Transcript The Bermuda Market in 2005

Bermuda as a Domicile for Latin American Captives
Title Slide
Second Header
Introductions
Speakers:
• Federico Candiolo, Counsel at Attride-Stirling & Woloniecki
• Eduardo Fox, Appleby
• Tommaso Mascarucci, President Black Gold Re Limited
Moderator:
• Steve Arrowsmith, JLT Insurance Management
Captive Insurance Companies: the LatAm market
Federico Candiolo
Counsel
Second Header
Attride-Stirling & Woloniecki
Title Slide
Captive formation process
– Why should LatAm multinationals consider forming a
captive in Bermuda?
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Prudent and flexible regulation
Speed to market
Pre-eminent captive domicile
Access to the Bermuda reinsurance market
World class infrastructure
Compliant with OECD recommendations
Intellectual capital
Captive formation process
– The path to Licensing
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•
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Commission feasibility report
Consider onshore law issues and fronting arrangements
Select service provider team
Apply to incorporate the company
Apply to license the company
Incorporate, organise and capitalise
Registration as an insurer/reinsurer
– Legislative Developments: Companies Amendment (No 2)
Act 2011 et al.
Captive formation process
– Choosing the team
• Insurance manager to manage the captive and principal
representative
• Auditors
• Lawyers and corporate administrators
• Actuary if required
Captive formation process
– Captive formation
• Captive formation involves incorporation of a company
under the Companies Act 1981 and registration under
the Insurance Act 1978
• Quite distinct processes – possible to run both
simultaneously or apply to incorporate ahead of licensing
application
Captive formation process
– Incorporation
• Application to incorporate company made on specific
application form to Registrar of Companies and Bermuda
Monetary Authority (“BMA”) Controller of Foreign
Exchange – online application
• Details of proposed ownership structure in captive must
be disclosed right through to ultimate beneficial owners.
Special considerations concerning family owned groups
of companies.
Captive formation process
• BMA vets shareholders to make sure they are “fit and
proper” persons - must also be approved as
‘shareholder controllers’ of insurance company
• Individuals owning more than 5% of voting equity of
captive must also complete a personal declaration form
• Incorporation process is very streamlined and can have
‘same day’ approval
• Special considerations for family owned Groups
Captive formation process
– Insurance application
• Application to register as an insurer must be made to the
BMA Insurance Division
• Application made on a Monday of each week and
considered at the weekly Friday meeting of the
Assessment and Licensing Committee (“ALC”) of the
BMA
• ALC may approve the application with or without
conditions, approve it conditional upon production of
certain information, defer it or decline it if business case
cannot be substantiated
Captive formation process
– Mechanics of insurance application
• Application will have cover letter from the captive’s
attorneys together with the business plan for the captive
setting out the business case for the captive
• Proforma financials should be included preferably over 5
year period and ideally actuarially evaluated to test
adequacy of reserves, solvency margins and liquidity
ratios
• Details of service providers should also be included
(insurance manager, auditor, loss reserve specialist and
principal representative)
Captive formation process
– Business Plan
• Details of Shareholder
• Proposed insurance program
• Capitalisation of the company
• Directors
• Service Providers
• Reinsurance arrangements
Captive formation process
– Steps to insurance registration
• Incorporation
• Organisation of company
– Hold board and shareholder meetings to:
»
issue shares
»
adopt bye-laws
»
appoint auditors and insurance manager
• Capitalise captive
– Amount of capital will depend on class of insurer
Bermuda as a Domicile for Latin American Captives
Title Slide
Second Header
Bermuda Tax Information Exchange Agreements
(TIEAs) with Ibero America
Eduardo Fox
TIEAs Purpose
• To Promote international co-operation in tax matters through
the exchange of information
Bermuda TIEAs
How many TIEAs has Bermuda signed?
•
Bermuda has signed 35 TIEAs as of May 2012.
•
Within that number, 3 have been signed with Ibero American
countries, namely, Mexico, Argentina and Portugal.
•
Bermuda has also signed treaties with other Euro-Latin
countries like France and Italy
Bermuda TIEAs
Are there any other Ibero American countries considered?
•
Brazil and Spain amongst the most advanced in negotiations,
but also all other major economies in the region, if required
and/or necessary
Mexico / Bermuda TIEA
Full benefits of the TIEA
• Brazil and Spain amongst the most advanced in negotiations,
but also all other major economies in the region, if required
and/or necessary Bermuda will no longer be considered a
“Preferential Tax Regime for the purposes of applicable
withholding tax under the Mexican Income Tax laws
• Revenue from transactions and other payments made from
persons or entities, deemed resident in Mexico, to related
entities based in or carrying on business from Bermuda, shall
no longer be subject to a withholding tax rate of 40%, and shall
instead be subject to standard rates set our in the applicable
sections of the Mexican Income Tax Laws; and
Mexico / Bermuda TIEA
• Mexican taxpayers who generate income of ANY KIND derived
from interests in Bermuda, will no longer be required to file an
Annual Informative Declaration in relation to such income
generated or to be generated during applicable tax periods
Bermuda as a Domicile for Latin American Captives
Ecopetrol S.A. / Black Gold Re Limited
A case study by Tommaso Mascarucci
Title Slide
Second Header
Black Gold Re – History
• Since 2003 we identified that risk financing strategy should be optimized, finding that
the constitution of captive was a tool widely used by companies in the sector worldwide.
