Maintaining your Barbados captive . . . Capitalization, Solvency and Filing requirements.

So you have incorporated a Barbados company, obtained an Exempt Insurance license from the supervisor of Insurance, appointed a local management company, and you are ready to insure all the risks of your parent company in Canada, and then you wonder . . what next?

This article briefly outlines the capital, solvency and filing requirements of an exempt insurance companyto ensure that your new captive remains in good standing with the Barbadian regulators while maintaining the benefits of the low tax provisions of the Barbados/Canada tax treaty.

Capitalization

Under the Exempt Insurance Act (“the Act”), the Company is required to maintain a minimum paid up capital of BDS$250,000. While letters of Credit are acceptable as part of the capitalization, the first BDS$250,000 must be in cash. One of the consequences of this provision is that the company cannot pay dividends beyond an amount such that capital would be reduced below the required minimum.

Solvency

After the company has had a successful first year of operations, additional surplus may be required based on the amount and type of business written. For general insurance business, the value of assets must exceed liabilities by BDS$250,000 during the first year, and also in subsequent years if annual premium income does not exceed BDS$1,500,000. Otherwise, after the first year, the solvency margin is 20% of annual premium income on the first BDS$10,000,000; and 10% thereafter. All calculations are based on the net earned premium income of the preceding financial year. A company carrying on long-term insurance business is unable to pay its debts and is therefore deemed insolvent if the value of its assets does not exceed its liabilities.

In computing a company’s liabilities for the purposes of the Act, all contingent and prospective liabilities, other than liabilities in respect of share capital or contributed reserves, are to be taken into account.

Admitted assets for the purpose of solvency compliance other than the usual suspects such as cash and bonds, includenet investment income due and accrued; premiums receivable; irrevocable letters of credit drawn or confirmed by a bank licensed in Barbados, and deferred acquisition costs.From a regulatory standpoint it is important for the regulators to ensure that the level of capitalization is suitable, relative to the net written premium and exposure levels attributed to the company

Filing requirements

All Exempt Insurance companies are required to file:

  • one copy of its audited financial statements;
  • a Certificate of Solvency

with the Supervisor of Insurance; and

  • one copy of its audited financial statements

with the Commissioner of Inland Revenue within six months of the company’s year end. The audited financialstatements must be prepared in accordance with Generally Accepted Accounting Practices (GAAP), and the Certificate of Solvency must be prepared by an auditor and certify that the company has complied with the solvency criteria as outlined above.

If the company has outstanding claims that exceed 200% of its capital and surplus accounts, the Supervisor of Insurance will require an annual review of the claims by an Actuary approved by the Office of the Supervisor of Insurance

Licence Fees

The annual license fee for an Exempt Insurance Company is the equivalent of BDS$5000 and is due by February 28th each year. The penalty for non payment by the due date is double the fee payable.

So, with the island’s modest base capitalization, straightforward solvency requirements and simplified regulatory filings, Canadian businesses should feel a sense of comfort using Barbados as their offshore captive, and financial services domicile. It is also very important when selecting a captive domicile that you obtain the required legal and technical expertise to ensure that the captive is properly structured and is not treated as a purely accounting transaction. The law firm David King & Co., is a full service entity offering company incorporation, administration and maintenance through itswholly owned subsidiary, Corporate Managers (Barbados) Ltd. Over its 20 year history, Corporate Managers has earned the trust and loyalty of clients throughout the world by providing professional services in connection with the establishment of corporate structures including IBCs, Exempt Insurance, and Qualified Insurance Companies. We can be contacted through our website:

Heather Tull

Attorney at Law

David King & Co.,

Belleville Corporate Centre

#38 Pine Road,

Belleville St Michael

Barbados

Email:

Tel: 1(246)427 3174

1(246)426 9246

Fax: 1(246) 436 9541

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