A captive insurance company is a separate legally entity, established and is a licensed insurance company in its chosen domicile. A captive’s main business purpose is to insure the risks of its owners or companies affiliated with its owners. It is an alternative form of risk management that is becoming a more practical and popular means. Captives can be formed by any type of business, such as financial institutions, manufacturers, construction companies, and automobile dealerships.
The captive insurance industry is fast-growing, and yet many business owners are not familiar with the many important benefits of captive insurance. For many, insurance in the traditional market may be appropriate, for others, formal self-insurance through the creation of a captive insurance company may be more effective to meet the company’s strategic goals.
In principle, virtually any risk can be covered through a captive structure. While the majority of captives are still insuring traditional property and casualty business, there are a growing number writing new and emerging risks as well. Captives offer unrivaled flexibility in financing risks, which is one of the reasons that more captive owners now use them to address new, complex and emerging risks such as cyber, terrorism, employee benefits and medical stop-loss. More companies than ever see captive utilization as being at the core of innovative risk management strategies.
Re-domesticating your captive to Aruba is a simple process that we are happy to help you navigate. During our initial meeting/conversation, either in person or via conference call, we would discuss your captive’s business plan, ownership structure, and current operating results. We also want to understand the reason(s) for re-domestication and want to share information about Aruba and how the captive will be regulated after licensing. If all parties agree that Aruba is a good fit, the next step is to complete necessary documentation to commence the re-domestication process.
While re-domesticating to Aruba is not complicated, we strongly recommend engaging the services of local counsel for the legal coordination of the re-domestication from one jurisdiction to another, though this is not required.
As businesses and non-profit organizations of all sizes seek to gain greater control over the costs and opportunities of risk management, they are increasingly looking to captive insurance as an alternative or enhancement to purchasing insurance in the traditional marketplace. For sophisticated companies, managing and financing risks are important aspects of overall business strategy.
Having a captive insurance company gives organizations of all sizes better control over your risk management and can reduce the overall cost of risk. However, when deciding whether to form a captive, companies need to consider whether the organization’s insurance premiums are sufficiently large enough to justify the investments of time and resources needed to form and operate a successful captive insurance company.
While captive insurance companies can be valuable strategic tools, they are not always the best approach for every organization. An organization considering captive insurance should follow a methodical approach to determine whether a captive is the right solution. In addition, it is important for any organization considering the formation of a captive to hire professionals experienced in actuarial, accounting, tax and legal issues. Well-planned captives are formed for long-term risk management solutions; the most successful captives are those where the parent company views the captive as a long-term strategy.
Setting up a Captive Insurance Company is most successful when:
• Insurance costs increased over the years
• Business with unique or hard-to-place risks
• Risks priced too high by traditional market, while leaving your business underinsured and exposed to liability in other areas.
• Sufficient premium volume
• Positive loss experience
• Does your company require a tailored insurance solution, as part of the organizations risk management program and which supports the parent company’s overall risk management strategy?
A captive insurer or reinsurer is prohibited to operate as an insurer in or from Aruba without a license from the Bank. A license shall only be granted for the engagement in one of the groups as mentioned under II B above.
In order to ensure a sound development of the insurance industry in Aruba a captive insurer will only be considered for admission if the following conditions are met:
1. The parent, holding company or association must be financially sound and of a solid reputation, evidenced by audited financial statements for the last three years.
2. A captive insurer:
a. is only allowed to conduct the insurance or reinsurance business;
b. is only allowed to conduct either the life or general insurance or reinsurance business.
The Bank can grant an exemption of the provisions for a type of Captive, provided that the Bank has been proven to its satisfaction that the management of the life insurance business is separated from the management of the general insurance business.
3. Pure captive insurance company may not insure risks other than those of its parent and affiliated companies.
Association captive insurance company may not insure risks other than those of the member organization of its association and their affiliated companies.
Rent-a-captive insurance company may not insure risks other than those of the participating companies.
4. A captive insurance company may not conclude contracts to cover the legal liabilities as indicated in the State Ordinance Motor Vehicles Liability Insurance (AB 1999, no. GT 12).
Aruba’s flexible and practical regulatory approach depends on open communication between the Central Bank of Aruba, captive owners and service providers. Bringing representatives of the captive to Aruba for an annual board meeting enhances this communication and promotes information sharing between all parties, thus adding value to the captive.
We do understand that the annual meeting requirement can be a hardship for captives with large boards of directors, or when last minute health or weather problems make travel difficult, for which allowances under certain circumstances to best accommodate your needs are approved.