Though the Bahamas is well established as one of the region's leading offshore financial centres and has an active domestic financial services industry, the insurance sector has lagged behind somewhat, a situation that may soon change.
The insurance industry in the Bahamas is divided into the domestic and the captive segments, operating independent of each other and each governed under its own act of parliament.
Currently, there are around 50 companies active in the domestic insurance sector, which is controlled by the Domestic Insurance Act of 1969 and regulated by the Office of the Registrar of Insurance Companies (ORIC), currently part of the Ministry of Finance.
Premium income of companies operating in the domestic property and casualty market stood at around $300m, while life and health insurance generated premium-based income of a similar level, according to a report carried by the local press in mid-2007. This represented a major source of revenue for the local component of the financial services sector.
The state is also active in the sector through the National Insurance Board (NIB), responsible for operating the country's social security programme, which includes a range of support services funded by mandatory employee and employer contributions.
The second segment is captive insurance, which represents foreign firms that insure and reinsure the risks of subsidiaries and affiliated units through a company established for that purpose in the Bahamas. The segment is currently governed by the Bahamas External Insurance Act of 1983, which allows for the registration of companies that only insure risks and retain premiums generated from outside the Bahamas.
Though an early entrant to the industry, the Bahamas plays a limited role in the international captive insurance sector. In recent years it has been overshadowed regionally by Bermuda and Barbados, which have been active in promoting themselves in the offshore insurance sector, though proposed amendments to laws could see the Bahamas increasing its position.
Plans have indeed been in the pipeline for some time to overhaul the legislative and regulatory framework for both the domestic and captive insurance segments. The government of Prime Minister Hubert Alexander Ingraham, which took office in May 2007, has committed to pursue the re-establishment of a captive insurance industry through a programme of reforms. These changes are expected to be ratified by the end of this year.
If approved, the proposed amendments to the current legislation will result in an increase of capital and solvency requirements, expanding the regulatory framework, and the supervision of insurance intermediaries.
One of the planned changes consists in replacing the ORIC with a new body that would have a supervisory role in the insurance sector similar to that of the Central Bank over the banking industry. The proposed body will have greater power to regulate the sector but will also be given full responsibility for registering new local and foreign entrants to the industry, thus streamlining the approvals process.
The Bahamas Financial Services Board (BFSB) sees great potential for expansion in the captive insurance market. According to a report released by the BFSB in January, captive insurance has until recently been the exclusive domain of large corporations and little use has been made of captives in private wealth management or by small- to medium-sized businesses.
"This is now changing and, increasingly, we are seeing captives incorporated as an integral part of wealth management structures," the report said.
According to Wendy Warren, the chief executive officer of the BFSB, the proposed changes to the legislation and regulations governing the domestic and external insurance industries herald a new beginning.
"Together they signify our seriousness in the re-launch of international insurance services from the Bahamas," Warren told the local press earlier this month.
While the government and the industry itself hope the changes to the legislation will serve to strengthen the regulatory environment and attract more entrants to the captive segment, a report issued last year identified a number of potential obstacles to both objectives.
The Caribbean Insurance Report 2008, prepared by Ireland-based firm Research and Markets, stated that while the Bahamas could develop into a rival to Barbados in the offshore insurance sector, several countries outside the Caribbean as well as nearby Bermuda are already much longer established and much larger as offshore insurance centres.
The report also said that aspects of the insurance sector that have the greatest potential, such as offshore life and offshore captive insurance, depend on the maintenance of double taxation treaties with the major economies and the continued acceptance of these economies towards offshore centres.
With the bolstering of the regulatory framework well underway and its close proximity to the North, Central and Latin American markets, the Bahamas is well positioned to grab a greater slice of the offshore insurance segment and strengthen the local industry as well.