The current economic climate has rendered even the largest companies cost conscious.  Several leading industry players have looked to Cyprus for captive insurance solutions as cost-effective methods for managing risks inherent in their business and their subsidiaries and finance retained losses in a formal structure.
Cyprus has established itself as a front-runner in captive insurance business ("Captives") through the establishment of a robust regulatory framework that combines tax efficiency with controlled foreign company legislation requirements and a comparatively low cost base in the EU.

Licensing Framework

The regulatory body is CySEC, our single regulator for financial services, responsible for the licensing, regulation and supervision of insurance companies and intermediaries.
Insurance Business in Cyprus is regulated under the Insurance Services and Other Issues Law, which provides for the authorisation and supervision of insurance companies and CySEC is the competent authority for the purposes of the Rules.

Insurance Business

Cyprus’s insurance legislation provides opportunities for captive insurance business and related activities such as:

• Insurance Management Companies;
• Regional Operations for Insurers;
• Protected Cell Companies;
• Reinsurance;
• Insurance Brokers.

Requirements for a Captive Insurance

CySEC is dedicated to process the application for the licensing of a captive within a statutory period of three (3) months provided the following conditions are met:

1. An application is filed in writing in the prescribed form;
2. Sufficient information is made available on persons having any proprietary, financial or other interest in, or in connection with, the company – All qualifying shareholders, controllers, and all persons who will effectively direct the business of insurance are fit and proper to ensure the company’s sound and prudent management;
3. The company has appropriate own funds for the type of business to be carried on or being carried on by the company;
4. The company’s objects are limited to business of affiliated insurance and operations arising directly therefrom to the exclusion of other commercial business;
5. A scheme of operations has been submitted in accordance with the relevant insurance rules.

Minimum Guarantee Fund

Captive insurance companies are required to possess own funds. This minimum guarantee fund depends on the type of insurance business (long-term or general business insurance) and the risk insured.

Equalisation Reserves

Every company authorised to carry on general business of a prescribed description must maintain an equalisation reserve in respect of its general business of that description.
The Equalisation Reserve is calculated by transferring a percentage of the net premiums at the end of each financial year. This percentage of net premiums varies in accordance with the business group up to a maximum of 75% of net premiums.
Captives carrying on general business of a prescribed nature are required to maintain an equalisation reserve and shall only be exempted if -
Their head office is situated outside Cyprus; or
less than 4% of net premiums written in that financial year in respect of all its general business and less than €2,500,000, and the insurer has no equalisation reserve to be brought forward from the previous financial year.
However, since technical provisions and equalisation reserves are allowed as a deduction in the computation of taxable income, Captives carrying on reinsurance business may still elect to hold an equalisation reserve if its business is less than the aforementioned thresholds.

Solvency Margins

Every insurer must maintain a margin of solvency which shall be calculated specifically with respect to long-term and general business and shall vary in accordance to each risk and business class insured.

Technical Provisions

A Captive must establish and maintain adequate technical provisions, in respect of the business it is authorised to carry. These technical provisions must be set aside by the insurer to meet its liabilities under or in connection with contracts of insurance.
The assets covering the technical provisions shall take account of the business and the classes of the business carried on by a company in such a way as to secure the safety, yield and marketability of its investments and shall remain unencumbered at all times.

Investment Requirements

Captives are required to cover their technical assets and margins of solvency requirements by admissible assets. To ensure safety, yield and marketability of the assets the company must diversify its investments and spread these out as laid down in the law.

Re-domiciliation

Cyprus’s re-domiciliation regulations enable captives operating in other jurisdictions to carry out any insurance business in Cyprus subject to the authorisation of CySEC. Such authorisation shall be granted if such body corporate:

• Originates from an approved jurisdiction;
• Approves such continuance by a corporate decision which is valid under the laws of its country of origin and that would be equivalent to an extraordinary resolution under Cypriot Law.

Upon acceptance and registration and CySEC authorisation such company shall cease to be a body corporate under its previous jurisdiction and shall continue its corporate existence under the laws of Cyprus. The company will retain its assets, rights and liabilities as a company otherwise formed and registered under the Cyprus Companies act and authorised under Cypriot insurance legislation.

[Redomiciliation of Companies]

Fiscal Benefits

Like all companies resident in Cyprus, Captives would be subject to income tax on company profits at a rate of 12.5%. However, this is subject to Cyprus’s tax system, wherein tax paid by a company in Cyprus is, on the distribution of a final dividends, imputed to the shareholder as a tax credit against the shareholders’ tax liability. 

This renders Cypriot companies highly efficient tax vehicles.