• At that time, benchmark with several companies that had captives (PDVSA, PEMEX,
BP, and Carvajal) were made to learn of their experience.
• An internal pre-feasibility study was made, results were presented to the Board of
Directors of Ecopetrol S.A. in September 2005.
• Following additional internal Legal, Treasury and Accounting considerations, it was
determined that it was viable to constitute a captive.
• Ecopetrol S.A. Board of Directors considered it advisable to engage an expert
consultant to perform a detailed captive feasibility study
Registered Office:
Cannon’s Court – 22 Victoria Street
Hamilton HM 12, Bermuda
Why was the Captive convenient for Ecopetrol S.A
• Provide direct access to the reinsurance market
• Mitigate impact of market cycles
• Promote the control and prevention of losses
• Ability to stabilize the cash flows of the company (increase retentions in periods of market
hardening and to reduce them in periods of softening)
• Cover un-insurable risks and or design products that are not available in commercial
markets
• Allow the design of individual strategies of deductible covers, terms and conditions in line
with the requirements of each unit of Ecopetrol S.A.
• Reduce costs and generate income
Registered Office:
Cannon’s Court – 22 Victoria Street
Hamilton HM 12, Bermuda
Black Gold Re – Development Stages
Stage
1
Benchmarking process
Legal, Treasury and Accounting
support
Internal pre-feasibility study
Stage 2
Buy In process with CEO and BD
RFP for Feasibility Study
RFP results to Board of Directors
Stage 3
Approval of incorporation process
Selection of advisors to implement
incorporation
Proceed with incorporation process
for the captive in Bermuda
Stage 4
Operational consolidation process
Registered Office:
Cannon’s Court – 22 Victoria Street
Hamilton HM 12, Bermuda
How to run a Captive successfully …
Financial
Operational
Legal
Strong
business
model
Registered Office:
Cannon’s Court – 22 Victoria Street
Hamilton HM 12, Bermuda
estructure
Feasibility
Study
Domicile
benchmark
How to run a Captive successfully …
Design your
strategy
“strong
busines
Plan”
Management
Right
Domicile
visits to
domicile
Management
control
system
Registered Office:
Cannon’s Court – 22 Victoria Street
Hamilton HM 12, Bermuda
World Class
Service
providers
How to run a Captive successfully …
U.S.
Design your
strategy
“strong
busines
Plan”
Bermuda
•Risk profile
•Operation scheme
•Premium Drivers
•Profit Center vs Cost center
•Forecast model
•Strategir review process
Registered Office:
Cannon’s Court – 22 Victoria Street
Hamilton HM 12, Bermuda
Right
•Reputation
Domicile
•Regulatory framework
•Financial services
•Insurance/reinsurance services
•Tax regulation
Colombia
Peru
Brazil
•Captive Managers
•Legal Council/Secretarial
services
•Auditors
•Reinsurers
•Actuaries
•Brokers
World
Class
Service
provider
How to run a Captive successfully …
Local / International Insurance programs
Placement cover notes
REINSURER
Insured Risks
Insurance
Policy
RISK
GROUP
Accept and cede % of risk from Company
and premium payment to Broker
INSURANCE
COMPANY
REINSURANCE
BROKER
Master
Premium
slip
Reinsurance contract
Premiums
Master Slip and cover notes
CAPTIVE
Loss Payments
BOARD OF DIRECTORS
•COMMITTEES
Management
control
system
TRANSPARENCY
Registered Office:
Cannon’s Court – 22 Victoria Street
Hamilton HM 12, Bermuda
CAPTIVE
MANAGER
CONTROL
SERVICE
PROVIDERS
PERFORMANCE
Black Gold Re – Why Bermuda
• High reputation within insurance and
reinsurance market
Bermuda
845
Cayman
1430
• Considered favourably by the OECD
Vermont
738
Guernsey
211
• Transparency and regulatory stability
572
252
• largest captive domicile in the world (17% of the
total number of captives 5.524)
• Facility for the intergovernmental exchange of
information
Anguilla
219
Luxembourg
341
Barbados
242
244
BVI
Turks &
Caicos
6000
5000
4000
4240
4480
4720
4800
4960
5100
5200
5390
5587
• Oil& Gas Captives(PEMEX, PDVSA, PETROBRA'S 4000
3000
CHEVRON TEXACO, TOTALFINA, CONOCO2000
PHILLIPS, SHELL, REPSOL-YPF,)
• Presence of multiple companies that offer
products and services of insurances and
reinsurance
Registered Office:
Cannon’s Court – 22 Victoria Street
Hamilton HM 12, Bermuda
1000
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
# of Capt.
Black Gold Re – What´s Next?
• Retaining more risk now with greater capital base
• Maintain international rating rate levels given by Fitch and Moody’s
• Redesigned entire Ecopetrol placement utilizing Black Gold Re
• Strengthen rigorous and comprehensive governance structure in line with
Ecopetrol standards and Code of Conduct
• Synchronize budget with annual strategic review process business plan
Registered Office:
Cannon’s Court – 22 Victoria Street
Hamilton HM 12, Bermuda