Magazine article Risk Management

Captives in Panama

Magazine article Risk Management

Captives in Panama

Article excerpt

For most of this century, Panama has been a country whose small size contrasted with its strategic importance. The famed Panama Canal connected the Atlantic and Pacific oceans, completely altering global shipping routes. Now, as the century draws to a close, Panama is again looking to have an impact, in a perhaps less wide-ranging, but still important way.

On July 29, 1996, the country passed it's captive law, making it the first primarily Spanish-speaking domicile in the world. In June of this year, insurance and risk management professionals from throughout Central America gathered in Panama City for the First Latin American Captive Forum, to jointly assess the state of the domicile and captives in general throughout the world. It was a good opportunity to hear some of the experts in the captive arena discussing the latest trends.

Hugh Rosenbaum of Tillinghast-TowersPerrin gave an in-depth status report on the industry, making the now common observation that, despite a soft market, captives are still experiencing a growth that started twenty years ago. Within that growth, there are some new developments. Classic captives are declining, while nontraditional forms are becoming more widespread, particularly rent-a-captives (also known as protected cells or segregated portfolio companies, depending on the domicile).

Rosenbaum had some advice, and some warnings, for potential captive owners. "The regulatory reaction to captives is still adverse, still a threat," he said. "We need some regulation, but currently the atmosphere is not good."

Particularly apt for a nascent domicile were Rosenbaum's comments concerning the overall image of captives. "The worst thing for captives," he said, "would be a bad reputation. Some have dishonorably left reinsurers with unsettled debt." Rosenbaum suggests that captive administration be as streamlined as possible to avoid unnecessary delays in response to crises.

Another trend, captives seeking ratings from agency's such as A.M. Best and Moody's, is an excellent way to help burnish the captive reputation. Even though it is too early for most captives to receive a rating, starting the process is seen as a positive step.

Captive Benefits

As one might expect in a conference devoted to the subject, lists of captive advantages abounded. Several speakers noted the reduction in costs, investment income, access to reinsurance, avoidance of taxes, and coverage of risks for which traditional insurance is unavailable. …

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