Finance Committee considers amendment to captive insurance legislation
Published: October 12, 2013
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ST. THOMAS - Members of the Senate Finance Committee heard testimony Friday on a bill to pave the way for captive insurance companies to move their business to the territory.
The Senate has passed similar legislation in the past, but according to John McDonald, director of the Division of Banking and Insurance in the Lt. Governor's Office, it needs to be tweaked to function properly.
Captive insurance is insurance or reinsurance provided by a company that is formed primarily to cover the assets and risks of its parent company or companies. Captive insurance is essentially an in-house insurance company with a limited purpose and is not available to the general public. It is an alternative form of risk management through which a company can protect itself financially while having more control over how it is insured.
McDonald said the Exempt International Companies Act was enacted in 1984 and first allowed the captive insurance business into the territory.
The bill amends the V.I. Code to create the Division of Alternative Markets and International Reinsurance and establishes a new position, the superintendent of alternative markets. The division would be under the Lt. Governor's Office.
It would add a chapter in the V.I. Code enacting the Virgin Islands International Insurers Act.
The bill also would repeal Act 7025, passed in 2008, which provided for the establishment, operation and management of captive insurance and reinsurance companies.
David Bornn, an attorney familiar with the captive insurance industry, said the 1984 legislation was substantially amended in 1993 and was again amended in 2008 by Act 7025.
"This revision created an effectively unworkable set of provisions that brought captive generation activity to a halt but for the flexible regulation of Director McDonald," Bornn said.
Sen. Judi Buckley asked how a piece of legislation so bad could have passed the Senate.
Bornn and McDonald said it was drafted by a consultant from outside the territory, and despite objections by the local industry experts, senators pushed it through.
The current bill would restore the territory's captive insurance program to an updated version of the 1993 legislation, Bornn said.
Under the proposed legislation, a captive insurance company would have to pay the V.I. government a $5,000 application fee and a $2,000 to $10,000 licensing fee - money that goes straight into the government's coffers.
"This legislation seeks to put us into the game as a 'niche jurisdiction,' whereby we utilize our status as being under the U.S. flag 'onshore,' treated as a 'state' for various insurance programs, and yet 'offshore' as not fully within the U.S. for operating purposes and able to give territorial tax benefits," Bornn said.
The committee lost its quorum and could not take action on the bill Friday.
- Contact reporter Aldeth Lewin at 714-9111 or email email@example.com.