Bipin Ragoo, of Swan Re, analyses the rising advantages of Mauritius as a captive jurisdiction.
Mauritius is fast developing as a vibrant International finance centre, with captive insurance as one key pillar. The captive segment comes in the form of protected cell companies (PCCs) and conventional captive insurance companies. Mauritius enjoys one of the highest insurance penetration ratios in Africa and is well placed to further develop the insurance sector. The industry is regulated by the Financial Services Commission, Mauritius (the FSC). The FSC administers a raft of fine pieces of primary legislation and rules to regulate all non-banking financial services as well as global businesses. The relevant enabling acts for the captive insurance sector are the Insurance Act 2005, the Protected Cell Companies Act 1999 and the Captive Insurance Act 2015.
Lately, Mauritius has institutionalised a considerable number of measures to keep abreast of the OECD’s Base Erosion and Profit Shifting (Beps) recommendation for substance, especially in a vivid jurisdiction like ours. The call for substance has been at the heart of the recent budget presentation, and the FSC is charged to work closely with the OECD to host a regional centre for capacity building and best practices.
Insurance act 2005
This is a comprehensive act for the industry as a whole, including PCCs set up for insurance purposes. A PCC can seek licensing from the FSC under the Act as a professional reinsurer, for example. The minimum capital applicable is MUR25m (approximately $750,000). The Act also defines the categories of insurance business, being long term and short term, and a PCC can have a composite licence. The PCC is required under s.40 of Insurance Act to appoint auditors and an actuary. The FSC developed the Insurance (Returns) Rules 2007, which prescribe the form in which a PCC should file its accounts and statutory returns.
The Act applies to conventional captives in a limited way, for example through provisions relating to transfer and amalgamation as well as insolvency and winding up. Insurance managers, which can act as captive managers, are also licensed in terms of the Act.
Insurance (General Insurance Business Solvency) Rules 2007
These were issued under the Insurance Act 2005 to create a risk-based solvency regime for all general insurance entities. The rules apply to protected cells. Captive insurance companies are, however, subject to separate rules, as explained later.
The Minimum Capital Required (MCR) must be sufficient to meet five sources of risk, viz.:
The solvency margin has to be at least 100% of the MCR. However, for an added buffer, the ratio of capital available to MCR should always be at least 150%.
Captive insurance act 2015
This modern act established the framework for the licensing, regulation and supervision of captive insurance business. Before it, the Insurance Act 2005 applied to captive insurance arrangements, but without specificities. Therefore the enactment signified a seminal step in the development of Mauritius into a reputable captive jurisdiction.
Each captive has to be licensed in terms of the Act by the FSC. For good order, every captive is required to have an agent who files the application and interfaces with the FSC on all matters relating to the captive, including the captive’s reporting requirements.
A captive insurer should maintain a registered address in Mauritius and have a board of at least 3 directors, one of whom must be a resident in Mauritius. The resident directorship can be fulfilled by the captive’s agent. Board meetings have to be conducted in Mauritius at the registered address, with the resident director in attendance.
Documents/information required in applying for creation of a captive are: business plan, cover specifics (type of policy, limits and reinsurance), liquidity management, projected financials and investment strategies, suitability of agent, insured’s loss mitigation measures and KYC information.
Annual filings of the captive consist of audited financials, solvency report and management report on underwriting, reinsurance and investment matters. Newly formed captives enjoy a tax holiday until 16 December 2025.
Captive Insurance (Pure Captive Insurance Business) Rules 2016
These rules only provide for pure captives. The FSC circulated draft rules that will provide for the full ambit of captives, including third party captives.
A pure captive cannot write long-term insurances. It is expected to have a minimum unimpaired paid-up capital of MUR3m (approx. 90,000).
The MCR comprises of asset capital and underwriting capital. The asset capital aggregates the capital charges applied to the assets chosen by the captive. The margins range from 0% (for cash) to 100% for intangible assets. Underwriting capital is calculated as 10% of the higher of net written/earned premium and net outstanding losses (incl. IBNR). As a guide, allowable reinsurance is that done with a reinsurer rated at least BBB (S&P) or B- (AM Best).
Similarly, the captive must appoint (subject to FSC approval) an auditor and an actuary, whose independence, qualifications, resources and experience are underlined in the rules.
The prescriptions in the Captive Insurance Act 2015 are designed to create a robust insurance vehicle not malleable to abuse by any stakeholder.
Insurance (Risk Management) Rules 2016
The enabling primary legislation is the Insurance Act 2005. The rules apply to protected cell companies. The rules require licensees to set up and maintain proper risk management structures, including a Risk Management Framework (RMF) and annual reporting requirements. The RMF should enable the company to develop and implement strategies, policies, procedures and controls to manage the full breadth of risks expected to be faced by players in the industry. The rules enumerate, in the schedule, ten (10) types of risks to be managed. These are business continuity, capital, credit, group affiliation, insurance, investment, liquidity, operational, outsourcing and reinsurance. Another key requirement is for licensees to appoint a risk officer, to be approved by the FSC Mauritius, with a direct reporting line to the company’s board, thus raising the risk management function to a strategic level.
The rules do not apply to captives created under the Captive Insurance Act 2015. Instead, s.10(1)(b) of the act requires captives to establish adequate internal controls and adopt strategies, policies, processes and procedures in accordance with principles of sound corporate governance and risk management.
Financial services (Consolidated Licensing and Fees) Rules 2008 as read with Amendment Rules 2017
These rules apply to protected cell companies and provide for the different licenses available and the corresponding processing and periodic fees. The fees for protected cell companies engaging in insurance/reinsurance are as per the table in the PDF below. Further, insurance managers, which can act as captive insurance agents, incur a processing fee of $1,000 and a fixed annual fee of $1,500.