Bipin Ragoo, of Swan, discusses Mauritius’ viability as a domicile for captives.
“Mauritius has the ambition to become what Bermuda is to the US, what Luxemburg and Malta are to Europe, or even what Guernsey and Isle of Man are to the UK.”
During the past four decades, Mauritius has grown from an exclusively agro-economy to a broad based multi- industry economy, encompassing tourism, manufacturing and a full-fledged financial industry. Mauritius proudly claims a fairly long history in promoting captive insurance, dating back to 1999, and progressively cementing all the required ingredients to be counted among the leading captive domiciles in the world – the latest development being the enactment of the Captive Insurance Act in 2015.
Geographically, Mauritius is located in the middle of the Indian Ocean, some 2,000 kilometres from the east coast of Africa. Lately, the World Economic Forum – Africa Focus, reaffirmed Mauritius’ leading position among the African countries.
Given its proximity to the continent, Mauritius has the ambition to become what Bermuda is to the US, what Luxemburg and Malta are to Europe, or even what Guernsey and Isle of Man are to the UK.
The key criteria for choosing a captive domicile include a domicile’s experience, legal and regulatory framework, solvency and capital requirements, and any costs associated with domiciling a captive.
Let’s investigate those key criteria with a particular focus on Mauritius.
Ease of incorporation
While sufficiently thorough, the process for incorporating a captive is relatively simple. The main requirements are: - a business plan including three year financial forecast; - KYC documents for the shareholders up to the beneficial owners, and; - an actuarial report speaking to the solvency aspects, reinsurance suitability and certifying the existence of risk transfer, evidencing a true insurance product.
For ease of filing and standardising the process, the law requires that the application be done through a management company registered in Mauritius.
Recognition as an international captive domicile
Mauritius is acknowledged as a nascent jurisdiction for captives, very conveniently situated to be the natural choice for African captive owners. Stakeholders received with keen interest the developments that formalised the captive architecture lately, namely the Captive Insurance Act of 2015. Big captive names were associated with this development, and it was easy for the world to accept Mauritius in this privileged arena, given its credible track record as an international financial centre.
Mauritius, forming part of various regional blocs like SADC (Southern African Development Community) and COMESA (Common Market for Eastern and Southern Africa), stands a huge advantage in promoting the African continent as the immediate target market. Lately, the World Economic Forum on Africa, held in Durban earlier in May 2017, confirmed Mauritius as the forerunner in its global competitiveness index. The ‘Mo Ibrahim’ index as well as the ‘Ease of Doing Business’ index are testimonies to our healthy and internationally-comparable jurisdiction.
Of late, Mauritius has been discussed thoroughly in many captive insurance forums, not least due to the work of the Financial Services Promotion Agency, which promotes Mauritius as an internatioal financial centre. We also add the success of road shows, conducted at state level or privately, which contributed substantially to this recognition.
Mauritius possesses a vibrant financial services sector, with a contribution of 12.1% to the GDP in 2016. Financial intermediation, which includes banking, contributed 6.9%, while insurance and pensions weighed in with 3.2%. This insurance penetration level is 3rd in Africa, surpassed only by South Africa and Namibia.
Our local expertise also considers the dynamic workforce. The country has a healthy actuarial sector, which is a central component in captive development. Apart from the bilingual local workforce, there is a growing expatriate population, further bolstering skills and expertise on the island.
Legal & Regulatory Framework
Laws, Rules and Regulations
Mauritius cumulates a set of modern and business friendly legal frameworks, and encompasses the following as regards insurance and captive establishment: - Insurance Act 2005 - Captive Insurance Act 2015 - Protected Cell Companies Act 1999 - Insurance (general insurance business solvency) rules 2007 - Insurance (long-term insurance business solvency) rules 2007 - Captive Insurance (pure captive insurance business) Rules 2016 - Captive Insurance (captive insurance business) Rules (under consultation, to cater for third party captives) - Insurance (risk management) Rules 2016 - Code of Business Conduct
The risk-based solvency regime under the Insurance Act, as applied to protected cells, ensures that there is appropriately scaled down capital requirement for protected cell captives. Additionally, each captive should have a captive manager and a board of directors, one of whom has to be a resident in Mauritius. The captive manager can fulfil the role of the resident director.
Flexibility & Efficiency of Regulator
The sector is ably supervised and regulated by the Financial Services Commission, which is a member of the International Association of Insurance Supervisors (IAIS). Through this affiliation, all the core principles set out by the IAIS are closely followed and implemented in the conduct of insurance business.
It is also worth highlighting that the use of management companies, in the process of setting up and administering a captive, smoothens to a great extent the processes and reporting requirements
Auditors and actuaries are appointed, as per the Captive Insurance Act, to validate the results and practices before annual reports are filed. Under the PCC Act, it is a requirement that separate accounts are prepared for each cell under a PCC, guaranteeing the ring-fencing requirement for every singular cell.
As for pure captives, separate accounts for each class of business are filed, and the returns (along with audited financials) are prepared in a prescribed format, which makes compliance easier.
Solvency & Capital Requirements
Level of regulatory capital
The capital requirements are risk-based. There are separate regimes for pure captives and protected cells. Capital requirements are assessed at the level of retained risk, that is, net of acceptable reinsurance.
For PCCs, each cell must have a solvency ratio of at least 150% of the minimum capital required, based on its risk profile. The capital must cover policy liability risks as well as reinsurance, investment, liquidity and catastrophe risks. Reinsurance risk depends on the extent of reinsurance usage and the quality of securities (credit rating).
For pure captives, the solvency ratio is 100%, with a minimum of MUR 3m ($85,000), which is less onerous compared to other domiciles. Pure captives must have a combination of asset capital (to cover the risks associated with the balance sheet assets) and underwriting capital (to cover policy liabilities). Reinsurance with securities below AM Best B- (or equivalent) would not be considered for capital assessments.
The solvency regime is regulated through the Insurance (general insurance business solvency) Rules 2007 – for a protected cell that writes non-life insurance business; and Insurance (long-term insurance business solvency) Rules 2007 – for a protected cell that writes long term insurance business.
The Captive Insurance (pure captive insurance business) Rules 2016 set out the solvency requirements for pure captives.
Set up & Operating Costs There are no set up costs for a pure captive insurer. The annual fee payable to the regulator is $2,000, which only applies if the captive holds a Global Business Licence. For a protected cell captive, there is also no annual fee payable to the regulator. The annual fee is levied to the protected cell company housing the cells.
The management fees, either for captive managers or for protected cells, are a matter of commercial bargain, but generally lower than in most jurisdictions, as the cost build up in Mauritius is low.
Fiscal regime PCCs need to have a Global Business Licence, which entitles them to an 80% tax rebate off the 15% corporate tax, so that the effective tax is 3%. Pure captives enjoy a 10-year tax holiday for setting up in Mauritius. Additionally, no capital gains, withholding taxes on dividends, interest or royalties are levied on captives.
Mauritius has signed double tax avoidance treaties with no less than 43 countries.
Geographical Convenience Last, but not least, Mauritius’ geographical location means it can conveniently deal with clients in Africa, Europe and Asia, within the appropriate time zones.
The table in the document below summarises the position of Mauritius in comparison to other leading captive domiciles.