British Virgin Islands: The Modern World

Last Updated: 12 January 2011
Article by Appleby  

A new Insurance Act has created a modern corporate governance landscape for BVI captives

The British Virgin Islands (BVI) has for some time been among the top five offshore jurisdictions in the world for the domiciliation of captive insurance vehicles. The regulation of captives, and other insurers domiciled in the BVI, underwent a major revamp in February 2010 with the introduction of a new Insurance Act, and accompanying regulations. A new Regulatory Code came into effect at the same time.

This article focuses on the corporate governance requirements for BVI captives and seeks to highlight the fact that the BVI has implemented a responsible regulatory framework for insurers, which has sufficient flexibility to enable captives to structure their corporate governance arrangements to reflect their needs and risk profile.

Captive insurance in the BVI

The overwhelming majority of insurance businesses operating in or from within the BVI are captives. According to the Statistical Bulletin from the BVI Financial Services Commission, at the end of the second quarter of 2010, there were 207 captive insurers out of a total of 246 insurers domiciled in the BVI (the remainder being credit life and domestic insurers). The BVI is perhaps best known among captive insurance market participants for establishing a niche for itself in registering 831(b) "mini captives" (although this is changing, with larger captives from the US and elsewhere now choosing to domicile in the BVI).

Corporate governance

The BVI's Insurance Act 2008 and Insurance Regulations 2009 took effect on 1 February 2010. This new legislation was accompanied by the Regulatory Code 2009, also taking effect on 1 February 2010. The Regulatory Code applies to a range of financial service licensees in the BVI, including insurers, and is designed to supplement the primary financial services legislation, including the Insurance Act.

Part II of the Regulatory Code applies to financial services licensees generally and includes, inter alia, a number of corporate governance requirements. Part IV of the code specifically applies to insurance licensees and includes further corporate governance requirements specifically for insurers.

The Insurance Act introduced a new licensing system for insurers. There are four licence categories under the Act: Category A, B, C and D. While the Insurance Act and Regulations do not specifically mention captives, the explanatory notes in the Regulatory Code state that a captive insurer will need to apply for either a category C or Category D licence.

A category C licence may only be issued to a BVI company and entitles the holder to carry on insurance business that is not local domestic business, including reinsurance business that is not "open market reinsurance business" (defined in the Act as reinsurance business where the insurer is not connected with the reinsurer). A category D licence may only be issued to a BVI company and can permit the licensee to engage in open market reinsurance business.

While the Act deals briefly with corporate governance for insurers, it is the Regulatory Code that covers the field in terms of setting out the corporate governance requirements for insurers. There are some corporate governance requirements in the Regulatory Code which are prescriptive, and therefore need to be followed to the letter by captives (as well as fully-fledged insurers).

For example, insurers must have at least two directors and these must be individuals. If the insurer is a diversified captive taking on third party risk, it would require a category D licence and must therefore have at least one non-executive director. A category D licensee must also appoint an independent person to perform an internal audit function.

Insurers must also, inter alia, establish a remuneration policy and ensure it is appropriately reviewed; establish an underwriting and pricing strategy and policies, along with systems and controls to ensure the strategy and policies are implemented effectively, and establish policies, systems and controls to enable the monitoring and management of the insurer's asset/liability position to ensure its investment activities and asset position are appropriate given its risk profile.

The bulk of the corporate governance provisions in the Regulatory Code are, however, non-prescriptive. These provisions are expressed to be subject to the "size, nature, complexity, structure and diversity", along with the risk profile, of the licensee. According to the commission, this represents a "principles-based" or "risk-based" approach to corporate governance regulation, and provides licensees with enormous discretion to structure their corporate governance framework to suit their needs.

This approach is especially important for captives, given that they are typically smaller than fully-fledged insurers, and have a much lower risk profile (unless they are diversified rather than "pure" captives and assume third party risk). The commission is certainly aware of this, making it clear in the Regulatory Code that it will have different expectations for captives when it comes to corporate governance.

In the explanatory notes to the Regulatory Code, the commission states: "There are no exemptions from the code with respect to captive insurers, but where the code is not prescriptive in its requirements, the commission accepts that the risks faced by a captive insurer should be taken into account when applying the requirements of the Code."

The Commission goes further in stating "The commission recognises that an unnecessarily burdensome corporate governance framework would hinder the efficient operation of captive insurers. The principles-based nature of the code enables the directors of a captive insurer to establish a corporate governance framework that is appropriate for the business undertaken by the insurer and the risks that it takes."

Among the rules in the Regulatory Code that are expressed as being subject to the "size, nature, complexity, structure and diversity" of the insurer include the requirement to implement a risk management strategy and policies; to establish strategies, policies, systems and controls as appropriate; to establish a business continuity policy and put business continuity arrangements in place; to establish and maintain an adequate system of internal controls, and the requirement to establish and maintain an investment strategy and policies and have systems and controls to ensure that this strategy and policies are effectively implemented.

The Regulatory Code also provides some useful additional guidance on issues specific to BVI captives to be considered when developing their corporate governance framework:

(a) the need to avoid undue influence by the captive insurer's owner, the insurance manager or other interested parties;

(b) the need to identify and effectively manage potential conflicts of interest;

(c) the need to ensure that the board is able to manage outsourced operations effectively, including the functions outsourced to the insurance manager; and

(d) the need to take full account of interests of possible claimants on the parent policyholder where they rely on the fact that the captive is covering a particular liability.

Importantly, the commission also recognises that for captives it will generally be the insurance manager rather than directors or senior managers who will carry out key corporate governance functions. The commission notes in the Regulatory Code, however, that despite the fact that the insurance manager is an important part of the corporate governance framework for captives, it does not take the place of the board of directors who retain ultimate responsibility for corporate governance.

International standards

The recently enacted suite of regulation affecting captives domiciled in the BVI is designed to make sure that the BVI adheres to international best practice standards of insurance supervision and maintains its reputation as a responsible, international offshore financial centre. The recent initiatives certainly achieve this. It is equally true that with these regulatory initiatives, the BVI can offer also flexibility and efficiency for insurers, and especially captives.

The "principles-based" approach towards corporate governance adopted in the Regulatory Code provides for an effective regulatory landscape in the BVI, which is important in positioning the jurisdiction as a domicile of choice for a diverse range of captives from all parts of the world.

This article was first published in the January 2011 issue of Captive Review.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions