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Until now only a small amount of insurance business - captive, reinsurance or life - has been based in Jersey. But there is an increasing awareness that the island has much to offer the insurance market and insurance companies are showing a growing interest in using it.
Why has so little insurance business been based in Jersey until recently? Prior to 1983, a restriction in Jersey's Companies Laws made it illegal for a Jersey company to undertake insurance business. This changed with the introduction of the Insurance Business (Jersey) Law 1983, which allowed Jersey registered companies to undertake certain restricted types of insurance business, mainly captive insurance and reinsurance.
However, nearly 10 years passed before companies began to take advantage of the opportunities provided by the Insurance Business Law, mainly because in the 1980s the island's finance industry concentrated on the growth of existing business areas and so no resources were available to develop new areas of business.
That is now changing. During the past three years, nine permits have been issued under the Insurance Business Law, five relating to captive insurance companies and four to reinsurance companies. There are a number of reasons why Jersey has now been recognised as a credible insurance centre.
It has already established its credentials as a world class financial centre. But a large number of the world's top companies have established links for other purposes - perhaps a subsidiary incorporated in Jersey for group finance or trading purposes - and for them it makes sense to maintain existing links with Jersey when they consider setting up a captive insurance subsidiary.
In addition, a number of the world's top insurance risk managers have now set up subsidiaries in Jersey. These risk managers are often well-placed to determine the location for establishing and managing a captive insurance subsidiary.
Another reason for the island's increased status in insurance is that its Insurance Business Law allows the insurance regulator to adopt a more flexible approach to capital requirements and insolvency ratios for captive insurance companies than is permitted in other jurisdictions so the needs and circumstances of each case can be taken into account.
In addition, an important aspect of captive insurance management is the availability of sophisticated banking and fund management services. These are available in abundance in Jersey, to the extent that captive insurance companies and captive managers from other jurisdictions make extensive use of its banking and fund management services.
In a move designed to further enhance Jersey's attractiveness as a base for insurance business, a new Insurance Business Law has been adopted and is expected to come into force later this year. This will broaden the range of insurance business permitted; for example, it will allow partnerships to own a captive and will permit insurance companies to write third party business.
Captive insurance - where an insurance company only insures the risks of its owners and associates, generally the risks of its parent company and its subsidiaries - is a particular area of business which may develop in Jersey.
For a long time, captive insurance has been seen as a business primarily undertaken in offshore centres and it is estimated annual premiums received by offshore captive insurance companies amount to US$20 billion and the assets of those companies exceed US$50 billion.
Most of the UK's top 100 companies now have their own captive insurance company and an increasing number of large European companies are aware of the advantages to be gained from having a captive.
Any proposal to incorporate a captive should be discussed in advance with Jersey's Financial Services Department. It is a policy to grant insurance permits only to companies that are subsidiaries of major corporations with a good reputation.
The initial capital of a Jersey captive must be at least £100,000 and the insurance regulator in the Financial Services Department will want to ensure the proposed capital will be sufficient to support the company for the first three years. Capital Duty on the share capital is calculated at 0.5 per cent of authorised capital but is limited to £2,500 in aggregate.
Jersey incorporated captive and reinsurance companies can opt to be taxed in one of three ways. They can be totally exempt from tax by paying a flat duty of £500 per year; taxed as an international business company, where the rate will vary between 2 and 30 per cent depending upon what is classed as international business profits and what is classed as other income; or they can choose to be taxed at the standard rate of income tax, 20 per cent.
This choice of tax regime allows further flexibility for companies which use the island as a base for captive insurance business.
Jersey has a long way to go before it can compete with other major offshore insurance centres. However, it has much to commend itself as an insurance centre and the island's well-established reputation in other sectors of the finance industry should help to develop what for Jersey is a new area of business. There is no expectation of a sudden rush of new insurance business to the island, but there is a belief that risk managers and others advising on establishing insurance vehicles now recognise Jersey as a centre which welcomes this business and has the capability to service it to a high standard.