Title Slide Second Header Bermuda as a Domicile for Latin American Captives

Title SlideSecond Header

Bermuda as a Domicile for Latin American Captives

Introductions

Speakers:

• Federico Candiolo, Counsel at Attride-Stirling & Woloniecki

• Eduardo Fox, Appleby

• Tommaso Mascarucci, President Black Gold Re Limited

Moderator:

• Steve Arrowsmith, JLT Insurance Management


Captive Insurance Companies: the LatAm marketFederico CandioloCounselAttride-Stirling & Woloniecki

– Why should LatAm multinationals consider forming a captive in Bermuda?

• Prudent and flexible regulation• Speed to market• Pre-eminent captive domicile• Access to the Bermuda reinsurance market• World class infrastructure• Compliant with OECD recommendations• Intellectual capital

Captive formation process

– The path to Licensing

• Commission feasibility report• Consider onshore law issues and fronting arrangements• Select service provider team• Apply to incorporate the company• Apply to license the company• Incorporate, organise and capitalise• Registration as an insurer/reinsurer

– Legislative Developments: Companies Amendment (No 2) Act 2011 et al.


– Choosing the team

• Insurance manager to manage the captive and principal representative

• Auditors• Lawyers and corporate administrators• Actuary if required


– Captive formation

• Captive formation involves incorporation of a company under the Companies Act 1981 and registration under the Insurance Act 1978

• Quite distinct processes – possible to run both simultaneously or apply to incorporate ahead of licensing application


– Incorporation

• Application to incorporate company made on specific application form to Registrar of Companies and Bermuda Monetary Authority (“BMA”) Controller of Foreign Exchange – online application

• Details of proposed ownership structure in captive must be disclosed right through to ultimate beneficial owners. Special considerations concerning family owned groups of companies.


• BMA vets shareholders to make sure they are “fit and proper” persons - must also be approved as ‘shareholder controllers’ of insurance company

• Individuals owning more than 5% of voting equity of captive must also complete a personal declaration form

• Incorporation process is very streamlined and can have ‘same day’ approval

• Special considerations for family owned Groups


– Insurance application

• Application to register as an insurer must be made to the BMA Insurance Division

• Application made on a Monday of each week and considered at the weekly Friday meeting of the Assessment and Licensing Committee (“ALC”) of the BMA

• ALC may approve the application with or without conditions, approve it conditional upon production of certain information, defer it or decline it if business case cannot be substantiated


– Mechanics of insurance application

• Application will have cover letter from the captive’s attorneys together with the business plan for the captive setting out the business case for the captive

• Proforma financials should be included preferably over 5 year period and ideally actuarially evaluated to test adequacy of reserves, solvency margins and liquidity ratios

• Details of service providers should also be included (insurance manager, auditor, loss reserve specialist and principal representative)


– Business Plan

• Details of Shareholder

• Proposed insurance program

• Capitalisation of the company

• Directors

• Service Providers

• Reinsurance arrangements


– Steps to insurance registration

• Incorporation

• Organisation of company– Hold board and shareholder meetings to:

» issue shares» adopt bye-laws» appoint auditors and insurance manager

• Capitalise captive– Amount of capital will depend on class of insurer



Bermuda as a Domicile for Latin American Captives

Bermuda Tax Information Exchange Agreements (TIEAs) with Ibero America

Eduardo Fox

• To Promote international co-operation in tax matters through the exchange of information

TIEAs Purpose

How many TIEAs has Bermuda signed?

• Bermuda has signed 35 TIEAs as of May 2012.• Within that number, 3 have been signed with Ibero American

countries, namely, Mexico, Argentina and Portugal. • Bermuda has also signed treaties with other Euro-Latin

countries like France and Italy

Bermuda TIEAs

Are there any other Ibero American countries considered?

• Brazil and Spain amongst the most advanced in negotiations, but also all other major economies in the region, if required and/or necessary

Bermuda TIEAs

Full benefits of the TIEA

• Brazil and Spain amongst the most advanced in negotiations, but also all other major economies in the region, if required and/or necessary Bermuda will no longer be considered a “Preferential Tax Regime for the purposes of applicable withholding tax under the Mexican Income Tax laws

• Revenue from transactions and other payments made from persons or entities, deemed resident in Mexico, to related entities based in or carrying on business from Bermuda, shall no longer be subject to a withholding tax rate of 40%, and shall instead be subject to standard rates set our in the applicable sections of the Mexican Income Tax Laws; and

Mexico / Bermuda TIEA

• Mexican taxpayers who generate income of ANY KIND derived from interests in Bermuda, will no longer be required to file an Annual Informative Declaration in relation to such income generated or to be generated during applicable tax periods

Mexico / Bermuda TIEA


Bermuda as a Domicile for Latin American CaptivesEcopetrol S.A. / Black Gold Re LimitedA case study by Tommaso Mascarucci

Black Gold Re – History

• Since 2003 we identified that risk financing strategy should be optimized, finding that the constitution of captive was a tool widely used by companies in the sector world-wide.

