The Canadian

Market Explored

Paul Arbo, CPA, CA, ACIBDO Cayman Islands

Partner

Stephen B. White, CPA, CA

Kane GroupBusiness Development Director

Canadian Captive Historical Overview

Starting in late 1980’s the Canada-Barbados drove significant business to Barbados including captives, IBC’s and offshore banks.

There have been several changes over the past 25 years but the benefits of using Barbados as a domicile have largely remained unchanged.

1995 brought changes to third party unrelated business such as extended warranty business and creditor life.

During the early 2000’s there was great debate on if a zero tax rate was indeed a true tax rate.

Canadian Captive Historical Overview

Most Canadian owned captives ended up in Barbados from large multinationals to smaller ones

In rare circumstances did a Canadian-owned captive locate in any other domicile

• Only around 20 captives domiciled in British Columbia (BC) today – mainly BC risks• BC has had captive legislation in place since 1988• Bermuda currently the second largest domicile for Canadian captives

There have been several captives leaving Barbados for other locations in more recent years

Canadian Captive Historical Overview

Use of captive insurance vehicles by Canadian companies historically the domain of large multi-national oil & gas and mining companies, etc.

Mid-sized and even smaller entities now exploring captive insurance options

Now over 250 Canadian-owned captives globally. New captive formations include:

• Resources / commodities sectors • Oil & gas, mining, agriculture • Group / association captives • Reciprocals / pools

Canadian Market Compared to US

Very different market vs. the United States• Litigation environment• Health care legislation• Sheer number of multi-nationals• Traditional insurance market• Workers’ compensation regime

• Cost/benefit case a tougher one to make in Canada, generally, and• Smaller population of larger companies/entities

... Group captive structures may be more suitable/feasible

Canadian Activity in Cayman

• There are now approximately 10-15 Canadian owned captives in Cayman

• Most are either group or owned by owner-managed companies

• Retail and investment banking arms of RBC, Scotia and CIBC

• Various mid-tier investment management business have a presence

• Holdco structures for non-Canadian investments• Private wealth management structures such as trusts• Tourism• “Transplanted” Canadians hold senior roles in many

financial services firms• Provides a certain comfort level in terms of professional

approach and relationships

Recent Developments In Canada

There are relatively few large risk managed companies that either do not have a captive or have decided that they do not need one

Today there is greater activity in the:• “Middle” market• Privately owned company space• Group captive space• Mid-tier brokerage firms are offering more risk

management advice

TIEA between Cayman and Canada has increased opportunities

TIEA – An Opportunity

On June 1, 2011 Cayman entered into a TIEA with Canada which changed the competitive landscape

Cayman domiciled captives now subject to effectively the same tax benefits that Barbados has enjoyed

A Tax Information Exchange Agreement is:

• designed to fight tax evasion,

• a bilateral agreement,

• designed to aid in the exchanging of tax information.

TIEA – An Opportunity

The OECD introduced them in the late 1990’s to promote international co-operation in tax matters by exchanging relevant information to combat the

lack of transparency and co-operation between countries.

Cayman currently has 30 TIEA’s in force.

There are discussion on what is better, a TIEA or a tax treaty.

TIEA – Its Impact

The TIEA effectively generates income in a captive free from Canadian tax when earned and when paid.

Exempt income is earned as opposed to FAPI (Foreign Accrual Property Income)

Qualifying income must be generated from an affiliate outside of Canada and resident in a treaty or TIEA country.

There are approximately 90 countries with tax treaties with Canada.

There are 16 countries with TIEA’s with Canada and 14 more are pending.

How to attract Canadian Business

Educate, Educate, Educate

Promoting the quality of the regulations, service providers and regulators

• Put our people front and center• Profile-building

Promote the long history of the Cayman insurance industry

Market Cayman to the brokers, lawyers, bankers and insurance companies who can influence the decision makers

• “Grass roots” initiative• Get our people in front of the right people

How to attract Canadian Business

Remain persistent in our marketing efforts

Show more of a concerted effort:

• “IMAC/private” partnership approach to Canadian conferences• More marketing collateral and thought leadership specific to the Canadian market• Better knowledge sharing amongst Cayman service providers in terms of Canadian producers/referral sources

Cayman not just “open for business”... must do a proper sell job (i.e. when &

why are we the better choice).

Expected Activity In 2015

• Cayman will be considered as a leading domicile choice by new Canadian captive owners

• Cayman will be considered as a potential new domicile for existing Barbados-domiciled captives

• New business will be slow to come as Cayman has to continue to market itself – “long play”

• Cayman must innovate to find ways to fund marketing budget / “stretch” what dollars are available

Questions?