Why your business might need a captive insurer (and why Mauritius could be its new home)

What is a captive insurance company?

A captive insurance company is a corporation whose primary purpose is to insure the risks of its parent and affiliated companies. Captives are typically used as a tool for risk management in order for companies to reduce their costs pertaining to insurance, as they essentially work as a form of self-insurance whereby the insurer is owned by the insured. The captive would be a wholly owned subsidiary, providing insurance to its non-insurance parent company, or companies.

Why should I use one?

There are various benefits to using a captive. Generally, captives are used in order to give companies some financial control and to manage their risks, which is done by underwriting their own insurance instead of paying instalments to third-party insurers. Other benefits include a reduction of costs, better cash flow, access to the reinsurance market, diversification, tailor-made insurance policies and tax advantages.

There are different categories of captive insurance businesses, namely pure captive insurance, class 1 third party captive insurance, class 2 third party captive insurance and multi-owner pure captive insurance.

Where should I set one up?

Mauritius is well-established as a favourable jurisdiction in which to set up a captive insurance company. The Captive Insurance Act of 2015 was enacted to establish Mauritius as a preferred destination for captive insurance companies. This legislation introduced a modernised regulatory framework aligned with global standards, designed to enhance Mauritius’s competitiveness and attract international pure captive insurers.

Beyond the enacted legislation allowing for ease of establishing and running captive insurance businesses, Mauritius is also a favourable jurisdiction in that it has been ranked first in Africa and 13th worldwide in respect of ease of doing business, has a skilled and bilingual workforce, a favourable time zone and no exchange control allowing for free repatriation of profits. The capital requirement for captive insurance companies in Mauritius is a risk-based requirement starting at a minimum MUR 3 million, roughly USD 70 000.

Mauritius further provides a favourable tax regime for captive insurance companies, namely an eight-year tax holiday from the date the company has started its activities.

Regulatory compliance for captive insurers in Mauritius includes several key requirements:

1. Appointment of an agent: Each captive must designate an agent responsible for filing applications and liaising with the Financial Services Commission (FSC) on all captive-related matters, including fulfilling reporting obligations.
2. Local presence: Captives are required to maintain a registered address in Mauritius.
3. Board composition: A minimum of three directors must serve on the board, with at least one being a Mauritius resident. The captive’s agent can fulfil this resident directorship role.
4. Meeting protocols: Board meetings must be conducted at the registered Mauritius address, with the resident director in attendance.
5. Application documentation: When applying to establish a captive, the following information must be provided:
6. Comprehensive business plan;
7. Insurance coverage details (policy type, limits, and reinsurance arrangements);
8. Liquidity management strategy;
9. Financial projections and investment plans;
10. Agent’s qualifications and suitability;
11. Insured party’s risk mitigation measures; and
12. Know Your Customer (KYC) documentation.

The key take-away?

Captive insurance companies offer a strategic approach to risk management and financial control for businesses seeking alternatives to traditional insurance models. By establishing their own insurance subsidiaries, companies can tailor coverage to their specific needs, potentially reduce costs, and access additional benefits such as tax advantages and improved cash flow. Mauritius has emerged as a particularly attractive destination for setting up captive insurance companies, thanks to its progressive regulatory framework, business-friendly environment, and attractive tax incentives. With its strategic location, skilled workforce, and competitive capital requirements, Mauritius provides an ideal platform for businesses worldwide to explore the advantages of captive insurance. As the global risk landscape continues to evolve, captive insurance in Mauritius presents a compelling option for companies looking to optimise their risk management strategies and enhance their financial performance.

Meet the author

Kendra Saunders is an admitted attorney and senior international tax consultant at RvR, based in Cape Town. Contact Kendra at [email protected].