• At that time, benchmark with several companies that had captives (PDVSA, PEMEX, BP, and Carvajal) were made to learn of their experience.

• An internal pre-feasibility study was made, results were presented to the Board of Directors of Ecopetrol S.A. in September 2005.

• Following additional internal Legal, Treasury and Accounting considerations, it was determined that it was viable to constitute a captive.

• Ecopetrol S.A. Board of Directors considered it advisable to engage an expert consultant to perform a detailed captive feasibility study

Registered Office: Cannon’s Court – 22 Victoria StreetHamilton HM 12, Bermuda

Why was the Captive convenient for Ecopetrol S.A

• Provide direct access to the reinsurance market

• Mitigate impact of market cycles

• Promote the control and prevention of losses

• Ability to stabilize the cash flows of the company (increase retentions in periods of market hardening and to reduce them in periods of softening)

• Cover un-insurable risks and or design products that are not available in commercial markets

• Allow the design of individual strategies of deductible covers, terms and conditions in line with the requirements of each unit of Ecopetrol S.A.

• Reduce costs and generate income


Black Gold Re – Development Stages

Benchmarking process

Legal, Treasury and Accounting support

Internal pre-feasibility study

Buy In process with CEO and BD

RFP for Feasibility Study

RFP results to Board of Directors

Approval of incorporation process

Selection of advisors to implement incorporation

Proceed with incorporation process for the captive in Bermuda

Stage 1

Stage 2

Stage 3

Operational consolidation process

Stage 4


Feasibility Study

Strong business model

Legal

Financial

Operationalestructure

Domicile benchmark

How to run a Captive successfully …



Design your strategy

“strong busines Plan”

Right Domicile

World ClassService providers

Management control system

Managementvisits to domicile


PeruBrazil

U.S.

Colombia

Bermuda

• Reputation• Regulatory framework• Financial services• Insurance/reinsurance services• Tax regulation

World Class

Service provider

• Captive Managers•Legal Council/Secretarial services

•Auditors•Reinsurers•Actuaries•Brokers

Right Domicile


Design your strategy“strong busines

Plan”

• Risk profile• Operation scheme• Premium Drivers • Profit Center vs Cost

center• Forecast model• Strategir review process


INSURANCE COMPANY

REINSURER

RISK GROUP

Loss Payments

Premiums Reinsurance contract

Master Slip and cover notes

Master

slip

Accept and cede % of risk from Company and premium payment to Broker

Insured Risks

REINSURANCEBROKER

Insurance Policy

Premium

CAPTIVE

Local / International Insurance programs

Placement cover notes

TRANSPARENCY CONTROL PERFORMANCE

Management control system



CAPTIVE MANAGER

BOARD OF DIRECTORS• COMMITTEES

SERVICEPROVIDERS

Black Gold Re – Why Bermuda• High reputation within insurance and

reinsurance market

• Considered favourably by the OECD

• Transparency and regulatory stability

• largest captive domicile in the world (17% of the total number of captives 5.524)

• Facility for the intergovernmental exchange of information

• Oil& Gas Captives(PEMEX, PDVSA, PETROBRA'S CHEVRON TEXACO, TOTALFINA, CONOCO-PHILLIPS, SHELL, REPSOL-YPF,)

• Presence of multiple companies that offer products and services of insurances and reinsurance

Bermuda

Cayman

Vermont

Guernsey

Anguilla

Luxembourg

Barbados

BVI

Turks & Caicos

Other

2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

1000

2000

3000

4000

5000

6000

4000 4240 4480 4720 4800 4960 5100 5200 5390 5587

# of Capt.Registered Office: Cannon’s Court – 22 Victoria StreetHamilton HM 12, Bermuda

• Retaining more risk now with greater capital base• Maintain international rating rate levels given by Fitch and Moody’s • Redesigned entire Ecopetrol placement utilizing Black Gold Re• Strengthen rigorous and comprehensive governance structure in line with

Ecopetrol standards and Code of Conduct• Synchronize budget with annual strategic review process business plan

Black Gold Re – What´s Next?


Documents

Title Slide Second Header Bermuda as a Domicile for Latin American Captives