fees are as follows:
| Application Fee | $2500 |
| Incorporation Fee | $ 200 |
| Independent Review Fee | $3500+ (Based on complexity of application) |
| Annual License Fees | $2500 |
For more information on Guam as an insurance domicile, visit
The Guam Captive Insurance Association website at captive.com,
The "Destination Guam" website at
http://www.investguam.com
or contact the Guam Economic Development Authority at
gedamp@iftech.net
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http://www.captive.com/showcase/guam
May 1, 1999 |
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